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 November 9, 2023 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; wide spread health concerns; 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 31, 2023 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, 2023 |
December 31, 2022 |
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ASSETS |
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Current assets: |
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Cash |
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Accounts receivable, net |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Right-of-use assets |
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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 current liabilities |
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Long-term liabilities: |
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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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Stock subscriptions receivable |
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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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| 2023 |
2022 |
2023 |
2022 |
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Net sales |
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Cost of sales |
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Gross profit |
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Operating costs and expenses: |
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Selling expenses |
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General and administrative expenses |
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Loss 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 before income taxes |
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Provision for income taxes |
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| Net income (loss) from discontinued operations, net of income taxes | ( |
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Total net loss |
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| Net loss from continuing operation per share of common stock | ||||||||||||||||
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Weighted average number of common shares outstanding - basic |
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Net loss per common share - basic |
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Weighted average number of common shares outstanding - diluted |
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Net loss 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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Shares |
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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, 2021 |
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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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Balance, December 31, 2022 |
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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 loss |
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- |
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- |
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( |
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| Balance, March 31, 2023 | ( |
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| Net loss |
- | - | ( |
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| Balance, June 30, 2023 | ( |
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| Net loss | - | - | ( |
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| Balance, September 30, 2023 | $ | $ | $ | ( |
) | $ | ( |
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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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2023 |
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2022 |
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Cash flows from operating activities: |
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Net loss |
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$ |
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$ |
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Net income (loss) from discontinued operations |
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Net loss from continuing operations |
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Adjustments to reconcile net (loss) to net cash provided by (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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Provision for (recovery of) obsolete inventories |
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Provision for (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 provided by (used in) continuing operation |
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Net cash provided by discontinued operation |
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| Net cash provided by (used in) operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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Net cash used in continuing operation |
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Net cash used in discontinued operation |
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Cash flows from financing activities: |
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Net (repayment on) borrowings from revolving credit facility |
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Net cash provided by continuing operation |
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Net cash used in discontinued operation |
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Net decrease 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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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 performed services between private label distributors and contract manufacturers under the NutraScience Labs (“NSL”) brand name. NSL facilitated the production of new supplements to market and reformulated existing products to include scientifically-backed ingredients. We provided our customers with numerous production services, including manufacturing, testing, label and packaging design, order fulfillment, and regulatory compliance.
NSL facilitated 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 was to help our customers manufacture or reformulate dietary supplements for sale and distribution. We did this by working with contract manufacturers to build scientifically backed formulas for resale to our end customers. We also simplified 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 did not market these private label products, but rather sold the products to the customer, who was then responsible for the marketing, distribution, and sale to retailers or to their end customers. The services performed under NSL ceased with the abandonment of operations that began in July 2023.
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, 2023, 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; and continuing to negotiate lower prices from major suppliers. We will need to raise additional capital through debt, equity or the sale of assets during the current year. There can be no assurance that sources of funding will be available when needed on acceptable terms or at all. If we cannot obtain additional funding when required, the Company may sell certain assets, enter into collaborations, strategic alliances, merger and acquisition activities, and licensing agreements, negotiate with its principal lenders, wind-up operations of other subsidiaries, or file for bankruptcy protection.
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, 2022.
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, 2022 as filed with the Securities and Exchange Commission (“SEC”) on March 31, 2023. 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 receivable, allowance for credit losses, 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, 2023 |
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December 31, 2022 |
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Contract Liabilities - Customer Deposits |
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$ |
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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, 2023 |
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Three Months Ended September 30, 2022 |
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Product Sales |
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$ |
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Fulfillment Services |
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$ |
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$ |
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Nine Months Ended September 30, 2023 |
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Nine Months Ended September 30, 2022 |
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Product Sales |
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$ |
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Fulfillment Services |
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$ |
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$ |
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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, 2023 and December 31, 2022.
Accounts Receivable and Allowances
Our allowance for trade receivables consists of two components: an allowance for customer claims and an allowance for credit losses.
We estimate expected credit losses on our trade receivables in accordance with Accounting Standards Codification ("ASC") 326 - Financial Instruments - Credit Losses. We adopted this accounting standard prospectively on the first day of our 2023 fiscal year.
We measure the allowance for credit losses on trade receivables on a collective (pool) basis when similar risk characteristics exist. We pool our trade receivables by type, wholesalers and retailers. Our historical credit loss experience provides the basis for our estimation of expected credit losses. We use a two-year average of annual loss rates as a starting point for our estimation and make adjustments to the historical loss rates to account for differences in current conditions impacting the collectability of our receivable pools. We generally monitor macroeconomic indicators to assess whether adjustments are necessary to reflect current conditions.
