UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ____ to ____
Commission File Number:
(Exact name of registrant as specified in its charter)
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(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of common stock, par value $0.001, outstanding on October 26, 2022 was
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “contemplate,” “goals,” “will,” “would,” “could,” “should,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about our plans and ability to raise additional capital, including through equity offerings, debt financing, collaborations, strategic alliances, sales of assets, other merger and acquisition activities, or licensing arrangements; the impact of the ongoing COVID-19 pandemic; supply chain disruptions; the impact of inflation; consumer preferences; spending and debt levels; and the general economic and credit environment.
These forward-looking statements are only predictions and we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. You should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. We have included important factors in the cautionary statements included and in “Part I, Item 1A - Risk Factors” included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2022 that could cause actual future results or events to differ materially from the forward-looking statements that we make.
You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.
Twinlab Consolidated Holdings, Inc.
Form 10-Q
Twinlab Consolidated Holdings, Inc.
(amounts in thousands, except share and per share data)
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September 30, 2022 |
December 31, 2021 |
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ASSETS |
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Current assets: |
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Cash |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Other assets |
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Total assets |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Accounts payable |
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Accrued expenses and other current liabilities |
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Accrued interest |
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Notes payable and current portion of long-term debt |
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Total long-term liabilities |
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Total liabilities |
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Stockholders’ deficit: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ deficit |
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Total liabilities and stockholders' deficit |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
| 1 |
Twinlab Consolidated Holdings, Inc.
(amounts in thousands, except share and per share data)
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Three Months Ended |
Nine Months Ended September 30, |
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2022 |
2021 |
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2021 |
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Net sales |
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Cost of sales |
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Gross profit |
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(Loss) income from operations |
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Other income (expense): |
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Interest expense, net |
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Other income (expense) |
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Total other expense |
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(Loss) income before income taxes |
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Provision for income taxes |
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Total net (loss) income |
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Weighted average number of common shares outstanding - basic |
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Net (loss) income per common share - basic |
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Weighted average number of common shares outstanding - diluted |
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Net (loss) income per common share - diluted |
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(See Note 2 - Summary of Significant Accounting Policies) |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
Twinlab Consolidated Holdings, Inc.
(amounts in thousands, except share and per share data)
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Common Stock |
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Additional Paid-in |
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Stock Subscriptions |
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Treasury Stock |
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Accumulated |
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Amount |
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Capital |
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Receivable |
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Shares |
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Amount |
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Deficit |
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Total |
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Balance, December 31, 2020 |
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$ |
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Shares issued upon exercise of warrants |
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Net income |
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Balance, March 31, 2021 |
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Net income |
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- |
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- |
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| Balance, June 30, 2021 | $ | $ | $ | ( |
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| Net loss | - | - | ( |
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| Balance, September 30, 2021 | $ | $ | $ | ( |
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Balance, December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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- |
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- |
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| Balance, March 31, 2022 | ( |
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Net loss |
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| Balance, June 30, 2022 | $ | $ | $ | ( |
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| Net loss | - | - | ( |
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| Balance, September 30, 2022 | $ | $ | $ | ( |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
Twinlab Consolidated Holdings, Inc.
(amounts in thousands)
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Nine Months Ended |
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2022 |
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2021 |
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Cash flows from operating activities: |
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Net (loss) income |
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$ |
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$ |
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Adjustments to reconcile net (loss) income to net cash used in operating activities |
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Depreciation and amortization |
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Amortization of right-to-use assets |
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Amortization of debt discount |
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Recovery of obsolete inventories |
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Recovery of losses on accounts receivable |
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Forgiveness of PPP loan |
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Other non-cash items |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Other assets |
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Accounts payable |
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Lease liabilities |
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Accrued expenses and other current liabilities |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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Cash flows from financing activities: |
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Proceeds from the issuance of debt |
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Net borrowings from revolving credit facility |
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Net cash provided by financing activities |
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Net (decrease) increase in cash |
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Cash at the beginning of the period |
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Cash at the end of the period |
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$ |
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$ |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Cash paid for interest |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
Twinlab Consolidated Holdings, Inc.
(amounts in thousands, except share and per share amounts)
Note 1 – Nature of Business
Nature of Business
Twinlab Consolidated Holdings, Inc. (the “Company”, “Twinlab,” “we,” “our” and “us”) was incorporated on October 24, 2013 under the laws of the State of Nevada as Mirror Me, Inc. On August 7, 2014, we amended our articles of incorporation and changed our name to Twinlab Consolidated Holdings, Inc.
We are an integrated marketer, distributor, and retailer of branded nutritional supplements and other natural products sold to and through domestic health and natural food stores, mass market retailers, specialty store retailers, on-line retailers, and websites. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers.
Our products include vitamins, minerals, specialty supplements and sports nutrition products sold under the Twinlab® brand name, a market leader in the healthy aging and beauty from within categories sold under the Reserveage Nutrition and ResVitale® brand names; diet and energy products sold under the Metabolife® brand name; and a full line of herbal teas sold under the Alvita® brand name. To accommodate consumer preferences, our products come in various formulations and delivery forms, including capsules, tablets, softgels, chewables, liquids, sprays and powders. These products are sold primarily through health and natural food stores and on-line retailers, supermarkets, and mass-market retailers.
We also perform services between private label distributors and contract manufacturers under the NutraScience Labs (“NSL”) brand name. NSL facilitates the production of new supplements to market and reformulates existing products to include scientifically-backed ingredients. We provide our customers with numerous production services, including manufacturing, testing, label and packaging design, order fulfillment, and regulatory compliance.
NSL facilitates the contract manufacture of a variety of high-quality vitamin and supplement products, including but not limited to, immune support supplements, cognitive support products, prebiotics and probiotics, supplements for weight management, and sports nutrition supplements. Our role in the production of these products is to help our customers manufacture or reformulate dietary supplements for sale and distribution. We do this by working with contract manufacturers to build scientifically backed formulas for resale to our end customers. We also simplify the production process by providing quality control checks, storing inventory on site, labeling and designing finished products, and drop shipping finished products ready for sale to our end customers. We do not market these private label products, but rather sell the products to the customer, who is then responsible for the marketing, distribution, and sale to retailers or to their end customers.
Going Concern
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. As of September 30, 2022, we had an accumulated deficit of $
Because of our history of operating losses and significant interest expense on our debt, we have a working capital deficiency of $
Management is addressing operating issues through the following actions: focusing on growing the core business and brands; continuing emphasis on major customers and key products; reducing operating costs that include significant workforce and salary expense reduction and continuing to negotiate lower prices from major suppliers. We believe that we may need additional capital to execute our business plan. If additional funding is required, there can be no assurance that sources of funding will be available when needed on acceptable terms or at all. To meet capital requirements, the Company may consider selling certain assets or seeking financing through a combination of equity offerings, debt financing, collaborations, strategic alliances, merger and acquisition activities, and licensing agreements.
| 5 |
Note 2 – Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Except as described herein, there have been no changes in the Company’s significant accounting policies as described in Note 2, Summary of Significant Accounting Policies, within the “Notes to Consolidated Financial Statements” accompanying the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission (“SEC”) on March 29, 2022. These interim condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the periods presented. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q reflect adoption of these changes.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Significant management estimates include those with respect to returns and allowances, allowance for doubtful accounts, reserves for inventory obsolescence, the recoverability of long-lived assets, intangibles and goodwill.
Contract Liabilities
Our contract liabilities consist of customer deposits and contractual guaranteed returns. Net contract liabilities are recorded in accrued expenses and other current liabilities and consisted of the following:
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September 30, 2022 |
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December 31, 2021 |
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Contract Liabilities - Customer Deposits |
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Contract Liabilities - Guaranteed Returns |
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Disaggregation of Revenue
Revenue is disaggregated from contracts with customers by goods or services as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the tables below.
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Three Months Ended September 30, 2022 |
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Three Months Ended September 30, 2021 |
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Product Sales |
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Fulfillment Services |
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$ |
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$ |
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Nine Months Ended September 30, 2022 |
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Nine Months Ended September 30, 2021 |
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Product Sales |
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Fulfillment Services |
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| 6 |
Fair Value of Financial Instruments
We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 – inputs are quoted prices in active markets for identical assets that the reporting entity has the ability to access at the measurement date.
Level 2 – inputs are other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly.
Level 3 – inputs are unobservable inputs for the asset that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability.
The Company did not have any financial instruments that are measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021.
Accounts Receivable and Allowances
We grant credit to customers and generally do not require collateral or other security. We perform credit evaluations of our customers and provide for expected claims related to promotional items, customer discounts, shipping shortages, damages, and doubtful accounts based upon historical bad debt and claims experience. As of September 30, 2022, total allowances amounted to $
Net (Loss) Income per Common Share
Basic net (loss) income per common share (“Basic EPS”) is computed by dividing net (loss) income by the weighted average number of common shares outstanding. Diluted net (loss) income per common share (“Diluted EPS”) is computed by dividing net (loss) income by the sum of the weighted average number of common shares outstanding and the dilutive potential common shares then outstanding. Potential dilutive common share equivalents consist of total shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock using the treasury stock method and the average market price per share during the period.
When calculating diluted (loss) income per share, if the effects are dilutive, companies are required to add back to net income the effects of the change in derivative liabilities related to warrants. Additionally, if the effects of the change in derivative liabilities are added back to net income, companies are required to include the warrants outstanding related to the derivative liability in the calculation of the weighted average dilutive shares.
The common shares used in the computation of our basic and diluted net (loss) income per share are as follows:
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Three Months Ended |
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Nine Months Ended September 30, |
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2022 |
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2021 |
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2022 |
2021 |
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Numerator: |
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Net (loss) income |
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$ |
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) |
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$ |
( |
) | $ |
( |
) | $ | ||||
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||||||||
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Number of shares used in per common share calculations: |
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||||||||
|
Total shares for purpose of calculating net (loss) income per common share |
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|
||||||||
|
|
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||||||||
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Net (loss) income per common share: |
|
|
|
|
|
|
|
|
||||||||
|
Basic |
|
$ |
( |
) |
|
$ |
|
|
$ | ( |
) | $ | ||||
|
Diluted |
|
$ |
( |
) |
|
$ |
|
|
$ | ( |
) | $ | ||||
| 7 |
Significant Concentration of Credit Risk
Sales to our top
A customer represents
Revenue Recognition
The Company recognizes revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606. For our customer contracts, (i) we identify the contract with a customer, (ii) we identify the performance obligations in the contract, (iii) we determine the transaction price, (iv) we allocate the transaction price to the performance obligation; and (v) we recognize revenue when we satisfy the performance obligation. Our revenues are recorded at a point in time when the performance is fulfilled, which is when the product is shipped to or received by the customer.
Product sales are recorded net of variable considerations, such as provisions for returns, discounts, and allowances.
We account for shipping and handling costs as costs to fulfill a contract and not as performance obligations to our customers.
Leases
The Company accounts for leases in accordance with ASC 842. The Company reviews all contracts and determines if the arrangement is or contains a lease, at inception. Operating leases are included in right-of-use (“ROU”) assets, current lease liabilities and long-term lease liabilities on the condensed consolidated balance sheets. The Company does not have any finance leases.
Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The operating lease ROU asset also includes any upfront lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with a term of 12 months or less are not recorded on the balance sheet. The Company’s lease agreements do not contain any residual value guarantees.
New Accounting Pronouncements - Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") 2016-13, Financial Instruments-Credit losses (Topic 326): Measurement of Credit losses on Financial Instruments. ASU 2016-13 requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Our status as a smaller reporting company allows us to defer adoption until the annual period, including interim periods within the annual period, beginning January 1, 2023. Management is currently evaluating the requirements of this guidance and has not yet determined the impact of the adoption on the Company's financial position or results of operations.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional guidance to companies to ease the potential burden associated with transitioning away from reference rates that are expected to be discontinued. The new guidance provides optional expedients and exceptions to apply GAAP to contract modifications and hedging relationships, subject to certain criteria, that reference London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. Companies can adopt ASU 2020-04 immediately; however, the guidance will only be available through December 31, 2022. While we are continuing to evaluate the impact of this ASU on our financial position or results of operations, we do not expect its impact will be material at this time.
