UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to __________

 

Commission file number 000-55181

 

 

TWINLAB CONSOLIDATED HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

46-3951742

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

4800 T-Rex Avenue, Suite 305

Boca Raton, Florida

 

 

33431

(Address of principal executive offices)

 

(Zip Code)

 

(561) 443-4301

(Registrant's telephone number, including area code)

 
 
(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

   

Trading Symbol

 

Name of each exchange on which registered

           

 

 

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 ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations 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 ☑ No ☐

  

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.: 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

 

 

 

 

Smaller reporting company

 

 

 

Emerging growth company

 

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 ☐ No ☑

 

The number of shares of common stock, $0.001 par value, outstanding on May 15, 2019 was 255,643,828 shares. 

 

 

 
 

 

TABLE OF CONTENTS

     

Page No.   

Part I - FINANCIAL INFORMATION

   
         
Item 1.   Financial Statements    
         
    Condensed Consolidated Balance Sheets (Unaudited) 1  
         
    Condensed Consolidated Statements of Operations (Unaudited) 2  
         
    Condensed Consolidated Statements of Stockholders’ Deficit  (Unaudited) 3  
         
    Condensed Consolidated Statements of Cash Flows (Unaudited) 4  
         
    Notes to Condensed Consolidated Financial Statements (Unaudited) 5  

 

 

 

   

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

24

 

 

 

 

   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

29

 

 

 

 

   

Item 4.

 

Controls and Procedures

29

 
         

Part II - OTHER INFORMATION

   
         

Item 1.

 

Legal Proceedings

31

 
         

Item 1A.

 

Risk Factors

31

 
         

Item 6.

 

Exhibits

31

 
         
   

Signatures

32

 

 

 

 
 

 

PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements.

 

TWINLAB CONSOLIDATED HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

   

March 31,

2019

   

December 31,

2018

 

ASSETS

               
                 

Current assets:

               

Cash

  $ 1,672     $ 6,227  

Accounts receivable, net of allowance of $4,207 and $2,651, respectively

    11,643       8,566  

Inventories, net

    6,969       7,945  

Prepaid expenses and other current assets

    6,753       6,560  

Total current assets

    27,037       29,298  
                 

Property and equipment, net

    929       1,117  

Intangible assets, net

    20,929       21,308  

Goodwill

    17,797       17,797  

Other assets

    1,702       1,720  
                 

Total assets

  $ 68,394     $ 71,240  
                 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

               
                 

Current liabilities:

               

Accounts payable

  $ 9,691     $ 8,081  

Accrued expenses and other current liabilities

    16,097       15,824  

Derivative liabilities

    4,994       4,359  

Notes payable and current portion of long-term debt, net of discount of $2,899 and $3,797, respectively

    73,358       70,539  

Total current liabilities

    104,140       98,803  
                 

Long-term liabilities:

               

Deferred gain on sale of assets

    1,297       1,324  

Long-term debt, net of current portion

    15,000       15,000  

Total long-term liabilities

    16,297       16,324  
                 

Total liabilities

    120,437       115,127  
                 

Stockholders’ deficit:

               

Preferred stock, $0.001 par value, 500,000,000 shares authorized, no shares issued and outstanding

    -       -  

Common stock, $0.001 par value, 5,000,000,000 shares authorized, 390,449,879 shares issued

    390       390  

Additional paid-in capital

    231,253       230,625  

Stock subscriptions receivable

    (30 )     (30 )

Treasury stock, 134,806,051 shares at cost

    (500 )     (500 )

Accumulated deficit

    (283,156 )     (274,372 )

Total stockholders’ deficit

    (52,043 )     (43,887 )
                 

Total liabilities and stockholders' deficit

  $ 68,394     $ 71,240  

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

1

 
 

 

TWINLAB CONSOLIDATED HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

   

Three Months Ended

March 31,

 
   

2019

   

2018

 

Net sales

  $ 19,971     $ 19,665  

Cost of sales

    17,715       15,590  
                 

Gross profit

    2,256       4,075  
                 

Operating costs and expenses:

               

Selling, general and adminisrative expenses

    7,042       8,722  
                 

Loss from operations

    (4,786 )     (4,647 )
                 

Other income (expense):

               

Interest expense, net

    (2,718 )     (2,113 )

Gain (loss) on change in derivative liabilities

    (1,263 )     1,818  

Other expense

    (17 )     (16 )
                 

Total other expense

    (3,998 )     (311 )
                 

Loss before income taxes

    (8,784 )     (4,958 )
                 

Provision for income taxes

    -       -  
                 

Total net loss

  $ (8,784 )   $ (4,958 )
                 

Weighted average number of common shares outstanding - basic

    255,643,828       253,275,066  

 

               

Net loss per common share - basic

  $ (0.03 )   $ (0.02 )
                 

Weighted average number of common shares outstanding - diluted

    255,643,828       265,731,230  

 

               

Net loss per common share - diluted

  $ (0.03 )   $ (0.03 )

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

2

 
 

 

TWINLAB CONSOLIDATED HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

(AMOUNTS IN THOUSANDS, EXCEPT FOR SHARES AND PER SHARE AMOUNTS)

 

   

Common Stock

   

Additional

Paid-in

   

Stock

Subscriptions

   

Treasury Stock

   

Accumulated

         
   

Shares

   

Amount

    Capital       Receivable      

Shares

   

Amount

   

Deficit

   

Total

 
                                                                 

Balance, December 31, 2017

    388,081,117     $ 388     $ 226,884     $ (30 )     134,806,051     $ (500 )   $ (253,963 )   $ (27,221 )

Stock-based compensation

    -       -       118       -       -       -       -       118  

Net loss

    -       -       -       -       -       -       (4,958 )     (4,958 )

Balance, March 31, 2018

    388,081,117     $ 388     $ 227,002     $ (30 )     134,806,051     $ (500 )   $ (258,921 )   $ (32,061 )
                                                                 

Balance, December 31, 2018

    390,449,879     $ 390     $ 230,625     $ (30 )     134,806,051     $ (500 )   $ (274,372 )   $ (43,887 )
                                                                 

Reclassification of derivative liabilities

    -       -       628       -       -       -       -       628  

Net loss

    -       -       -       -       -       -       (8,784 )     (8,784 )

Balance, March 31, 2019

    390,449,879     $ 390     $ 231,253     $ (30 )     134,806,051     $ (500 )   $ (283,156 )   $ (52,043 )

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

3

 
 

 

TWINLAB CONSOLIDATED HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(AMOUNTS IN THOUSANDS)

 

   

Three Months Ended

March 31,

 
   

2019

   

2018

 

Cash flows from operating activities:

               

Net loss

  $ (8,784 )   $ (4,958 )

Adjustments to reconcile net loss to net cash used in operating activities

               

Depreciation and amortization

    567       674  

Amortization of debt discount

    898       502  

Stock-based compensation

    -       118  

(Recovery for) provision for obsolete inventories

    (978 )     93  

(Recovery for) provision for losses on accounts receivable

    1,054       (114 )

Loss (gain) on change in derivative liability

    1,263       (1,818 )

Other non-cash items

    (27 )     (41 )

Changes in operating assets and liabilities:

               

Accounts receivable, net

    (4,128 )     (768 )

Inventories

    1,954       (73 )

Prepaid expenses and other current assets

    (193 )     68  

Other assets

    18       6  

Accounts payable

    1,610       (387 )

Accrued expenses and other current liabilities

    272       2,462  
                 

Net cash used in operating activities

    (6,474 )     (4,236 )
                 

Cash flows from investing activities:

               

Purchase of property and equipment

    -       (47 )
                 

Cash flows from financing activities:

               

Proceeds from the issuance of debt

    -       4,000  

Repayment of debt

    (63 )     (393 )

Net borrowings from revolving credit facility

    1,983       296  
                 

Net cash provided by financing activities

    1,920       3,903  
                 

Net decrease in cash

    (4,554 )     (380 )

Cash at the beginning of the period

    6,226       1,350  
                 

Cash at the end of the period

  $ 1,672     $ 970  
                 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

               

Cash paid for interest

  $ 30     $ 557  
                 

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

               

Reclassification of derivative liabilities

  $ 628     $ -  

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

4

 

 

TWINLAB CONSOLIDATED HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

 

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization

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.

 

Nature of Operations

We are a marketer, distributor and direct to consumer 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 (including the REAAL®, Phytocab™ and Twinlab® Fuel brand of sports nutrition products); 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; the Re-Body® 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.

 

Through our NutraScience Labs division, we provide contract manufacturing services for private label products. Our contract manufacturing services business leverages our network of co-packers to manufacture custom products to the specifications of a customer who requires finished products under the customer’s own brand name. We do not market these private label products as our business is to sell the products to the customer, who then markets and sells the products to retailers or end consumers. 

 

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.

 

Basis of Presentation and Unaudited Information

The condensed consolidated interim financial statements included herein have been prepared by the Company in accordance with United States Generally Accepted Accounting Principles (“GAAP”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management, are necessary for fair presentation of the information contained herein. Financial results for any interim period are not necessarily indicative of financial results that may be expected for the fiscal year. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on April 16, 2019.

 

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 and the estimated value of warrants and derivative liabilities.

 

Revenue Recognition

Revenue from product sales, net of estimated returns and allowances, is recognized when evidence of an arrangement is in place, related prices are fixed and determinable, contractual obligations have been satisfied, title and risk of loss have been transferred to the customer and collection of the resulting receivable is reasonably assured. Shipping terms are generally freight on board shipping point. We sell predominately in the North American and European markets, with international sales transacted in U.S. dollars.

 

5

 

 

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 following table summarizes our financial instruments that are measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018:

 

   

Total

   

Level 1

   

Level 2

   

Level 3

 

March 31, 2019:

                               

Derivative liabilities

  $ 4,994       -       -     $ 4,994  
                                 

December 31, 2018:

                               

Derivative liabilities

  $ 4,359       -       -     $ 4,359  

 

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 March 31, 2019, total allowances amounted to $4,207, of which $3,753 was related to doubtful accounts receivable. As of December 31, 2018, total allowances amounted to $2,651, of which $1,954 was related to doubtful accounts receivable.

 

 

Inventories

Inventories are stated at the lower of cost or net realizable value and are reduced by an estimated reserve for obsolete inventory.

 

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation, including amounts amortized under capital leases, is calculated on the straight-line method over the estimated useful lives of the related assets, which are 7 to 10 years for machinery and equipment, 8 years for furniture and fixtures and 3 years for computers. Leasehold improvements are amortized over the shorter of the useful life of the asset or the term of the lease.

  

Normal repairs and maintenance are expensed as incurred. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation or amortization is removed from the accounts and any gain or loss is included in the results of operations.

 

Intangible Assets

Intangible assets consist primarily of trademarks and customer relationships, which are amortized on a straight-line basis over their estimated useful lives ranging from 3 to 30 years. The valuation and classification of these assets and the assignment of amortizable lives involve significant judgment and the use of estimates.

 

We believe that our long-term growth strategy supports our fair value conclusions. For intangible assets, the recoverability of these amounts is dependent upon achievement of our projections and the execution of key initiatives related to revenue growth and improved profitability.

 

6

 

 

Goodwill

Goodwill is not subject to amortization, but is reviewed for impairment annually, or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. An impairment charge would be recorded to the extent the carrying value of goodwill exceeds its estimated fair value. The testing of goodwill under established guidelines for impairment requires significant use of judgment and assumptions. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations.

 

Impairment of Long-Lived Assets

Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment when changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying amount of the asset exceeds the expected undiscounted cash flows of the asset, an impairment charge is recognized equal to the amount by which the carrying amount exceeds fair value. The testing of these intangibles under established guidelines for impairment requires significant use of judgment and assumptions. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations.

 

Indefinite-Lived Intangible Assets

Indefinite-lived intangible assets relating to the asset acquisition of Organic Holdings, LLC (“Organic Holdings”) a market leader in the healthy aging and beauty from within categories, and owner of the Reserveage Nutrition brands, are determined to have an indefinite useful economic life and as such are not amortized. Indefinite-lived intangible assets are tested for impairment annually which consists of a comparison of the fair value of the asset with its carrying value. The total indefinite-lived intangible assets as of March 31, 2019 and December 31, 2018 was $4,346.

 

Value of Warrants Issued with Debt

We estimate the grant date value of certain warrants issued with debt, using an outside professional valuation firm, which uses the Monte Carlo option lattice model. We record the amounts as interest expense or debt discount, depending on the terms of the agreement. These estimates involve multiple inputs and assumptions, including the market price of the Company’s common stock, stock price volatility and other assumptions to project earnings before interest, taxes, depreciation and amortization (“EBITDA”) and other reset events. These inputs and assumptions are subject to management’s judgment and can vary materially from period to period.

 

Derivative Liabilities

We have recorded certain warrants as derivative liabilities at estimated fair value, as determined based on our use of an outside professional valuation firm, due to the variable terms of the warrant agreements. The value of the derivative liabilities is generally estimated using the Monte Carlo option lattice model with multiple inputs and assumptions, including the market price of the Company’s common stock, stock price volatility and other assumptions to project EBITDA and other reset events. These inputs and assumptions are subject to management’s judgment and can vary materially from period to period.

 

Deferred gain on sale of assets

We entered into a sale-leaseback arrangement relating to our office facilities in 2013. Under the terms of the arrangement, we sold an office building and surrounding land and then leased the property back under a 15-year operating lease. We recorded a deferred gain for the amount of the gain on the sale of the asset, to be recognized as a reduction of rent expense over the life of the lease. Accordingly, we recorded amortization of deferred gain as a reduction of rental expense of $27 and $40 for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, and December 31, 2018, unamortized deferred gain on sale of assets was $1,297 and $1,324, respectively.

 

Net Income (Loss) per Common Share

Basic net income or loss per common share (“Basic EPS”) is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted net income or loss per common share (“Diluted EPS”) is computed by dividing net income or 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 earnings or loss per share, if the effects are dilutive, companies are required to add back to net income or loss 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 or loss, companies are required to include the warrants outstanding related to the derivative liability in the calculation of the weighted average dilutive shares.

 

7

 

 

The common shares used in the computation of our basic and diluted net loss per share are reconciled as follows: 

 

   

Three Months Ended

March 31,

 
   

2019

   

2018

 

Numerator:

               

Net loss

  $ (8,784 )   $ (4,958 )

Effect of dilutive securities on net loss:

               
Common stock warrants     -       (1,818 )
                 

Total net loss for purpose of calculating diluted net loss per common share

  $ (8,784 )   $ (6,776 )
                 

Number of shares used in per common share calculations:

               

Total shares for purpose of calculating basic net loss per common share

    255,643,828       253,275,066  

Weighted-average effect of dilutive securities:

               
Common stock warrants     -       12,456,164  
                 

Total shares for purpose of calculating diluted net loss per common share

    255,643,828       265,731,230  
                 

Net loss per common share:

               

Basic

  $ (0.03 )   $ (0.02 )

Diluted

  $ (0.03 )   $ (0.03 )

 

Significant Concentration of Credit Risk

Sales to our top three customers aggregated to approximately 38% and 27% of total sales for the three months ended March 31, 2019 and 2018, respectively. Sales to one of those customers were approximately 14% and 15% of total sales for the three months ended March 31, 2019 and 2018, respectively. A single customer represents 22% and 14% of total accounts receivable as of March 31, 2019 and December 31, 2018, respectively, and is a related party through a director who sits on both the Company’s board and that of the customer.

 

Recent Accounting Pronouncements

In January 2017, the Financial Axcounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) No. 2017-04, “Simplifying the Test for Goodwill Impairment (Topic 350)” which removes Step 2 of the goodwill impairment test that requires a hypothetical purchase price allocation.  A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.  The amendments in this ASU are effective for fiscal years beginning after December 15, 2019.  Early adoption is permitted after January 1, 2017.  We do not expect the new guidance to have a significant impact on our consolidated financial statements or related disclosures.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which requires companies to recognize all leases as assets and liabilities on the consolidated balance sheet. This ASU retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in a consolidated statement of comprehensive income and a consolidated statement of cash flows is largely unchanged from previous GAAP. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. Our status as an emerging growth company allowed us to defer the adoption until the year (and interim periods therein) beginning January 1, 2020. The Company is currently evaluating the impact that the adoption of this ASU will have on its Consolidated Financial Statements.

 

In June 2016, the FASB issued 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 an emerging growth company allows us to defer adoption until the annual period, including interim periods within the annual period, beginning January 1, 2021. 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 from operations.

  

8

 

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016; however, in July 2015, the FASB agreed to delay the effective date by one year. The proposed deferral may permit early adoption but would not allow adoption any earlier than the original effective date of the standard. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Our status as an emerging growth company allowed us to defer the adoption until the annual reporting period beginning January 1, 2019, and interim reporting periods within the annual reporting period beginning January 1, 2020.  These condensed consolidated interim financial statements do not include the adoption of ASU 2014-09.  We will include the adoption of ASU 2014-09 in our annual reporting period ending December 31, 2019, and beginning in our interim reporting period for the three months ending March 31, 2020. We have reviewed this ASU and determined that it has no material impact to the Company's consolidated financial position or results of operations, but will impact the Company's disclosures. Our status as an emerging growth company allowed us to defer the adoption until the annual reporting period beginning January 1, 2019, and interim reporting periods within the annual reporting period beginning January 1, 2020.  These condensed consolidated interim financial statements do not include the adoption of ASU 2014-09.  We will include the adoption of ASU 2014-09 in our annual reporting period ending December 31, 2019, and beginning in our interim reporting period for the three months ending March 31, 2020. We have reviewed this ASU and determined that it has no material impact to the Company's consolidated financial position or results of operations, but will impact the Company's disclosures.

 

Although there are several other new accounting pronouncements issued or proposed by FASB, which we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements has had or will have a material impact on our consolidated financial position or results of operations. 

 

 

 

NOTE 2 – 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. In most periods since our formation, we have generated losses from operations. As of March 31, 2019, we had an accumulated deficit of $283,155. 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, significant interest expense on our debt, and the recording of significant derivative liabilities, we have a working capital deficiency of $77,103 as of March 31, 2019.  We also have $73,358 of debt, net of discount, due within the next 12 months. 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; 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.

 

9

 

 

 

NOTE 3 – INVENTORIES

 

Inventories consisted of the following as of:

 

   

March 31, 2019

   

December 31, 2018

 
                 

Raw materials

  $ 1,858     $ 4,346  

Finished goods

    6,531       5,997  
      8,389       10,343  

Reserve for obsolete inventory

    (1,420 )     (2,398 )
                 
    $ 6,969     $ 7,945  

 

 

 

NOTE 4 – PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following as of:

 

   

March 31, 2019

   

December 31, 2018

 
                 

Machinery and equipment

  $ 1,367     $ 1,367  

Computers and other

    7,540       7,540  

Aquifer

    482       482  

Leasehold improvements

    1,553       1,553  
      10,942       10,942  

Accumulated depreciation and amortization

    (10,013 )     (9,825 )
                 
    $ 929     $ 1,117  

 

Depreciation and amortization expense totaled $188 and $215 for the three months ended March 31, 2019 and December 31, 2018, respectively.

 

 

 

NOTE 5 – INTANGIBLE ASSETS

 

Intangible assets consisted of the following as of:

 

   

March 31, 2019

   

December 31, 2018

 
                 

Trademarks

  $ 8,915     $ 8,915  

Indefinite-lived intangible assets

    4,346       4,346  

Customer relationships

    19,110       19,110  

Other

    753       753  
      33,124       33,124  

Accumulated amortization

    (12,195 )     (11,816 )
                 
    $ 20,929     $ 21,308  

 

Trademarks are amortized over periods ranging from 3 to 30 years, customer relationships are amortized over periods ranging from 15 to 16 years, and other intangible assets are amortized over 3 years. Amortization expense was $379 and $459 for the three months ended March 31, 2019, and 2018, respectively.

