Sale of Manufacturing Operations’ Assets

January 1, 2019,

we entered into a Purchase Agreement with Nutracom pursuant to which Nutracom purchased the following assets previously used by us in our manufacturing operations:

●

Inventories (sold at cost of

$1.56

million) and,

●

Machinery and other equipment with a net book value of

$565,000

(sold for

million; gain on disposal of approximately

$435,000

Nutracom was formed by our manufacturing operations management which included former officers of the Company. Employees of our manufacturing operations were offered employment by Nutracom.

Prior to its approval of the transaction, our Board of Directors formed a special committee consisting of the Board’s independent directors to review the transaction. To assist in its review, the special committee engaged a qualified

third

-party expert to render a fairness opinion on the transaction.

Concurrently with the execution of the Purchase Agreement, we entered into several agreements with Nutracom including a product supply agreement for a term of

seven

years, a fulfillment agreement, and a facility lease agreement whereby Nutracom will lease manufacturing, warehouse, and certain office space of our headquarters building from us for a term of

seven

years, with a Nutracom option for an additional

five

-year term. Annual lease amounts range from

$193,000

$410,000

over the

seven

-year term.

Nutracom provided the following consideration to us for the manufacturing operations and related identified assets and agreements:

●

million secured promissory note,

seven

year term, fixed interest rate of

5.5%,

principal and interest payable monthly. (See

June 1, 2019

note modification within this Note

●

$764,344

unsecured promissory note,

seven

year term, fixed interest rate of

7.0%,

interest only payable for the

first

two

years with monthly payment of principal and interest thereafter under a

ten

-year amortization schedule. The face value of the unsecured note includes the

first

year’s rent due under the facility lease agreement. (See

October 1, 2019

note modification within this Note

●

Nutracom management transferred to us its ownership of

99,200

shares of our common stock valued at

$540,144.

●

Nutracom issued to us a non-voting Class B

15%

equity membership interest in Nutracom, LLC. The Class B interest does

not

share in any profits or losses from operations of Nutracom. As defined within the Nutracom Operating Agreement, upon any merger, consolidation, disposition, or liquidation of Nutracom, the Class B equity membership interest converts to a Class A equity membership interest.

●

Commencing

January 1, 2020,

our Class B interest is entitled to receive a percentage, (ranging from

1.0%

1.25%

) of Nutracom’s annual revenues (excluding Nutracom’s revenues from sales to us).

Our non-voting Class B

15%

equity membership interest in Nutracom was valued by the aforementioned

third

-party expert at

$505,000.

As our non-voting membership interest does

not

participate in the management of Nutracom, nor do we share in any Nutracom operating profits or losses, we are accounting for our Nutracom equity investment under the cost method.

We accounted for the aforementioned Nutracom transactions in our

first

quarter

2019

financial results.

Promissory Note Modification –

June 1, 2019

June 1, 2019,

we entered into an Agreement with Nutracom to modify the Secured Promissory Note originally issued to us by Nutracom on

January 1, 2019,

as follows:

●

Effective

June 1, 2019,

the outstanding balance of the Secured Promissory Note was reduced by

$500,000

$460,583

with a corresponding reduction of

$500,000

to our outstanding vendor obligation due Nutracom under our ongoing product supply agreement.

●

The

$460,583

remaining Secured Promissory Note was exchanged with Nutracom for a newly issued

June 1, 2019

Nutracom unsecured promissory note for the same amount under the following terms: fixed interest rate of

6.0%

with interest only payable monthly through

December 2020.

Beginning

January 1, 2021,

principal and interest of

$8,904

will be payable monthly for

months.

Promissory Note Modification –

October 1, 2019

December 2019,

we entered into an Agreement with Nutracom to modify the Unsecured Promissory Note originally issued to us by Nutracom on

January 1, 2019,

as follows:

●

Effective

October 1, 2019,

the outstanding balance of the

January 1, 2019

Unsecured Promissory Note of

$764,344

was reduced to

$711,163.

The reduction of

$53,181

in the Note’s balance represents Nutracom’s return to us of now-expired inventories originally acquired by Nutracom from us on

January 1, 2019.

●

The

$711,163

remaining balance of the

January 1, 2019

Unsecured Promissory Note was exchanged with Nutracom for a newly issued

October 1, 2019

Nutracom Unsecured Promissory Note for the same amount under the following terms: fixed interest rate of

7.0%

with interest only payable monthly through

December 2020.

Beginning

January 1, 2021,

principal and interest of

$8,257,

under a

ten

-year amortization schedule, will be payable monthly for

months, with a balloon payment of all remaining principal and interest due

January 1, 2026.