| 8 |
Note 3 – Inventories, net
Inventories, net consisted of the following:
|
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
||
|
Finished goods |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||
|
Reserve for obsolete inventory |
|
|
( |
) |
|
|
( |
) | ||
|
|
|
|
|
|
|
|
|
|
||
|
Inventories, net |
|
$ |
|
|
|
$ |
|
|
||
Note 4 – Property and Equipment, Net
Property and equipment, net consisted of the following:
|
|
September 30, 2022 |
|
December 31, 2021 |
|||||
|
Machinery and equipment |
$ |
|
|
$ |
|
|||
|
Leasehold improvements |
|
|
|
|
|
|||
| Computers and other |
|
|
||||||
|
|
|
|
|
|
|
|||
|
Accumulated depreciation and amortization |
|
( |
) |
|
( |
) | ||
|
|
|
|
|
|
|
|||
|
Property and equipment, net |
$ |
|
|
$ |
|
|||
Note 5 – Intangible Assets
Intangible assets consisted of the following:
|
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||||
|
Trademarks |
|
$ |
|
|
|
$ |
|
|
||
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
||
|
Customer relationships |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||
|
Accumulated amortization |
|
|
( |
) |
|
|
( |
) | ||
|
|
|
|
|
|
|
|
|
|
||
|
Intangible assets, net |
|
$ |
|
|
|
$ |
|
|
||
Trademarks are amortized over periods ranging from
| 9 |
Note 6 – Debt
Debt consisted of the following:
|
|
|
September 30, |
|
|
December 31, |
|
||||
|
|
|
2022 |
|
|
2021 |
|
||||
|
Related Party Debt: |
|
|
|
|
|
|
|
|
||
|
July 2014 note payable to Little Harbor, LLC |
|
$ |
|
|
|
$ |
|
|
||
|
July 2016 note payable to Little Harbor, LLC |
|
|
|
|
|
|
|
|
||
|
January 2016 note payable to Great Harbor Capital, LLC |
|
|
|
|
|
|
|
|
||
|
March 2016 note payable to Great Harbor Capital, LLC |
|
|
|
|
|
|
|
|
||
|
December 2016 note payable to Great Harbor Capital, LLC |
|
|
|
|
|
|
|
|
||
|
August 2017 note payable to Great Harbor Capital, LLC |
|
|
|
|
|
|
|
|
||
|
February 2018 note payable to Great Harbor Capital, LLC |
|
|
|
|
|
|
|
|
||
|
July 2018 note payable to Great Harbor Capital, LLC |
|
|
|
|
|
|
|
|
||
|
November 2018 note payable to Great Harbor Capital, LLC |
|
|
|
|
|
|
|
|
||
|
February 2020 note payable to Great Harbor Capital, LLC |
|
|
|
|
|
|
|
|
||
|
January 2016 note payable to Golisano Holdings LLC |
|
|
|
|
|
|
|
|
||
|
March 2016 note payable to Golisano Holdings LLC |
|
|
|
|
|
|
|
|
||
|
July 2016 note payable to Golisano Holdings LLC |
|
|
|
|
|
|
|
|
||
|
December 2016 note payable to Golisano Holdings LLC |
|
|
|
|
|
|
|
|
||
|
March 2017 note payable to Golisano Holdings LLC |
|
|
|
|
|
|
|
|
||
|
February 2018 note payable to Golisano Holdings LLC |
|
|
|
|
|
|
|
|
||
|
February 2020 note payable to Golisano Holdings LLC |
|
|
|
|
|
|
|
|
||
|
November 2014 note payable to Golisano Holdings LLC formerly payable to Penta Mezzanine SBIC Fund I, L.P. |
|
|
|
|
|
|
|
|
||
|
January 2015 note payable to Golisano Holdings LLC formerly payable to JL-BBNC Mezz Utah, LLC |
|
|
|
|
|
|
|
|
||
|
February 2015 note payable to Golisano Holdings LLC formerly payable to Penta Mezzanine SBIC Fund I, L.P. |
|
|
|
|
|
|
|
|
||
|
Macatawa Bank |
|
|
|
|
|
|
|
|
||
|
Total related party debt |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||
|
Senior Credit Facility with Midcap |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||
|
May 2020 Note Payable to Fifth Third Bank, N.A. |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||
|
Total debt |
|
|
|
|
|
|
|
|
||
|
Less current portion |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||
|
Long-term debt |
|
$ |
|
|
|
$ |
|
|
||
Little Harbor LLC
Mr. David L. Van Andel, the Chairman of the Company’s Board of Directors, is the owner and principal of Little Harbor LLC. Mr. Mark Bugge, at the time the notes were entered into, was a member of the Company’s Board of Directors and the Secretary of Little Harbor LLC.
July 2014 Note Payable to Little Harbor, LLC
Pursuant to a July 2014 Debt Repayment Agreement with Little Harbor, LLC (“Little Harbor”), an entity owned by certain stockholders of the Company, on February 6, 2018 we entered into an agreement with Little Harbor to convert a debt repayment obligation of $
| 10 |
July 2016 Note Payable to Little Harbor, LLC
On July 21, 2016, we issued an unsecured delayed draw promissory note in favor of Little Harbor (“Little Harbor Delayed Draw Note”), pursuant to which Little Harbor loaned us the full approved amount of $
Little Harbor delivered a deferment letter pursuant to which Little Harbor agreed to defer all payments due under the aforementioned notes held by Little Harbor through October 22, 2021 and agreed to refrain from declaring a default and/or exercising any remedies under the notes.
Amendments to extend the maturity date and related payment deferrals of the aforementioned notes have not been executed and these notes to Little Harbor are currently in default. We anticipate extending the maturity dates and related payment deferrals with the lending party, but we cannot guarantee that such extensions and payment deferrals will be successfully obtained on a timely basis or at all. To date, Little Harbor has not exercised any of its remedies available upon a default for any of the aforementioned notes.
Great Harbor Capital LLC
Mr. David L. Van Andel, the Chairman of the Company’s Board of Directors, is the owner and principal of Great Harbor Capital LLC. Mr. Mark Bugge, at the time the notes were entered into, was a member of the Company’s Board of Directors and the Secretary of Great Harbor Capital LLC.
January 2016 Note Payable to Great Harbor Capital, LLC
Pursuant to a January 28, 2016 unsecured promissory note (“January 2016 GH Note”) with Great Harbor Capital, LLC (“GH”), an affiliate of a member of our Board of Directors, GH lent us $
March 2016 Note Payable to Great Harbor Capital, LLC
Pursuant to a March 21, 2016 unsecured promissory note (“March 2016 GH Note”), GH lent us $
December 2016 Note Payable to Great Harbor Capital, LLC
Pursuant to a December 31, 2016 unsecured promissory note (“December 2016 GH Note”), GH lent us $
August 2017 Note Payable to Great Harbor Capital, LLC
Pursuant to an August 30, 2017 secured promissory note, GH lent us $
February 2018 Note Payable to Great Harbor Capital, LLC
Pursuant to a February 6, 2018 secured promissory note, GH lent us $
| 11 |
As previously reported, on February 6, 2018, the Company issued an amended and restated secured promissory note to GH (“A&R August 2017 GH Note”) replacing the prior secured promissory note issued on August 30, 2017. The amendment and restatement added a requirement that when the Company consummates any Special Asset Disposition (as defined in the February 2018 GH Note), provided that the Company has a minimum liquidity of $
Furthermore, as a result of notes issued on February 6, 2018, by GH and Golisano Holdings LLC (“Golisano LLC”), GH and Golisano LLC entered into an “Intercreditor Agreement” where they agreed that each of the February 2018 GH Note, A&R August 2017 GH Note, and the Golisano LLC February 2018 Note (as defined below) are pari passu as to repayment, security and otherwise and are equally and ratably secured.
July 2018 Note Payable to Great Harbor Capital, LLC
Pursuant to a July 27, 2018 secured promissory note, GH loaned the Company $
The July 2018 GH Note is subordinate to the indebtedness owed to MidCap. The July 2018 GH Note is senior to the indebtedness owed to Little Harbor and Golisano LLC.
November 2018 Note Payable to Great Harbor Capital, LLC
Pursuant to a November 5, 2018 secured promissory note, GH loaned the Company $
February 2020 Note Payable to Great Harbor Capital, LLC
Pursuant to a February 2020 unsecured promissory note (“February 2020 GH Note”), an affiliate of a member of our Board of Directors, GH lent us $
Amendments to extend the maturity date and related payment deferrals of the aforementioned notes to GH have not been executed and these notes are currently in default. We anticipate extending the maturity dates and related payment deferrals with the lending party, but we cannot guarantee that such extensions and payment deferrals will be successfully obtained on a timely basis or at all. To date, GH has not exercised any of its remedies available upon a default for any of the aforementioned notes.
Golisano Holdings LLC
Mr. B. Thomas Golisano, a member of the Company’s Board of Directors, is a principal of Golisano LLC.
November 2014 Note Payable to Golisano Holdings LLC (formerly payable to Penta Mezzanine SBIC Fund I, L.P.)
On November 13, 2014, we raised proceeds of $
| 12 |
January 2015 Note Payable to Golisano Holdings LLC (formerly payable to JL-Mezz Utah, LLC-f/k/a JL-BBNC Mezz Utah, LLC)
On January 22, 2015, we raised proceeds of $
February 2015 Note Payable to Golisano Holdings LLC (formerly payable to Penta Mezzanine SBIC Fund I, L.P.)
On February 6, 2015, we raised proceeds of $
January 2016 Note Payable to Golisano Holdings LLC
Pursuant to a January 28, 2016 unsecured promissory note with Golisano LLC (“Golisano LLC January 2016 Note”), an affiliate of a member of our Board of Directors, Golisano LLC lent us $
March 2016 Note Payable to Golisano Holdings LLC
Pursuant to a March 21, 2016 unsecured promissory note, Golisano LLC lent us $
July 2016 Note Payable to Golisano Holdings LLC
On July 21, 2016, we issued an unsecured delayed draw promissory note in favor of Golisano LLC pursuant to which Golisano LLC may, in its sole discretion and pursuant to draw requests made by the Company, loan the Company up to the maximum principal amount of $
December 2016 Note Payable to Golisano Holdings LLC
Pursuant to a December 31, 2016 unsecured promissory note, as amended and restated, Golisano LLC lent us $
March 2017 Note Payable to Golisano Holdings LLC
Pursuant to a March 14, 2017 unsecured promissory note, as amended and restated, Golisano LLC lent us $
| 13 |
February 2018 Note Payable to Golisano Holdings LLC
Pursuant to a February 6, 2018 secured promissory note, Golisano LLC lent us $
February 2020 Note Payable to Golisano Holdings LLC
Pursuant to a February 2020 unsecured promissory note (“Golisano LLC February 2020 Note”), an affiliate of a member of our Board of Directors, Golisano LLC lent us $
Golisano LLC delivered a deferment letter pursuant to which Golisano LLC agreed to defer all payments due under the aforementioned notes held by Golisano LLC through October 22, 2021 and agreed to refrain from declaring a default and/or exercising any remedies under the notes.
Amendments to extend the maturity date and related payment deferrals of the aforementioned notes to Golisano LLC have not been executed and these notes are currently in default. We anticipate extending the maturity dates and related payment deferrals with the lending party, but we cannot guarantee that such extensions and payment deferrals will be successfully obtained on a timely basis or at all. To date, Golisano LLC has not exercised any of its remedies available upon a default for any of the aforementioned notes.
Macatawa Bank
Mr. Mark Bugge is a former member of the board of directors of Macatawa Bank (“Macatawa”) and was a member of the Company’s board of directors; he was an active member of both boards at the time of the term loan note as described below. Two other members of the Company’s Board of Directors, Mr. B. Thomas Golisano and Mr. David L. Van Andel, are the owners and principals of the guarantor, 463IP Partners, LLC (“463IP”). Furthermore, Mr. Van Andel, through his interest in a trust, holds an indirect limited partnership interest in White Bay Capital, LLLP, which has an ownership interest of greater than
On December 4, 2018, the Company entered into a Term Loan Note and Agreement (the "Term Loan") in favor of Macatawa. Pursuant to the Term Loan, Macatawa loaned the Company $
In connection with the Term Loan, 463IP has entered into a limited guaranty, dated as of December 4, 2018, in favor of Macatawa (the "Limited Guaranty") pursuant to which it has agreed to guarantee payment under the Term Loan and any and all renewals of the Term Loan and all interest accrued on such indebtedness limited to $
Senior Credit Facility with Midcap
On January 22, 2015, we entered into a -year $
On September 2, 2016, we entered into an amendment with Midcap to increase the Senior Credit Facility to $
On January 22, 2019, we entered into Amendment Sixteen to the Credit and Security Agreement (the "MidCap Sixteenth Amendment"). The MidCap Sixteenth Amendment reduced the revolving credit facility amount from a total of $
| 14 |
On February 13, 2019, MidCap informed the Company that MidCap had re-assigned all of its rights, powers, privileges and duties as “Agent” under the Credit and Security Agreement, as well as all of its right, title and interest in and to the revolving loans made under the facility from Midcap Funding X Trust to MidCap IV Funding.
On April 22, 2019, we entered into Amendment Seventeen to the Credit and Security Agreement (the "MidCap Seventeenth Amendment"), which effectively increased the revolving credit facility amount to $
On April 22, 2021, we entered into Amendment Eighteen to the Credit and Security Agreement (the "MidCap Eighteenth Amendment"), which effectively updated the unused line fee to
We have incurred loan fees totaling $
Other Debt
May 2020 Note Payable to Fifth Third Bank N.A.
On May 7, 2020, Twinlab Consolidated Corporation ("TCC"), the operating subsidiary of the Company, received the proceeds of a loan from Fifth Third Bank, National Association ("Fifth Third Bank") in the amount of $
The Company submitted its application for
February 2021 Note Payable to Fifth Third Bank N.A.