 

10

 

 

 

NOTE 6 – DEBT

 

Debt consisted of the following as of:

 

   

March 31 ,

201 9

   

December 31 ,

2018

 

Related Party Debt:

               

July 2014 note payable to Little Harbor, LLC

  $ 3,267     $ 3,267  

July 2016 note payable to Little Harbor, LLC

    4,770       4,770  

January 2016 note payable to Great Harbor Capital, LLC

    2,500       2,500  

March 2016 note payable to Great Harbor Capital, LLC

    7,000       7,000  

December 2016 note payable to Great Harbor Capital, LLC

    2,500       2,500  

August 2017 note payable to Great Harbor Capital, LLC

    3,000       3,000  

February 2018 note payable to Great Harbor Capital, LLC

    2,000       2,000  

July 2018 note payable to Great Harbor Capital, LLC, net of discount of $810 and $1,056 at March 31, 2019 and December 31, 2018 respectively

    4,190       3,944  

November 2018 note payable to Great Harbor Capital, LLC, net of discount of $886 and $1,088 at March 31, 2019 and December 31, 2018 respectively

    3,114       2,912  

January 2016 note payable to Golisano Holdings LLC

    2,500       2,500  

March 2016 note payable to Golisano Holdings LLC

    7,000       7,000  

July 2016 note payable to Golisano Holdings LLC

    4,770       4,770  

December 2016 note payable to Golisano Holdings LLC

    2,500       2,500  

March 2017 note payable to Golisano Holdings LLC

    3,267       3,267  

February 2018 note payable to Golisano Holdings LLC

    2,000       2,000  

November 2014 note payable to Golisano Holdings LLC (formerly payable to Penta Mezzanine SBIC Fund I, L.P.), net of discount and unamortized loan fees in the aggregate of $474 and $678 as of March 31, 2019 and December 31 2018, respectively

    7,526       7,322  

January 2015 note payable to Golisano Holdings LLC (formerly payable to JL-BBNC Mezz Utah, LLC), net of discount and unamortized loan fees in the aggregate of $686 and $915 as of March 31, 2019 and December 31 2018, respectively

    4,314       4,085  

February 2015 note payable to Golisano Holdings LLC (formerly payable to Penta Mezzanine SBIC Fund I, L.P.), net of discount and unamortized loan fees in the aggregate of $43 and $60 as of March 31, 2019 and December 31 2018, respectively

    1,957       1,940  

Macatawa Bank

    15,000       15,000  

Total related party debt

    83,175       82,277  
                 

Senior Credit Facility with Midcap

    1,983       -  
                 

Other Debt:

               

April 2016 note payable to JL-Utah Sub, LLC

    -       62  

Huntington Holdings, LLC

    3,200       3,200  

Total other debt

    3,200       3,262  
                 

Total debt

    88,358       85,539  

Less current portion

    (73,358 )     (70,539 )
                 

Long-term debt

  $ 15,000     $ 15,000  

 

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Related-Party Debt

 

Little Harbor Capital LLC

Mr. David L. Van Andel, the Chairman of the Company’s Board of Directors, is the owner and principal of Little 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 Little Harbor Capital 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, we were obligated to pay such party $4,900 per year in structured monthly payments for 3 years provided that such payment obligations would terminate at such earlier time as the trailing ninety day volume weighted average closing sales price of the Company’s common stock on all domestic securities exchanges on which such stock is listed equals or exceeds $5.06 per share. This note is unsecured and matured on July 25, 2017 with an outstanding balance of $3,267. On February 6, 2018, we entered into an agreement with Little Harbor to convert the obligations into an unsecured promissory note. The note matures on July 25, 2020, bears interest at an annual rate of 8.5%, with the principal payable at maturity.

 

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 may, in its sole discretion and pursuant to draw requests made by the Company, loan us up to the maximum principal amount of $4,770. This note is unsecured and was to mature on January 28, 2019; however, the maturity of this note has been extended to June 30, 2019. This note bears interest at an annual rate of 8.5%, with the principal payable at maturity. If Little Harbor, in its discretion, accepts a draw request made by the Company under this note, Little Harbor shall not transfer cash to the Company, but rather Little Harbor shall irrevocably agree to accept the principal amount of any monthly delayed draw under this note in lieu and in complete satisfaction of the obligation to make an equivalent dollar amount of periodic cash payments otherwise due to Little Harbor under the July 2014 note payable. During the year ended December 31, 2016, we requested and Little Harbor LLC approved, full draw amounts totaling $4,770. We issued a warrant into escrow in connection with this loan (see Little Harbor Escrow Warrant in Note 7).

 

On January 23, 2019, the Company and Little Harbor entered into an Amendment to the Little Harbor Delayed Draw Promissory Note, as amended and restated, (the “Little Harbor Delayed Draw Promissory Note Amendment”) relating to an original principal amount of $4,769,996 to amend that certain Little Harbor Delayed Draw Promissory Note, originally dated July 21, 2016. The Little Harbor Delayed Draw Promissory Note Amendment extends the maturity date of the note from January 28, 2019 to June 30, 2019.

 

Little Harbor has delivered a deferment letter pursuant to which Little Harbor agreed to defer all payments due under the notes specified in the letter through May 31, 2019 and agreed to refrain from declaring a default and/or exercising any remedies under the 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 Promissory Note”) with Great Harbor Capital, LLC (“GH”), an affiliate of a member of our Board of Directors, GH lent us $2,500. The note was to mature on January 28, 2019; however, the maturity of this note has been extended to June 30, 2019. The note bears interest at an annual rate of 8.5%, with the principal payable in 24 monthly installments of $104 which was to commence on February 28, 2017 but has been deferred to May 31, 2019. We issued a warrant into escrow in connection with this loan (see GH Escrow Warrants in Note 7).

  

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. The note was to mature on March 21, 2019; however, the maturity of this note has been extended to June 30, 2019. This note bears interest at an annual rate of 8.5%, with the principal payable in 24 monthly installments of $292 which was to commence on April 21, 2017 but has been deferred to May 31, 2019. We issued a warrant into escrow in connection with this loan (see GH Escrow Warrants in Note 7).

 

12

 

 

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 note matures on December 30, 2019, 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).

  

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 note matures on August 29, 2020, 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).

 

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 matures on February 6, 2021, 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”),

 

Also, 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 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 maturity date, interest rate and payment terms remain unchanged from the original secured promissory note issued to GH on August 30, 2017.

 

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 Note 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 matures on January 27, 2020 and 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 is payable at maturity on January 20, 2020. The July 2018 GH Note is secured by collateral. We issued a warrant in connection with this loan (see GH Warrants in Note 7).

 

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, LLC and Golisano Holdings 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 matures on November 5, 2020 and 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 is payable at maturity on November 5, 2020. The November 2018 GH Note is secured by collateral. We issued a warrant in connection with this loan (see GH Warrants in Note 7).

 

On January 23, 2019, the Company and GH entered into Amendment No. 7 to the January 2016 GH Promissory Note, as amended and restated, relating to an original principal amount of $2,500,000, originally dated January 28, 2016. Amendment No. 7 to the January 2016 GH Promissory Note, extends the maturity date of the note from January 28, 2019 to June 30, 2019.

 

On January 23, 2019, the Company and GH entered into Amendment No. 6 to the March 2016 GH Note, as amended and restated, relating to an original principal amount of $7,000,000, originally dated March 21, 2017. Amendment No. 6 to the March 2016 GH Note extends the maturity date of the note from March 21, 2019 to June 30, 2019.

 

GH has delivered a deferment letter pursuant to which GH agreed to defer all payments due under the notes specified in the letter through May 31, 2019 and agreed to refrain from declaring a default and/or exercising any remedies under the notes.

 

13

 

 

Golisano Holdings LLC.

Mr. B. Thomas Golisano, a member of the Company’s Board of Directors is a principal of Golisano Holdings 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. Interest on the outstanding principal accrued at a rate of 12% per year from date of issuance to March 8, 2017, and decreased to 8% per year thereafter, payable monthly. The note matures on November 13, 2019. 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 4,960,740 shares of the Company’s common stock in connection with this loan (see Gollisano Warrants formerly Penta Warrants in Note 7). The estimated fair value of the warrant at the date of issuance was $3,770, which was recorded as a note discount and is being amortized into interest expense over the term of this loan. Additionally, we had incurred loan fees of $273, which is also being amortized into interest expense over the term of 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 date of issuance to March 8, 2017, and decreased to 8% per year thereafter, payable monthly. The note matures on November 13, 2019. 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 (see JL Warrants in Note 7).  The estimated fair value of these warrants at the date of issuances was $4,389, which was recorded as a note discount and is being amortized into interest expense over the term of these loans.  Additionally, we had incurred loan fees of $152 relating to this loan, which is also being amortized into interest expense over the term of these loans.

 

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. Interest on the outstanding principal accrued at a rate of 12% per year from date of issuance to March 8, 2017, and decreased to 8% per year thereafter, payable monthly. The note matures on November 13, 2019. 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 (see see Gollisano Warrants formerly Penta Warrants in Note 7). The estimated fair value of these warrants at the date of issuances totaled $250, which was recorded as a note discount and is being amortized into interest expense over the term of this loan. Additionally, we had incurred loan fees of $90, which is also being amortized into interest expense over the term of these loans.

 

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 to mature on January 28, 2019; however, the maturity of this note has been extended to June 30, 2019. 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 to mature on March 21, 2019; however, the maturity of this note has been extended to June 30, 2019. 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”). The Golisano LLC July 2016 Note was to mature on January 28, 2019; however, the maturity of this note has been extended to June 30, 2019. 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). During the year ended December 31, 2016, we requested and Golisano LLC approved, draws totaling $4,770.

 

14

 

 

December 2016 Note Payable to Golisano Holdings LLC

Pursuant to a December 31, 2016 Unsecured Promissory Note, Golisano LLC lent us $2,500 (“Golisano LLC December 2016 Note”). The note matures on December 30, 2019, 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).

 

March 2017 Note Payable to Golisano Holdings LLC

Pursuant to a March 14, 2017 Unsecured Promissory Note, Golisano LLC lent us $3,267 (“Golisano LLC March 2017 Note”). The note matures on December 30, 2019, 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).

 

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 matures on February 6, 2021, 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.

 

On January 28, 2019, the Company and Golisano LLC entered into an Amendment to the Golisano LLC January 2016 Promissory Note, as amended and restated, (“Golisano LLC January 2016  Promissory Note Amendment ”) relating to an original principal amount of $2,500,000, originally dated January 28, 2016. The Golisano LLC January 2016 Promissory Note Amendment extends the maturity date of the note from January 28, 2019 to June 30, 2019.

 

On January 28, 2019, the Company and Golisano LLC entered into an Amendment to the Golisano LLC March 2016 Promissory Note, as amended and restated, (“Golisano LLC March 2016 Promissory Note Amendment”) relating to an original principal amount of $7,000,000 to amend that certain Amended and Restated Unsecured Promissory Note, dated August 30, 2017. The Golisano LLC March 2016 Promissory Note Amendment extends the maturity date of the note from March 21, 2019 to June 30, 2019.

 

On January 28, 2019, the Company and Golisano LLC entered into an Amendment to the Golisano LLC July 2016 Note, as amended and restated, (“Golisano LLC July 2016 Note Amendment”) relating to an original principal amount of $4,769,996 originally dated July 21, 2016. Golisano LLC July 2016 Note Amendment extends the maturity date of the note from January 28, 2019 to June 30, 2019.

 

Golisano LLC  has delivered a deferment letter pursuant to which Golisano LLC agreed to defer all payments due under the notes specified in the letter through May 31, 2019 and agreed to refrain from declaring a default and/or exercising any remedies under the notes. 

 

Macatawa Bank

Mr. Mark Bugge is a former member of the board of directors of Macatawa Bank 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. 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. 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 the Macatawa Bank.

 

On December 4, 2018, the Company entered into a Term Loan Note and Agreement (the "Term Loan") in favor of Macatawa Bank ("Macatawa"). Pursuant to the Term Loan, Macatawa loaned the Company $15,000. The Term Loan matures on November 30, 2020. 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 3.49% as of March 31, 2019). 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 Partners, LLC (the "463IP") has entered into a limited guaranty, dated as of December 4, 2018, in favor of the 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.

 

15

 

 

Senior Credit Facility

 

On January 22, 2015, we entered into a three-year $15,000 revolving credit facility (the “Senior Credit Facility” )pursuant to a credit and security agreement, based on our accounts receivable and inventory, increasable to up to $20,000, with MidCap. 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 credit facility. We are required 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, which was 7.50% per annum as of March 31, 2019. We issued a warrant to Midcap to purchase 500,000 shares of the Company’s common stock (see Midcap Warrant in Note 7). The estimated fair value of these warrants at the date of issuance was $130, which was recorded as a note discount and is being amortized into interest expense over the term of the Senior Credit Facility. Additionally, we have incurred loan fees totaling $540 relating to the Senior Credit Facility and any subsequent amendments, which is also being amortized into interest expense over the term of the Senior Credit Facility.

 

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 to MidCap IV Funding.

 

On April 22, 2019, we entered into Amendment Seventeen to the Credit and Security Agreement Agreement (the "MidCap Seventeeth 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. (See also Subsequent Events in note 10).

 

The balance owing on the Senior Credit Facility was $1,983 as of March 31, 2019.

 

Other Debt 

 

April 2016 Note Payable to JL-Utah Sub, LLC

Pursuant to an April 5, 2016 Unsecured Promissory Note (“JL-US Note”), JL-Utah Sub, LLC lent us $500. The note matured on March 21, 2019 and was subsequerntly satisfied in full on that day. The warrant (Warrant 2016-25) that was issued in conjunction with this note expired as the result of payment of the note in full.

 

2014 Huntington Holdings, LLC

On August 6, 2016, the 18-month anniversary of the closing of a share purchase agreement, we were required to pay the purchaser of the common stock the difference between $2.29 per share and either a defined market price or a price per share determined by a valuation firm acceptable to both parties. Based on an outside professional valuation performed on the Company’s common stock, the Company estimated the stock price guarantee payment to be $3,210. Accordingly, the Company recorded a loss on the stock purchase price guarantee of $3,210 and a corresponding liability for the same amount in 2016, which was included in accrued expenses and other current liabilities in the consolidated balance sheet as of December 31, 2016. On June 2, 2017, the Company issued an unsecured promissory note (the “Huntington Note”) in favor of 2014 Huntington Holdings LLC (“Huntington”). The Huntington Note matures on June 2, 2019 with the principal amount of $3,200 payable at maturity. Interest on the outstanding principal accrues at a rate of 8.5% per year from August 6, 2016 to August 15, 2017 and increases to 10% per year thereafter. We paid $50 to Huntington related to accrued interest from August 6, 2016 through the date of issuance of the Huntington Note. Huntington was required to return 778,385 shares of the Company’s common stock which were issued into escrow. We were required to provide certain piggyback registration rights to Huntington in regard to the remaining 749,999 shares of the Company’s common stock held by Huntington. If the Huntington Note was paid off prior to August 14, 2017, the 778,385 shares held in escrow were to be released from escrow and transferred to the Company for no additional consideration. If the note remained outstanding on August 15, 2017, we had the right, but not the obligation, to pay $140 to Huntington to purchase 764,192 of the subject shares held in escrow. Upon the exercise of this purchase option, the subject shares were to be released from escrow and transferred to the Company. If the note remained outstanding on August 15, 2017 and we did not exercise the option to purchase the shares, the shares were to be returned from escrow to Huntington and we would no longer have repurchase rights. On August 15, 2017, the note was outstanding, and we did not exercise the repurchase right. The 778,385 shares were returned from escrow to Huntington.

 

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Financial Covenants

 

Certain of the foregoing debt agreements, as amended, require us to meet certain affirmative and negative covenants, including maintenance of specified ratios. We amended our debt agreements with MidCap, Penta and JL-US , effective July 29, 2016, to, among other things, reset the financial covenants of each debt agreement. As of March 31, 2019, we were not in compliance with these financial covenants of the debt agreements; however, the lenders provided the Company with a waiver of the covenant violations through May 31, 2019.

 

 

 

NOTE 7 – WARRANTS AND REGISTRATION RIGHTS AGREEMENTS

 

The following table presents a summary of the status of our issued warrants as of March 31, 2019, and changes during the three months then ended:

 

   

Shares
Underlying
Warrants

   

Weighted

Average
Exercise

Price

 
                 

Outstanding, December 31, 2018

    20,140,731     $ 0.15  

Granted

    -       -  

Canceled / Expired

    (500,000

)

    0.76  

Exercised

    -       -  
                 

Outstanding, March 31, 2019

    19,640,731     $ 0.13  

 

Warrants Issued

 

Midcap Warrant

In connection with the line of credit agreement with MidCap described in Note 6, we issued MidCap a warrant, exercisable through January 22, 2018, for an aggregate of 500,000 shares of the Company’s common stock at an exercise price of $0.76 per share (the “MidCap Warrant 1”). We entered into a registration rights agreement with Midcap, dated as of January 22, 2015, granting MidCap certain registration rights, commencing October 1, 2015, for the shares of common stock issuable on exercise of the MidCap Warrant 1. The MidCap Warrant 1 was not exercised and expired on January 22, 2018.

 

On January 22, 2015, the Company entered into a revolving credit facility with MidCap Financial Trust, which subsequently assigned the agreement to an affiliate, Midcap Funding X Trust.

 

The agreement is amended from time to time and wherein it was necessary under the terms of the agreement to obtain MidCap's consent to the transactions contemplated by the above mentioned GH Notes and Golisano LLC Notes; on February 6, 2018, MidCap agreed to consent to the transactions contemplated in exchange for a warrant to MidCap exercisable for up to 500,000 shares of the Company’s common stock at an exercise price of $.76 per share (“MidCap Warrant 2”). The Company has reserved 500,000 shares of the Company’s common stock for issuance under MidCap Warrant 2. The MidCap Warrant 2 expired, unexercised on February 6, 2019.

 

On April 22, 2019 subsequent to entering into the MidCap Seventeeth Amendmant as noted in note 6, the Company issued a warrant to MidCap exercisable for up to 500,000 shares of Company common stock at an exercise price of $.76 per share (the "MidCap Warrant 3”). The Company has reserved 500,000 shares of Company common stock for issuance under the MidCap Warrant 3. The MidCap Warrant 3, if exercisable, expires on April 22, 2021. (See also Subsequent Events in note 10).

 

Penta Warrants

Pursuant to a stock purchase agreement dated June 30, 2015, a warrant was issued to Penta to purchase an aggregate 807,018 shares of our common stock at a price of $0.01 per share at any time prior to the close of business on June 30, 2020. We granted Penta certain registration rights, commencing October 1, 2015, for the shares of common stock issuable upon exercise of the warrant.

 

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JL Warrants

Pursuant to a June 30, 2015 stock purchase agreement, a warrant was issued to JL to purchase an aggregate 403,509 shares of the Company’s common stock at a price of $0.01 per share at any time prior to the close of business on June 30, 2020, subject to certain adjustments. We granted JL certain registration rights, commencing October 1, 2015, for the shares of common stock issuable upon exercise of the warrant. The warrant was subsequently assigned by JL to two individuals.

 

Essex Warrants

In connection with the guarantee of a note payable issued in the Nutricap asset acquisition and capital lease obligations by Essex Capital Corporation (“Essex”) discussed, Essex was issued a warrant exercisable for an aggregate 1,428,571 shares of the Company’s common stock at a purchase price of $0.77 per share, exercisable at any time prior to the close of business on June 30, 2020. The number of shares issuable upon the exercise of the warrant is subject to adjustment on terms and conditions customary for a transaction of this nature in the event of (i) reorganization, recapitalization, stock split-up, combination of shares, mergers, consolidations and (ii) sale of all or substantially all of our assets or property. Essex subsequently assigned warrants for 350,649 shares to another company.

 

JL Properties, Inc. Warrants

In April 2015, we entered into an office lease agreement which requires a $1,000 security deposit, subject to reduction if we achieve certain market capitalization metrics at certain dates. On April 30, 2015, we entered into a reimbursement agreement with JL Properties, Inc. (“JL Properties”) pursuant to which JL Properties agreed to arrange for and provide an unconditional, irrevocable, transferable, and negotiable commercial letter of credit to serve as the security deposit. As partial consideration for the entry by JL Properties into the reimbursement agreement and the provision of the letter of credit, we issued JL Properties two warrants to purchase shares of the Company’s common stock.