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, 2023, total allowances amounted to $
Net Income (Loss) per Common Share
Basic net income (loss) per common share (“Basic EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted net income (loss) per common share (“Diluted EPS”) is computed by dividing net income (loss) 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 income (loss) 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 income (loss) per share are as follows:
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|||||||||||||
|
|
2023 | 2022 |
|
2023 |
2022 |
|||||||||||
|
Numerator: |
|
|||||||||||||||
|
Net income (loss) from continuing operation |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
|
Net income (loss) from discontinued operation, net of income taxes |
$ | ( |
) | $ | $ |
( |
) | $ | ||||||||
|
Net (loss) |
$ | ( |
) | $ | ( |
) |
|
$ |
( |
) | $ |
( |
) | |||
|
Denominator: |
|
|||||||||||||||
|
Weighted-average number of common shares - Basic |
|
|
|
|||||||||||||
| Weighted-average number of common shares - Diluted |
|
|
||||||||||||||
|
Net (loss) per common share: |
|
|||||||||||||||
|
Basic EPS |
$ | ( |
) | $ | ( |
) |
|
$ | ( |
) | $ | ( |
) | |||
|
Diluted EPS |
$ | ( |
) | $ | ( |
) |
|
$ | ( |
) | $ | ( |
) | |||
Significant Concentration of Credit Risk
Sales to our top
A single customer represents
Revenue Recognition
The Company recognizes revenue based on a five-step model in accordance with 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. Shipping and handling costs are recorded in cost of sales.
| 8 |
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.
Discontinued operations
We report financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Discontinued operations reporting occurs only when the disposal meets the criteria for classification as a discontinued operation in accordance with ASC Subtopic 205-20, Discontinued Operations (“ASC 205-20”). In our consolidated statements of cash flows, the cash flow from discontinued operations are separately classified/reported. Unless indicated otherwise, the information in the Notes to the consolidated financial statements relate to continuing operations (See Note 9, Discontinued Operations)
Accounting Pronouncements - 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. We adopted this standard prospectively on the first day of our 2023 fiscal year. The adoption of this standard did not have a material impact on our consolidated financial statements.
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. We adopted this standard prospectively on December 14, 2022, on one of our term loan notes and agreements which was amended on this date to transition from LIBOR to the secured overnight financing rate (“SOFR”). The adoption of this standard did not have a material impact on our consolidated financial statements.
Note 3 – Inventories, net
Inventories, net consisted of the following from continuing operations:
|
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
||
|
Finished goods |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||
|
Reserve for obsolete inventory |
|
|
( |
) |
|
|
( |
) |
||
|
|
|
|
|
|
|
|
|
|
||
|
Inventories, net |
|
$ |
|
|
|
$ |
|
|
||
| 9 |
Inventories, net consisted of the following from discontinued operations:
|
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
||
|
Finished goods |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||
|
Reserve for obsolete inventory |
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||
|
Inventories, net |
|
$ |
|
|
|
$ |
|
|
||
Note 4 – Property and Equipment, Net
Property and equipment, net consisted of the following from continuing operations:
|
|
September 30, 2023 |
|
December 31, 2022 |
||||||
|
Machinery and equipment |
$ |
|
|
$ |
|
||||
|
Leasehold improvements |
|
|
|
|
|
||||
| Computers and other |
|
|
|||||||
|
|
|
|
|
|
|
||||
|
Accumulated depreciation and amortization |
|
( |
) |
|
( |
) |
|||
|
|
|
|
|
|
|
||||
|
Property and equipment, net |
$ |
|
|
$ |
|
||||
Property and equipment, net consisted of the following from discontinued operations:
|
|
September 30, 2023 |
|
December 31, 2022 |
||||||
|
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, 2023 |
|
|
December 31, 2022 |
|
||||
|
Trademarks |
|
$ |
|
|
|
$ |
|
|
||
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
||
|
Customer relationships |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||
|
Accumulated amortization |
|
|
( |
) |
|
|
( |
) | ||
|
|
|
|
|
|
|
|
|
|
||
|
Intangible assets, net |
|
$ |
|
|
|
$ |
|
|
||
Trademarks are amortized over periods ranging from
| 10 |
Note 6 – Debt
Debt consisted of the following:
|
|
|
September 30, |
|
|
December 31, |
|
||||
|
|
|
2023 |
|
|
2022 |
|
||||
|
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 |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||
|
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 $
| 11 |
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 to Little Harbor 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 Little Harbor, 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 (the “January 2016 GH Note”) with Great Harbor Capital, LLC (“GH”), an affiliate of a former 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 (the “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 (the “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 $
| 12 |