On February 9, 2021, TCC received the proceeds of a second loan from Fifth Third Bank in the amount of $
The company submitted its application for
Financial Covenants
Certain of the foregoing debt agreements, as amended, require us to meet certain affirmative and negative covenants, including maintenance of specified ratios. As of September 30, 2022, we were in default for lack of compliance with the EBITDA-related financial covenant of the debt agreement with MidCap. The amount due to MidCap for this revolving credit line is $
| 15 |
Note 7 – Warrants and Registration Rights Agreements
The following table presents a summary of the status of our issued warrants as of September 30, 2022, and changes during the nine months then ended:
|
|
|
Shares Underlying |
|
|
Weighted Average |
|
||||
|
|
|
|
Warrants |
|
|
Exercise Price |
|
|||
|
Outstanding, December 31, 2021 |
|
|
|
|
|
$ |
|
|
||
|
Granted |
|
|
|
|
|
|
|
|
||
|
Canceled / Expired |
|
|
|
|
|
|
|
|||
|
Exercised |
|
|
|
|
|
|
|
|||
|
Outstanding, September 30, 2022 |
|
|
|
|
|
$ |
|
|
||
GH Warrants
In connection with the July 2018 GH Note, we issued GH a warrant to purchase an aggregate of
In connection with the November 2018 GH Note, we issued GH a warrant to purchase an aggregate of
Warrants Issued into Escrow
At September 30, 2022, there were
Golisano Escrow Warrants
In connection with the Golisano LLC January 2016 Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of
In connection with the Golisano LLC March 2016 Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of
| 16 |
In connection with the Golisano LLC July 2016 Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of
In connection with the Golisano LLC December 2016 Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of
In connection with the Golisano LLC March 2017 Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of
In connection with the Golisano LLC February 2018 Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of
We previously entered into a registration rights agreement with Golisano LLC, dated as of October 5, 2015 (the “Registration Rights Agreement”), granting Golisano LLC certain registration rights for certain shares of the Company’s common stock. The shares of common stock issuable pursuant to the above Golisano LLC warrants are also entitled to the benefits of the Registration Rights Agreement.
GH Escrow Warrants
In connection with a January 2016 GH Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of
In connection with a March 2016 GH Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of
| 17 |
In connection with the December 2016 GH Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of
In connection with the August 2017 GH Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of
In connection with the February 2018 GH Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of
Little Harbor Escrow Warrant
The Little Harbor Delayed Draw Note required that we issue into escrow in the name of Little Harbor a warrant to purchase an aggregate of
Note 8 – Leases
The Company leases office space under non-cancelable operating leases with lease terms ranging from
The sublease agreement to sublease half of the
For the three months and nine months ended September 30, 2022, the Company incurred $
| 18 |
|
2022 (excluding the nine months ended September 30, 2022) |
|
$ |
|
|
||
|
2023 |
|
|
|
|
||
|
2024 |
|
|
|
|
||
|
2025 |
|
|
|
|
||
| 2026 | ||||||
|
Thereafter |
|
|
|
|
||
|
Total lease payments |
|
|
|
|
||
|
Less: imputed interest |
|
|
( |
) | ||
|
Present value of lease liabilities |
|
$ |
|
|
|
|
|
Three Months Ended September 30, 2022 |
|
Nine Months Ended September 30, 2022 |
|
||||
|
Sublease income |
|
$ |
( |
) | $ |
( |
) | ||
|
Cash paid for operating leases |
|
$ |
|
|
$ |
|
|||
|
Weighted average remaining lease term (years) - operating leases |
|
|
4.2 |
|
|
|
|||
|
Weighted average discount rate – operating leases |
|
|
|
% |
% |
||||
Note 9 – Stockholders’ Deficit
Preferred Stock
The Company has authorized
Twinlab Consolidation Corporation 2013 Stock Incentive Plan
The Twinlab Consolidation Corporation 2013 Stock Incentive Plan (the “TCC Plan”) was originally established with a pool of
Stock Subscription Receivable and Loss on Stock Price Guarantee
As of September 30, 2022, the stock subscription receivable dated August 1, 2014 for the purchase of
| 19 |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2022. This discussion and analysis and other parts of this Quarterly Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Any statements contained herein that are not statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial position made in this report are forward-looking. We often use words such as "anticipates", "believes", "estimates", "expects", "intends", "predicts", "hopes", "should", "plans", "will" and similar expressions to identify forward-looking statements. These statements are based on management’s current expectations and accordingly are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained herein due to various important factors, including (but not limited to): the impact of the ongoing COVID-19 pandemic; supply chain disruptions; the impact of inflation; consumer preferences, spending and debt levels; the general economic and credit environment; interest rates; variations in consumer purchasing activities; competitive pressures on sales; the loss of a significant customer or material reduction of business with a significant customer; pricing and gross sales margins; the associated fees or estimated cost savings from contract renegotiations; and our ability to establish and maintain acceptable commercial terms with contract manufacturers. We undertake no obligation to publicly update or revise any forward-looking statements except as required by law.
Overview
We are an integrated formulator, marketer, distributor, and retailer of branded nutritional supplements and other natural products sold to and through domestic health and natural food stores, mass market retailers, specialty retailers, on-line retailers, and websites. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers.
Our products include vitamins, minerals, specialty supplements, and sports nutrition products primarily under the Twinlab®, Reserveage and ResVitale® brands. We also formulate, market and sell diet and energy products under the Metabolife® brand, and a full line of herbal teas under the Alvita® brand. To accommodate consumer preferences, our products come in various formulations and delivery forms, including capsules, tablets, softgels, chewables, liquids, sprays, powders, and whole herbs. These products are sold primarily through health and natural food stores and on-line retailers, supermarkets, and mass-market retailers.
We distribute one of the broadest branded product lines in the industry with approximately 260 stock keeping units, or SKUs. We believe that as a result of our emphasis on innovation, quality, loyalty, education and customer service, our brands are widely recognized in health and natural food stores and among their customers. In most periods since our formation, we have generated losses from operations.
We also perform services between private label distributors and contract manufacturers under the NutraScience Labs ("NSL") brand name. NSL facilitates the production of new supplements to market and reformulates existing products to include scientifically-backed ingredients. We provide our customers with numerous production services, including manufacturing, testing, label and packaging design, order fulfillment, and regulatory compliance.
NSL facilitates the contract manufacture of a variety of high-quality vitamin and supplement products, including but not limited to, immune support supplements, cognitive support products, prebiotics and probiotics, supplements for weight management, and sports nutrition supplements. Our role in the production of these products is to help our customers manufacture or reformulate dietary supplements for sale and distribution. We do this by working with contract manufacturers to build scientifically backed formulas for resale to our end customers. We also simplify the production process by providing quality control checks, storing inventory on site, labeling and designing finished products, and drop shipping finished products ready for sale to our end customers. We do not market these private label products, but rather sell the products to the customer, who is then responsible for the marketing, distribution, and sale to retailers or to their end customers.
| 20 |
Going Concern Uncertainty
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. In most periods since our formation, we have generated losses from operations. At September 30, 2022, we had an accumulated deficit of $353.1 million. Historical losses are primarily attributable to lower than planned sales resulting from low fill rates on demand due to limitations of our working capital, delayed product introductions and postponed marketing activities, merger-related and other restructuring costs, interest and refinancing charges associated with our debt refinancing, and impairment of goodwill and intangible assets. Losses have been funded primarily through issuance of common stock and third-party or related party debt.
Because of our history of operating losses and significant interest expense on our debt, we have a working capital deficiency of $124.0 million at September 30, 2022. We also have $100.0 million of debt, presented in current liabilities. These continuing conditions, among others, raise substantial doubt about our ability to continue as a going concern.
Management has addressed operating issues through the following actions: focusing on growing the core business and brands; continuing emphasis on major customers and key products; reducing manufacturing and operating costs and continuing to negotiate lower prices from major suppliers. We believe that we may need additional capital to execute our business plan. If additional funding is required, there can be no assurance that sources of funding will be available when needed on acceptable terms or at all.
The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Results of Operations
Comparison of the Three and Nine Month Periods Ended September 30, 2022 and 2021
The following table summarizes our financial results for the three and nine month periods ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
Increase | % |
|
Nine Months Ended September 30, |
|
|
Increase |
|
|
% |
|
|||||||||||||||||||
|
|
2022 | 2021 | (Decrease) | Change |
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
Change |
|
|||||||||||||||
|
Net sales |
$ | 15,522 | $ |
18,272 |
$ | (2,750 | ) | (15) | % |
|
$ |
43,246 |
|
|
$ |
55,841 |
|
|
$ |
(12,595 |
) |
|
|
(23) |
% |
||||||
|
Cost of sales |
12,238 | 12,230 | 8 | 0 | % |
|
|
31,770 |
|
|
|
37,844 |
|
|
|
(6,074 |
) |
|
|
(16) |
% |
||||||||||
|
Gross profit |
3,284 | 6,042 | (2,758 | ) | (46) | % |
|
|
11,476 |
|
|
|
17,997 |
|
|
|
(6,521 |
) |
|
|
(36) |
% |
|||||||||
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Selling expenses |
909 | 912 | (3 | ) | 0 | % |
|
|
2,654 |
|
|
|
2,538 |
|
|
|
116 |
|
|
|
5 |
% |
|||||||||
|
General and administrative expenses |
3,237 | 4,096 | (859 | ) | (21) | % |
|
|
9,491 |
|
|
|
9,067 |
|
|
|
424 |
|
|
|
5 |
% |
|||||||||
|
(Loss) income from operations |
(862 | ) | 1,034 | (1,896 | ) | (183) | % |
|
|
(669 |
) |
|
|
6,392 |
|
|
|
(7,061 |
) |
|
|
(110) |
% |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Interest expense, net |
(2,064 | ) | (2,208 | ) | (144 | ) | (7) | % |
|
|
(5,876 |
) |
|
|
(6,619 |
) |
|
|
(743 |
) |
|
|
(11) |
% |
|||||||
|
Other income (expense) |
- | (14 | ) | (14 | ) | (100) | % |
|
|
1,676 |
|
|
|
504 |
|
|
1,172 |
|
|
|
233 |
% |
|||||||||
|
Total other expense |
(2,064 | ) | (2,222 | ) | (158 | ) | (7) | % |
|
|
(4,200 |
) |
|
|
(6,115 |
) |
|
|
(1,915 |
) |
|
|
(31) |
% |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
(Loss) income before income taxes |
(2,926 | ) | (1,188 | ) | (1,738 | ) | (146) | % |
|
|
(4,869 |
) |
|
|
277 |
|
|
|
(5,146 |
) |
|
|
(1,858) |
% |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Provision for income taxes |
- | - |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Total net (loss) income |
$ | (2,926 | ) | $ | (1,188 | ) | $ | (1,738 | ) | (146) | % |
|
$ |
(4,869 |
) |
|
$ |
277 |
|
|
$ |
(5,146 |
) |
|
|
(1,858) |
% |
||||
| 21 |
Net Sales
The decrease in our net sales of 15% and 23% for the three and nine month periods ended September 30, 2022, respectively, compared to the same period in 2021 is due to production backlogs at manufacturers, resulting in extended lead-time for production and fulfillment of sales, along with softening demand for branded products at retail locations. In contrast, prior year figures recognized higher sales due to resolution of production issues from 2020.
Gross Profit
Our overall gross profit decrease of 46% and 36% for the three and nine month periods ended September 30, 2022, respectively, compared to the same period in 2021 was primarily due to reduced demand from some of our major customers. In addition, some input costs have increased including transportation that are resulting in higher costs of goods sold relative to the prior year. In contrast, prior year figures recognized higher sales due to resolution of production issues from 2020.
Selling Expenses
Our selling expenses were relatively unchanged with a $3 decrease for the three months ended September 30, 2022 compared to the same period in 2021. Our selling expenses increased 5% for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to the Company's attendance at trade shows, revitalization of our Alvita Tea brand, updates to packaging and messaging for several product lines, and increased advertising costs across multiple marketing segments.
General and Administrative Expenses
Our general and administrative expenses decreased by 21% for the three months ended September 30, 2022 compared to the same period in 2021, due to the impact in 2021 of one time losses that resulted in a significant overall increase in operating expenses and, therefore, overall general and administrative expenses. Our general and administrative expenses increased by 5% for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to the lease impairment loss recorded during the third quarter of 2022.
Interest Expense, Net
Our interest expense, net decreased by 7% and 11% for the three and nine month periods ended September 30, 2022 compared to the same period in 2021, primarily due to the fully amortization of our debt discount in 2021, as well as forgiveness of both of our PPP Loan and Second PPP Loan and the associated interest charges.
Other Income (expense)
Other income (expense) decreased slightly by $14 for the three months ended September 30, 2022 compared to the same period in 2021. The increase in other income (expense) of $1,172 for the nine months ended September 30, 2022 compared to the same period in 2021, was primarily due to the forgiveness of the PPP Loan.
Liquidity and Capital Resources
At September 30, 2022, we had an accumulated deficit of $353.1 million primarily because of our history of operating losses and loss on stock purchase guarantee. We have a working capital deficiency of $124.0 million at September 30, 2022. Losses have been funded primarily through the issuance of common stock and warrants, borrowings from our stockholders, and third-party debt. As of September 30, 2022, we had cash of $0.3 million. On an ongoing basis, we also seek to improve operating cash through trade receivables and payables management as well as inventory stocking levels. We used net cash in operating activities of $7.5 million for the nine months ended September 30, 2022. During the nine months ended September 30, 2022, we incurred net borrowings from our revolving credit facility of $4.3 million.
Our total liabilities increased by $4.9 million to $146.9 million at September 30, 2022 from $142.0 million at December 31, 2021 primarily due to the increase of $4.8 million in accrued interest and $2.6 million in notes payable and current portion of long-term debt; partially offset by the decrease of $0.8 million in accounts payable and $1.0 million in accrued expenses and other current liabilities.