 

The first warrant is exercisable for an aggregate of 465,880 shares of common stock, subject to certain adjustments, at an aggregate purchase price of $0.01, at any time prior to April 30, 2020. In addition to adjustments on terms and conditions customary for a transaction of this nature in the event of (i) reorganization, recapitalization, stock split-up, combination of shares, mergers, consolidations and (ii) sale of all or substantially all of our assets or property, the number of shares of common stock issuable pursuant to the warrant will be increased in the event our consolidated adjusted EBITDA (as defined in the warrant agreement) for the fiscal year ended December 31, 2018 does not equal or exceed $19,250. JL Properties subsequently assigned the warrant to two individuals.

 

On December 31, 2018, our adjusted EBIDTA yielded a negative calculation; therefore, the warrant will not increase in shares.

 

The second warrant is exercisable for an aggregate of 86,962 shares of common stock, at a per share purchase price of $1.00, at any time prior to April 30, 2020. The number of shares issuable upon exercise of the second warrant is subject to adjustment on terms and conditions customary for a transaction of this nature in the event of (i) reorganization, recapitalization, stock split-up, combination of shares, mergers, consolidations and (ii) sale of all or substantially all of our assets or property.

 

We have granted JL Properties certain registration rights, commencing October 1, 2015, for the shares of common stock issuable on exercise of the two warrants. JL Properties has transferred these rights to two individuals.

 

Golisano LLC Warrants (formerly Penta Warrants)

In connection with the November 13, 2014 note for $8,000 (see Note 6), Penta was issued a warrant to acquire 4,960,740 shares of the Company’s common stock at an aggregate exercise price of $0.01, through November 13, 2019. In connection with Penta’s consent to the terms of additional debt obtained by us, we also granted Penta a warrant to acquire 869,618 shares of common stock at a purchase price of $1.00 per share, through November 13, 2019. Both warrant agreements grant Penta certain registration rights, commencing October 1, 2015, for the shares of common stock issuable on exercise of the warrants. Penta has the right, under certain circumstances, to require us to purchase all or any portion of the equity interest in the Company issued or represented by the warrant to acquire 4,960,740 shares at a price based on the greater of (i) the product of (x) ten times our adjusted EBITDA with respect to the twelve months preceding the exercise of the put right times (y) the investor’s percentage ownership in the Company assuming full exercise of the warrant; or (ii) the fair market value of the investor’s equity interest underlying the warrant. In the event (i) we do not have the funds available to repurchase the equity interest under the warrant or (ii) such repurchase is not lawful, adjustments to the principal of the note purchased by Penta will be made or, under certain circumstances, interest will be charged on the amount otherwise due for such repurchase. We have the right, under certain circumstances, to require Penta to sell to us all or any portion of the equity interest issued or represented by the warrant to acquire 4,960,740 shares. The price for such repurchase will be the greater of (i) the product of (x) eleven times our adjusted EBITDA with respect to the twelve months preceding the exercise of the call right times (y) the investor’s percentage ownership in the company assuming full exercise of the warrant; or (ii) the fair market value of the equity interests underlying the warrant; or (iii) $3,750. In connection with Golisano LLC’s acquisition of the note payable from Penta on March 8, 2017 (see Note 6 above for additional information), these warrants were assigned to Golisano LLC.

 

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Golisano LLC Warrants (formerly JL Warrants)

In connection with the January 22, 2015 note payable to JL-BBNC Mezz Utah, LLC (“JL”), we issued JL warrants to purchase an aggregate of 2,329,400 shares of the Company’s common stock, at an aggregate exercise price of $0.01, through February 13, 2020. On February 4, 2015, we also granted to JL a warrant to acquire a total of 434,809 shares of common stock at a purchase price of $1.00 per share, through February 13, 2020. Both warrant agreements grant JL certain registration rights, commencing October 1, 2015, for the shares of common stock issuable upon exercise of the warrants. These warrants were subsequently assigned to two individuals. During the year ended December 31, 2016, these individuals exercised warrants for a total of 1,187,995 shares of the Company’s common stock for total proceeds to the Company of less than $1. In connection with Golisano LLC’s acquisition of the note payable from JL on March 8, 2017 (see Note 6 above for additional information), these warrants were assigned to Golisano LLC.

 

Golisano LLC Warrants

Pursuant to an October 2015 Securities Purchase Agreement with Golisano LLC, we issued Golisano LLC a warrant (the “Golisano Warrant”),which Golisano Warrant is intended to maintain, following each future issuance of shares of common stock pursuant to the conversion, exercise or exchange of certain currently outstanding warrants to purchase shares of common stock held by third-parties (the “Outstanding Warrants”), Golisano LLC’s proportional ownership of our issued and outstanding common stock so that it is the same thereafter as on October 5, 2015. We have reserved 12,697,977 shares of common stock for issuance under the Golisano Warrant. The purchase price for any shares of common stock issuable upon exercise of the Golisano Warrant is $.001 per share. The Golisano Warrant is exercisable immediately and up to and including the date which is sixty days after the later to occur of the termination, expiration, conversion, exercise or exchange of all of the Outstanding Warrants and our delivery of notice thereof to Golisano LLC. The Golisano 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 addition, if any payments are made to a holder of an Outstanding Warrant in consideration for the termination of or agreement not to exercise such Outstanding Warrant, Golisano LLC will be entitled to equal treatment. We have entered into a registration rights agreement with Golisano LLC, dated as of October 5, 2015, granting Golisano LLC certain registration rights for the shares of common stock issuable on exercise of the Golisano Warrant. On February 6, 2016, Golisano LLC exercised the Golisano Warrant in part for 509,141 shares of the Company’s common stock for an aggregate purchase price of $1. During the year ended December 31, 2016, the Golisano Warrant was cancelled in part for 6,857,143 shares pursuant to the cancellation of a portion of the Outstanding Warrants. As of March 31, 2019, we have reserved 4,542,219 shares of our common stock for issuance under the Golisano Warrant.

 

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 July 2018 GH Warrant is exercisable on any business day prior to the expiration date. 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 up, 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 will be amortized over the term of the July 2018 GH Note. $247 of the debt discount was amortized during the period ended March 31, 2019.

 

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 November 2018 GH Warrant is exercisable on any business day prior to the expiration date. 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 4, 2024. The November 2018 GH Warrant is also subject to customary adjustments upon any recapitalization, reorganization, stock split up, 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 will be amortized over the term of the November 2018 GH Note. $202 of the debt discount was amortized during for the period ended March 31, 2019.

   

Warrants Issued into Escrow

 

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 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 related promissory note and any accrued and unpaid interest thereon as of January 28, 2019 2019  (which has been extended to June 30, 2019 – see Subsequent Notes)  or such earlier date as is required pursuant to an Acceleration Notice (as defined in the related note agreement). We have reserved 1,136,363 shares of the Company’s common stock for issuance under the January 2016 Golisano Warrant. The January 2016 Golisano Warrant, if exercisable, expires on February 28, 2022. The January 2016 Golisano 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.

 

19

 

 

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 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 related promissory note and any accrued and unpaid interest thereon as of March 21, 2019 2019  (which has been extended to June 30, 2019 – see Subsequent Notes) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the related note agreement). We have reserved 3,181,816 shares of the Company’s common stock for issuance under the March 2016 Golisano Warrant. The March 2016 Golisano Warrant, if exercisable, expires on March 21, 2022. The March 2016 Golisano 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 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 has been extended to June 30, 2019 – see Subsequent Notes) 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, if exercisable, expires on July 21, 2022. The Golisano July 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 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 30, 2019 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 30, 2019 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, 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 February 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.

 

20

 

 

GH Escrow Warrants

In connection with a January 2016 GH Promissory 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 will not 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 Promissory Note and any accrued and unpaid interest thereon as of January 28, 2019 2019  (which has been extended to June 30, 2019 – see Subsequent Notes) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the January 2016 GH Promissory Note). We have reserved 1,136,363 shares of the Company’s common stock for issuance under the January 2016 GH Warrant. The January 2016 GH Warrant, if exercisable, expires on February 28, 2022. The January 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 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 will not 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 2019  (which has been extended to June 30, 2019 – see Subsequent Notes) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the March 2016 GH Note). We have reserved 3,181,816 shares of the Company’s common stock for issuance under the March 2016 GH Warrant. The March 2016 GH Warrant, if exercisable, expires on March 21, 2022. The March 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 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 30, 2019 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 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, 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. 

 

JL-US Escrow Warrant

In connection with an April 5, 2016 Unsecured Promissory Note, we issued into escrow in the name of JL-US a warrant to purchase an aggregate of 227,273 shares of the Company’s common stock at an exercise price of $0.01 per share (the “JL-US Warrant”). The JL-US Warrant will not be released from escrow or be exercisable unless and until we fail to pay JL-US the entire unamortized principal amount of the JL-US Note and any accrued and unpaid interest thereon as of March 21, 2019 or such earlier date as is required pursuant to an Acceleration Notice (as defined in the JL-US Note). We have reserved 227,273 shares of the Company’s common stock for issuance under the JL-US Warrant. The JL-US Warrant, if exercisable, expires on March 21, 2022. The JL-US 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. This warrant expired as a result of payment of the April 5, 2016 Unsecured Promissory Note in full on March 21, 2019.

 

21

 

 

Little Harbor Escrow Warrant

The Little Harbor July 2016 unsecured delayed draw promissory note provides 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 July 2016 note and any accrued and unpaid interest thereon as of January 28, 2019 2019  (which has been extended to June 30, 2019 – see Subsequent Notes)  or such earlier date as is required pursuant to an acceleration notice (as defined in the Little Harbor July 2016 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, if exercisable, expires on July 21, 2022. The Little Harbor July 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. The Little Harbor July 2016 Warrant grants Little Harbor certain registration rights for the shares of the Company’s common stock issuable upon exercise of the Little Harbor July 2016 Warrant.

 

 

 

NOTE 8 – DERIVATIVE LIABILITIES

 

The number of shares of common stock issuable pursuant to certain warrants issued in 2015 will be increased if our adjusted EBITDA or the market price of the Company’s common stock do not meet certain defined amounts. We have recorded the estimated fair value of the warrants as of the date of issuance. Due to the variable terms of the warrant agreements, the warrants are recorded as derivative liabilities with a corresponding charge to our consolidated statements of comprehensive income (loss) for changes in the estimated fair value of the warrants from the date of issuance to each balance sheet reporting date. As of March 31, 2019, we have estimated the total fair value of the derivative liabilities to be $4,994 as compared to $4,359 as of December 31, 2018. We had the following activity in our derivative liabilities account for the three months ended March 31, 2019:

 

Derivative liabilities as of December 31, 2018

  $ 4,359  

Reclassification of derivative liabilities

    (628 )
Loss on change in fair value of derivative liabilities     1,263  
         

Derivative liabilities as of March 31, 2019

  $ 4,994  

 

The value of the derivative liabilities is generally estimated using an options lattice model with multiple inputs and assumptions, including the market price of the Company’s common stock, stock price volatility and other assumptions to project EBITDA and other reset events. These inputs and assumptions are subject to management’s judgment and can vary materially from period to period.

 

 

 

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 only equity compensation plan currently in effect is the Twinlab Consolidation Corporation 2013 Stock Incentive Plan (the “TCC Plan”), which was assumed by the Company on September 16, 2014. The TCC Plan originally established 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 who will aid in the success of the Company. From January through December 2015, the Company granted restricted stock units to certain employees of the Company pursuant to the TCC Plan. Each restricted stock unit relates to one share of the Company’s common stock. The restricted stock unit awards vest 25% each annually on various dates through 2019. The Company estimated the grant date fair market value per share of the restricted stock units and is amortizing the total estimated grant date value over the vesting periods. As of March 31, 2019, 7,194,412 shares remain available for use in the TCC Plan. 

 

Common Stock Repurchase

On January 5, 2017, pursuant to a repurchase agreement 642,366 shares of the Company’s common stock were purchased by the Company for an aggregate repurchase price of less than $1.

 

Stock Subscription Receivable and Loss on Stock Price Guarantee

As of March 31, 2019, 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%.

 

On June 6, 2018, the Company issued 4,166,667 shares of common stock to Platinum Advisory Services, LLC in accordance with the terms of the Equity in Exchange for Services Agreement that the parties entered into on December 27, 2017, wherein the Company received advertising services in exchange for the shares. 

 

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NOTE 10 – SUBSEQUENT EVENTS

 

Financing

 

MidCap Funding X Trust

 

On April 22, 2019, the Company and MidCap entered into Amendment No. 17 to Credit and Security Agreement and Limited Waiver (the "MidCap Seventeenth Amendment"). Pursuant to the MidCap Seventeenth Amendment, the existing Credit and Security Agreement was renewed between the parties and the Revolving Loan Commitment Amount (as defined in the MidCap Seventeenth Amendment) was increased from a total of $5,000to a total of $12,000. In addition, MidCap granted a waiver with respect to the Twinlab Companies' failure to satisfy Section 6.2 (Minimum Adjusted EBITDA) of the Credit Agreement because Twinlab Companies’ Adjusted EBITDA was less than $1,400 with respect to the measurement period from January 1, 2018 to December 31, 2018. The waiver is limited to the measurement period.

 

Subsequent to entering into the MidCap Seventeenth Amendment, the Company issued a warrant to MidCap exercisable for up to 500,000 shares of Company common stock at an exercise price of $.76 per share (the "MidCap Warrant 3”). The Company has reserved 500,000 shares of Company common stock for issuance under the MidCap Warrant 3. The MidCap Warrant 3, if exercisable, expires on April 22, 2021.

 

The MidCap Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of the assets of the Company.

 

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Amounts in thousands, except share and per share amounts and number of employees)

 

Overview

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations and other materials we file with the Securities and Exchange Commission (the "SEC") (as well as information included in oral statements or other written statements made or to be made by us) contain certain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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): consumer preferences, spending and debt levels; the general economic and credit environment; interest rates; variations in consumer purchasing activities; competitive pressures on sales; 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.

 

Our Operations

 

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 primarily under the Twinlab® (including the REAAL®, and Twinlab® Fuel brand of sports nutrition products), Reserveage™ and ResVitale® brands. We also manufacture and sell diet and energy products under the Metabolife® and Re-Body® brands 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 also perform contract manufacturing services for private label products.  Our contract manufacturing services business involves the manufacture of custom products to the specifications of a customer who requires finished products under the customer’s own brand name.  We do not market these private label products as our business is to sell the products to the customer, who then markets and sells the products to retailers or end consumers.

 

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.

 

We have fully integrated our two 2015 acquisitions.  The first was the acquisition of the customer relationships of Nutricap, a provider of dietary supplement contract manufacturing services, into our subsidiary, NutraScience, in February 2015, and the second was the acquisition of 100% of the equity interests of Organic Holdings, a market leader in the healthy aging and beauty from within categories and owner of the award-winning Reserveage™ Nutrition brand, in October 2015. We continue to believe that these acquisitions significantly strengthened our product offerings, contract manufacturing services and our sales and marketing capabilities, providing us with opportunities to improve our market position in addition to adding to supply chain efficiencies.

 

Recent Developments

 

Changes in Officers and Board Member Changes

 

On March 27, 2019, Mr. Mark Bugge resigned from the Company’s board of directors. Mr. Bugge's decision to resign from the Company's board of directors did not involve any disagreement with the Company, management, or the board of directors.

   

On April 22, 2019, Ms. Carla Goffstein accepted the position as the Company’s Chief Financial Officer. Ms. Goffstein was previously Interim Chief Financial Officer and Senior Vice President, Finance since August 2018 and was previously Vice President, Finance from January 2018 when she joined the Company until August 2018. Prior to joining the Company, Ms. Goffstein was an independent consultant in the finance area with a focus on shared services processes, IT finance, cost savings and analysis, consumer brand strategy, portfolio analysis, logistics and distribution financial analysis, and overall general financial modeling and analysis from July 2015 until January 2018. Prior to that, Ms. Goffstein worked at Procter & Gamble from March 1998 until June 2015 in increasing positions of responsibility, serving most recently as the Associate Director of Finance for IT Solutions for Procter & Gamble’s Global Business Services unit, from August 2012 until June 2015. Ms. Goffstein holds a Bachelor of Science in Finance from Miami University in Oxford, Ohio.

 

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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. As of March 31, 2019, we had an accumulated deficit of $283,156. 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 issuance of common stock and third-party or related party debt.

 

Because of this history of operating losses, significant interest expense on our debt, and the recording of significant derivative liabilities, we have a working capital deficiency of $77,103 as of March 31, 2019.  We also have $73,358 of debt, net of discount, due within the next 12 months. These continuing conditions, among others, raise substantial doubt about our ability to continue as a going concern.

 

It is possible 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.

 

Critical Accounting Policies and Estimates

 

This discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which we have prepared in accordance with the U.S. generally accepted accounting principles. The preparation of our financial statements required us to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net sales and expenses during the reported periods. Significant estimates include values and lives assigned to acquired intangible assets, reserves for customer returns and allowances, uncollectible accounts receivable, valuation adjustments for slow moving, obsolete and/or damaged inventory and valuation, recoverability of long-lived assets, intangibles and goodwill, estimated values of stock options and warrants, share-based compensation, and the identification and valuation of derivatives. Actual results may differ from these estimates.

 

Our critical accounting policies and estimates include the following:

 

Revenue Recognition

Revenue from product sales, net of estimated returns and allowances, is recognized when evidence of an arrangement is in place, related prices are fixed, and determinable, contractual obligations have been satisfied, title and risk of loss have been transferred to the customer and collection of the resulting receivable is reasonably assured. Shipping terms are generally freight on board shipping point. We sell predominately in the North American and European markets, with international sales transacted in U.S. Dollars.

 

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 and damages; and doubtful accounts based upon historical bad debt and claims experience.

 

Inventories

Inventories are stated at the lower of cost or net realizable value and are reduced by an estimated reserve for obsolete inventory.

 

Intangible Assets

Intangible assets consist primarily of trademarks and customer relationships, which are amortized on a straight-line basis over their estimated useful lives ranging from 3 to 30 years. The valuation and classification of these assets and the assignment of amortizable lives involve significant judgment and the use of estimates.

 

We believe that our long-term growth strategy supports our fair value conclusions. For intangible assets, the recoverability of these amounts is dependent upon achievement of our projections and the execution of key initiatives related to revenue growth and improved profitability.

 

Goodwill

Goodwill is not subject to amortization, but is reviewed for impairment annually, or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. An impairment charge would be recorded to the extent the carrying value of goodwill exceeds its estimated fair value. The testing of goodwill under established guidelines for impairment requires significant use of judgment and assumptions. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations.

 

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Impairment of Long-Lived Assets

Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment when changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying amount of the asset exceeds the expected undiscounted cash flows of the asset, an impairment charge is recognized equal to the amount by which the carrying amount exceeds fair value. The testing of these intangibles under established guidelines for impairment requires significant use of judgment and assumptions. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations.

 

Indefinite-Lived Intangible Assets

Indefinite-lived intangible assets relating to the asset acquisition of Organic Holdings are determined to have an indefinite useful economic life and as such are not amortized. Indefinite-lived intangible assets are tested for impairment annually which consists of a comparison of the fair value of the asset with its carrying value.

 

Value of Warrants Issued with Debt

We estimate the grant date value of certain warrants issued with debt, using an outside professional valuation firm, which uses the Monte Carlo option lattice model. We record the amounts as interest expense or debt discount, depending on the terms of the agreement. These estimates involve multiple inputs and assumptions, including the market price of the Company’s common stock, stock price volatility and other assumptions to project earnings before interest, taxes, depreciation and amortization (“EBITDA”) and other reset events. These inputs and assumptions are subject to management’s judgment and can vary materially from period to period.