As previously reported, on February 6, 2018, the Company issued an amended and restated secured promissory note to GH (the “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 (the “February 2020 GH Note”), an affiliate of a former 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 GH, 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 former 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 $
| 13 |
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 (the “Golisano LLC January 2016 Note”), an affiliate of a former 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 $
| 14 |
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 (the “Golisano LLC February 2020 Note”), an affiliate of a former 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 Golisano LLC, 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 (as defined below). A former member of the Company’s Board of Directors, Mr. B. Thomas Golisano, and a member of the Company's Board of Directors, 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 $
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 $
| 15 |
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, 2023, 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 $
Note 7 – Warrants and Registration Rights Agreements
The following table presents a summary of the status of our issued warrants as of September 30, 2023, and changes during the nine months then ended:
|
|
|
Shares Underlying |
|
|
Weighted Average |
|
||||
|
|
|
|
Warrants |
|
|
Exercise Price |
|
|||
|
Outstanding, December 31, 2022 |
|
|
|
|
|
$ |
|
|
||
|
Granted |
|
|
|
|
|
|
|
|
||
|
Canceled / Expired |
|
|
|
|
|
|
|
|||
|
Exercised |
|
|
|
|
|
|
|
|||
|
Outstanding, September 30, 2023 |
|
|
|
|
|
$ |
|
|
||
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, 2023, 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
| 17 |
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
| 18 |
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, 2023, the Company incurred $
In September 2023, the Company amended one of its lease agreements to extend the lease for
The lease agreement for
The lease agreement for
|
2023 (excluding the nine months ended September 30, 2023) |
|
$ |
|
|
|
|
2024 |
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
2026 |
|
|
|
|
|
| 2027 | |||||
|
Thereafter |
|
|
|
|
|
|
Total lease payments |
|
|
|
|
|
|
Less: imputed interest |
|
|
( |
) | |
|
Present value of lease liabilities |
|
$ |
|
|
|
|
Three Months Ended September 30, 2023 |
|
Nine Months Ended September 30, 2023 |
|
|||||
|
Sublease income |
$ | ( |
) |
|
$ |
( |
) | ||
|
Cash paid for operating leases |
$ |
|
$ |
|
|
||||
|
Weighted average remaining lease term (years) - operating leases |
|
|
|
|
|||||
|
Weighted average discount rate – operating leases |
% |
|
|
|
% |
||||
Note 9 – Discontinued Operations
Throughout Q3 FY23, the Company took steps to cease the operations of its fully owned subsidiary, NSL. By September 30, 2023 the aggregation of these efforts resulted in the abandonment of the remaining assets associated with the subsidiary. The Company no longer retains access to the facilities and warehousing locations previously associated with NSL operations. The loss recognized related to the disposal was ($
| December 31, 2022 | ||||
| Carrying amounts of assets associated with NutraScience Labs included as part of discontinued operations: | ||||
| Cash and cash equivalents | $ | |||
| Accounts receivable, net | ||||
| Inventories, net | ||||
|
Prepaid expenses |
||||
| Current assets of discontinued operations | $ | |||
| Property and equipment, net | $ | |||
| Intangible assets, net | ||||
| Goodwill | ||||
| Right of use assets, net | ||||
| Deposits and other assets | ||||
| Non-current assets of discontinued operations | $ | |||
| Carrying amounts of liabilities associated with NutraScience Labs included as part of discontinued operations: | ||||
| Accounts payable | $ | |||
| Accrued expenses | ||||
| Short-term operating lease liabilities | ||||
| Deferred revenues | ||||
| Current liabilities of discontinued operations | $ | |||
| Long-term operating lease liabilities | ||||
| Non-current liabilities of discontinued operations | $ |
| 21 |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Operating costs and expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
|
Income (loss) from discontinued operations before Provision for income taxes |
( |
) | ( |
) | ||||||||||||
| Provision expense (benefit) for income taxes | ||||||||||||||||
| Income (loss) from discontinued operations, net of tax | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||
Note 10 – 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, 2023, the stock subscription receivable dated August 1, 2014 for the purchase of
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, 2022, which was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023. 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; wide spread health concerns; 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 70 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 performed services between private label distributors and contract manufacturers under the NutraScience Labs (“NSL”) brand name. NSL facilitated the production of new supplements to market and reformulated existing products to include scientifically-backed ingredients. We provided our customers with numerous production services, including manufacturing, testing, label and packaging design, order fulfillment, and regulatory compliance.