Cash Flows from Operating, Investing and Financing Activities
Net cash used in operating activities was $7.5 million for the nine months ended September 30, 2022 as a result of our net loss of $4.9 million, forgiveness of PPP Loan of $1.7 million, a decrease in net operating assets and liabilities of $1.3 million and other non-cash items expenses totaling $0.3 million net. By comparison, for the nine months ended September 30, 2021, net cash used in operating activities was $0.7 million as a result of our net income of $0.3 million, a recovery of losses on accounts receivable of $0.7 million in doubtful accounts receivable, other non-cash expenses totaling $0.7 million net, and a decrease in net operating assets and liabilities of $1.0 million.
| 22 |
Net cash provided by financing activities was $4.3 million for the nine months ended September 30, 2022, consisting of net borrowings of $4.3 million under our revolving credit facility. Net cash provided by financing activities was $2.6 million for the nine months ended September 30, 2021, consisting of net borrowings of $1.3 million under our revolving credit facility, and proceeds from the issuance of debt of $1.3 million.
Ongoing Funding Requirements
As set forth above, we obtained additional debt financing in the year ended December 31, 2021 and the nine months ended September 30, 2022 to support operations. It is possible that we may need additional funding to enable us to fund our operating expenses and capital expenditure requirements.
In response to COVID-19 and to protect our liquidity and cash position, we have taken a number of steps. In August of 2020, we obtained deferment letters from each of Great Harbor Capital, LLC, Little Harbor, LLC, and Golisano Holdings LLC, pursuant to which each lender agreed to defer all payments due under outstanding notes held by each lender through October 22, 2021 and agreed to refrain from declaring a default and/or exercising any remedies under the outstanding notes. Amendments to extend the maturity date and related payment deferrals of the aforementioned notes have not been executed and these notes are currently in default. We anticipate extending the maturity dates and related payment deferrals with the lending parties, but we cannot guarantee that such extensions and payment deferrals will be successfully obtained on a timely basis or at all.
On May 7, 2020, TCC received the proceeds of a loan from Fifth Third Bank in the amount of $1.7 million obtained under the Paycheck Protection Program ("PPP") under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020 (the “PPP Loan”). The PPP Loan, evidenced by a promissory note dated May 5, 2020 (the “PPP Note”), had a two-year term and bore interest at a rate of 1.0% per annum, with the monthly principal and interest payments that were due beginning December 1, 2020. TCC used the proceeds of the PPP Loan for payroll, office rent, and utilities which allowed the Company to seek forgiveness of this loan. The Company submitted its application for 100% forgiveness for this loan in November 2021. In January 2022, the full amount of the PPP Loan was forgiven by the Small Business Administration ("SBA"). As a result, the Company recorded a gain on the forgiveness of the loan in the amount of $1.7 million.
On January 25, 2021, TCC applied for another PPP loan with Fifth Third Bank in the amount of $1.3 million (the "Second PPP Loan”). The Second PPP Loan, evidenced by a promissory note dated February 5, 2021 (the "Second PPP Note”), had a two-year term and bore interest at a rate of 1.0% per annum, with expected monthly principal and interest payments that were due to begin September 1, 2021. TCC used the proceeds of the Second PPP Loan for payroll, which allowed the Company to seek forgiveness for this loan. The Company submitted its application for 100% forgiveness for this loan in November 2021. In December 2021, the full amount of the Second PPP Loan was forgiven by the SBA. As a result, the Company recorded a gain on the forgiveness of the loan in the amount of $1.3 million.
Until such time, if ever, as we can generate substantial product revenues, we intend to finance our cash needs through a combination of equity offerings, debt financing, collaborations, strategic alliances, sales of assets, other merger and acquisition activities, and licensing arrangements. There can be no assurance that any of those sources of funding will be available when needed on acceptable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances, sales of assets, other merger and acquisition activities, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financing or relationships with third parties when needed or on acceptable terms, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts; abandon our business strategy of growth through acquisitions; or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.
This item is not applicable as we are currently considered a smaller reporting company.
| 23 |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022 pursuant to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), as amended. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. On the basis of this review, our management, including our principal executive officer and chief financial officer, has concluded that as of the end of the period covered by this report, our disclosure controls and procedures were not effective to give reasonable assurance that the information required to be disclosed in our reports filed with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and chief financial officer, in a manner that allows timely decisions regarding required disclosure.
On May 14, 2021, the Company announced that an internal investigation discovered that a recently terminated employee in the Company’s accounting department had been embezzling Company funds. The investigation indicated losses of approximately $500,000 occurred between 2016 and 2021. As a result of the findings of the investigation, the terminated employee returned the majority of the embezzled funds to the Company.
The employee took advantage of a complex consolidation process between multiple Enterprise Resource Planning ("ERP") systems, a lack of segregation of duties, weak internal controls, and a lack of managerial oversight.
In the first quarter of 2021, the Company transitioned into a single ERP system which allows for establishment of increased segregation of duties and improvements of internal controls within the ERP system itself. Additionally, remediation of internal control weaknesses includes additional focus on managerial oversight and staffing changes within the accounting department.
Although we have implemented certain measures that we believe will remediate these material weaknesses, we can provide no assurance that our remediation efforts will be effective or that additional material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to maintain or implement required new or improved controls, or any difficulties that may be encountered in their implementation, could result in additional material weaknesses, cause us to fail to meet our periodic or annual reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations regarding the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes Oxley Act of 2002 and the rules promulgated thereunder. The existence of material weaknesses could result in errors in our financial statements that could result in a restatement of those financial statements.
Limitations on Effectiveness of Controls and Procedures
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but we cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
There were no changes in our internal controls over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
| 24 |
|
Legal Proceedings
|
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. As of the date of this Quarterly Report on Form 10-Q, the Company is not aware of any legal proceedings that could have a material impact on the Company’s financial condition, results of operations, or cash flows.
|
Risk Factors
|
Risks and uncertainties that, if they were to occur, could materially adversely affect our business or cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and other public statements were set forth in the “Item 1A Risk Factors” section of our Annual Report on Form 10-K filed with the SEC on March 29, 2022.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial conditions and/or operating results.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
|
|
|
|
|
|
None. |
|
Defaults Upon Senior Securities.
|
As of September 30, 2022, we were in default for lack of compliance with the EBITDA-related financial covenant of the debt agreement with MidCap. The amount due to MidCap for this revolving credit line is $8,964 as of September 30, 2022.
To date, we are in default of the promissory notes payable to Little Harbor, GH and Golisano LLC which matured on October 22, 2021 (see Note 6 for further information). As of September 30, 2022, we had $8,037, $28,500 and $39,536 of indebtedness outstanding to Little Harbor, GH and Golisano LLC, respectively.
|
Mine Safety Disclosures.
|
|
|
|
|
|
|
Not applicable. |
|
Other Information.
|
|
|
|
|
|
|
None. |
| 25 |
|
Exhibits. |
The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth below.
|
Exhibit Number |
Exhibit Description |
||
|
|
|
||
|
31.1 |
|||
|
|
|
||
|
32.1* |
|||
|
|
|
||
|
101.INS |
Inline XBRL Instance. |
||
|
|
|
||
|
101.SCH |
Inline XBRL Taxonomy Extension Schema. |
||
|
|
|
||
|
101.CA |
Inline XBRL Taxonomy Extension Calculation. |
||
|
|
|
||
|
101.DEF |
Inline XBRL Taxonomy Extension Definition. |
||
|
|
|
||
|
101.LAB |
Inline XBRL Taxonomy Extension Label. |
||
|
|
|
||
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation. |
||
|
|
|
||
|
104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
||
| * Furnished herewith. |
|||
| 26 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
TWINLAB CONSOLIDATED HOLDINGS, INC. |
|
|
|
|
|
|
Date: October 31, 2022 |
By: |
/s/ Kyle Casey |
|
|
|
Kyle Casey |
|
|
|
Interim Chief Executive Officer and Chief Financial Officer (Interim Principal Executive Officer and Principal Financial Officer) |
| 27 |
Exhibit 31.1
Certification of Periodic Report under Section 302 of the Sarbanes-Oxley Act of 2002
I, Kyle Casey, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of Twinlab Consolidated Holdings, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: October 31, 2022
|
/s/ Kyle Casey |
|
|
Kyle Casey Interim Chief Executive Officer and Chief Financial Officer |
Exhibit 32.1
Certification Of
Principal Executive Officer
Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 of The Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Twinlab Consolidated Holdings, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kyle Casey, Interim Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
|
1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
Date: October 31, 2022 |
/s/ Kyle Casey |
|
Kyle Casey Interim Chief Executive Officer and Chief Financial Officer |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Twinlab Consolidated Holdings, Inc. and will be retained by Twinlab Consolidated Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized (in shares) | 500,000,000 | 500,000,000 |
| Preferred stock, shares issued (in shares) | 0 | 0 |
| Preferred stock, shares outstanding (in shares) | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized (in shares) | 5,000,000,000 | 5,000,000,000 |
| Common stock, shares issued (in shares) | 393,898,884 | 393,898,884 |
| Treasury stock, shares (in shares) | 134,806,051 | 134,806,051 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Income Statement [Abstract] | ||||
| Net sales | $ 15,522 | $ 18,272 | $ 43,246 | $ 55,841 |
| Cost of sales | 12,238 | 12,230 | 31,770 | 37,844 |
| Gross profit | 3,284 | 6,042 | 11,476 | 17,997 |
| Operating costs and expenses: | ||||
| Selling expenses | 909 | 912 | 2,654 | 2,538 |
| General and administrative expenses | 3,237 | 4,096 | 9,491 | 9,067 |
| (Loss) income from operations | (862) | 1,034 | (669) | 6,392 |
| Other income (expense): | ||||
| Interest expense, net | (2,064) | (2,208) | (5,876) | (6,619) |
| Other income (expense) | 0 | (14) | 1,676 | 504 |
| Total other expense | (2,064) | (2,222) | (4,200) | (6,115) |
| (Loss) income before income taxes | (2,926) | (1,188) | (4,869) | 277 |
| Provision for income taxes | 0 | 0 | 0 | 0 |
| Total net (loss) income | $ (2,926) | $ (1,188) | $ (4,869) | $ 277 |
| Weighted average number of common shares outstanding - basic (in shares) | 259,092,833 | 259,092,833 | 259,092,833 | 258,751,722 |
| Net (loss) income per common share - basic (in dollars per share) | $ (0.01) | $ 0 | $ (0.02) | $ 0 |
| Weighted average number of common shares outstanding - diluted (in shares) | 259,092,833 | 259,092,833 | 259,092,833 | 258,751,722 |
| Net (loss) income per common share - diluted (in dollars per share) | $ (0.01) | $ 0 | $ (0.02) | $ 0 |
Note 1 - Nature of Business |
9 Months Ended |
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Sep. 30, 2022 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Nature of Business |
Note 1 – Nature of Business
Nature of Business
Twinlab Consolidated Holdings, Inc. (the “Company”, “Twinlab,” “we,” “our” and “us”) was incorporated on October 24, 2013 under the laws of the State of Nevada as Mirror Me, Inc. On August 7, 2014, we amended our articles of incorporation and changed our name to Twinlab Consolidated Holdings, Inc.
We are an integrated marketer, distributor, and retailer of branded nutritional supplements and other natural products sold to and through domestic health and natural food stores, mass market retailers, specialty store retailers, on-line retailers, and websites. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers.
Our products include vitamins, minerals, specialty supplements and sports nutrition products sold under the Twinlab® brand name, a market leader in the healthy aging and beauty from within categories sold under the Reserveage Nutrition and ResVitale® brand names; diet and energy products sold under the Metabolife® brand name; and a full line of herbal teas sold under the Alvita® brand name. To accommodate consumer preferences, our products come in various formulations and delivery forms, including capsules, tablets, softgels, chewables, liquids, sprays and powders. These products are sold primarily through health and natural food stores and on-line retailers, supermarkets, and mass-market retailers.
We also perform services between private label distributors and contract manufacturers under the NutraScience Labs (“NSL”) brand name. NSL facilitates the production of new supplements to market and reformulates existing products to include scientifically-backed ingredients. We provide our customers with numerous production services, including manufacturing, testing, label and packaging design, order fulfillment, and regulatory compliance.
NSL facilitates the contract manufacture of a variety of high-quality vitamin and supplement products, including but not limited to, immune support supplements, cognitive support products, prebiotics and probiotics, supplements for weight management, and sports nutrition supplements. Our role in the production of these products is to help our customers manufacture or reformulate dietary supplements for sale and distribution. We do this by working with contract manufacturers to build scientifically backed formulas for resale to our end customers. We also simplify the production process by providing quality control checks, storing inventory on site, labeling and designing finished products, and drop shipping finished products ready for sale to our end customers. We do not market these private label products, but rather sell the products to the customer, who is then responsible for the marketing, distribution, and sale to retailers or to their end customers.
Going Concern
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. As of September 30, 2022, we had an accumulated deficit of $353,071. Historical losses are primarily attributable to lower than planned sales resulting from low fill rates on demand due to limitations of our working capital, delayed product introductions and postponed marketing activities, merger-related and other restructuring costs, and interest and refinancing charges associated with our debt refinancing. Losses have been funded primarily through debt.
Because of our history of operating losses and significant interest expense on our debt, we have a working capital deficiency of $124,008 as of September 30, 2022. We also have $100,037 of debt, presented in current liabilities. These continuing conditions, among others, raise substantial doubt about our ability to continue as a going concern.