 

Derivative Liabilities

We have recorded certain warrants as derivative liabilities at estimated fair value, as determined based on the Company’s use of an outside professional valuation firm, due to the variable terms of the warrant agreements. The value of the derivative liabilities is generally estimated using Monte Carlo option lattice model with multiple inputs and assumptions, including the market price of the Company’s common stock, stock price volatility and other assumptions to project EBITDA and other reset events. These inputs and assumptions are subject to management’s judgment and can vary materially from period to period.

 

Share-Based Compensation

We record share-based compensation, including grants of restricted stock units, based on their grant date fair values and record compensation expense over the vesting period of the restricted stock awards.

 

Income Taxes

We account for income taxes using an asset and liability approach. Deferred income taxes are determined by applying currently enacted tax laws and rates to the cumulative temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. Valuation allowances against deferred tax assets are recorded when we are unable to conclude that it is more likely than not that such deferred tax assets will be realized.

 

Results of Operations

 

Net Sales

Our net sales increased $306, or 2%, to $19,971 for the three months ended March 31, 2019 from $19,665 for the three months ended March 31, 2018. This increase in our net sales is primarily due to the decrease in promotional allowances in 2019.

 

Gross Profit

Our gross profit decreased $1,819, or 45%, to $2,256 for the three months ended March 31, 2019 from $4,075 for the three months ended March 31, 2018.  The decrease in our gross profit is derived from shifts in the margin mix of sales, lower gross sales, and costs incurred from the write off and disposal of raw/packing materials at contract manufacturers.

     

Selling, General and Administrative Expenses

Our selling, general and administrative expenses decreased $1,680, or 19%, to $7,042 for the three months ended March 31, 2019 from $8,722 for the three months ended March 31, 2018. The decrease in selling, general and administrative expenses for the three months ended March 31, 2019 is related to the Company’s 2018 rightsizing initiatives.

 

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Interest Expense, Net

Our interest expense increased $605, or 29%, to $2,718 for the three months ended March 31, 2019 from $2,113 for the three months ended March 31, 2018, primarily due to the additional financing that was procured in the later half of 2018.

 

Gain (Loss) on Change in Derivative Liabilities

We have recorded the estimated fair value of the warrants as of the date of issuance.  Due to the variable terms of the warrant agreements, changes in the estimated fair value of the warrants from the date of issuance to each balance sheet reporting date are recorded as derivative liabilities with a corresponding charge to our consolidated statements of operations.  During the three months ended March 31, 2019, we recorded a loss on change in derivative liabilities of $1,263. During the three months ended March 31, 2018, we recorded a gain on change in derivative liabilities of $1,818. 

 

Liquidity and Capital Resources

 

At March 31, 2019, we had an accumulated deficit of $$283,156 primarily because of our history of operating losses and our recording of derivative liabilities and loss on stock purchase guarantee. We have a working capital deficiency of $77,103 at March 31, 2019. Losses have been funded primarily through issuance of common stock, borrowings from our stockholders and third-party debt and proceeds from the exercise of warrants. As of March 31, 2019, we had cash of $1,672. 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 $6,474 for the three months ended March 31, 2019. During the three months ended March 31, 2019, we incurred a net increase in borrowings on our senior credit facility of $1,983 to fund our operations and debt repayment of $63.

 

Our total liabilities increased by $5,310 to $120,437 at March 31, 2019 from $115,127 at December 31, 2018.  This increase in our total liabilities was primarily due to the increase of $898 in debt from amortization of debt discounts and the increase of $1,983 in borrowings from our senior credit facility. For discussion of our debt financings completed during the last three months ended March 31, 2019, see Notes 6 and 7 in the Notes to Condensed Consolidated Financial Statements included in this Report.

 

Cash Flows from Operating, Investing and Financing Activities

Net cash used in operating activities was $6,474 for the three months ended March 31, 2019 as a result of our net loss of $8,784, a non-cash loss on change in derivative liabilities of $1,263, an increase of $1,054 in doubtful accounts receivable, other non-cash expenses totaling $460 net and a increasein net operating assets and liabilities of $467.  By comparison, for the three months ended March 31, 2018, net cash used in operating activities was $4,236 as a result of our net loss of $4,958, a non-cash gain on change in derivative liabilities of $1,818 as well as other non-cash expenses totaling $1,232 and an increase in net operating assets and liabilities of $1,308. See the Condensed Consolidated Statements of Cash Flows included in this Report for additional information.

 

Net cash provided by financing activities was $1,920 for the three months ended March 31, 2019, primarily consisting of an increase in borrowings of $1,983 under our revolving credit facility, and repayment of debt of $63.

 

Ongoing Funding Requirements

As set forth above, we obtained additional debt financing in 2018 and the three months ended March 31, 2019 to support operations. It is possible that we may need additional funding to enable us to fund our operating expenses and capital expenditure requirements.

 

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 financings, collaborations, strategic alliances 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 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 financings 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.

 

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Recent Accounting Pronouncements

 

In January 2017, FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment (Topic 350)” which removes Step 2 of the goodwill impairment test that requires a hypothetical purchase price allocation.  A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.  The amendments in this ASU are effective for fiscal years beginning after December 15, 2019.  Early adoption is permitted after January 1, 2017.  We do not expect the new guidance to have a significant impact on our consolidated financial statements or related disclosures.

  

In February 2016, FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which requires companies to recognize all leases as assets and liabilities on the consolidated balance sheet. This ASU retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in a consolidated statement of comprehensive income and a consolidated statement of cash flows is largely unchanged from previous GAAP. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. The Company is currently evaluating the impact that the adoption of this ASU will have on its Consolidated Financial Statements. Our status as an emerging growth company allowed us to defer the adoption until the year (and interim periods therein) beginning January 1, 2020.

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016; however, in July 2015, the FASB agreed to delay the effective date by one year. The proposed deferral may permit early adoption but would not allow adoption any earlier than the original effective date of the standard. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Our status as an emerging growth company allowed us to defer the adoption until the annual reporting period beginning January 1, 2019, and interim reporting periods within the annual reporting period beginning January 1, 2020.  These condensed consolidated interim financial statements do not include the adoption of ASU 2014-09.  We will include the adoption of ASU 2014-09 in our annual reporting period ending December 31, 2019, and beginning in our interim reporting period for the three months ending March 31, 2020. We have reviewed this ASU and determined that it has no material impact to the Company's consolidated financial position or results of operations, but will impact the Company's disclosures.

 

Although there are several other new accounting pronouncements issued or proposed by the FASB, which we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements has had or will have a material impact on our condensed consolidated financial position or results of operations

   

Material Contractual Obligations

 

On December 15, 2016, we entered into an operating lease agreement for approximately 13,000 square feet of office space in Boca Raton, Florida.  The agreement expires in February 2026 and has a monthly base rent of $17 in year 1 to $21 in year 8. The commencement date is August 2017.

 

As of March 31, 2019, we have total debt of $88,358, of which $83,175 is considered to be related-party debt.  For discussion of our debt financings, see Notes 6 and 7 in the Notes to Condensed Consolidated Financial Statements included in this Report.

 

Effective February 6, 2013, we entered into an operating lease agreement for approximately 170,000 square feet of manufacturing, R&D, warehousing and shipping space, which includes roughly 30,000 square feet of office space, in American Fork, Utah. The agreement expires in February 2028 and has a monthly base rent of $60, provided that commencing on the five-year anniversary date thereafter, the base rent shall be increased by 10% over the base rent for the preceding five-year period.

 

Effective April 7, 2015, we entered into an operating lease agreement for approximately 31,000 square feet of office space in St. Petersburg, Florida. The agreement expires in April 2027 and has a monthly base rent of $59 for year 1 to $76 for year 12. On November 30, 2016, we entered into a sublease agreement to sublease half of the 31, 000 square feet of office space. The sublease term commenced on February 1, 2017 and expires on June 30, 2022.

 

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On January 17, 2018, the Company entered into a Sublicense Agreement with 463IP Partners, LLC (“463IP”) in which 463IP granted an exclusive, worldwide, perpetual sublicense to the licensed patents, licensed processes and licensed technology with the right to use, make, sell, offer, import, export, practice and develop the licensed patents, licensed processes, licensed products and licensed technology in all of the countries and territories of the world and with respect to the direct marketing, sale, use and consumption efforts directed towards athletes. In return for this sublicense, the Company agreed to purchase certain minimum amounts of licensed product solely from 463IP or from a manufacturer approved by 463IP. The minimum requirements are 10,000 kilograms of blended licensed product during the first year of the Sublicense Agreement and 20,000 kilograms of blended licensed product during the second year of the Sublicense Agreement.

 

If purchased from 463IP, the price will be equivalent to the fully loaded cost to 463IP. Additionally, the Company will pay a royalty equal to $2.50 per kilogram of blended licensed product purchased regardless of whether it is purchased from 463IP or a manufacturer approved by 463IP. The per kilo fee shall be reduced by 50% under certain circumstances set forth in the Sublicense Agreement.

 

Off-Balance Sheet Arrangements

 

None.

 

Item 3.          Quantitative and Qualitative Disclosures About Market Risk.

 

This item is not applicable as we are currently considered a smaller reporting company.

 

Item 4.          Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2019 pursuant to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, 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 chief executive officer and our 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 chief executive officer and our chief financial officer, in a manner that allows timely decisions regarding required disclosure.

 

During the fourth quarter of 2018 and into the first quarter of 2019, management identified material weaknesses in the selection and testing of our third-party logistics and fulfillment provider, whom the Company engaged to replace the Company's Utah manufacturing facility. The Company has determined that the third party logistics and fulfillment provider or 3PL does not issue reports pursuant to the Statement on Standards for Attestation Engagement No. 18 attestation standards. The Company should have designed and implemented the necessary internal controls to address the potential risks of using a 3PL who does not issue SSAE18 reports. The Company should have taken steps to design and implement controls around the receipt of inventory at the 3PL to ensure the quantities and description of inventory movements related to the 3PL. Additionally, the Company should take steps to obtain and review the appropriate SSAE 18 reports issued by the software company which the 3PL uses as its inventory management software. Management also identified a material weakness related to 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 documentation requirements. Prior normal staffing turnover along with technical accounting issues and the Company's change to a 3PL impacted the Company's ability to react to technical accounting matters encountered.

   

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Changes in Internal Control over Financial Reporting

 

To remediate the material weaknesses described above, management implemented several initiatives, including but not limited to the following:

 

 

● 

To address the material weakness related to Inventory Controls, the Company is designing and implementing controls around the receipt of inventory at the 3PL to ensure the quantities and descriptions of inventory movements are input accurately. The Company is looking to conduct monthly sampling of outgoing shipping documents and validate that the shipment date per the 3PL matches to the shipment date per the 3rd party freight carrier’s documents to corroborate the 3PL’s shipping records and avoid placing inadvertent reliance on the 3PL’s shipping records. Additionally, the Company will reconcile inventory per the general ledger to the 3PL records on a regular basis to ensure inventory is recorded completely and accurately. Management plans to observe the annual physical inventory count performed by the 3PL to ensure the existence of inventory and that the inventory value is not misstated. Also, the Company will consider observing random cycle counts performed throughout the year. The Company is also working to obtain and review the SSAE 18 SOC 1 report issued by the software company which the 3PL uses as its inventory management software. These controls and documentation will also be considered as part of the ongoing improvement plan of the Company’s enterprise resource system.

     
  ●  To address the material weakness related to appropriate staffing, the Company is looking to hire, train and retain the appropriate staffing in the accounting and information technology departments including technical accountants to support and alleviate the work load on the current team. The additional staffing should proactively identify and account for transactions of a complex or non-routine nature. Furthermore, the additional staffing should be responsible for managing the day-to-day responsibilities of Sarbanes Oxley compliance. The additional staffing should also reduce inefficiencies and address documenting evidence of operating effectiveness for business process controls and information technology general controls.
     
  ●  The Company has engaged and worked throughout the year with our independent Sarbanes Oxley Act consultant to help improve the overall testing of our system of internal control over financial reporting. We promptly identified and refined controls subsequent to the year-end and prior to the filing date of the report on Form 10-K. Specifically, we were able to:

 

Refine our key controls and compensating control procedures to properly address inventory reporting risks.

 

Implement periodic control validation and testing to ensure controls continue to operate consistently and as designed.

 

Hire, assign and train staffing within the accounting department to be responsible for managing the day-to-day responsibilities of maintaining appropriate evidence of operating effectiveness of key controls over financial reporting.

 

Other than as described above, there were no changes in our internal controls over financial reporting during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

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. 

 

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PART II—OTHER INFORMATION

 

Item 1.          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 March 31, 2019, there were no legal proceedings that could have a material impact on the Company’s finances.

 

Item 1A.       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 April 16, 2019.

 

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.

 

Item 6.           Exhibits.

 

Exhibit

Number

Exhibit Description

   

10.199

Amendment No. 17 to Credit and Security Agreement, dated as of April 22, 2019, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC and Joie Essance, LLC and MidCap Funding IV Trust.**

10.200

Warrant dated April 22, 2019, by and between Twinlab Consolidated Holdings, Inc. and MidCap Funding IV Trust**

10.201

Employment Agreement between Twinlab Consolidated Holdings, Inc. and Carla Goffstein, dated April 22, 2019. **

31.1

Rule 13a-14(a)/15d-14(a) Certification.

31.2

Rule 13a-14(a)/15d-14(a) Certification.

32.1

Certification Pursuant to 18 U.S.C. Section 1350.

32.2

Certification Pursuant to 18 U.S.C. Section 1350.

101.INS

XBRL Instance.

 

 

101.SCH

XBRL Taxonomy Extension Schema.

 

 

101.CA

XBRL Taxonomy Extension Calculation.

 

 

101.DEF

XBRL Taxonomy Extension Definition.

 

 

101.LAB

XBRL Taxonomy Extension Label.

 

 

101.PRE

XBRL Taxonomy Extension Presentation.

 

31

 

 

SIGNATURES

 

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: May 15, 2019

By:

/s/ Anthony Zolezzi

   

Anthony Zolezzi

   

Chief Executive Officer and President 

     

Date: May 15, 2019

By:

/s/ Carla Goffstein

   

Carla Goffstein

   

Chief Financial Officer

 

32

 

 

EXHIBIT 10.199

 

AMENDMENT NO. 17 TO CREDIT AND SECURITY AGREEMENT AND LIMITED WAIVER

 

 

THIS AMENDMENT NO. 17 TO CREDIT AND SECURITY AGREEMENT AND LIMITED WAIVER (this “ Amendment ”) is made as of this 22 nd day of April, 2019, by and among TWINLAB CONSOLIDATED HOLDINGS, INC. , a Nevada corporation, TWINLAB CONSOLIDATION CORPORATION , a Delaware corporation, TWINLAB HOLDINGS, INC. , a Michigan corporation, ISI BRANDS INC. , a Michigan corporation, TWINLAB CORPORATION , a Delaware corporation, NUTRASCIENCE LABS, INC. , a Delaware corporation (formerly known as TCC CM Subco I, Inc.), NUTRASCIENCE LABS IP CORPORATION , a Delaware corporation (formerly known as TCC CM Subco II, Inc.), ORGANIC HOLDINGS LLC , a Delaware limited liability company, RESERVE LIFE ORGANICS, LLC , a Delaware limited liability company, RESVITALE, LLC , a Delaware limited liability company, RE-BODY, LLC , a Delaware limited liability company, INNOVITAMIN ORGANICS, LLC , a Delaware limited liability company, ORGANICS MANAGEMENT LLC , a Delaware limited liability company, COCOAWELL, LLC , a Delaware limited liability company, FEMBODY, LLC , a Delaware limited liability company, RESERVE LIFE NUTRITION, L.L.C. , a Delaware limited liability company, INNOVITA SPECIALTY DISTRIBUTION LLC , a Delaware limited liability company, and JOIE ESSANCE, LLC , a Delaware limited liability company (each of the foregoing Persons being referred to herein individually as a “ Borrower ”, and collectively as “ Borrowers ”), and MIDCAP FUNDING IV TRUST, a Delaware statutory trust, as successor-by-assignment from MidCap Funding X Trust (as Agent for Lenders, “ Agent ”, and individually, as a Lender), and the other financial institutions or other entities from time to time parties to the Existing Credit Agreement referenced below, each as a Lender.

 

RECITALS

 

A.      Pursuant to that certain Credit and Security Agreement dated as of January 22, 2015 by and among Borrowers, Agent and Lenders (the “ Original Agreement ”) (as amended by that certain Amendment No. 1 to Credit and Security Agreement and Limited Consent dated as of February 4, 2015, by that certain Amendment No. 2 to Credit and Security Agreement and Limited Consent dated as of April 7, 2015, by that certain Amendment No. 3 to Credit and Security Agreement and Limited Consent dated as of April 30, 2015, by that certain Amendment No. 4 to Credit and Security Agreement and Limited Waiver dated as of June 30, 2015, by that certain Amendment No. 5 to Credit and Security Agreement and Limited Consent dated as of June 30, 2015, by that certain Amendment No. 6 to Credit and Security Agreement, Limited Consent and Limited Waiver dated as of September 9, 2015, by that certain Amendment No. 7 and Joinder Agreement to Credit and Security Agreement dated as of October 5, 2015, by that certain Amendment No. 8 to Credit and Security Agreement dated as of January 28, 2016, by that certain Amendment No. 9 to Credit and Security Agreement dated as of April 5, 2016, by that certain Amendment No. 10 to Credit and Security Agreement dated as of August 11, 2016, but effective as of July 29, 2016, by that certain Amendment No. 11 to Credit and Security Agreement dated as of September 1, 2016, by that certain Amendment No. 12 to Credit and Security Agreement and Limited Consent dated as of December 2, 2017, by that certain Amendment No. 13 to Credit and Security Agreement and Limited Consent dated as of August 30, 2017, by that certain Amendment No. 14 to Credit and Security Agreement and Limited Waiver dated as of March 22, 2018, by that certain Amendment No. 15 to Credit and Security Agreement dated as of December 4, 2018, and by that certain Amendment No. 16 to Credit and Security Agreement (the “ Sixteenth Amendment ”) dated as of January 22, 2019 (the “ Existing Credit Agreement ”), Agent and Lenders agreed to make available to Borrowers a secured revolving credit facility in an amended principal amount of up to $5,000,000 from time to time (as amended, modified, supplemented, extended and restated from time to time). Capitalized terms used but not otherwise defined in this Amendment shall have the meanings set forth in the Existing Credit Agreement.

 

 

 

 

B.     Borrowers have failed to satisfy Section 6.2 (Minimum Adjusted EBITDA) of the Credit Agreement because Borrowers’ Adjusted EBITDA was less than $1,400,000 with respect to the measurement period from January 1, 2018 to December 31, 2018, and such failure constitutes an Event of Default under the Credit Agreement (the “ Existing Event of Default ”). Borrowers have requested that Agent and the Lenders waive the Existing Event of Default, and Agent and Lenders have agreed to do so, in accordance with the terms and subject to the conditions set forth herein

 

C.     Borrowers have requested that the Administrative Agent and the Lenders agree to amend the Existing Credit Agreement to, among other things, (i) extend the Commitment Expiry Date, (ii) increase the Revolving Loan Commitment Amount from $5,000,000 to $12,000,000, (iii) modify the financial covenants and (iv) revise other provisions.

 

D.      Borrowers, Agent and Lenders have agreed to amend the Existing Credit Agreement as set forth herein.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing, the terms and conditions set forth in this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Agent, Lenders and Borrowers hereby agree as follows:

 

1.      Recitals. This Amendment shall constitute a Financing Document and the Recitals set forth above shall be construed as part of this Amendment as if set forth fully in the body of this Amendment.

 

2.      Amendments to Existing Credit Agreement.      

 

(a)    Original Agreement . The Original Agreement is hereby amended to delete the bold, stricken text (indicated textually in the same manner as the following example: stricken text) and to add the bold, double-underlined text (indicated textually in the same manner as the following example: double-underlined text ) as set forth in the pages of the Credit and Security Agreement attached as Exhibit A hereto. So as to avoid any confusion, Exhibit A sets forth the operative terms of the Existing Credit Agreement after giving effect to this Amendment (as may be as further amended, modified, supplemented, extended and restated from time to time, the “ Credit Agreement ”), but does not include any Annexes, Exhibits or Schedules.