NSL facilitated 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 was to help our customers manufacture or reformulate dietary supplements for sale and distribution. We did this by working with contract manufacturers to build scientifically backed formulas for resale to our end customers. We also simplified 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 did not market these private label products, but rather sold the products to the customer, who was then responsible for the marketing, distribution, and sale to retailers or to their end customers. The services performed under NSL ceased with the abandonment of operations that began in July 2023.
| 23 |
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, 2023, we had an accumulated deficit of $368.6 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 $138.5 million at September 30, 2023. We also have $95.3 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 will need to raise additional capital through debt, equity or the sale of assets during the current year. There can be no assurance that sources of funding will be available when needed on acceptable terms or at all. If we cannot obtain additional funding when required, the Company may sell certain assets, enter into collaborations, strategic alliances, merger and acquisition activities, and licensing agreements, negotiate with its principal lenders, wind-up operations of other subsidiaries, or file for bankruptcy protection.
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, 2023 and 2022
The following table summarizes our financial results for the three and nine month periods ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
Increase |
% |
|
Nine Months Ended September 30, |
|
|
Increase |
|
|
% |
|
||||||||||||||||||||
|
|
2023 |
2022 |
(Decrease) |
Change |
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|
Change |
|
||||||||||||||||
|
Net sales |
$ | 3,676 | $ | 4,597 | $ | (921 | ) | (20 | ) |
|
$ |
10,473 |
|
|
$ |
14,271 |
|
|
$ |
(3,798 |
) |
|
|
(27 |
) | |||||||
|
Cost of sales |
2,345 | 2,711 | (366 | ) | (14 | ) |
|
|
6,475 |
|
|
|
7,868 |
|
|
|
(1,393 |
) |
|
|
(18 |
) | ||||||||||
|
Gross profit |
1,331 | 1,886 | (555 | ) | (29 | ) |
|
|
3,998 |
|
|
|
6,403 |
|
|
|
(2,405 |
) |
|
|
(38 |
) | ||||||||||
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Selling expenses |
342 | 784 | (442 | ) | (56 | ) |
|
|
933 |
|
|
|
2,262 |
|
|
|
(1,329 |
) |
|
|
(59 |
) | ||||||||||
|
General and administrative expenses |
1,191 | 2,019 | (828) | (41) |
|
|
3,769 |
|
|
|
4,889 |
|
|
|
(1,120 |
) |
|
|
(23 |
) | ||||||||||||
|
Loss from operations |
(202 | ) | (917 | ) | 715 | (78) |
|
|
(704 |
) |
|
|
(748 |
) |
|
|
44 |
|
|
(6) |
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Interest expense, net |
(2,107 | ) | (2,064 | ) | 43 | 2 |
|
|
(6,429 |
) |
|
|
(5,876 |
) |
|
|
553 |
|
|
9 |
||||||||||||
|
Other income (expense) |
(16 | ) | - | 16 | - |
|
|
14 |
|
|
1,676 |
|
|
(1,662 |
) |
|
|
(99 |
) | |||||||||||||
|
Total other expense, net |
(2,123 | ) | (2,064 | ) | 59 | 3 |
|
|
(6,415 |
) |
|
|
(4,200 |
) |
|
|
2,215 |
|
|
53 |
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Loss before income taxes |
(2,325 | ) | (2,981 | ) | 656 | 22 |
|
|
(7,119 |
) |
|
|
(4,948 |
) |
|
|
(2,171) |
|
|
44 |
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Provision for income taxes |
(25 | ) | - | (25) | - |
|
|
(32 |
) |
|
|
- |
|
|
|
(32 |
) |
|
|
- |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
| Net loss from continuing operation | (2,350 | ) | (2,981 | ) | 631 | 21 | (7,151 | ) | (4,948 | ) | (2,203 | ) | 45 | |||||||||||||||||||
| Net income (loss) from discontinued operation, net of income taxes | (3,014 | ) | 55 | (3,069 | ) | - | (5,015 | ) | 79 | (5,094 | ) | - | ||||||||||||||||||||
|
Total net loss |
$ | (5,364 | ) | $ | (2,926 | ) | $ | (2,438 | ) | (83 | ) |
|
$ |
(12,166 |
) |
|
$ |
(4,869 |
) |
|
$ |
(7,297 |
) |
|
|
150 |
||||||
| 24 |
Net Sales
The decrease in our net sales of 20% and 27% for the three and nine month periods ended September 30, 2023, respectively, compared to the same periods in 2022 was primarily due to reduced demand from some of our major customers and a market shift away from higher priced brands due to current economic conditions.
Gross Profit
Our overall gross profit decrease of 29% and 38% for the three and nine month periods ended September 30, 2023 compared to the same periods in 2022 was primarily due to reduced demand from some of our major customers, increased promotional costs to drive demand, and increases to input costs.