Management is addressing operating issues through the following actions: focusing on growing the core business and brands; continuing emphasis on major customers and key products; reducing operating costs that include significant workforce and salary expense reduction and continuing to negotiate lower prices from major suppliers. We believe that we may need additional capital to execute our business plan. If additional funding is required, there can be no assurance that sources of funding will be available when needed on acceptable terms or at all. To meet capital requirements, the Company may consider selling certain assets or seeking financing through a combination of equity offerings, debt financing, collaborations, strategic alliances, merger and acquisition activities, and licensing agreements. |
Note 2 - Summary of Significant Accounting Policies |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies |
Note 2 – Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Except as described herein, there have been no changes in the Company’s significant accounting policies as described in Note 2, Summary of Significant Accounting Policies, within the “Notes to Consolidated Financial Statements” accompanying the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission (“SEC”) on March 29, 2022. These interim condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the periods presented. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q reflect adoption of these changes.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Significant management estimates include those with respect to returns and allowances, allowance for doubtful accounts, reserves for inventory obsolescence, the recoverability of long-lived assets, intangibles and goodwill.
Contract Liabilities
Our contract liabilities consist of customer deposits and contractual guaranteed returns. Net contract liabilities are recorded in accrued expenses and other current liabilities and consisted of the following:
Disaggregation of Revenue
Revenue is disaggregated from contracts with customers by goods or services as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the tables below.
Fair Value of Financial Instruments
We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 – inputs are quoted prices in active markets for identical assets that the reporting entity has the ability to access at the measurement date.
Level 2 – inputs are other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly.
Level 3 – inputs are unobservable inputs for the asset that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability.
The Company did not have any financial instruments that are measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021. Accounts Receivable and Allowances
We grant credit to customers and generally do not require collateral or other security. We perform credit evaluations of our customers and provide for expected claims related to promotional items, customer discounts, shipping shortages, damages, and doubtful accounts based upon historical bad debt and claims experience. As of September 30, 2022, total allowances amounted to $1,000, of which $153 was related to doubtful accounts receivable. As of December 31, 2021, total allowances amounted to $1,391, of which $511 was related to doubtful accounts receivable.
Net (Loss) Income per Common Share
Basic net (loss) income per common share (“Basic EPS”) is computed by dividing net (loss) income by the weighted average number of common shares outstanding. Diluted net (loss) income per common share (“Diluted EPS”) is computed by dividing net (loss) income by the sum of the weighted average number of common shares outstanding and the dilutive potential common shares then outstanding. Potential dilutive common share equivalents consist of total shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock using the treasury stock method and the average market price per share during the period.
When calculating diluted (loss) income per share, if the effects are dilutive, companies are required to add back to net income the effects of the change in derivative liabilities related to warrants. Additionally, if the effects of the change in derivative liabilities are added back to net income, companies are required to include the warrants outstanding related to the derivative liability in the calculation of the weighted average dilutive shares.
The common shares used in the computation of our basic and diluted net (loss) income per share are as follows:
Significant Concentration of Credit Risk
Sales to our top three customers aggregated to approximately 22% and 24% of total sales for the three months ended September 30, 2022 and 2021, respectively and 23% and 28% of total sales for the nine months ended September 30, 2022 and 2021, respectively. Sales to one of those customers were approximately 9% and 13% of total sales for the three months ended September 30, 2022 and 2021, respectively, and 9% and 12% of total sales for the nine months ended September 30, 2022 and 2021, respectively. Accounts receivable from these three customers were approximately 34% and 17% of total accounts receivable as of September 30, 2022 and December 31, 2021, respectively. A customer represents 1% and 2% of total accounts receivable as of September 30, 2022 and December 31, 2021, respectively. This customer is a related party through a director who sits on both the Company’s board of directors and that of the customer.
Revenue Recognition The Company recognizes revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606. For our customer contracts, (i) we identify the contract with a customer, (ii) we identify the performance obligations in the contract, (iii) we determine the transaction price, (iv) we allocate the transaction price to the performance obligation; and (v) we recognize revenue when we satisfy the performance obligation. Our revenues are recorded at a point in time when the performance is fulfilled, which is when the product is shipped to or received by the customer. Product sales are recorded net of variable considerations, such as provisions for returns, discounts, and allowances. We account for shipping and handling costs as costs to fulfill a contract and not as performance obligations to our customers. Leases
The Company accounts for leases in accordance with ASC 842. The Company reviews all contracts and determines if the arrangement is or contains a lease, at inception. Operating leases are included in right-of-use (“ROU”) assets, current lease liabilities and long-term lease liabilities on the condensed consolidated balance sheets. The Company does not have any finance leases.
Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The operating lease ROU asset also includes any upfront lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with a term of 12 months or less are not recorded on the balance sheet. The Company’s lease agreements do not contain any residual value guarantees. New Accounting Pronouncements - Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") 2016-13, Financial Instruments-Credit losses (Topic 326): Measurement of Credit losses on Financial Instruments. ASU 2016-13 requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Our status as a smaller reporting company allows us to defer adoption until the annual period, including interim periods within the annual period, beginning January 1, 2023. Management is currently evaluating the requirements of this guidance and has not yet determined the impact of the adoption on the Company's financial position or results of operations. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional guidance to companies to ease the potential burden associated with transitioning away from reference rates that are expected to be discontinued. The new guidance provides optional expedients and exceptions to apply GAAP to contract modifications and hedging relationships, subject to certain criteria, that reference London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. Companies can adopt ASU 2020-04 immediately; however, the guidance will only be available through December 31, 2022. While we are continuing to evaluate the impact of this ASU on our financial position or results of operations, we do not expect its impact will be material at this time. |
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Note 3 - Inventories, net |
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| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories |
Note 3 – Inventories, net
Inventories, net consisted of the following:
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Note 4 - Property and Equipment, Net |
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| Property and Equipment, Net |
Note 4 – Property and Equipment, Net Property and equipment, net consisted of the following:
Depreciation and amortization expense totaled $14 and $55 for the three months ended September 30, 2022 and 2021, respectively, and totaled $38 and $69 for the nine months ended September 30, 2022 and 2021, respectively.
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Note 5 - Intangible Assets |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets |
Note 5 – Intangible Assets
Intangible assets consisted of the following:
Trademarks are amortized over periods ranging from 3 to 30 years and customer relationships are amortized over periods ranging from 15 to 16 years. Amortization expense was $29 and $94 for the three months ended September 30, 2022 and 2021, respectively, and $87 and $283 for the nine months ended September 30, 2022 and 2021, respectively. |
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Note 6 - Debt |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt |
Note 6 – Debt
Debt consisted of the following:
Little Harbor LLC
Mr. David L. Van Andel, the Chairman of the Company’s Board of Directors, is the owner and principal of Little Harbor LLC. Mr. Mark Bugge, at the time the notes were entered into, was a member of the Company’s Board of Directors and the Secretary of Little Harbor LLC.
July 2014 Note Payable to Little Harbor, LLC
Pursuant to a July 2014 Debt Repayment Agreement with Little Harbor, LLC (“Little Harbor”), an entity owned by certain stockholders of the Company, on February 6, 2018 we entered into an agreement with Little Harbor to convert a debt repayment obligation of $3,267 into an unsecured promissory note (“Little Harbor Debt Repayment Note”). The note bears interest at an annual rate of 8.5%, with the principal payable at maturity. The Little Harbor Debt Repayment Note was scheduled to mature on July 25, 2020; the maturity was subsequently extended to October 22, 2021. July 2016 Note Payable to Little Harbor, LLC
On July 21, 2016, we issued an unsecured delayed draw promissory note in favor of Little Harbor (“Little Harbor Delayed Draw Note”), pursuant to which Little Harbor loaned us the full approved amount of $4,770 during the year ended December 31, 2016. This note bears interest at an annual rate of 8.5%, with the principal payable at maturity. We issued a warrant into escrow in connection with this loan (see Little Harbor Escrow Warrant in Note 7). This unsecured note was scheduled to mature on January 28, 2019; the maturity was subsequently extended to June 30, 2019 and October 22, 2021.
Little Harbor delivered a deferment letter pursuant to which Little Harbor agreed to defer all payments due under the aforementioned notes held by Little Harbor through October 22, 2021 and agreed to refrain from declaring a default and/or exercising any remedies under the notes. Amendments to extend the maturity date and related payment deferrals of the aforementioned notes have not been executed and these notes to Little Harbor are currently in default. We anticipate extending the maturity dates and related payment deferrals with the lending party, but we cannot guarantee that such extensions and payment deferrals will be successfully obtained on a timely basis or at all. To date, Little Harbor has not exercised any of its remedies available upon a default for any of the aforementioned notes.
Great Harbor Capital LLC
Mr. David L. Van Andel, the Chairman of the Company’s Board of Directors, is the owner and principal of Great Harbor Capital LLC. Mr. Mark Bugge, at the time the notes were entered into, was a member of the Company’s Board of Directors and the Secretary of Great Harbor Capital LLC.
January 2016 Note Payable to Great Harbor Capital, LLC
Pursuant to a January 28, 2016 unsecured promissory note (“January 2016 GH Note”) with Great Harbor Capital, LLC (“GH”), an affiliate of a member of our Board of Directors, GH lent us $2,500. The January 2016 GH Note bears interest at an annual rate of 8.5%, with the principal payable in 24 monthly installments of $104 which payment was to commence on February 28, 2017 but was deferred to August 31, 2019. We issued a warrant into escrow in connection with this loan (see GH Escrow Warrants in Note 7). The original maturity date of the January 2016 GH Note was January 28, 2019; the maturity was subsequently extended to June 30, 2019 and October 22, 2021.
March 2016 Note Payable to Great Harbor Capital, LLC
Pursuant to a March 21, 2016 unsecured promissory note (“March 2016 GH Note”), GH lent us $7,000. This March 2016 GH Note bears interest at an annual rate of 8.5%, with the principal payable in 24 monthly installments of $292 which payment was to commence on April 21, 2017 but was deferred to August 30, 2019. We issued a warrant into escrow in connection with this loan (see GH Escrow Warrants in Note 7). The note was scheduled to mature on March 21, 2019; the maturity was subsequently extended to June 30, 2019 and October 22, 2021.
December 2016 Note Payable to Great Harbor Capital, LLC
Pursuant to a December 31, 2016 unsecured promissory note (“December 2016 GH Note”), GH lent us $2,500. The December 2016 GH Note bears interest at an annual rate of 8.5%, with the principal payable at maturity. We issued a warrant into escrow in connection with this loan (see GH Escrow Warrants in Note 7). The note was scheduled to mature on December 31, 2019; the maturity was subsequently extended to October 22, 2021. August 2017 Note Payable to Great Harbor Capital, LLC Pursuant to an August 30, 2017 secured promissory note, GH lent us $3,000 (“August 2017 GH Note”). The August 2017 GH Note bears interest at an annual rate of 8.5%, with the principal payable at maturity. We issued a warrant into escrow in connection with this loan (see GH Escrow Warrants in Note 7). The note was scheduled to mature on August 29, 2020; the maturity was subsequently extended to October 22, 2021.
February 2018 Note Payable to Great Harbor Capital, LLC
Pursuant to a February 6, 2018 secured promissory note, GH lent us $2,000 (“February 2018 GH Note”). The note bears interest at an annual rate of 8.5%, with the principal payable at maturity. This note is secured by collateral and is subordinate to the indebtedness owed to Midcap Funding X Trust as successor-by-assignment from MidCap Financial Trust (“MidCap”). The note was scheduled to mature on February 6, 2021; the maturity was subsequently extended to October 22, 2021. As previously reported, on February 6, 2018, the Company issued an amended and restated secured promissory note to GH (“A&R August 2017 GH Note”) replacing the prior secured promissory note issued on August 30, 2017. The amendment and restatement added a requirement that when the Company consummates any Special Asset Disposition (as defined in the February 2018 GH Note), provided that the Company has a minimum liquidity of $1,000, the Company will use the net cash proceeds from the Special Asset Disposition to pay any accrued and unpaid interest under the A&R August 2017 GH Note and any other note subject to the Intercreditor Agreement (defined below). The interest rate and payment terms remain unchanged from the original secured promissory note issued to GH on August 30, 2017; however, the maturity date was extended to October 22, 2021.
Furthermore, as a result of notes issued on February 6, 2018, by GH and Golisano Holdings LLC (“Golisano LLC”), GH and Golisano LLC entered into an “Intercreditor Agreement” where they agreed that each of the February 2018 GH Note, A&R August 2017 GH Note, and the Golisano LLC February 2018 Note (as defined below) are pari passu as to repayment, security and otherwise and are equally and ratably secured.
July 2018 Note Payable to Great Harbor Capital, LLC
Pursuant to a July 27, 2018 secured promissory note, GH loaned the Company $5,000 ("July 2018 GH Note"). The July 2018 GH Note bears interest at an annual rate of 8.5%, with the principal payable on maturity. Interest on the outstanding principal accrues at a rate of 8.5% per year and is payable monthly on the first day of each month, beginning September 1, 2018. The principal of the July 2018 GH Note was payable at maturity on January 27, 2020. The July 2018 GH Note is secured by collateral. We issued a warrant to GH in connection with this loan (see GH Warrants in Note 7). In July 2019, the Company and GH amended this note to extend the maturity date to October 22, 2021.
The July 2018 GH Note is subordinate to the indebtedness owed to MidCap. The July 2018 GH Note is senior to the indebtedness owed to Little Harbor and Golisano LLC.