 

 

 

 

(b)     Annex A . Annex A to the Existing Credit Agreement containing the Commitment Annex is hereby amended and restated as set forth on Exhibit B attached to and made a part of this Amendment.

 

(c)    Exhibit B . Exhibit B to the Existing Credit Agreement containing the Compliance Certificate is hereby amended and restated as set forth on Exhibit C attached to and made a part of this Amendment.

 

(d)    Certain Schedules . Schedules 3.4, 3.17, 3.19, 5.1, 5.14 and 9.2 to the Existing Credit Agreement are hereby amended and restated as set forth on Exhibit D attached to and made a part of this Amendment, and shall be deemed to be given as of the date of this Amendment.

 

3.      Limited Waiver. Each of the Borrowers hereby acknowledges and agrees that the Existing Event of Default continues to exist as of the date hereof. At the request of and as an accommodation to Borrowers and subject to the terms and conditions set forth herein, Agent and Lenders hereby waive the Existing Event of Default. The limited waiver set forth in this Section 3 is effective solely for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) except as expressly provided herein, be a consent to any amendment, waiver or modification of any term or condition of the Credit Agreement or of any other Financing Document; (b) prejudice any right that Agent or the Lenders have or may have in the future under or in connection with the Credit Agreement or any other Financing Document, including, without limitation, the rights of the Agent under Section 2.1(b)(i) of the Credit Agreement; (c) waive any other Event of Default that may exist as of the date hereof; (d) waive compliance with Section 6.2 of the Credit Agreement for any period other than with respect to the measurement period from January 1, 2018 to December 31, 2018; or (e) establish a custom or course of dealing among any of the Credit Parties, on the one hand, or Agent or any Lender, on the other hand.

 

4.      Confirmation of Representations and Warranties; Reaffirmation of Security Interest. Each Borrower hereby (a) confirms that all of the representations and warranties set forth in the Existing Credit Agreement are, after giving effect to this Amendment and the transactions contemplated hereby, true and correct with respect to such Borrower as of the date hereof to the same extent as though made on and as of such date, except to the extent such representations and warranties specifically relate to an earlier date or except as specifically amended pursuant to the terms of this Amendment, and (b) covenants to perform its respective obligations under the Existing Credit Agreement. Each Borrower confirms and agrees that all security interests and Liens granted to Agent continue in full force and effect, and all Collateral remains free and clear of any Liens, other than those granted to Agent and Permitted Liens. Nothing herein is intended to impair or limit the validity, priority or extent of Agent’s security interests in and Liens on the Collateral.

 

4.      Enforceability. This Amendment constitutes the legal, valid and binding obligation of each Borrower, and is enforceable against each of the Borrowers in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws relating to the enforcement of creditors’ rights generally and by general equitable principles.

 

 

 

 

5.       Costs and Fees . In consideration of Agent’s agreement to enter into this Amendment, Borrower shall pay to Agent a modification fee equal to One Hundred Twenty Thousand and No/100 Dollars ($120,000.00) (the “ Modification Fee ”). The Modification Fee shall be fully earned upon the execution of this Amendment. Borrowers will be given a $33,333.33 credit towards the Modification Fee for a fee paid in connection with the Sixteenth Amendment. Furthermore, Borrowers shall be responsible for the payment of all reasonable costs and fees of Agent’s counsel incurred in connection with the preparation of this Amendment and any related documents. If Agent or any Lender uses in-house counsel for any of these purposes, Borrowers further agree that the Obligations include reasonable charges for such work commensurate with the fees that would otherwise be charged by outside legal counsel selected by Agent or such Lender for the work performed. Borrowers hereby authorize Agent to deduct all of such fees set forth in this Section 5 from the proceeds of one or more Revolving Loans made under the Existing Credit Agreement after giving effect to this Amendment.

 

6.       Conditions to Effectiveness. This Amendment shall become effective as of the date on which each of the following conditions has been satisfied (the “ Effective Date ”):

 

(a)     Borrowers shall have delivered to Agent this Amendment, duly executed by an authorized officer of each Borrower;

 

(b)     Borrowers shall have delivered to Agent an Amended and Restated Revolving Loan Note, duly executed by an authorized officer of each Borrower;

 

(c)     all representations and warranties of Borrowers contained herein shall be true and correct in all material respects as of the Effective Date (and such parties’ delivery of their respective signatures hereto shall be deemed to be its certification thereof); and

 

(d)     Agent shall have received from Borrowers all of the fees owing pursuant to this Amendment and Agent’s reasonable out-of-pocket legal fees and expenses.

 

7.      Post- Seventeenth Amendment Closing Requirements . Borrowers shall satisfy and complete each of the following obligations, or provide Agent each of the items listed below, as applicable, on or before the date indicated below, all to the satisfaction of Agent in its sole and absolute discretion:

 

(a)     As soon as possible, but in any case within thirty (30) days of the Seventeenth Amendment Closing Date, Borrowers shall deliver or cause to be delivered to Agent, an updated Schedule 3.17 (Material Contracts) and an updated Schedule 3.19 (Intellectual Property), such Schedule being deemed to be given as of the Seventeenth Amendment Closing Date.      

 

(b)     As soon as possible, but in any case within fourteen (14) days of the Seventeenth Amendment Closing Date, Borrowers shall deliver or cause to be delivered to Agent fully executed Deposit Account Control Agreements in form and substance satisfactory to Agent with respect to each of the deposit accounts at Bank of America ending in (i) 5106, (ii) 5119 and (iii) 4089.

 

(c)     As soon as possible, but in any case within thirty (30) days of the Seventeenth Amendment Closing Date, Borrowers shall deliver or cause to be delivered to Agent one or more fully executed Grants of Security Interest in Patent and Trademarks in form and substance satisfactory to Agent with respect to all of the U.S. registered intellectual property of Borrowers not subject to such an agreement in favor of Agent as of the Seventeenth Amendment Closing Date.

 

 

 

 

(d)     As soon as possible, but in any case within ninety (90) days of the Seventeenth Amendment Closing Date, Borrowers shall deliver or cause to be delivered to Agent fully-executed copies of amendments to the Subordinated Debt Documents extending the maturity date of each of the Penta Debt, JL-BBNC Debt, Golisano Holdings Debt, Great Harbor Debt and Little Harbor Debt to be no earlier than October 22, 2021, and otherwise in form and substance satisfactory to Agent in all respects or provide evidence such Debt has been discharged in full, provided that no portion of the Revolving Loans or the Collateral shall be used, directly or indirectly, to make payment on such Subordinated Debt.

 

(e)     On or before August 31, 2020, the Borrowers shall (i) deliver or cause to be delivered to Agent fully-executed copies of amendments to the Subordinated Debt Documents extending the maturity date of the Macatawa Debt to be no earlier than six months after the Commitment Expiry Date, and otherwise in form and substance satisfactory to Agent in all respects, (ii) refinance the Macatawa Debt with Refinancing Debt having a maturity date no earlier than October 22, 2021 or (iii) obtain the written consent of the Agent to the repayment of the Macatawa Debt at its current maturity date of November 30, 2020, which consent may be withheld in the Agent’s sole and absolute discretion.

 

8.      Release. Each Borrower, voluntarily, knowingly, unconditionally and irrevocably, with specific and express intent, for and on behalf of itself and all of its respective parents, subsidiaries, affiliates, members, managers, predecessors, successors, and assigns, and each of their respective current and former directors, officers, shareholders, agents, and employees (collectively, “ Releasing Parties ”), does hereby fully and completely release, acquit and forever discharge each Indemnitee of and from any and all actions, causes of action, suits, debts, disputes, damages, claims, obligations, liabilities, costs, expenses and demands of any kind whatsoever, at law or in equity, whether matured or unmatured, liquidated or unliquidated, vested or contingent, choate or inchoate, known or unknown that the Releasing Parties (or any of them) has against the Indemnitees (or any of them) that directly or indirectly arise out of, are based upon or are in any manner connected with any Prior Related Event. “ Prior Related Event ” means any transaction, event, circumstance, action, failure to act, occurrence of any type or sort, whether known or unknown, which occurred, existed, was taken, was permitted or begun in accordance with, pursuant to or by virtue of (a) any of the terms of this Amendment or any other Financing Document, (b) any actions, transactions, matters or circumstances related hereto or thereto, (c) the conduct of the relationship between any Indemnitee and any Borrower, or (d) any other actions or inactions by any Indemnitee, all on or prior to the Effective Date. Each Borrower acknowledges that the foregoing release is a material inducement to Agent’s and Lender’s decision to enter into this Amendment and to agree to the modifications contemplated hereunder.

 

9.     No Waiver or Novation. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided in this Amendment, operate as a waiver of any right, power or remedy of Agent, nor constitute a waiver of any provision of the Existing Credit Agreement, the Financing Documents or any other documents, instruments and agreements executed or delivered in connection with any of the foregoing. Nothing herein is intended or shall be construed, except as expressly provided in this Amendment, as a waiver of any existing Defaults or Events of Default under the Existing Credit Agreement or other Financing Documents or any of Agent’s rights and remedies in respect of such Defaults or Events of Default. This Amendment (together with any other document executed in connection herewith) is not intended to be, nor shall it be construed as, a novation of the Existing Credit Agreement.

 

 

 

 

10.    Affirmation. Except as specifically amended and waived pursuant to the terms hereof, the Existing Credit Agreement and all other Financing Documents (and all covenants, terms, conditions and agreements therein) shall remain in full force and effect, and are hereby ratified and confirmed in all respects by Borrowers. Each Borrower covenants and agrees to comply with all of the terms, covenants and conditions of the Existing Credit Agreement (as amended and modified hereby) and the Financing Documents, notwithstanding any prior course of conduct, waivers, releases or other actions or inactions on Agent’s or any Lender’s part which might otherwise constitute or be construed as a waiver of or amendment to such terms, covenants and conditions.

 

11.    Miscellaneous.

 

(a)      Reference to the Effect on the Existing Credit Agreement. Upon the effectiveness of this Amendment, each reference in the Existing Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of similar import shall mean and be a reference to the Existing Credit Agreement, as amended and modified by this Amendment. Except as specifically amended and waived above, the Existing Credit Agreement, and all other Financing Documents (and all covenants, terms, conditions and agreements therein), shall remain in full force and effect, and are hereby ratified and confirmed in all respects by Borrowers.

 

(b)     Incorporation of Existing Credit Agreement Provisions. The provisions contained in Section 11.6 (Indemnification), Section 12.8 (Governing Law; Submission to Jurisdiction) and Section 12.9 (Waiver of Jury Trial) of the Existing Credit Agreement are incorporated herein by reference to the same extent as if reproduced herein in their entirety.

 

(c)      Headings. Section headings in this Amendment are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

 

(d)      Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Signatures by facsimile or by electronic mail delivery of an electronic version (e.g., .pdf or .tif file) of an executed signature page shall be treated as delivery of an original and shall bind the parties hereto. This Amendment constitutes the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

 

12.   Note .  As of the February 13, 2019, Lender has determined not to evidence its Revolving Loan Commitment or any portion of its Obligations under the Credit Agreement by a Note from Borrowers.  Agent shall maintain a record of the Lenders and their respective amounts in accordance with the terms of the Credit Agreement.  Borrowers acknowledge and agree that all outstanding Obligations, including, without limitation, principal and interest under the Note as of the date hereof continue in full force and effect and the cancellation of the Note shall not constitute a novation of any of the Obligations evidenced by the Note

 

[SIGNATURES APPEAR ON FOLLOWING PAGES]

 

 

 

 

 

IN WITNESS WHEREOF , intending to be legally bound, and intending that this document constitute an agreement executed under seal, the undersigned have executed this Amendment under seal as of the day and year first hereinabove set forth.

 

 

AGENT: MIDCAP FUNDING IV TRUST, a Delaware statutory trust, as successor-by-assignment from MidCap Financial Trust    
         
  By: Apollo Capital Management, L.P.,    
    its investment manager    
         
  By:

Apollo Capital Management GP, LLC,

   
    its general partner    
         
         
  By: /s/ Maurice Amsellem (SEAL)  
  Name: Maurice Amsellem    
  Title: Authorized Signatory    
         
         
         
LENDER: MIDCAP FUNDING IV TRUST, a Delaware statutory trust, as successor-by-assignment from MidCap Financial Trust    
         
  By: Apollo Capital Management, L.P.,    
    its investment manager    
         
  By: Apollo Capital Management GP, LLC,    
    its general partner    
         
         
  By: /s/ Maurice Amsellem (SEAL)  
  Name: Maurice Amsellem    
  Title:  Authorized Signatory    

                   

 

 

 

BORROWERS:  TWINLAB CONSOLIDATED HOLDINGS, INC.    
  TWINLAB CONSOLIDATION CORPORATION    
  TWINLAB HOLDINGS, INC .    
  TWINLAB CORPORATION      
  ISI BRANDS, INC.    
  NUTRASCIENCE LABS, INC.    
  NUTRASCIENCE LABS IP CORPORATION    
       
       
  By: /s/Anthony Zolezzi (SEAL)  
  Name: Anthony Zolezzi    
  Title: Chief Executive Officer    
         
         
  ORGANIC HOLDINGS LLC    
       
       
  By: /s/Anthony Zolezzi (SEAL)  
  Name: Anthony Zolezzi    
  Title: Sole Manager    
         
         
  RESERVE LIFE ORGANICS, LLC    
  RESVITALE, LLC    
  RE-BODY, LLC    
  INNOVITAMIN ORGANICS, LLC    
  ORGANICS MANAGEMENT LLC    
  COCOAWELL, LLC    
  FEMBODY, LLC    
  RESERVE LIFE NUTRITION, L.L.C.    
  INNOVITA SPECIALTY DISTRIBUTION LLC    
  JOIE ESSANCE, LLC    
         
         
  By: ORGANIC HOLDINGS LLC,    
    its sole Member    
         
  By: /s/Anthony Zolezzi (SEAL)  
  Name: Anthony Zolezzi    
  Title:  Sole Manager    

 

 

 

 

EXHIBIT A

 

Existing Credit Agreement

After Giving Effect To Amendment No. 17

 

 

 

 

 

 

EXHIBIT B

 

Commitment Annex

 

 

 

 

 

Annex A to Credit Agreement (Commitment Annex)

 

 

Lender

 

Revolving Loan

Commitment

Amount

 

Revolving Loan

Commitment

Percentage

MidCap Funding IV Trust

 

$12,000,000

 

100%

TOTALS

 

$ 12 ,000,000

 

100%

 

 

 

 

EXHIBIT C

 

Compliance Certificate

 

 

 

 

 

Exhibit B to Credit Agreement (FORM OF Compliance Certificate)

 

 

COMPLIANCE CERTIFICATE

 

This Compliance Certificate is given by _____________________, a Responsible Officer of TWINLAB CONSOLIDATION CORPORATION (the “ Borrower Representative ”), pursuant to that certain Credit and Security Agreement dated as of January 22, 2015 among the Borrower Representative, TWINLAB CONSOLIDATED HOLDINGS, INC., TWINLAB HOLDINGS, INC., ISI BRANDS INC., TWINLAB CORPORATION, NUTRASCIENCE LABS, INC.(formerly known as TCC CM Subco I, Inc.), NUTRASCIENCE LABS IP CORPORATION (formerly known as TCC CM Subco II, Inc.), ORGANIC HOLDINGS LLC, RESERVE LIFE ORGANICS, LLC, RESVITALE, LLC, RE-BODY, LLC, INNOVITAMIN ORGANICS, LLC, ORGANICS MANAGEMENT LLC, COCOAWELL, LLC, FEMBODY, LLC, RESERVE LIFE NUTRITION, L.L.C., INNOVITA SPECIALTY DISTRIBUTION, LLC, JOIE ESSANCE, LLC and any additional Borrower that may hereafter be added thereto (collectively, “ Borrowers ”), MidCap Funding IV Trust, as successor by assignment from MidCap Funding X Trust (successor by assignment from MidCap Financial Trust), individually as a Lender and as Agent, and the financial institutions or other entities from time to time parties hereto, each as a Lender (as such agreement may have been amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”). Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement.

 

The undersigned Responsible Officer hereby certifies to Agent and Lenders that:

 

(a)     the financial statements delivered with this certificate in accordance with Section 4.1 of the Credit Agreement fairly present in all material respects the results of operations and financial condition of Borrowers and their Consolidated Subsidiaries as of the dates and the accounting period covered by such financial statements;

 

(b)     I have reviewed the terms of the Credit Agreement and have made, or caused to be made under my supervision, a review in reasonable detail of the transactions and conditions of Borrowers and their Consolidated Subsidiaries during the accounting period covered by such financial statements and such review has not disclosed the existence during or at the end of such accounting period, and I have no knowledge of the existence as of the date hereof, of any condition or event that constitutes a Default or an Event of Default, except as set forth in Schedule 1 hereto, which includes a description of the nature and period of existence of such Default or an Event of Default and what action Borrowers have taken, are undertaking and propose to take with respect thereto;

 

(c)     except as noted on Schedule 2 attached hereto, the Credit Agreement contains a complete and accurate list of all business locations of Borrowers and Guarantors and all names under which Borrowers and Guarantors currently conduct business; Schedule 2 specifically notes any changes in the names under which any Borrower or Guarantor conduct business;

 

 

 

 

(d)     except as noted on Schedule 3 attached hereto, the undersigned has no knowledge of (i) any federal or state tax liens having been filed against any Borrower, Guarantor or any Collateral or (ii) any failure of any Borrower or Guarantors to make required payments of withholding or other tax obligations of any Borrower or Guarantors during the accounting period to which the attached statements pertain or any subsequent period.

 

(e)     Schedule 5.14 to the Credit Agreement contains a complete and accurate statement of all deposit accounts and investment accounts maintained by Borrowers and Guarantors;

 

(f)     except as noted on Schedule 4 attached hereto and Schedule 3.6 to the Credit Agreement, the undersigned has no knowledge of any current, pending or threatened: (i) litigation against any Borrower or Guarantor; (ii)     inquiries, investigations or proceedings concerning the business affairs, practices, licensing or reimbursement entitlements of any Borrower or Guarantor; or (iii) any default by any Borrower or Guarantor under any Material Contract to which it is a party.

 

(g)     except as noted on Schedule 5 attached hereto, no Borrower or Guarantor has acquired, by purchase, by the approval or granting of any application for registration (whether or not such application was previously disclosed to Agent by Borrowers) or otherwise, any Intellectual Property that is registered with any United States or foreign Governmental Authority, or has filed with any such United States or foreign Governmental Authority, any new application for the registration of any Intellectual Property, or acquired rights under a license as a licensee with respect to any such registered Intellectual Property (or any such application for the registration of Intellectual Property) owned by another Person, that has not previously been reported to Agent on Schedule 3.17 to the Credit Agreement or any Schedule 5 to any previous Compliance Certificate delivered by the Company to Agent.

 

(j)     except as noted on Schedule 6 attached hereto, no Borrower or Guarantor has acquired, by purchase or otherwise, any Chattel Paper, Letter of Credit Rights, Instruments, Documents or Investment Property that has not previously been reported to Agent on any Schedule 6 to any previous Compliance Certificate delivered by Borrower Representative to Agent.

 

(k)     except as noted on Schedule 7 attached hereto, no Borrower or Guarantor is aware of any commercial tort claim that has not previously been reported to Agent on any Schedule 7 to any previous Compliance Certificate delivered by Borrower Representative to Agent.

 

(l)      Borrowers and Guarantors (if any) are in compliance with the covenants contained in Article 6 of the Credit Agreement, and in any Guarantee constituting a part of the Financing Documents, as demonstrated by the calculation of such covenants below, except as set forth below; in determining such compliance, the following calculations have been made: [See attached worksheets]. Such calculations and the certifications contained therein are true, correct and complete.

 

 

 

 

The foregoing certifications and computations are made as of ________________, 201__ (end of month) and as of _____________, 201__.