Selling Expenses
Our selling expenses decreased by 56% and 59% for the three and nine month periods ended September 30, 2023 compared to the same periods in 2022, primarily due to the decrease of certain advertising costs as well as decreased fees paid to marketing consultants.
General and Administrative Expenses
For the three and nine month periods ended September 30, 2023, our general and administrative expenses decreased by 41% and 23% compared to the same periods in 2022 primarily due to a reduction in overhead expenses including staffing expenses, professional service fees, and insurance expenses.
Interest Expense, Net
Our interest expense, net increased by 2% and 9% for the three and nine month periods ended September 30, 2023 compared to the same periods in 2022 primarily due to increased lending costs and the associated interest.
Other Income (Expense)
The decrease in other income (expense) of $16 for the three months ended September 30, 2023 compared to the same period in 2022 was due to the remeasurement impairment of the St. Petersburg lease during the three months ended September 30, 2022. The decrease in other income (expense) of $1,662 for the nine months ended September 30, 2023 compared to the same period in 2022 was due to the forgiveness of the PPP Loan in early 2022.
Liquidity and Capital Resources
At September 30, 2023, we had an accumulated deficit of $368.6 million primarily because of our history of operating losses. We had a working capital deficiency of $138.5 million at September 30, 2023. 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, 2023, we had cash of $0.1 million. Cash provided by operating activities was $1.2 million for the nine months ended September 30, 2023. During the nine months ended September 30, 2023, we had repayments to our revolving credit facility of $2.0 million.
Our total liabilities increased by $0.7 million to $146.9 million at September 30, 2023 from $146.2 million at December 31, 2022 primarily due to the decrease of $3.0 million in accounts payable and $2.0 million in notes payable and current portion of long-term debt; partially offset by an increase of $4.9 million in accrued interest.
Cash Flows from Operating, Investing and Financing Activities
Net cash provided by operating activities was $1.2 million for the nine months ended September 30, 2023 as a result of our net loss of $12.2 million, and an increase in net operating assets and liabilities of $9.4 million. By comparison, for the nine months ended September 30, 2022, net cash used in operating activities was $7.5 million as a result of our net loss of $4.9 million, a decrease in net operating assets and liabilities of $1.3 million, forgiveness of our PPP Loan of $1.7 million, and other non-cash expenses totaling $0.4 million net.
Net cash used in financing activities was $2.0 million for the nine months ended September 30, 2023, consisting of net repayments of $2.0 million to our revolving credit facility. 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.
Ongoing Funding Requirements
As set forth above, we obtained additional debt financing in the year ended December 31, 2022 and the nine months ended September 30, 2023 to support operations. We will need additional funding from our revolving credit facility to continue supporting our operations during the next twelve months. However, we cannot predict whether future borrowings will be available to us under our credit facility and future developments associated with the current economic environment will materially affect our long-term liquidity position.
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 lenders, but we cannot guarantee that such extensions and payment deferrals will be successfully obtained on a timely basis or at all.
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.
| 26 |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our interim chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023 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 interim chief 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 principal financial officer, in a manner that allows timely decisions regarding required disclosure.
The Company has a lack of appropriate staffing in our accounting and information technology departments to address the Company’s ability to continue to close the books both timely and accurately and to meet internal control processes. The Company’s ability to address this material weakness is limited due to the lack of financing.
Although the Company is working to remediate this material weakness, it currently has not been resolved. 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.
Remediation in Internal Control over Financial Reporting
To address the material weakness related to appropriate staffing, the Company made efforts to hire, train and retain appropriate staff in the accounting, finance and information technology departments including technical accountants to support and alleviate the workload on the current team. The additional staff should help to proactively identify and account for transactions of a complex or non-routine nature, identify and reduce inefficiencies, and better identify weaknesses in internal controls. Furthermore, the additional staffing should be responsible for managing the day-to-day responsibilities of Sarbanes Oxley compliance, including enhanced documentation of process and general controls. However, the Company has not yet been able to complete all of the training and additional staffing may still be required.
Changes in Internal Control over Financial Reporting
Except as discussed above, there were no changes in our internal controls over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
| 27 |
|
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 31, 2023.
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, 2023, 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 $4,276 as of September 30, 2023.
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, 2023, 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. |
| 28 |
|
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). |
||
|
* Filed herewith. |
|||
| ** Furnished herewith. | |||
| 29 |
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: November 14, 2023 |
By: |
/s/ Kyle Casey |
|
|
|
Kyle Casey |
|
|
|
Interim Chief Executive Officer and Chief Financial Officer (Interim Principal Executive Officer and Principal Financial Officer) |
| 30 |