November 2018 Note Payable to Great Harbor Capital, LLC
Pursuant to a November 5, 2018 secured promissory note, GH loaned the Company $4,000 ("November 2018 GH Note"). The November 2018 GH Note bears interest at an annual rate of 8.5%, with the principal payable on maturity. Interest on the outstanding principal accrues at a rate of 8.5% per year and is payable monthly on the first day of each month, beginning December 1, 2018. The principal of the November 2018 GH Note was payable at maturity on November 5, 2020. The November 2018 GH Note is secured by collateral. We issued a warrant to GH in connection with this loan (see GH Warrants in Note 7). In July 2019, the Company and GH amended this note to extend the maturity to October 22, 2021.
February 2020 Note Payable to Great Harbor Capital, LLC
Pursuant to a February 2020 unsecured promissory note (“February 2020 GH Note”), an affiliate of a member of our Board of Directors, GH lent us $2,500. The February 2020 GH Note bears interest at an annual rate of 8%, with the principal payable at the maturity of October 22, 2021. GH delivered a deferment letter pursuant to which GH agreed to defer all payments due under the aforementioned notes held by GH, through October 22, 2021 and agreed to refrain from declaring a default and/or exercising any remedies under the notes. Amendments to extend the maturity date and related payment deferrals of the aforementioned notes to GH have not been executed and these notes are currently in default. We anticipate extending the maturity dates and related payment deferrals with the lending party, but we cannot guarantee that such extensions and payment deferrals will be successfully obtained on a timely basis or at all. To date, GH has not exercised any of its remedies available upon a default for any of the aforementioned notes. Golisano Holdings LLC
Mr. B. Thomas Golisano, a member of the Company’s Board of Directors, is a principal of Golisano LLC.
November 2014 Note Payable to Golisano Holdings LLC (formerly payable to Penta Mezzanine SBIC Fund I, L.P.)
On November 13, 2014, we raised proceeds of $8,000, less certain fees and expenses, from the issuance of a secured note to Penta Mezzanine SBIC Fund I, L.P. (“Penta”). The managing director of Penta, an institutional investor, is also a director of our Company. We granted Penta a security interest in our assets and pledged the shares of our subsidiaries as security for the note. On March 8, 2017, Golisano LLC acquired this note payable from Penta (“First Golisano Penta Note”). Interest on the outstanding principal accrued at a rate of 12% per year from the date of issuance to March 8, 2017, and decreased to 8% per year thereafter, payable monthly. The Company and Golisano LLC amended this note to extend the maturity from November 5, 2020 to October 22, 2021. We issued a warrant to Penta to purchase 4,960,740 shares of the Company’s common stock in connection with this loan.
January 2015 Note Payable to Golisano Holdings LLC (formerly payable to JL-Mezz Utah, LLC-f/k/a JL-BBNC Mezz Utah, LLC)
On January 22, 2015, we raised proceeds of $5,000, less certain fees and expenses, from the sale of a note to JL-Mezz Utah, LLC (f/k/a JL-BBNC Mezz Utah, LLC) (“JL-US”). The proceeds were restricted to pay a portion of the Nutricap Labs, LLC (“Nutricap”) asset acquisition. We granted JL-US a security interest in the Company’s assets, including real estate and pledged the shares of our subsidiaries as security for the note. On March 8, 2017, Golisano LLC acquired this note payable from JL-US. Interest on the outstanding principal accrued at a rate of 12% per year from the date of issuance to March 8, 2017, and decreased to 8% per year thereafter, payable monthly (“Golisano JL-US Note”). On August 30, 2017, we entered into an amendment with Golisano LLC which extended payment of principal to maturity. We issued a warrant to JL-US to purchase 2,329,400 shares of the Company’s common stock on January 22, 2015 and 434,809 shares of the Company’s common stock on February 4, 2015. The 434,809 warrants expired unexercised on February 13, 2020. The note matured on October 22, 2021.
February 2015 Note Payable to Golisano Holdings LLC (formerly payable to Penta Mezzanine SBIC Fund I, L.P.)
On February 6, 2015, we raised proceeds of $2,000, less certain fees and expenses, from the issuance of a secured note payable to Penta. The proceeds were restricted to pay a portion of the acquisition of the customer relationships of Nutricap. On March 8, 2017, Golisano LLC acquired this note payable from Penta (“Second Golisano Penta Note”). Interest on the outstanding principal accrued at a rate of 12% per year from the date of issuance to March 8, 2017, and decreased to 8% per year thereafter, payable monthly. On August 30, 2017, we entered into an amendment with Golisano LLC which extended payment of principal to maturity. We issued a warrant to Penta to purchase 869,618 shares of the Company’s common stock in connection with this loan. The note matured on October 22, 2021.
January 2016 Note Payable to Golisano Holdings LLC
Pursuant to a January 28, 2016 unsecured promissory note with Golisano LLC (“Golisano LLC January 2016 Note”), an affiliate of a member of our Board of Directors, Golisano LLC lent us $2,500. The note was scheduled to mature on January 28, 2019; the maturity was subsequently extended to June 30, 2019 and October 22, 2021. This note bears interest at an annual rate of 8.5%. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7). March 2016 Note Payable to Golisano Holdings LLC
Pursuant to a March 21, 2016 unsecured promissory note, Golisano LLC lent us $7,000 (“Golisano LLC March 2016 Note”). The note was scheduled to mature on March 21, 2019; the maturity was subsequently extended to June 30, 2019 and October 22, 2021. This note bears interest at an annual rate of 8.5%. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7).
July 2016 Note Payable to Golisano Holdings LLC
On July 21, 2016, we issued an unsecured delayed draw promissory note in favor of Golisano LLC pursuant to which Golisano LLC may, in its sole discretion and pursuant to draw requests made by the Company, loan the Company up to the maximum principal amount of $4,770 (the “Golisano LLC July 2016 Note”). During the year ended December 31, 2016, we requested and Golisano LLC approved, draws totaling $4,770. The Golisano LLC July 2016 Note was scheduled to mature on January 28, 2019; the maturity was subsequently extended to October 22, 2021. Interest on the outstanding principal accrues at a rate of 8.5% per year. The principal of the Golisano LLC July 2016 Note is payable at maturity. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7).
December 2016 Note Payable to Golisano Holdings LLC
Pursuant to a December 31, 2016 unsecured promissory note, as amended and restated, Golisano LLC lent us $2,500 (“Golisano LLC December 2016 Note”). The note bears interest at an annual rate of 8.5%, with the principal payable at maturity. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7). The note was scheduled to mature on December 30, 2019; the maturity was subsequently extended to October 22, 2021.
March 2017 Note Payable to Golisano Holdings LLC
Pursuant to a March 14, 2017 unsecured promissory note, as amended and restated, Golisano LLC lent us $3,267 (“Golisano LLC March 2017 Note”). The note bears interest at an annual rate of 8.5%, with the principal payable at maturity. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7). The note was scheduled to mature on December 30, 2019; the maturity was subsequently extended to October 22, 2021. February 2018 Note Payable to Golisano Holdings LLC
Pursuant to a February 6, 2018 secured promissory note, Golisano LLC lent us $2,000 (“Golisano LLC February 2018 Note”). The note bears interest at an annual rate of 8.5%, with the principal payable at maturity. This note is secured by collateral and is subordinate to the indebtedness owed to MidCap. The note was scheduled to mature on February 6, 2021; the maturity was subsequently extended to October 22, 2021.
February 2020 Note Payable to Golisano Holdings LLC
Pursuant to a February 2020 unsecured promissory note (“Golisano LLC February 2020 Note”), an affiliate of a member of our Board of Directors, Golisano LLC lent us $2,500. The Golisano LLC February 2020 Note bears interest at an annual rate of 8%, with the principal payable at the maturity date of October 22, 2021.
Golisano LLC delivered a deferment letter pursuant to which Golisano LLC agreed to defer all payments due under the aforementioned notes held by Golisano LLC through October 22, 2021 and agreed to refrain from declaring a default and/or exercising any remedies under the notes. Amendments to extend the maturity date and related payment deferrals of the aforementioned notes to Golisano LLC have not been executed and these notes are currently in default. We anticipate extending the maturity dates and related payment deferrals with the lending party, but we cannot guarantee that such extensions and payment deferrals will be successfully obtained on a timely basis or at all. To date, Golisano LLC has not exercised any of its remedies available upon a default for any of the aforementioned notes.
Macatawa Bank
Mr. Mark Bugge is a former member of the board of directors of Macatawa Bank (“Macatawa”) and was a member of the Company’s board of directors; he was an active member of both boards at the time of the term loan note as described below. Two other members of the Company’s Board of Directors, Mr. B. Thomas Golisano and Mr. David L. Van Andel, are the owners and principals of the guarantor, 463IP Partners, LLC (“463IP”). Furthermore, Mr. Van Andel, through his interest in a trust, holds an indirect limited partnership interest in White Bay Capital, LLLP, which has an ownership interest of greater than 10% in Macatawa. On December 4, 2018, the Company entered into a Term Loan Note and Agreement (the "Term Loan") in favor of Macatawa. Pursuant to the Term Loan, Macatawa loaned the Company $15,000. The Term Loan was scheduled to mature on November 30, 2020; however, in September 2020, the Company and Macatawa amended the Term Loan to extend the maturity date to November 30, 2022. The Term Loan accrues interest at the interest rate equivalent to the one-month LIBOR Rate plus 1.00% (the interest rate will not be less than 2.50%; the rate was 3.63% as of September 30, 2022). After the maturity date or upon the occurrence or continuation of an event of default, the unpaid principal balance shall bear interest at the interest rate of the note plus 3.00%. The note is secured by the Limited Guaranty, defined below, and is subordinate to the indebtedness owed to MidCap.
In connection with the Term Loan, 463IP has entered into a limited guaranty, dated as of December 4, 2018, in favor of Macatawa (the "Limited Guaranty") pursuant to which it has agreed to guarantee payment under the Term Loan and any and all renewals of the Term Loan and all interest accrued on such indebtedness limited to $15,000 plus any accrued interest. On October 28, 2019, the Term Loan was amended and GH and Golisano LLC replaced 463IP as “Entity Guarantor” as defined in the Term Loan, and provided their guaranties for payment of the Company’s indebtedness and obligations under the Term Loan.
Senior Credit Facility with Midcap
On January 22, 2015, we entered into a -year $15,000 revolving credit facility (the “Senior Credit Facility”) pursuant to a credit and security agreement, based on our accounts receivable and inventory, which could be increased to up to $20,000 upon satisfaction of certain conditions, with MidCap. MidCap subsequently assigned the agreement to an affiliate, Midcap Funding X Trust.
On September 2, 2016, we entered into an amendment with Midcap to increase the Senior Credit Facility to $17,000 and extend our facility an additional 12 months. We granted MidCap a first priority security interest in certain of our assets and pledged the shares of our subsidiaries as security for amounts owed under the Senior Credit Facility. We agreed to pay Midcap an unused line fee of 0.50% per annum, a collateral management fee of 1.20% per month, and interest of LIBOR plus 5% per annum. We issued a warrant to Midcap to purchase 500,000 shares of the Company’s common stock (see Midcap Warrant in Note 7).
On January 22, 2019, we entered into Amendment Sixteen to the Credit and Security Agreement (the "MidCap Sixteenth Amendment"). The MidCap Sixteenth Amendment reduced the revolving credit facility amount from a total of $17,000 to a total of $5,000 and extended the expiration date from January 22, 2019 to April 22, 2019.
On February 13, 2019, MidCap informed the Company that MidCap had re-assigned all of its rights, powers, privileges and duties as “Agent” under the Credit and Security Agreement, as well as all of its right, title and interest in and to the revolving loans made under the facility from Midcap Funding X Trust to MidCap IV Funding.
On April 22, 2019, we entered into Amendment Seventeen to the Credit and Security Agreement (the "MidCap Seventeenth Amendment"), which effectively increased the revolving credit facility amount to $12,000 and renewed the Senior Credit Facility for an additional two years expiring on April 22, 2021.
On April 22, 2021, we entered into Amendment Eighteen to the Credit and Security Agreement (the "MidCap Eighteenth Amendment"), which effectively updated the unused line fee to 0.375% per annum, updated the interest rates to 3.75% per annum, and renewed the Senior Credit Facility for an additional three years expiring on April 22, 2024.
We have incurred loan fees totaling $540 relating to the Senior Credit Facility and the subsequent amendments, which is also being amortized into interest expense over the term of the Senior Credit Facility. The balance owed on the Senior Credit Facility was $8,964 as of September 30, 2022.
Other Debt
May 2020 Note Payable to Fifth Third Bank N.A.
On May 7, 2020, Twinlab Consolidated Corporation ("TCC"), the operating subsidiary of the Company, received the proceeds of a loan from Fifth Third Bank, National Association ("Fifth Third Bank") in the amount of $1,674 obtained under the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020 (the "PPP Loan”). The PPP Loan, evidenced by a promissory note dated May 5, 2020 (the “PPP Note”), has a term and bears interest at a rate of 1.0% per annum, with expected monthly principal and interest payments that were due to begin December 1, 2020. TCC used the proceeds of the PPP Loan for payroll, office rent, and utilities, which allowed the Company to seek forgiveness for this loan. The Company submitted its application for 100% forgiveness for this loan in November 2021. In January 2022, the full amount of the PPP Loan was forgiven by the Small Business Administration ("SBA"). As a result, the Company recorded a gain on the forgiveness of the loan in the amount of $1,674. February 2021 Note Payable to Fifth Third Bank N.A. On February 9, 2021, TCC received the proceeds of a second loan from Fifth Third Bank in the amount of $1,344 ( the "Second PPP Loan") obtained under the Paycheck Protection Program. The Second PPP Loan, evidenced by a promissory note dated February 5, 2021 (the "Second PPP Note”), has a term and bears interest at a rate of 1.0% per annum, with expected monthly principal and interest payments that were due to begin September 1, 2021. TCC used the proceeds of the Second PPP Loan for payroll, which allowed the Company to seek forgiveness for this loan. The company submitted its application for 100% forgiveness for this loan in November 2021. In December 2021, the full amount of the Second PPP Loan was forgiven by the SBA. As a result, the Company recorded a gain on the forgiveness of the loan in the amount of $1,344.