 

 

Sincerely,

     
  TWINLAB CONSOLIDATION CORPORATION
     
  By:  
  Name:  
  Title:  

 

 

 

 

Adjusted EBITDA Worksheet (Attachment to Compliance Certificate)

 

EBITDA for the applicable period is calculated as follows, in each case, determined on a consolidated basis in accordance with GAAP:

     
         

Net Income for the period of the Borrowers, being the consolidated net income (or loss) of the Borrowers and their Subsidiaries for the period in question, after giving effect to deduction for provision for all operating expenses, all taxes and reserves (including reserves for deferred taxes) and all other proper deductions, all determined in accordance with GAAP; provided, however, that for purposes of calculating Net Income, there shall be excluded and no effect shall be given to (a) one-time extraordinary income items, as determined in accordance with GAAP, and (b) any Net Income attributable to any Subsidiary to the extent that any Borrower (or any Subsidiary through which such Borrower owns the subject Subsidiary) is prohibited (bylaw, contract minority ownership rights or otherwise) from receiving a distribution of such Net Income from such Subsidiary:

  $

 

         
Minus :

Any extraordinary gains, interest income, non-operating income, non-cash income and income tax benefits and decreases in any change in LIFO or any other inventory reserves for the period

  $

 

         
Plus :

non-cash extraordinary losses (including non-cash expenses with respect to stock option and stock based employee compensation programs), Interest Expense, income taxes, depreciation and amortization and increases in any change in LIFO reserves for the period

  $

 

         

EBITDA for the Defined Period:

  $

 

         
Plus :

any expenses relating to Acquisitions through the end of Fiscal Year 2015, plus severance payments and other costs relating to permanent headcount reductions, all as determined by GAAP, plus a one-time addback for a non-recurring lease payment to be made in order to terminate the Florida Lease of up to $2,000,000, which termination of the Florida Lease will be on terms and conditions satisfactory to the Agent.

  $

 

         

Adjusted EBITDA for the Defined Period

  $

 

 

 

 

 

Fixed Charge Coverage Ratio Worksheet (Attachment to Compliance Certificate)

 

Fixed Charge Coverage Ratio for the applicable period is calculated as the ratio of:      
         
         
         
Adjusted EBITDA for the period (calculated pursuant to the Adjusted EBITDA Worksheet)   $

 

         
Plus : cash received during such period for Equity Interests so long as such cash is used as working capital and such cash is not received more than two times in any trailing-twelve-months period   $  
         
Minus : Capital Expenditures not financed by the seller of the capital asset or by a third party lender made (to the extent not already incurred in a prior period) or incurred during such period   $

 

         
Minus : cash taxes paid during such period, to the extent greater than zero   $

 

         
Minus: Permitted Distributions under clause (d) of the definition of that term   $  
         
Total for the period:    

 

      $  
         
To        
         
Fixed Charges for the applicable period, which is calculated with respect to the Borrowers and their Subsidiaries determined on a consolidated basis in accordance with GAAP, the sum, without duplication, as follows:    

 

         
Cash Interest Expense paid during such period (other than interest paid-in-kind, amortization of financing fees, and other non-cash Interest Expense),   $  
         
         
Plus : principal payments paid in cash in respect of Debt paid during such period, including cash payments with respect to Capital Leases, but excluding principal payments made on the Revolving Loans   $  
         
Plus : all Permitted Distributions (other than Permitted Distributions under clause (d) of the definition of that term) and other distributions paid in cash during such period   $  
         
Fixed Charges for the applicable period:   $  
         
Ratio:        

 

 

 

 

Minimum Liquidity Worksheet (Attachment to Compliance Certificate)

 

Revolving Loan Availability plus cash and cash equivalents that are (a) owned by any Borrower, and (b) not subject to any Lien other than a Lien in favor of Agent, excluding, however, any cash and cash equivalents in a specified amount pledged to or held by Agent to secure a specified Obligation in that amount.   $  
         

 

 

 

 

Covenant Compliance:            
               
Minimum Adjusted EBIDTA   $        
               
Minimum Fixed Charge Coverage Ratio for the period           to 1.0
               
Minimum Liquidity   $        
               
In Compliance       Yes/No

 

 

 

 

EXHIBIT D

 

Schedules 3.4, 3.17, 3.19, 5.1, 5.14 and 9.2

 

 

 

EXHIBIT 10.200

 

WARRANT

 

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE " ACT "), OR QUALIFIED UNDER ANY STATE OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ASSIGNED UNLESS (I) A REGISTRATION STATEMENT COVERING SUCH SHARES IS EFFECTIVE UNDER THE ACT AND IS QUALIFIED UNDER APPLICABLE STATE AND FOREIGN LAW OR (II) THE TRANSACTION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER THE ACT AND THE QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE AND FOREIGN LAW AND, IF THE CORPORATION REQUESTS, AN OPINION SATISFACTORY TO THE CORPORATION TO SUCH EFFECT HAS BEEN RENDERED BY COUNSEL.

 

Warrant Certificate No.: 2019-27

 

Original Issue Date: April 22, 2019

 

FOR VALUE RECEIVED, Twinlab Consolidated Holdings, Inc., a Nevada corporation (the " Company "), hereby certifies that MidCap Funding IV Trust, a Delaware statutory trust, with an address at c/o MidCap Financial Services, LLC, as servicer, 7255 Woodmont Avenue, Suite 200, Bethesda, Maryland 20814, or its registered assigns (the " Holder ") is entitled to purchase from the Company up to 500,000 duly authorized, validly issued, fully paid and nonassessable shares of Common Stock at a purchase price per share of $.76 (the " Exercise Price "), all subject to the terms, conditions and adjustments set forth below in this Warrant. Certain capitalized terms used herein are defined in Section 1 hereof.

 

This Warrant has been issued in connection with that certain Amendment No. 17, dated as of date hereof, relating to that certain Credit and Security Agreement, dated as of January 22, 2015, by and among the Company and the Company's subsidiaries, as borrowers, MidCap Funding IV Trust, a Delaware statutory trust (successor-by-assignment to MidCap Funding X Trust, successor-by-assignment to MidCap Financial Trust), as agent, and the financial institutions from time to time party thereto as lenders (as amended from time to time, the " Credit Agreement ").

 

1.      Definitions . As used in this Warrant, the following terms have the respective meanings set forth below:

 

" Aggregate Exercise Price " means an amount equal to the product of (a) the number of Warrant Shares in respect of which this Warrant is then being exercised pursuant to Section 3 hereof, multiplied by (b) the Exercise Price.

 

" Board " means the board of directors of the Company.

 

 

 

 

" Business Day " means any day, except a Saturday, Sunday or legal holiday, on which banking institutions in the city of New York are authorized or obligated by law or executive order to close.

 

" Common Stock " means the common stock, par value $.001 per share, of the Company, and any capital stock of the Company into which such Common Stock shall have been converted, exchanged or reclassified following the date hereof.

 

" Company " has the meaning set forth in the preamble.

 

" Convertible Securities " means any securities (directly or indirectly) convertible into or exchangeable for Common Stock, but excluding Options.

 

" Credit Agreement " has the meaning set forth in the Preamble.

 

" Exercise Agreement " has the meaning set forth in Section 3(a)(i) .

 

" Exercise Date " means, for any given exercise of this Warrant, the date on which the conditions to such exercise as set forth in Section 3 shall have been satisfied at or prior to 5:00 p.m., New York, New York time, on a Business Day, including, without limitation, the receipt by the Company of the Exercise Agreement, the Warrant and the Aggregate Exercise Price.

 

" Exercise Period " has the meaning set forth in Section 2 .

 

" Exercise Price " has the meaning set forth in the preamble.

 

" Fair Market Value " means, as of any particular date: (a) the volume weighted average of the closing sales prices of the Common Stock for such day on all domestic securities exchanges on which the Common Stock may at the time be listed; (b) if there have been no sales of the Common Stock on any such exchange on any such day, the average of the highest bid and lowest asked prices for the Common Stock on all such exchanges at the end of such day; (c) if on any such day the Common Stock is not listed on a domestic securities exchange, the closing sales price of the Common Stock as quoted on the OTC Bulletin Board, the Pink OTC Markets or similar quotation system or association for such day; or (d) if there have been no sales of the Common Stock on the OTC Bulletin Board, the Pink OTC Markets or similar quotation system or association on such day, the average of the highest bid and lowest asked prices for the Common Stock quoted on the OTC Bulletin Board, the Pink OTC Markets or similar quotation system or association at the end of such day; in each case, averaged over twenty (20) consecutive Business Days ending on the Business Day immediately prior to the day as of which "Fair Market Value" is being determined; provided , that if the Common Stock is listed on any domestic securities exchange, the term "Business Day" as used in this sentence means Business Days on which such exchange is open for trading. If at any time the Common Stock is not listed on any domestic securities exchange or quoted on the OTC Bulletin Board, the Pink OTC Markets or similar quotation system or association, the "Fair Market Value" of the Common Stock shall be the fair market value per share as determined in good faith by the Board.

 

" Holder " has the meaning set forth in the preamble.

 

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" Options " means any warrants or other rights or options to subscribe for or purchase Common Stock or Convertible Securities.

 

" Original Issue Date " means April 22, 2019.

 

" Nasdaq " means The NASDAQ Stock Market LLC.

 

" OTC Bulletin Board " means the Financial Industry Regulatory Authority OTC Bulletin Board electronic inter-dealer quotation system.

 

" Person " means any individual, sole proprietorship, partnership, limited liability company, corporation, joint venture, trust, incorporated organization or government or department or agency thereof.

 

" Pink OTC Markets " means the OTC Markets Group Inc. electronic inter-dealer quotation system, including OTCQX, OTCQB and OTC Pink.

 

" Warrant " means this Warrant and all warrants issued upon division or combination of, or in substitution for, this Warrant.

 

" Warrant Shares " means the shares of Common Stock or other capital stock of the Company then purchasable upon exercise of this Warrant in accordance with the terms of this Warrant.

 

2.      Term of Warrant . Subject to the terms and conditions hereof, at any time or from time to time after the date hereof and prior to 5:00 p.m., New York, New York time, on the second anniversary of the date hereof or, if such day is not a Business Day, on the next preceding Business Day (the " Exercise Period "), the Holder of this Warrant may exercise this Warrant for all or any part of the Warrant Shares purchasable hereunder (subject to adjustment as provided herein).

 

3.      Exercise of Warrant .

 

(a)      Exercise Procedure . This Warrant may be exercised from time to time on any Business Day during the Exercise Period, for all or any part of the unexercised Warrant Shares, upon:

 

(i)     Surrender of this Warrant to the Company at its then principal executive offices (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction), together with an Exercise Agreement in the form attached hereto as Exhibit A (each, an " Exercise Agreement "), duly completed (including specifying the number of Warrant Shares to be purchased) and executed; and

 

(ii)     Payment to the Company of the Aggregate Exercise Price in accordance with Section 3.(b) .

 

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(b)      Payment of the Aggregate Exercise Price .

 

(i)      Payment of the Aggregate Exercise Price shall be made by delivery to the Company of a certified or official bank check payable to the order of the Company or by wire transfer of immediately available funds to an account designated in writing by the Company, in the amount of such Aggregate Exercise Price.

 

(ii)     The Holder shall have the right to pay all or a portion of the Aggregate Exercise Price by making a cashless exercise, in which case the portion of the Aggregate Exercise Price to be so paid shall be paid by reducing the number of Warrant Shares otherwise issuable pursuant to the Exercise Agreement by a number determined by multiplying that number of Warrant Shares by a fraction, (i) the numerator of which is the Aggregate Exercise Price to be so paid and (ii) the denominator of which is the Fair Market Value as of the date of the exercise.

 

(c)      Delivery of Stock Certificates . Upon receipt by the Company of the Exercise Agreement, surrender of this Warrant and payment of the Aggregate Exercise Price (in accordance with Section 3.(a) hereof), the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute (or cause to be executed) and deliver (or cause to be delivered) to the Holder a certificate or certificates representing the Warrant Shares issuable upon such exercise, together with cash in lieu of any fraction of a share, as provided in Section 3.(d) hereof. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the exercising Holder shall reasonably request in the Exercise Agreement and shall be registered in the name of the Holder or, subject to compliance with Section 5 below, such other Person's name as shall be designated in the Exercise Agreement. This Warrant shall be deemed to have been exercised and such certificate or certificates of Warrant Shares shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares for all purposes, as of the Exercise Date.

 

(d)      Fractional Shares . The Company shall not be required to issue a fractional Warrant Share upon exercise of any Warrant. As to any fraction of a Warrant Share that the Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay to such Holder an amount in cash (by delivery of a certified or official bank check or by wire transfer of immediately available funds) equal to the product of (i) such fraction multiplied by (ii) the Fair Market Value of one Warrant Share on the Exercise Date.

 

(e)      Delivery of New Warrant . Unless the purchase rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, at the time of delivery of the certificate or certificates representing the Warrant Shares being issued in accordance with Section 3.(c) hereof, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unexpired and unexercised Warrant Shares called for by this Warrant. Such new Warrant shall in all other respects be identical to this Warrant.

 

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(f)      Valid Issuance of Warrant and Warrant Shares; Payment of Taxes . With respect to the exercise of this Warrant, the Company hereby represents, covenants and agrees:

 

(i)      This Warrant is, and any Warrant issued in substitution for or replacement of this Warrant shall be, upon issuance, duly authorized and validly issued.

 

(ii)     All Warrant Shares issuable upon the exercise of this Warrant pursuant to the terms hereof shall be, upon issuance, and the Company shall take all such actions as may be necessary or appropriate in order that such Warrant Shares are, validly issued, fully paid and non-assessable, issued without violation of any preemptive or similar rights of any stockholder of the Company and free and clear of all taxes, liens and charges.

 

(iii)     The Company shall take all such actions as may be necessary to ensure that all such Warrant Shares are issued without violation by the Company of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock or other securities constituting Warrant Shares may be listed at the time of such exercise (except for official notice of issuance which shall be immediately delivered by the Company upon each such issuance).

 

(iv)     The Company shall use its best efforts to cause the Warrant Shares, immediately upon such exercise, to be listed on any domestic securities exchange upon which shares of Common Stock or other securities constituting Warrant Shares are listed at the time of such exercise.

 

(v)      The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery of Warrant Shares upon exercise of this Warrant; provided , that the Company shall not be required to pay any tax or governmental charge that may be imposed with respect to any applicable withholding or the issuance or delivery of the Warrant Shares to any Person other than the Holder, and no such issuance or delivery shall be made unless and until the Person requesting such issuance has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid.

 

(g)      Reservation of Shares . During the Exercise Period, the Company shall at all times reserve and keep available out of its authorized but unissued Common Stock or other securities constituting Warrant Shares, solely for the purpose of issuance upon the exercise of this Warrant, the maximum number of Warrant Shares issuable upon the exercise of this Warrant, and the par value per Warrant Share shall at all times be less than or equal to the applicable Exercise Price. The Company shall not increase the par value of any Warrant Shares receivable upon the exercise of this Warrant above the Exercise Price then in effect and shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

 

5

 

 

4.      Adjustment to Number of Warrant Shares . In order to prevent dilution of the purchase rights granted under this Warrant, the number of Warrant Shares issuable upon exercise of this Warrant shall be subject to adjustment from time to time as provided in this Section 4 (in each case, after taking into consideration any prior adjustments pursuant to this Section 4 ).

 

(a)      Adjustment to Number of Warrant Shares Upon Dividend, Subdivision or Combination of Common Stock . If the Company shall, at any time or from time to time after the Original Issue Date, (i) pay a dividend or make any other distribution upon the Common Stock or any other capital stock of the Company payable in shares of Common Stock or in Options or Convertible Securities, or (ii) subdivide (by any stock split, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the number of Warrant Shares issuable upon exercise of this Warrant and the Exercise Price in effect immediately prior to any such dividend, distribution or subdivision shall be proportionately adjusted. If the Company at any time combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the number of Warrant Shares issuable upon exercise of this Warrant and the Exercise Price in effect immediately prior to such combination shall be proportionately adjusted. Any adjustment under this Section 4.(a) shall become effective at the close of business on the date the dividend, subdivision or combination becomes effective.

 

(b)      Adjustment to Number of Warrant Shares Upon Reorganization, Reclassification, Consolidation or Merger . In the event of any (i) capital reorganization of the Company, (ii) reclassification of the stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), (iii) consolidation or merger of the Company with or into another Person, (iv) sale or lease of all or substantially all of the Company's assets to another Person or (v) other similar transaction (other than any such transaction covered by Section 4.(a) ), in each case which entitles the holders of Common Stock to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, this Warrant shall, immediately after such reorganization, reclassification, consolidation, merger, sale or similar transaction, remain outstanding and shall thereafter, in lieu of or in addition to (as the case may be) the number of Warrant Shares then exercisable under this Warrant, be exercisable for the kind and number of shares of stock or other securities or assets of the Company or of the successor Person resulting from such transaction to which the Holder would have been entitled upon such reorganization, reclassification, consolidation, merger, sale or similar transaction if the Holder had exercised this Warrant in full immediately prior to the time of such reorganization, reclassification, consolidation, merger, sale or similar transaction and acquired the applicable number of Warrant Shares then issuable hereunder as a result of such exercise (without taking into account any limitations or restrictions on the exercisability of this Warrant); and, in such case, appropriate adjustment (in form and substance reasonably satisfactory to the Holder) shall be made with respect to the Holder's rights under this Warrant to insure that the provisions of this Section 4 hereof shall thereafter be applicable, as nearly as possible, to this Warrant in relation to any shares of stock, securities or assets thereafter acquirable upon exercise of this Warrant. The provisions of this Section 4.(b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or similar transactions. The Company shall not effect any such reorganization, reclassification, consolidation, merger, sale or similar transaction unless, prior to the consummation thereof, the successor Person (if other than the Company) resulting from such reorganization, reclassification, consolidation, merger, sale or similar transaction, shall assume, by written instrument substantially similar in form and substance to this Warrant, the obligation to deliver to the Holder such shares of stock, securities or assets which, in accordance with the foregoing provisions, such Holder shall be entitled to receive upon exercise of this Warrant. Notwithstanding anything to the contrary contained herein, with respect to any corporate event or other transaction contemplated by the provisions of this Section 4.(b) , the Holder shall have the right to elect prior to the consummation of such event or transaction, to give effect to the exercise rights contained in Section 2 instead of giving effect to the provisions contained in this Section 4.(b) with respect to this Warrant.

 

6

 

 

(c)      Certain Events . If any event of the type contemplated by the provisions of this Section 4 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features) occurs, then the Board shall, in its good faith judgment, make an appropriate adjustment in the number of Warrant Shares issuable upon exercise of this Warrant so as to protect the rights of the Holder in a manner consistent with the provisions of this Section 4 ; provided , that no such adjustment pursuant to this Section 4.(c) shall decrease the number of Warrant Shares issuable as otherwise determined pursuant to this Section 4 .

 

(d)      Certificate as to Adjustment .

 

(i)     As promptly as reasonably practicable following any adjustment of the number of Warrant Shares pursuant to the provisions of this Section 4 , but in any event not later than five (5) Business Days thereafter, the Company shall furnish to the Holder a certificate of an executive officer setting forth in reasonable detail such adjustment and the facts upon which it is based and certifying the calculation thereof.

 

(ii)     As promptly as reasonably practicable following the receipt by the Company of a written request by the Holder, but in any event not later than five (5) Business Days thereafter, the Company shall furnish to the Holder a certificate of an executive officer certifying the number of Warrant Shares or the amount, if any, of other shares of stock, securities or assets then issuable upon exercise of the Warrant.

 

7

 

 

(e)      Notices . In the event:

 

(i)      that the Company shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon exercise of the Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, to vote at a meeting (or by written consent), to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or

 

(ii)     of any capital reorganization of the Company, any reclassification of the Common Stock of the Company, any consolidation or merger of the Company with or into another Person, or sale or lease of all or substantially all of the Company's assets to another Person; or

 

(iii)     of the voluntary or involuntary dissolution, liquidation or winding-up of the Company;

 

then, and in each such case, the Company shall send or cause to be sent to the Holder at least ten (10) days prior to the applicable record date or the applicable expected effective date, as the case may be, for the event, a written notice specifying, as the case may be, (A) the record date for such dividend, distribution, meeting or consent or other right or action, and a description of such dividend, distribution or other right or action to be taken at such meeting or by written consent, or (B) the effective date on which such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up is proposed to take place, and the date, if any is to be fixed, as of which the books of the Company shall close or a record shall be taken with respect to which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon exercise of the Warrant) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Warrant and the Warrant Shares.

 

(f)     If the Company issues a security exercisable for or convertible into shares of Common Stock after the Original Issue Date, and such security provides for anti-dilution protection, the shares of Common Stock issuable hereunder and the Exercise Price shall be subject to adjustment as if this Warrant included the same anti-dilution protection as the first issued security.

 

5.      Transfer of Warrant . Subject to the transfer conditions referred to in the legend endorsed hereon, this Warrant and all rights hereunder are transferable, in whole or in part, by the Holder without charge to the Holder, upon surrender of this Warrant to the Company at its then principal executive offices with a properly completed and duly executed Assignment in the form attached hereto as Exhibit B , together with funds sufficient to pay any transfer taxes described in Section 3(f)(v) in connection with the making of such transfer. Upon such compliance, surrender and delivery and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant, if any, not so assigned and this Warrant shall promptly be cancelled.

 

8

 

 

6.      Holder Not Deemed a Stockholder; Limitations on Liability . Except as otherwise specifically provided herein, prior to the issuance to the Holder of the Warrant Shares to which the Holder is then entitled to receive upon the due exercise of this Warrant, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of shares of capital stock of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company

 

7.      Replacement on Loss; Division and Combination .

 

(a)      Replacement of Warrant on Loss . Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and upon delivery of an indemnity reasonably satisfactory to it (it being understood that a written indemnification agreement or affidavit of loss of the Holder shall be a sufficient indemnity) and, in case of mutilation, upon surrender of such Warrant for cancellation to the Company, the Company at its own expense shall execute and deliver to the Holder, in lieu hereof, a new Warrant of like tenor and exercisable for an equivalent number of Warrant Shares as the Warrant so lost, stolen, destroyed or mutilated; provided , that, in the case of mutilation, no indemnity shall be required if this Warrant in identifiable form is surrendered to the Company for cancellation.

 

(b)      Division and Combination of Warrant . Subject to compliance with the applicable provisions of this Warrant as to any transfer or other assignment which may be involved in such division or combination, this Warrant may be divided or, following any such division of this Warrant, subsequently combined with other Warrants, upon the surrender of this Warrant or Warrants to the Company at its then principal executive offices, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the respective Holders or their agents or attorneys. Subject to compliance with the applicable provisions of this Warrant as to any transfer or assignment which may be involved in such division or combination, the Company shall at its own expense execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants so surrendered in accordance with such notice. Such new Warrant or Warrants shall be of like tenor to the surrendered Warrant or Warrants and shall be exercisable in the aggregate for an equivalent number of Warrant Shares as the Warrant or Warrants so surrendered in accordance with such notice.

 

9

 

 

8.      No Impairment . The Company shall not, by amendment of its Certificate of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but shall at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the Holder in order to protect the exercise rights of the Holder against dilution or other impairment, consistent with the tenor and purpose of this Warrant.

 

9.      Compliance with the Securities Act .

 

(a)    Agreement to Comply with the Securities Act; Legend . The Holder, by acceptance of this Warrant, agrees to comply in all respects with the provisions of this Section 9 and the restrictive legend requirements set forth on the face of this Warrant and further agrees that such Holder shall not offer, sell or otherwise dispose of this Warrant or any Warrant Shares to be issued upon exercise hereof except under circumstances that will not result in a violation of the Securities Act of 1933, as amended (the " Securities Act "). This Warrant and all Warrant Shares issued upon exercise of this Warrant (unless registered under the Securities Act) shall be stamped or imprinted with a legend in substantially the following form:

 

     "THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER ANY STATE OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ASSIGNED UNLESS (I) A REGISTRATION STATEMENT COVERING SUCH SHARES IS EFFECTIVE UNDER THE ACT AND IS QUALIFIED UNDER APPLICABLE STATE AND FOREIGN LAW OR (II) THE TRANSACTION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER THE ACT AND THE QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE AND FOREIGN LAW AND, IF THE CORPORATION REQUESTS, AN OPINION SATISFACTORY TO THE CORPORATION TO SUCH EFFECT HAS BEEN RENDERED BY COUNSEL."

 

In addition, if the Holder is an Affiliate (as defined in the Credit Agreement) of the Company, certificates evidencing the Warrant Shares issued to the Holder shall bear a customary "affiliates" legend.

 

(b)      Representations of the Holder . In connection with the issuance of this Warrant, the Holder specifically represents, as of the date hereof, to the Company by acceptance of this Warrant as follows:

 

(i)     The Holder is an "accredited investor" as defined in Rule 501 of Regulation D promulgated under the Securities Act. The Holder is acquiring this Warrant and the Warrant Shares to be issued upon exercise hereof for investment for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act.

 

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(ii)     The Holder understands and acknowledges that this Warrant and the Warrant Shares to be issued upon exercise hereof are "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that, under such laws and applicable regulations, such securities may be resold without registration under the Securities Act only in certain limited circumstances. In addition, the Holder represents that it is familiar with Rule 144 under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.

 

(iii)    The Holder acknowledges that it can bear the economic and financial risk of its investment for an indefinite period, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Warrant and the Warrant Shares. The Holder has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Warrant and the business, properties, prospects and financial condition of the Company.

 

10.    Warrant Register . The Company shall keep and properly maintain at its principal executive offices books for the registration of the Warrant and any transfers thereof. The Company may deem and treat the Person in whose name the Warrant is registered on such register as the Holder thereof for all purposes, and the Company shall not be affected by any notice to the contrary, except any assignment, division, combination or other transfer of the Warrant effected in accordance with the provisions of this Warrant.

 

11.    Notices . All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the fifth day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the addresses indicated below (or at such other address for a party as shall be specified in a notice given in accordance with this Section 11 ).

 

If to the Company:

Twinlab Consolidated Holdings, Inc.

4800 T-Rex Avenue, Suite 305

Boca Raton, FL 33431

Attention: Anthony Zolezzi

 

E-mail: az@twinlab.com 

   

with a copy to (which shall not constitute notice to the Company):

Ackerman LLP

Three Brickell City Centre

98 Southeast Seventh Street

Facsimile: (305) 374-5095

E-mail: esther.moreno@ackerman.com

Miami, FL 33131

Attention: Esther Moreno, Esq.

 

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If to the Holder:

MidCap Funding IV Trust

c/o MidCap Financial Services, LLC, as servicer

7255 Woodmont Avenue, Suite 200

Bethesda, Maryland 20814

Attn: Portfolio Mgt. – Twin Labs Loan

Facsimile: (301) 941-1450

   

with a copy to (which shall not constitute notice to the Company):

Miles & Stockbridge P.C.

100 Light Street

Baltimore, Maryland 21202

Facsimile: (410) 500-5051

E-mail: frunge@milesstockbridge.com

Attention: Frederick W. Runge, Jr.

 

 

12.    Cumulative Remedies . Except to the extent expressly provided in Section 6 to the contrary, the rights and remedies provided in this Warrant are cumulative and are not exclusive of, and are in addition to and not in substitution for, any other rights or remedies available at law, in equity or otherwise.

 

13.    Equitable Relief . Each of the Company and the Holder acknowledges that a breach or threatened breach by such party of any of its obligations under this Warrant would give rise to irreparable harm to the other party hereto for which monetary damages would not be an adequate remedy and hereby agrees that in the event of a breach or a threatened breach by such party of any such obligations, the other party hereto shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction.

 

14.    Entire Agreement . This Warrant, together with the Credit Agreement, constitutes the sole and entire agreement of the parties to this Warrant with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Warrant and the Credit Agreement, the statements in the body of this Warrant shall control.

 

15.    Successor and Assigns . This Warrant and the rights evidenced hereby shall be binding upon and shall inure to the benefit of the parties hereto and the successors of the Company and the successors and permitted assigns of the Holder. Such successors and/or permitted assigns of the Holder shall be deemed to be a Holder for all purposes hereunder.

 

16.   No Third-Party Beneficiaries . This Warrant is for the sole benefit of the Company and the Holder and their respective successors and, in the case of the Holder, permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Warrant.

 

12

 

 

17.    Headings . The headings in this Warrant are for reference only and shall not affect the interpretation of this Warrant.

 

18.  Amendment and Modification; Waiver . Except as otherwise provided herein, this Warrant may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by the Company or the Holder of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Warrant shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

19.    Severability . If any term or provision of this Warrant is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Warrant or invalidate or render unenforceable such term or provision in any other jurisdiction.

 

20.    Governing Law . This Warrant shall be governed by and construed in accordance with the internal laws of the State of Nevada without giving effect to any choice or conflict of law provision or rule (whether of the State of Nevada or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of Nevada.

 

21.    Submission to Jurisdiction . Any legal suit, action or proceeding arising out of or based upon this Warrant or the transactions contemplated hereby may be instituted in the federal courts of the United States of America or the courts of the State of New York in each case located in the city of New York and County of New York, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by certified or registered mail to such party's address set forth herein shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or any proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

 

22.    Waiver of Jury Trial . Each party acknowledges and agrees that any controversy which may arise under this Warrant is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Warrant or the transactions contemplated hereby.

 

13

 

 

23.    Counterparts . This Warrant may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Warrant delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Warrant.

 

24.    No Strict Construction . This Warrant shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.

 

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Company has duly executed this Warrant on the Original Issue Date.

 

   

TWINLAB CONSOLIDATED HOLDINGS, INC.

 
         
         
    By: /s/ Anthony Zolezzi  
    Name: Anthony Zolezzi  
    Title: Chief Executive Officer  
         
         
ACCEPTED AND AGREED TO AS OF THE ORIGINAL ISSUE DATE:       
         

MIDCAP F UNDING IV TRUST ,

     
a Delaware statutory trust      
         
By: Apollo Capital Management, L.P.,      
  its investment manager      
         
By: Apollo Capital Management GP, LLC,      
  its general partner      
         
         
By: /s/ Maurice Amsellem       
Name: Maurice Amsellem      
Title: Authorized Signatory      

 

Signature Page to Warrant No. 2019-27

 

 

 

 

EXHIBIT A

 

EXERCISE AGREEMENT

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

TWINLAB CONSOLIDAT ED HOLDINGS, INC.

 

1.     The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (" Warrant Shares ") of Twinlab Consolidated Holdings, Inc., a Nevada corporation (the " Company "), evidenced by Warrant
No. 2019-27 (the " Warrant "). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

(i)      Payment of Exercise Price. The Holder has paid to the Company the aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

 

(ii)     Delivery of Warrant Shares.  The Company shall deliver to Holder, or its designee or agent as specified below, __________ Warrant Shares in accordance with the terms of the Warrant.  Delivery shall be made to Holder, or for its benefit, to the following address:

 

Date:   , 20      
             
Name of Registered Holder          
             
             
           

 

Exhibit A to Warrant No. 2019-27

 

 

 

 

EXHIBIT B

 

ASSIGNMENT OF WARRANT

 

(To be executed by the registered holder if such holder desires to transfer the Warrant)

 

    FOR VALUE RECEIVED    
hereby sells, assigns and transfers unto          
               
               
               
(Please print name and address of transferee)          
           
 
this Warrant as to [________] Warrant Shares (as defined in the Warrant), together with all right, title and interest therein, and hereby irrevocably constitutes and appoints the Secretary of Twinlab Consolidated Holdings, Inc. (the "Company") Attorney, to transfer the within Warrant on the books of the Company, with full power of substitution.
 
Dated:

 

      Signature:      
           
      (Signature must confirm in all respects to name of holder as specified on the face of the Warrant.)    

 

             
        (Insert Social Security or Other Identifying Number of Assignee).    

 

 

 

EXHIBIT 10.201

 

EMPLOYMENT, NON-COMPETITION
AND PROPRIETARY RIGHTS AGREEMENT

 

THIS EMPLOYMENT NON-COMPETITION AND PROPRIETARY RIGHTS AGREEMENT (the “Agreement”) is made as of this 22nd day of April, 2019 (the “Effective Date”), by and between Twinlab Consolidated Holdings, Inc., a Nevada corporation (the “Company”), and Carla Goffstein (the “Employee”).

 

RECITALS:

 

A.     The Company is engaged in the sale and manufacture of nutritional supplements, vitamins, and other healthcare products;

 

B.     The Company desires to employ the Employee and Employee desires to be employed by the Company as its Chief Financial Officer, subject to the terms, conditions and covenants hereinafter set forth; and

 

C.     As a condition of the Company employing the Employee, Employee has agreed not to divulge to the public the Company’s confidential information, not to solicit the Company’s vendors, customers or employees and not to compete with the Company, all upon the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the foregoing and the agreements, covenants and conditions set forth herein, the Employee and the Company hereby agree as follows:

 

ARTICLE I

EMPLOYMENT

 

1.1      Employment . The Company hereby employs, engages and hires Employee, and Employee hereby accepts employment, as its Chief Financial Officer upon the terms and conditions set forth in this Agreement. Employee reports to the Company’s Chief Executive Officer. Employee shall be based out of the Company’s executive offices in Boca Raton, Florida.

 

1.2      Activities and Duties During Employment . Employee represents and warrants to the Company that Employee is free to accept employment with the Company and that Employee has no prior or other commitments or obligations of any kind to anyone else which would hinder or interfere with the acceptance and performance of the obligations under this Agreement.

 

Employee accepts the employment described in  Article I  of this Agreement and agrees to devote her exclusive full time and efforts to the faithful and diligent performance of the services described herein, including the performance of such other services and responsibilities as the Company may, from time to time, stipulate. Employee shall not serve as an officer or director of, or otherwise perform services for compensation for, any entity other than the Company or its Affiliates without the prior written consent of the Company’s CEO; provided that Employee may: (i) serve as an officer or director of, or otherwise participate in, civic, educational, social, charitable and religious organizations; and (ii) make and manage personal investments of Executive’s choice, so long as, in each case, such activities do not interfere with Executive’s employment obligations, performance and/or duties to the Company and (if applicable) any of its Affiliates. Employee shall comply with and be bound by the Company’s operating policies, procedures and practices in effect from time to time during the terms of her employment.

 

 

 

 

ARTICLE II

TERM, COMPENSATION, EMPLOYEE BENEFITS

 

2.1      Term . The term of employment under this Agreement shall be two (2) years, commencing as of the Effective Date (such term of employment, as it may be extended or terminated, is herein referred to as the “Employment Term”), which Employment Term shall automatically renew for additional one (1) year periods unless terminated by Employee or the Company.

 

2.2      Termination . The Employment Term and Employment of Employee may be terminated as follows:

 

(a)     Automatically, without the action of either party, upon the death of the Employee.

 

(b)     By either party upon the Total Disability of the Employee. The Employee shall be considered to have a Total Disability for purposes of this Agreement if she is unable by reason of accident or illness or mental disability to substantially perform her employment duties and is expected to be in such condition for periods totaling six (6) months (whether or not consecutive), during any period of twelve (12) consecutive months. The determination of whether a Total Disability has occurred shall be based on the determination of a physician selected by the Company. Nothing herein shall limit the Employee’s right to receive any payments to which Employee may be entitled under any disability or employee benefit plan of the Company or under any disability or insurance policy or plan. During a period of Total Disability prior to termination hereunder, Employee shall continue to receive her full compensation (including base salary and bonus) and benefits.

 

(c)     By the Employee upon thirty (30) days’ written notice to the Company.

 

(d)     By the Company “Without Cause,” and upon thirty (30) days written notice which shall mean a termination of the Employee’s employment by the Company other than pursuant to the provisions of  Section 2.2(a) Section 2.2(b)  and  Section 2.2(e)  hereof.

 

(e)     By the Company for “Cause” (as defined below).

 

(f)     By the Employee with Good Reason (as defined in  Section 2.6(b)  of this Agreement).”

 

2.3      Cessation of Rights and Obligations: Survival of Certain Provisions . On the date of expiration or earlier termination of the Employment Term for any reason, all of the respective rights, duties, obligations and covenants of the parties, as set forth herein, shall except as specifically provided herein to the contrary, cease and become of no further force or effect as of the date of said termination, and shall only survive as expressly provided for herein.

 

2.4      Cessation of Compensation . In lieu of any severance under any severance plan that the Company may then have in effect, the Company shall pay to the Employee, and the Employee shall be entitled to receive, the following amounts in full satisfaction of any obligation to Employee for termination of this Agreement:

 

(a)      Death/Total Disability/ Voluntary Termination/Termination For Cause/Expiration of Term . Upon termination of the Employee’s employment pursuant to  Sections 2.2(a), (b), (c) or (e) , Employee shall be entitled to receive Employee’s base salary, benefits and expense reimbursements solely through the date of termination; provided that nothing herein shall limit the Employee’s right to receive any payments to which Employee may be entitled under any disability or employee benefit plan of the Company or under any disability or insurance policy or plan.

 

 

 

 

(b)      Without Cause . If Employee’s employment is terminated Without Cause or with Good Reason, Employee will be entitled to receive payment of severance benefits in an amount equal to twelve (12) months’ Base Salary (at the rate then in effect and subject to any applicable tax withholding)    The applicable number of months of Base Salary which may be available to Employee pursuant to the foregoing provisions of this Section 2.4(b) shall each, as applicable, be deemed the “Severance Period.” Any amounts payable pursuant to foregoing provisions of this Section 2.4(b) shall be paid in substantially equal installments in accordance with the Company’s standard payroll practices scheduled over a period of time equal to the applicable Severance Period and subject to all applicable withholding taxes. For example, if Employee is entitled pursuant hereto to receive severance benefits in an amount equal to twelve (12) months of Base Salary, then such severance shall be paid in substantially equal installments in accordance with the Company’s standard payroll practices over the twelve (12) month Severance Period and subject to all applicable withholding taxes.

 

In addition to the foregoing, Employee shall be entitled to receive any accrued yet unpaid bonus payable on account of any calendar year ending prior to the year in which the termination occurs, which amount, if any, shall be paid at such time and in such manner as if Employee had remained an employee of the Company through the period when such payments were otherwise due.

 

Provided that Employee makes a timely election to continue coverage under the Company’s group health plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), health insurance benefits with the same coverage (subject to Company’s right to change coverage as set forth in the last sentence of this Section) provided to Employee prior to the termination (e.g. medical, dental, optical, mental health) will be provided to the Employee, and employee’s eligible dependents, at the expense of the Company for a number of months equal to the number of months in the Severance Period, if any, applicable to Employee pursuant to the foregoing provisions of this Section 2.4(b), but not longer than until Employee is covered by comparable health insurance benefits from another employer or is otherwise ineligible for COBRA continuation coverage. Nothing in this  Section 2.4(c)  shall restrict the ability of the Company or its successor from changing some or all of the terms of such health insurance benefits, the cost to participants or other features of such benefits; provided, however, that all similarly situated participants are treated the same.

 

Any and all amounts payable and benefits or additional rights provided to the Employee pursuant to this Section 2.4(b) upon a termination of employment shall only be payable or provided if Employee timely executes and delivers, does not revoke within any applicable revocation period, and continues to honor a general release agreement in favor of and in a form acceptable to the Company (the “ General Release Agreement ”), which General Release Agreement shall, among other provisions, include an unconditional release by Employee of any and all claims that Employee might otherwise have relating to Employee’s employment and/or the termination of Employee’s employment, or relating to any other act, omission or statement up to the date on which Employee executes the General Release Agreement, against the Company and its affiliated and related entities (including, individually and collectively, any entities controlling, controlled by or under common control with the Company) and related persons (including the officers, executives, directors, employees, owners, shareholders, and agents of the Company and each affiliated and related entity); provided that the General Release Agreement will not include a waiver of any vested benefits Employee may have accrued under any employee benefit plan (including any Company qualified retirement plan or other written benefit plan applicable to Employee) through date of termination (the “Termination Date”), or any rights Employee may otherwise have to indemnification under an indemnification agreement with Company, if any, or the Company’s Articles of Incorporation or Bylaws for acts or omissions during Employee’s employment with the Company.