Financial Covenants
Certain of the foregoing debt agreements, as amended, require us to meet certain affirmative and negative covenants, including maintenance of specified ratios. As of September 30, 2022, we were in default for lack of compliance with the EBITDA-related financial covenant of the debt agreement with MidCap. The amount due to MidCap for this revolving credit line is $8,964 as of September 30, 2022. |
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Note 7 - Warrants and Registration Rights Agreements |
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| Warrants and Rights Note Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants and Registration Rights Agreements |
Note 7 – Warrants and Registration Rights Agreements
The following table presents a summary of the status of our issued warrants as of September 30, 2022, and changes during the nine months then ended:
GH Warrants
In connection with the July 2018 GH Note, we issued GH a warrant to purchase an aggregate of 2,500,000 shares of the Company’s common stock at an exercise price of $0.01 per share (the "July 2018 GH Warrant"). The Company has reserved 2,500,000 shares of the Company’s common stock for issuance under the July 2018 GH Warrant. The July 2018 GH Warrant expires on July 27, 2024. The July 2018 GH Warrant is also subject to customary adjustments upon any recapitalization, reorganization, stock split, combination of shares, merger or consolidation. The Company estimated the value of the warrant using the Black-Scholes option pricing model and recorded a debt discount of $1,479, which was amortized over the original term of the July 2018 GH Note. In connection with the November 2018 GH Note, we issued GH a warrant to purchase an aggregate of 2,000,000 shares of the Company’s common stock at an exercise price of $0.01 per share (the "November 2018 GH Warrant"). The Company has reserved 2,000,000 shares of the Company’s common stock for issuance under the November 2018 GH Warrant. The November 2018 GH Warrant expires on November 5, 2024. The November 2018 GH Warrant is also subject to customary adjustments upon any recapitalization, reorganization, stock split, combination of shares, merger or consolidation. The Company estimated the value of the warrant using the Black-Scholes option pricing model and recorded a debt discount of $1,214 which was amortized over the original term of the November 2018 GH Note.
Warrants Issued into Escrow
At September 30, 2022, there were 8,757,573 outstanding warrants held in escrow (“Escrow Warrants”). These Escrow Warrants are held in escrow and are not exercisable unless the Company defaults on the related debt. While the related debt is currently in default (see Note 6), warrants are not expected to be exercised as the related debt is expected to be amended which will remedy the current default. These Escrow Warrants are as follows:
Golisano Escrow Warrants
In connection with the Golisano LLC January 2016 Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of 1,136,363 shares of the Company’s common stock at an exercise price of $0.01 per share (the “January 2016 Golisano Warrant”). The January 2016 Golisano Warrant was not to be released from escrow or be exercisable unless and until we fail to pay Golisano LLC the entire unamortized principal amount of the related promissory note and any accrued and unpaid interest thereon as of January 28, 2019 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as required pursuant to an Acceleration Notice (as defined in the related note agreement). The January 2016 Golisano Warrant expired unexercised on February 28, 2022.
In connection with the Golisano LLC March 2016 Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of 3,181,816 shares of the Company’s common stock at an exercise price of $0.01 per share (the “March 2016 Golisano Warrant”). The March 2016 Golisano Warrant was not to be released from escrow or be exercisable unless and until we fail to pay Golisano LLC the entire unamortized principal amount of the related promissory note and any accrued and unpaid interest thereon as of March 21, 2019 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the related note agreement). The March 2016 Golisano Warrant expired unexercised on March 21, 2022. In connection with the Golisano LLC July 2016 Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of 2,168,178 shares of the Company’s common stock, at an exercise price of $0.01 per share (the “Golisano July 2016 Warrant”). The Golisano July 2016 Warrant will not be released from escrow or be exercisable unless and until we fail to pay Golisano LLC the entire unamortized principal amount of the Golisano LLC July 2016 Note and any accrued and unpaid interest thereon as of July 21, 2019 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the Golisano LLC July 2016 Note). We have reserved 2,168,178 shares of the Company’s common stock for issuance under the Golisano July 2016 Warrant. The Golisano July 2016 Warrant expired unexercised on July 21, 2022. In connection with the Golisano LLC December 2016 Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of 1,136,363 shares of the Company’s common stock, at an exercise price of $0.01 per share (the “Golisano December 2016 Warrant”). The Golisano December 2016 Warrant will not be released from escrow or be exercisable unless and until we fail to pay Golisano LLC the entire unamortized principal amount of the Golisano LLC December 2016 Note and any accrued and unpaid interest thereon as of December 31, 2019, (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the Golisano LLC December 2016 Note). We have reserved 1,136,363 shares of the Company’s common stock for issuance under the Golisano December 2016 Warrant. The Golisano December 2016 Warrant, if exercisable, expires on December 30, 2022. The Golisano December 2016 Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets. In connection with the Golisano LLC March 2017 Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of 1,484,847 shares of the Company’s common stock, at an exercise price of $0.01 per share (the “Golisano March 2017 Warrant”). The Golisano March 2017 Warrant will not be released from escrow or be exercisable unless and until we fail to pay Golisano LLC the entire unamortized principal amount of the Golisano LLC March 2017 Note and any accrued and unpaid interest thereon as of December 31, 2019 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the Golisano LLC March 2017 Note). We have reserved 1,484,847 shares of the Company’s common stock for issuance under the Golisano March 2017 Warrant. The Golisano March 2017 Warrant, if exercisable, expires on March 14, 2023. The Golisano March 2017 Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.
In connection with the Golisano LLC February 2018 Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of 1,818,182 shares of the Company’s common stock at an exercise price of $0.01 per share (the "Golisano 2018 Warrant"). The Golisano 2018 Warrant will not be released from escrow or be exercisable unless and until the Company fails to pay Golisano LLC the entire unamortized principal amount of the Golisano LLC February 2018 Note and any accrued and unpaid interest thereon as of February 6, 2021, (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an acceleration notice. The Company has reserved 1,818,182 shares of the Company’s common stock for issuance under the Golisano 2018 Warrant. The Golisano 2018 Warrant expires on February 6, 2024.
We previously entered into a registration rights agreement with Golisano LLC, dated as of October 5, 2015 (the “Registration Rights Agreement”), granting Golisano LLC certain registration rights for certain shares of the Company’s common stock. The shares of common stock issuable pursuant to the above Golisano LLC warrants are also entitled to the benefits of the Registration Rights Agreement.
GH Escrow Warrants
In connection with a January 2016 GH Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of 1,136,363 shares of the Company’s common stock at an exercise price of $0.01 per share (the “January 2016 GH Warrant”). The January 2016 GH Warrant was not to be released from escrow or be exercisable unless and until we fail to pay GH the entire unamortized principal amount of the January 2016 GH Note and any accrued and unpaid interest thereon as of January 28, 2019 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the January 2016 GH Note). The January 2016 GH Warrant expired unexercised on February 28, 2022.
In connection with a March 2016 GH Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of 3,181,816 shares of the Company’s common stock at an exercise price of $0.01 per share (the “March 2016 GH Warrant”). The March 2016 GH Warrant was not to be released from escrow or be exercisable unless and until we fail to pay GH the entire unamortized principal amount of the March 2016 GH Note and any accrued and unpaid interest thereon as of March 21, 2019 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the March 2016 GH Note). The March 2016 GH Warrant expired unexercised on March 21, 2022.
In connection with the December 2016 GH Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of 1,136,363 shares of the Company’s common stock, at an exercise price of $0.01 per share (the “December 2016 GH Warrant”). The December 2016 GH Warrant will not be released from escrow or be exercisable unless and until we fail to pay GH the entire unamortized principal amount of the December 2016 GH Note and any accrued and unpaid interest thereon as of December 31, 2019 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the December 2016 GH Note). We have reserved 1,136,363 shares of common stock for issuance under the December 2016 GH Warrant. The December 2016 GH Warrant, if exercisable, expires on December 30, 2022. The December 2016 GH Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets. In connection with the August 2017 GH Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of 1,363,636 shares of the Company’s common stock, at an exercise price of $0.01 per share (the “August 2017 GH Warrant”). The August 2017 GH Warrant will not be released from escrow or be exercisable unless and until we fail to pay GH the entire unamortized principal amount of the August 2017 GH Note and any accrued and unpaid interest thereon as of August 29, 2020 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the August 2017 GH Note). We have reserved 1,363,636 shares of common stock for issuance under the August 2017 GH Warrant. The August 2017 GH Warrant, if exercisable, expires on August 30, 2023. The August 2017 GH Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.
In connection with the February 2018 GH Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of 1,818,182 shares of the Company’s common stock at an exercise price of $0.01 per share (the "February 2018 GH Warrant"). The February 2018 GH Warrant will not be released from escrow or be exercisable unless and until the Company fails to pay GH the entire unamortized principal amount of the note and any accrued and unpaid interest thereon as of February 6, 2021, (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an acceleration notice. The Company has reserved 1,818,182 shares of the Company’s common stock for issuance under the February 2018 GH Warrant. The February 2018 GH Warrant expires on February 6, 2024.
Little Harbor Escrow Warrant
The Little Harbor Delayed Draw Note required that we issue into escrow in the name of Little Harbor a warrant to purchase an aggregate of 2,168,178 shares of common stock at an exercise price of $0.01 per share (the “Little Harbor July 2016 Warrant”). The Little Harbor July 2016 Warrant will not be released from escrow or be exercisable unless and until we fail to pay Little Harbor the entire unamortized principal amount of the Little Harbor Delayed Draw Note and any accrued and unpaid interest thereon as of January 28, 2019 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an acceleration notice (as defined in the Little Harbor Delayed Draw Note). We have reserved 2,168,178 shares of the Company’s common stock for issuance under the Little Harbor July 2016 Warrant. The Little Harbor July 2016 Warrant expired unexercised on July 21, 2022. |
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Note 8 - Leases |
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| Leases |
Note 8 – Leases
The Company leases office space under non-cancelable operating leases with lease terms ranging from 1 to 7 years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease for an additional 2 to 5 years. These optional periods have not been considered in the determination of the right-of-use assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options. The Company performed evaluations of its contracts and determined each of its identified leases are operating leases. The sublease agreement to sublease half of the 31,000 square feet of office in St. Petersburg, Florida that commenced on February 1, 2017, expired on June 30, 2022. The lease was remeasured at that time and as a result, the Company recorded an impairment loss of $373 in general and administrative expenses. Currently the Company is seeking new sub tenant opportunities to fill the space.
For the three months and nine months ended September 30, 2022, the Company incurred $269 and $682, respectively, of lease expense on the condensed consolidated statements of operations in relation to these operating leases, of which $60 and $181 was variable rent expense associated with capitalized operating leases and not included within the measurement of the Company's operating right-of-use assets and lease liabilities. The variable rent expense consists primarily of the Company's proportionate share of operating expenses, property taxes and insurance, and it is classified as lease expense due to the Company's election to not separate lease and non-lease components.
As of September 30, 2022, the maturities of the Company’s lease liabilities were as follows:
Included below is other information regarding leases for the periods noted below.
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Note 9 - Stockholders' Deficit |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Equity [Abstract] | |
| Stockholders' Deficit |
Note 9 – Stockholders’ Deficit
Preferred Stock
The Company has authorized 500,000,000 shares of preferred stock with a par value of $0.001 per share. No shares of the preferred stock have been issued.
Twinlab Consolidation Corporation 2013 Stock Incentive Plan
The Twinlab Consolidation Corporation 2013 Stock Incentive Plan (the “TCC Plan”) was originally established with a pool of 20,000,000 shares of common stock for issuance as incentive awards to employees for the purposes of attracting and retaining qualified employees. The Company estimated the grant date fair market value per share of the restricted stock units and amortized the total estimated grant date value over the vesting periods. The restricted stock unit awards vested 25% each annually on various dates through 2019. There were no outstanding or unvested restricted stock units at December 31, 2021 or September 30, 2022. As of September 30, 2022, 7,194,412 shares remain available for use in the TCC Plan.
Stock Subscription Receivable and Loss on Stock Price Guarantee
As of September 30, 2022, the stock subscription receivable dated August 1, 2014 for the purchase of 1,528,384 shares of the Company’s common stock had a principal balance of $30 and bears interest at an annual rate of 5%. |
Note 2 - Summary of Significant Accounting Policies (Policies) |
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation |
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission (“SEC”) on March 29, 2022. These interim condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the periods presented. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q reflect adoption of these changes. |
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| Principles of Consolidation |
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. |
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| Use of Estimates |
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Significant management estimates include those with respect to returns and allowances, allowance for doubtful accounts, reserves for inventory obsolescence, the recoverability of long-lived assets, intangibles and goodwill. |
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| Contract Liabilities |
Contract Liabilities
Our contract liabilities consist of customer deposits and contractual guaranteed returns. Net contract liabilities are recorded in accrued expenses and other current liabilities and consisted of the following:
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| Disaggregation of Revenue |
Disaggregation of Revenue
Revenue is disaggregated from contracts with customers by goods or services as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the tables below.