 

2.5      Business Expenses .

 

(a)      Reimbursement . The Company shall reimburse the Employee for all reasonable, ordinary, and necessary business expenses incurred by her in connection with the performance of her duties hereunder, including, but not limited to, ordinary and necessary travel expenses and entertainment expenses. The reimbursement of business expenses will be governed by the policies for the Company and the terms otherwise set forth herein.

 

 

 

 

(b)      Accounting . The Employee shall provide the Company with an accounting of her expenses, which accounting shall clearly reflect which expenses were incurred for proper business purposes in accordance with the policies adopted by the Company and as such are reimbursable by the Company. The Employee shall provide the Company with such other supporting documentation and other substantiation of reimbursable expenses as will conform to Internal Revenue Service or other requirements. All such reimbursements shall be payable by the Company to the Employee within a reasonable time after receipt by the Company of appropriate documentation therefore.

 

2.6      Definitions . For purposes of this Agreement, the following definitions will apply:

 

(a)     “Cause” for Employee’s termination will exist if the Company terminates Employee’s employment for any of the following reasons: (i) Employee willfully fails to substantially perform her duties hereunder (other than any such failure due to her physical or mental illness), and such willful failure is not remedied within thirty (30) days after written notice from the Company’s Chief Executive Officer, which written notice shall state that failure to remedy such conduct may results in an involuntary termination for Cause; (ii) Employee engages in willful and serious misconduct (including, but not limited to, an act of fraud or embezzlement) that has caused or is reasonably expected to result in material injury to the Company or any of its Affiliates; (iii) Employee is convicted of or enters a plea of guilty or nolo contendere to a: (A) crime that materially adversely affects her ability to perform her duties on behalf of the Company; or (B) felony; (iv) Employee engages in alcohol or substance abuse which adversely affects her ability to perform her duties; or, (v) Employee willfully breaches any of her obligations hereunder or under any other agreement between herself and the Company, and such willful breach is not remedied within thirty (30) days after written notice from the Company’s Chief Executive Officer, which written notice shall state that failure to remedy such conduct may result in an involuntary termination for Cause.

  

(b)     “Good Reason” for Employee’s termination of employment will be deemed to exist if any of the following occurs: (i) a material diminution in the Employee’s base compensation; (ii) a material diminution in the Employee’s authority, duties, or responsibilities; (iii) a material change in the executive level of the party to whom the Employee is required to report (a change in CEO will not be considered material under this Agreement); (iv) a material change in the geographic location at which the Employee must perform the services under this Agreement; or (v) any other action or inaction that constitutes a material breach by the Company of this Agreement or any other agreement between the Company and the Employee. For purposes of this Agreement, Good Reason shall not be deemed to exist unless the Employee’s termination of employment for Good Reason occurs within six (6) months following the initial existence of one of the conditions specified in clauses (i) through (v) above, the Employee provides the Company with written notice of the existence of such condition within 90 days after the initial existence of the condition, and the Company fails to remedy the condition within 30 days after its receipt of such notice.”

 

(c)  “Change in Control” means any of the following:

 

(i) The acquisition by any person of Beneficial Ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of more than fifty percent (50%) of either (A) the then outstanding shares of common stock of the Company (the “ Outstanding Company Common Stock ”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “ Outstanding Company Voting Securities ”) (the foregoing Beneficial Ownership hereinafter being referred to as a " Controlling Interest "); provided, however, that for purposes of this definition, the following acquisitions shall not constitute or result in a Change of Control: (x) any acquisition by the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company; (y) any acquisition by either David L. Van Andel (“Van Andel”) or B. Thomas Golisano (“Golisano”), or any person or entity with respect to whom Van Andel or Golisano are required to claim Beneficial Ownership under Rule 13d-3 under the Securities Exchange Act of 1934, as amended; or (z) any acquisition by any corporation pursuant to a transaction which complies with clauses (A) and (B) of subsection (iii) below; or

 

 

 

 

(ii) During any period of two (2) consecutive years (not including any period prior to the Commencement Date) individuals who constitute the Company’s board of directors on the Commencement Date (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the Company’s board of directors; provided, however, that any individual becoming a director subsequent to the Commencement Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Company’s board of directors; or

  

(iii) Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each a “ Business Combination ”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, and (B) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Company’s board of directors, providing for such Business Combination; or approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 

 

2.7      Change in Control of the Company . If the Employee’s employment is terminated by the Company Without Cause pursuant to  Section 2.2(d)  hereof or by the Employee for Good Reason pursuant to  Section 2.2(f)  hereof, in either case during the twelve (12) month period immediately following the Change in Control, then in lieu of any amounts otherwise payable under  Section 2.4(b)  hereof, the Employee shall be entitled to the following:

 

(i)     payment of (a) any accrued yet unpaid base salary through the date of termination, (b) any accrued yet unpaid bonus payable on account of any calendar year ending prior to the year in which the termination occurs, (c) benefits through the date of termination, and (d) reimbursement of reimbursable expenses incurred prior to the date of termination; and

 

(ii)     a severance amount equal to six (6) months at Employee’s then current Base Salary if such termination is during the first year after the Effective Date, and a severance amount equal to four (4) months if such termination is subsequent to the first year following the Effective Date, each such period a “Severance Period” and any such amounts to be paid in substantially equal installments in accordance with the Company’s standard payroll practices over the applicable Severance Period, and in each case, subject to any applicable withholding taxes. 

 

 

 

 

2.8      Compensation . During Employee’s employment, the Company shall pay Employee such salary, bonus and other benefits and awards as set forth on  Exhibit A , provided however, that the Company and Employee may agree from time to time to change the Compensation paid to Employee.

  

2.9      Payment . Except as otherwise provided herein, all compensation shall be payable in intervals in accordance with the general payroll payment practice of the Company. The compensation shall be subject to such withholdings and deductions by the Company as are required by law.

 

2.10      Vacation . The Employee shall be entitled to receive personal time off (“PTO”) equal to 160 hours, to be scheduled and taken in accordance with the PTO policies outlined in the Company’s Employee Handbook.

 

2.11      Other Benefits . Employee shall be entitled to participate in any retirement, pension, profit-sharing, stock option, health plan, insurance, disability income, incentive compensation and welfare or any other benefit plan or plans of the Company which may now or hereafter be in effect and for which the Employee is eligible or for which all senior executives in general are eligible. Notwithstanding the forgoing, the Company shall be under no obligation to institute or continue the existence of any such benefit plan.

 

2.13      Indemnification . The Company shall indemnify and hold Employee harmless to the fullest extent permitted by law and under the Articles and bylaws of the Company as, to and from any and all costs, expenses (including reasonable attorneys’ fees, which shall be paid in advance by the Company, subject to recoupment in accordance with applicable law) or damages incurred by Employee as a result of any claim, suit, action or judgment arising out of the activities of the Company or its Affiliates or the Employee’s activities as an employee, officer or director of the Company or any related company; provided, however that the Employee shall not be entitled to indemnification hereunder to the extent the damages are the result of actions or omissions which have been finally adjudicated by a court of competent jurisdiction to constitute gross negligence or willful or intentional misconduct by the Employee. This provision shall survive the termination of this Agreement.  

 

ARTICLE III

CONFIDENTIALITY, NON-SOLICITATION, NON-COMPETE

 

3.1      Non-Disclosure of Confidential Information . Employee hereby acknowledges and agrees that, as of a result of the employment hereunder, Employee will acquire, develop, and use information that is not generally known to the public or to the Company’s industry, including but not limited to, certain records, phone locations, documentation, software programs, price lists, customer lists, contract prices for the Company’s services, business plans and prospects of the Company, equipment configurations, ledgers and general information, employee records, mailing lists, manufacturing techniques, product formulations, accounts receivable and payable ledgers, financial and other records of the Company or its affiliates, and other similar matters, as well as any information disclosed to the Company by any third party under which the Company has a confidentiality obligation to the third party (all such information pertaining to the Company, its affiliates or disclosed to Company under confidentiality from third parties being hereinafter referred to as “Confidential Information”). Employee further acknowledges and agrees that the Confidential Information is of great value to the Company and its affiliates and that the restrictions and agreements contained in this Agreement are reasonably necessary to protect the Confidential Information and the goodwill of the Company. Accordingly, Employee hereby agrees that:

 

(a)     Employee will not, while employed by the Company or for two years thereafter, directly or indirectly, except in connection with Employee’s performance of the duties under this Agreement, or as otherwise authorized in writing by the Company for the benefit of the Company or its “Affiliates” (as hereinafter defined), divulge to any person, firm, corporation, limited liability company, or organization, other than the Company or its Affiliates (hereinafter referred to as “Third Parties”), or use or cause or authorize any Third Parties to use, the Confidential Information, except as required by law; and

 

 

 

 

(b)     Upon the termination of Employee’s employment for any reason whatsoever, Employee shall deliver or cause to be delivered to the Company any and all Confidential Information, including drawings, notebooks, notes, records, keys, disks data and other documents and materials belonging to the Company or its Affiliates which is in her possession or under her control relating to the Company or its Affiliates or abstracts therefrom, regardless of the medium upon which it is stored, and will deliver to the Company upon such termination of employment any other property of the Company or its Affiliates which is in her possession or control.

 

3.2      Non-Solicitation Covenant . Employee hereby covenants and agrees that while employed by the Company and for a period of two (2) years following the termination of the Employee’s employment with the Company for any reason, Employee shall not: (i) directly or indirectly, endeavor to entice away from the Company or its Affiliates any person, firm, corporation, limited liability company or other entity that was a customer of the Company at any time while Employee was an employee of the Company or its Affiliates or who is a “prospective vendor or customer” of the Company; or (ii) induce, attempt to induce or hire any employee (or any person who was an employee during the year preceding the date of any solicitation) of the Company or its Affiliates to leave the employ of the Company or its Affiliates or to otherwise perform services directly or indirectly for others, or in any way interfere with the relationship between any such employee and the Company or its Affiliates. For purposes hereof, “prospective vendor or customer” shall mean any person or entity which has been solicited for business by Employee or any officer or other employee of the Company or its Affiliates at any time during Employee’s employment.

 

3.3      Non-Competition Covenant . Employee acknowledges that the covenants set forth in this  Section 3.3  are reasonable. Employee also acknowledges that the enforcement of the covenants set forth in this  Section 3.3  will not preclude Employee from being gainfully employed in such manner and to the extent as to provide a standard of living for herself, the members of her family and the others dependent upon her of at least the level to which she and they have become accustomed and may expect. Employee hereby agrees that she shall not, during her employment and for a period of six (6) months after the end of her employment directly or indirectly, engage in any proprietorship, partnership, firms trust, company, limited liability company or other entity, other than the Company (whether as owner, partner, trustee, beneficiary, stockholder, member, officer, director, employee, independent contractor, agent, servant, consultant, manager, lessor, lessee, or otherwise) that competes with the Company in the Business of the Company in the Restricted Territory (as defined herein), other than acquiring an ownership interest in a company listed on a recognized Stock exchange in an amount which does not exceed five percent (5%) of the outstanding Stock of such corporation. For purposes of this Agreement: (i) the term “Business of the Company” shall include all business activities and ventures primarily related to the manufacture, marketing and sale of nutritional supplements, and other healthcare products and services in which the Company is engaged, and all other businesses in which the Company subsequently is engaged in prior to, and on the date of, termination of Employee’s employment; and (ii) the term “Restricted Territory” means any state in the United States of America.

 

3.4      Remedies .

 

(a)      Injunctive Relief . Employee expressly acknowledges and agrees that a violation of any of the provisions of  Sections 3.1, 3.2 or 3.3  could cause immediate and irreparable harm, loss and damage to the Company not adequately compensable by a monetary award. Employee further acknowledges and agrees that the time periods and territorial areas provided for herein are reasonable in order to adequately protect the Business of the Company, the enjoyment of the Confidential Information and the goodwill of the Company. Without limiting any of the other remedies available to the Company at law or in equity, or the Company’s right or ability to collect money damages, Employee agrees that any actual or threatened violation of any of the provisions of  Sections 3.1, 3.2, or 3.3  may be immediately restrained or enjoined by any court of competent jurisdiction, injunction may be issued in any court of competent jurisdiction, without notice and without bond. Notwithstanding anything to the contrary contained in this Agreement, the provisions of this  Article III  shall survive the termination of Employee’s employment.

 

 

 

 

(b)      Enforcement : It is the desire of the parties that the provisions of  Sections 3.1, 3.2, or 3.3  be enforced to the fullest extent permissible under the laws and public policies in each jurisdiction in which enforcement might be sought. Accordingly, if any particular portion of  Sections 3.1, 3.2 or 3.3  shall ever be adjudicated as invalid or unenforceable, or if the application thereof to any party or circumstance shall be adjudicated to be prohibited by or invalidated by such laws or public policies, such section or sections shall be: (i) deemed amended to delete there from such portions so adjudicated; or (ii) modified as determined appropriate by such a court, such deletions or modifications to apply only with respect to the operation of such section or sections in the particular jurisdictions so adjudicating on the parties and under the circumstances as to which so adjudicated.

 

3.5      Company . All references to the Company in this  Article III  shall include “Affiliates” of the Company, as that term is construed under Rule 405 of the Securities Act of 1933, as amended.

 

ARTICLE IV

MISCELLANEOUS

 

4.1      Notices . All notices or other communications required or permitted hereunder shall be in writing addressed to the last known address of the Party entitled to notice and shall be deemed given, delivered and received: (a) when delivered, if delivered personally; (b) four (4) days after mailing, when sent by registered or certified mail, return receipt requested and postage prepaid; (c) one (1) business day after delivery to a private courier service, when delivered to a private courier service providing documented overnight service; and (d) on the date of delivery if delivered by telecopy, receipt confirmed, provided that a confirmation copy is sent on the next business day by first class mail, postage prepaid, in each case addressed as follows:

 

If to Twinlab:    4800 T-Rex Avenue, Suite 305, Boca Raton, FL 33431 Attn: Chief Executive Officer

 

If to Employee, the last updated address that the Employee has provided to the Company’s Human Resources dept.

 

Any party may change its address for purposes of this paragraph by giving the other party written notice of the new address in the manner set forth above.

 

4.2      Entire Agreement; Amendments, Etc . This Agreement contains the entire agreement and understanding of the parties hereto, and supersedes all prior agreements and understandings relating to the subject matter hereof. No modification, amendment, waiver or alteration of this Agreement or any provision or term hereof shall in any event be effective unless the same shall be in writing, executed by both parties hereto, and any waiver so given shall be effective only in the specific instance and for the specific purpose for which given.

 

4.3      Benefit . This Agreement shall be binding upon, and inure to the benefit of, and shall be enforceable by, the heirs, successors, legal representatives and permitted assignees of Employee and the successors, assignees and transferees of the Company. This Agreement or any right or interest hereunder may not be assigned by Employee without the prior written consent of the Company.

 

4.4      No Waiver . No failure or delay on the part of any party hereto in exercising any right, power or remedy hereunder or pursuant hereto shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder or pursuant thereto.

 

 

 

 

4.5      Severability . Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law but, if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provision of this Agreement. If any part of any covenant is unenforceable or the making of any covenant hereunder is unenforceable, the parties hereto agree, and it is their desire, that the court shall substitute a judicially enforceable limitation in its place, and that as so modified this Agreement, as so modified, shall be binding upon the parties as if originally set forth herein.

 

4.6      Compliance and Headings . Time is of the essence of this Agreement. The headings in this Agreement are intended to be for convenience and reference only, and shall not define or limit the scope, extent or intent or otherwise affect the meaning of any portion hereof.

 

4.7      Arbitration . If there is any dispute between the parties concerning any matter relating to this Agreement, the exclusive basis for adjudication of this Agreement (except with respect to the performance of the covenants and obligations as set forth in  Article III  above) shall be by arbitration as detailed herein. Either party may submit the dispute to binding arbitration. Any such arbitration proceeding will be conducted in Palm Beach, Florida and except as otherwise provided in this Agreement, will be conducted under the auspices of JAMS/Mediation, Inc., in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association. The arbitrator shall allow such discovery as the arbitrator determines appropriate under the circumstances. Each party will bear its respective attorneys’ fees. The award and decision of the arbitrator shall be conclusive and binding on all parties to this Agreement and judgment on the award may be entered in any court of competent jurisdiction. The parties acknowledge and agree that any arbitration award may be enforced against either or both of them in a court of competent jurisdiction and each waives any right to contest the validity or enforceability of such award. The parties further agree to be bound by the provisions of any statute of limitations which would be applicable in a court of law to the controversy or claim which is the subject of any arbitration proceeding initiated under the Agreement. The parties further agree that they are entitled in any arbitration proceeding to the entry of an order, by a court of competent jurisdiction pursuant to an opinion of the arbitrator, for specific performance of any of the requirements of this Agreement.

 

In any action to enforce any of the provisions of  Article III  hereof, the action shall be litigated in the state or federal courts situated in Palm Beach County, to which jurisdiction and venue all parties consent. Each party hereby waives its right to trial by jury with respect to such action. Company shall be entitled to injunctive relief, without the necessity of posting bond to remedy any breach of any of the terms of  Article III  of this Agreement by Employee.

 

4.8      Governing Law . The parties agree that this Agreement shall be governed by, interpreted and construed in accordance with the laws of the State of Florida.

 

4.9      Counterparts . This Agreement may be executed in one or more counterparts, whether by original, photocopy, facsimile or e-mail attachment in PDF format, each of which will be deemed an original and all of which together will constitute one and the same instrument.

 

4.10      Recitals . The Recitals set forth above are hereby incorporated in and made a part of this Agreement by this reference.

 

4.11      Survival . Employee’s obligations under  Article III  hereof shall survive any termination of this Agreement.

 

 

 

 

  TWINLAB CONSOLIDATED HOLDINGS, INC.     EMPLOYEE  
           
  /s/ Anthony Zolezzi     /s/ Carla Goffstein  
 

Anthony Zolezzi, CEO

   

Carla Goffstein

 

 

 

 

 

Exhibit A

 

 

(a)     Base Salary: As of the Effective Date is $275,000 per annum.   

 

(b)     Bonus: Employee shall be eligible to receive an annual bonus based upon the achievement of metrics agreed to annually, in writing, by the Employee and the Compensation Committee of the Company’s Board of Directors (or the CEO if designated by the Compensation Committee), the target for which shall be up to 50% of Employee’s Base Salary, but which is not subject to any cap (the “Annual Bonus”). Payments of this bonus shall only be made at the completion of the Company’s annual audit and the review of the audit by both the audit committee and the compensation committee of the board of directors of the Company. Within 45 days from the completion of the audit, payment shall be made in accordance with the Company’s usual payroll procedures

 

 

EXHIBIT 31.1

 

CERTIFICATION

 

I, Anthony Zolezzi, 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(s) 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(s) 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: May 15, 2019

 

   

/s/ Anthony Zolezzi

   

Anthony Zolezzi

   

Chief Executive Officer and President 

 

 

 

EXHIBIT 31. 2

 

CERTIFICATION

 

I, Carla Goffstein 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(s) 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(s) 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: May 15, 2019

   

/s/ Carla Goffstein

   

Carla Goffstein

   

Chief Financial Officer

 

   

EXHIBIT 32.1

 

CERTIFICATION 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 March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony Zolezzi, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. s.s. 1350, as adopted pursuant to s.s. 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

(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: May 15, 2019

 

/s/ Anthony Zolezzi

   

Anthony Zolezzi

   

Chief Executive Officer and President 

     

 

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.

 

 

 

EXHIBIT 32.2  

 

CERTIFICATION 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 March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Carla Goffstein, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. s.s. 1350, as adopted pursuant to s.s. 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

(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: May 15, 2019

 

/s/ Carla Goffstein

   

Carla Goffstein

   

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.