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| Fair Value of Financial Instruments |
Fair Value of Financial Instruments
We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 – inputs are quoted prices in active markets for identical assets that the reporting entity has the ability to access at the measurement date.
Level 2 – inputs are other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly.
Level 3 – inputs are unobservable inputs for the asset that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability.
The Company did not have any financial instruments that are measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021. |
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| Accounts Receivable and Allowances |
Accounts Receivable and Allowances
We grant credit to customers and generally do not require collateral or other security. We perform credit evaluations of our customers and provide for expected claims related to promotional items, customer discounts, shipping shortages, damages, and doubtful accounts based upon historical bad debt and claims experience. As of September 30, 2022, total allowances amounted to $1,000, of which $153 was related to doubtful accounts receivable. As of December 31, 2021, total allowances amounted to $1,391, of which $511 was related to doubtful accounts receivable. |
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| Net Loss per Common Share |
Net (Loss) Income per Common Share
Basic net (loss) income per common share (“Basic EPS”) is computed by dividing net (loss) income by the weighted average number of common shares outstanding. Diluted net (loss) income per common share (“Diluted EPS”) is computed by dividing net (loss) income by the sum of the weighted average number of common shares outstanding and the dilutive potential common shares then outstanding. Potential dilutive common share equivalents consist of total shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock using the treasury stock method and the average market price per share during the period.
When calculating diluted (loss) income per share, if the effects are dilutive, companies are required to add back to net income the effects of the change in derivative liabilities related to warrants. Additionally, if the effects of the change in derivative liabilities are added back to net income, companies are required to include the warrants outstanding related to the derivative liability in the calculation of the weighted average dilutive shares.
The common shares used in the computation of our basic and diluted net (loss) income per share are as follows:
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| Significant Concentration of Credit Risk |
Significant Concentration of Credit Risk
Sales to our top three customers aggregated to approximately 22% and 24% of total sales for the three months ended September 30, 2022 and 2021, respectively and 23% and 28% of total sales for the nine months ended September 30, 2022 and 2021, respectively. Sales to one of those customers were approximately 9% and 13% of total sales for the three months ended September 30, 2022 and 2021, respectively, and 9% and 12% of total sales for the nine months ended September 30, 2022 and 2021, respectively. Accounts receivable from these three customers were approximately 34% and 17% of total accounts receivable as of September 30, 2022 and December 31, 2021, respectively. A customer represents 1% and 2% of total accounts receivable as of September 30, 2022 and December 31, 2021, respectively. This customer is a related party through a director who sits on both the Company’s board of directors and that of the customer. |
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| Revenue Recognition |
Revenue Recognition The Company recognizes revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606. For our customer contracts, (i) we identify the contract with a customer, (ii) we identify the performance obligations in the contract, (iii) we determine the transaction price, (iv) we allocate the transaction price to the performance obligation; and (v) we recognize revenue when we satisfy the performance obligation. Our revenues are recorded at a point in time when the performance is fulfilled, which is when the product is shipped to or received by the customer. Product sales are recorded net of variable considerations, such as provisions for returns, discounts, and allowances. We account for shipping and handling costs as costs to fulfill a contract and not as performance obligations to our customers. |
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| Leases |
Leases
The Company accounts for leases in accordance with ASC 842. The Company reviews all contracts and determines if the arrangement is or contains a lease, at inception. Operating leases are included in right-of-use (“ROU”) assets, current lease liabilities and long-term lease liabilities on the condensed consolidated balance sheets. The Company does not have any finance leases.
Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The operating lease ROU asset also includes any upfront lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with a term of 12 months or less are not recorded on the balance sheet. The Company’s lease agreements do not contain any residual value guarantees. |
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| New and Recently Adopted Accounting Pronouncements |
New Accounting Pronouncements - Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") 2016-13, Financial Instruments-Credit losses (Topic 326): Measurement of Credit losses on Financial Instruments. ASU 2016-13 requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Our status as a smaller reporting company allows us to defer adoption until the annual period, including interim periods within the annual period, beginning January 1, 2023. Management is currently evaluating the requirements of this guidance and has not yet determined the impact of the adoption on the Company's financial position or results of operations. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional guidance to companies to ease the potential burden associated with transitioning away from reference rates that are expected to be discontinued. The new guidance provides optional expedients and exceptions to apply GAAP to contract modifications and hedging relationships, subject to certain criteria, that reference London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. Companies can adopt ASU 2020-04 immediately; however, the guidance will only be available through December 31, 2022. While we are continuing to evaluate the impact of this ASU on our financial position or results of operations, we do not expect its impact will be material at this time. |
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Note 2 - Summary of Significant Accounting Policies (Tables) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of contract liabilities |
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| Schedule of disaggregation of revenue |
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| Schedule of computation of basic and diluted net loss per share |
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Note 3 - Inventories, net (Tables) |
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| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventories, net |
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Note 4 - Property and Equipment, Net (Tables) |
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| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment, net |
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Note 5 - Intangible Assets (Tables) |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of intangible assets |
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Note 6 - Debt (Tables) |
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of debt |
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Note 7 - Warrants and Registration Rights Agreements (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants and Rights Note Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of warrants |
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Note 8 - Leases (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of maturities of lease liabilities |
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| Schedule of other information regarding leases |
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Note 1 - Nature of Business (Details Textual) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
| Accumulated deficit | $ (353,071) | $ (348,202) |
| Working Capital Deficiency | (124,008) | |
| Long-term Debt, Current Maturities, Total | $ 100,037 | $ 97,408 |
Note 2 - Summary of Significant Accounting Policies - Contract Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Accounting Policies [Abstract] | ||
| Contract Liabilities - Customer Deposits | $ 1,711 | $ 2,104 |
| Contract Liabilities - Guaranteed Returns | 51 | 56 |
| Contract Liabilities | $ 1,762 | $ 2,160 |
Note 2 - Summary of Significant Accounting Policies - Disaggregation of Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Disaggregation of Revenue [Line Items] | ||||
| Net sales | $ 15,522 | $ 18,272 | $ 43,246 | $ 55,841 |
| Product Sales [Member] | ||||
| Disaggregation of Revenue [Line Items] | ||||
| Net sales | 15,375 | 18,106 | 42,740 | 55,200 |
| Fulfillment Services [Member] | ||||
| Disaggregation of Revenue [Line Items] | ||||
| Net sales | $ 147 | $ 166 | $ 506 | $ 641 |
Note 2 - Summary of Significant Accounting Policies - Basic and Diluted Net Loss Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 |
Jun. 30, 2022 |
Mar. 31, 2022 |
Sep. 30, 2021 |
Jun. 30, 2021 |
Mar. 31, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Accounting Policies [Abstract] | ||||||||
| Net (loss) income | $ (2,926) | $ (2,219) | $ 276 | $ (1,188) | $ 1,082 | $ 383 | $ (4,869) | $ 277 |
| Number of shares used in per common share calculations: | ||||||||
| Total shares for purpose of calculating basic net (loss) income per common share (in shares) | 259,092,833 | 259,092,833 | 259,092,833 | 258,751,722 | ||||
| Net income (loss) per common share: | ||||||||
| Basic (in dollars per share) | $ (0.01) | $ 0 | $ (0.02) | $ 0 | ||||
| Diluted (in dollars per share) | $ (0.01) | $ 0 | $ (0.02) | $ 0 | ||||
Note 3 - Inventories, net (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 1,500 | $ 2,016 |
| Finished goods | 9,294 | 4,586 |
| Inventory, Gross, Total | 10,794 | 6,602 |
| Reserve for obsolete inventory | (241) | (788) |
| Inventories, net | $ 10,553 | $ 5,814 |
Note 4 - Property and Equipment, Net (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property and Equipment, Net | ||
| Property, plant and equipment | $ 311 | $ 212 |
| Accumulated depreciation and amortization | (110) | (72) |
| Property and equipment, net | 201 | 140 |
| Machinery and equipment [Member] | ||
| Property and Equipment, Net | ||
| Property, plant and equipment | 124 | 36 |
| Leasehold improvements [Member] | ||
| Property and Equipment, Net | ||
| Property, plant and equipment | 118 | 118 |
| Computers and other [Member] | ||
| Property and Equipment, Net | ||
| Property, plant and equipment | $ 69 | $ 58 |
Note 4 - Property and Equipment, Net (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Property, Plant and Equipment [Abstract] | ||||
| Depreciation and amortization expense | $ 14 | $ 55 | $ 38 | $ 69 |
Note 5 - Intangible Assets (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Finite-Lived Intangible Assets [Line Items] | ||||
| Amortization of Intangible Assets, Total | $ 29 | $ 94 | $ 87 | $ 283 |
| Minimum [Member] | Trademarks [Member] | ||||
| Finite-Lived Intangible Assets [Line Items] | ||||
| Finite-Lived Intangible Asset, Useful Life (Year) | 3 years | |||
| Minimum [Member] | Customer Relationships [Member] | ||||
| Finite-Lived Intangible Assets [Line Items] | ||||
| Finite-Lived Intangible Asset, Useful Life (Year) | 15 years | |||
| Maximum [Member] | Trademarks [Member] | ||||
| Finite-Lived Intangible Assets [Line Items] | ||||
| Finite-Lived Intangible Asset, Useful Life (Year) | 30 years | |||
| Maximum [Member] | Customer Relationships [Member] | ||||
| Finite-Lived Intangible Assets [Line Items] | ||||
| Finite-Lived Intangible Asset, Useful Life (Year) | 16 years | |||
Note 5 - Intangible Assets - Summary of Intangible Assets (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Finite-Lived Intangible Assets [Line Items] | ||
| Indefinite-lived intangible assets | $ 120 | $ 120 |
| Intangible assets, gross | 11,222 | 11,222 |
| Accumulated amortization | (10,733) | (10,646) |
| Intangible assets, net | 489 | 576 |
| Trademarks [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Intangible assets | 4,739 | 4,739 |
| Customer Relationships [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Intangible assets | $ 6,363 | $ 6,363 |
Note 7 - Warrants and Registration Rights Agreements - Summary of the Warrants Issued and Changes (Details) |
9 Months Ended |
|---|---|
|
Sep. 30, 2022
$ / shares
shares
| |
| Warrants and Rights Note Disclosure [Abstract] | |
| Outstanding, beginning balance (in shares) | shares | 4,500,000 |
| Outstanding, weighted average exercise price (in dollars per share) | $ / shares | $ 0.01 |
| Granted (in shares) | shares | 0 |
| Granted, weighted average exercise price (in dollars per share) | $ / shares | $ 0 |
| Canceled / Expired (in shares) | shares | 0 |
| Canceled / expired, weighted average exercise price (in dollars per share) | $ / shares | $ 0 |
| Exercised (in shares) | shares | 0 |
| Exercised, weighted average exercise price (in dollars per share) | $ / shares | $ 0 |
| Outstanding, ending balance (in shares) | shares | 4,500,000 |
| Outstanding, weighted average exercise price (in dollars per share) | $ / shares | $ 0.01 |
Note 8 - Leases (Details Textual) $ in Thousands |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
|
Sep. 30, 2022
USD ($)
|
Sep. 30, 2022
USD ($)
|
Jun. 30, 2022
ft²
|
|
| Lessee, Lease, Description [Line Items] | |||
| Lease, Cost, Total | $ 269 | $ 682 | |
| Variable Lease, Cost | $ 60 | 181 | |
| General and Administrative Expense [Member] | |||
| Lessee, Lease, Description [Line Items] | |||
| Impairment loss | $ 373 | ||
| Office Space Sublease Agreement [Member] | |||
| Lessee, Lease, Description [Line Items] | |||
| Area of Land | ft² | 31,000 | ||
| Minimum [Member] | |||
| Lessee, Lease, Description [Line Items] | |||
| Lessee, Operating Lease, Term of Contract (Year) | 1 year | 1 year | |
| Lessee, Operating Lease, Renewal Term (Year) | 2 years | 2 years | |
| Maximum [Member] | |||
| Lessee, Lease, Description [Line Items] | |||
| Lessee, Operating Lease, Term of Contract (Year) | 7 years | 7 years | |
| Lessee, Operating Lease, Renewal Term (Year) | 5 years | 5 years |
Note 8 - Leases - Maturities of Lease Liabilities (Details) $ in Thousands |
Sep. 30, 2022
USD ($)
|
|---|---|
| Leases [Abstract] | |
| 2022 (excluding the nine months ended September 30, 2022) | $ 380 |
| 2023 | 1,534 |
| 2024 | 1,524 |
| 2025 | 1,566 |
| 2026 | 1,150 |
| Thereafter | 306 |
| Total lease payments | 6,460 |
| Less: imputed interest | (992) |
| Present value of lease liabilities | $ 5,468 |
Note 8 - Leases - Other Information Regarding Leases (Details) $ in Thousands |
3 Months Ended | 9 Months Ended |
|---|---|---|
|
Sep. 30, 2022
USD ($)
|
Sep. 30, 2022
USD ($)
|
|
| Leases [Abstract] | ||
| Sublease income | $ (132) | $ (591) |
| Cash paid for operating leases | $ 380 | $ 1,125 |
| Weighted average remaining lease term (years) - operating leases | 4 years 2 months 12 days | 4 years 2 months 12 days |
| Weighted average discount rate – operating leases | 8.25% | 8.25% |