MusclePharm Corp - Annual Report: 2015 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year ended December 31, 2015

Commission File Number – 000-53166

MusclePharm Corporation

(Exact name of registrant as specified in its charter)

(303) 396-6100

(Registrant’s telephone number, including area code)

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

Title of each class

Common Stock, Par Value $0.001 Per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ¨  Yes    x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ¨  Yes    x  No

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.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated file, an accelerated file, a non-accelerated filer, or a smaller reporting company. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

Aggregate market value of the voting common stock held by non-affiliates of the registrant at June 30, 2015: $55,525,569

Number of shares of the registrant’s common stock outstanding at March 7, 2016: 13,933,785 excludes 875,621 common shares held in treasury.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s Proxy Statement for the registrant’s 2016 Annual Meeting of Stockholders will be filed with the Commission within 120 days after the close of the registrant’s 2015 fiscal year and are incorporated by reference in Part III.

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MusclePharm Corporation

Form 10-K

For the Year Ended December 31, 2015

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Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Annual Report on Form 10-K other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. Moreover, new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Annual Report on Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

PART I

Overview

MusclePharm Corporation is a scientifically driven, performance lifestyle company that develops, manufactures, markets and distributes branded nutritional supplements. We offer a broad range of powders, capsules, tablets and gels. Our portfolio of recognized brands, including MusclePharm^® Sport Series, and FitMiss^®, are marketed and sold in more than 120 countries and available in over 50,000 retail outlets globally. These clinically-developed, scientifically-driven nutritional supplements are developed through a six-stage research process that utilizes the expertise of leading nutritional scientists, doctors and universities.

We compete in the global supplements market, and, during 2014, we opened offices in Dublin, Ireland. We continued our international expansion in 2015 and opened a subsidiary in Sydney, Australia.

MusclePharm has experienced growth across multiple nutritional supplement categories and geographies. We had net revenue of $166.9 million in 2015 and a five-year compound annual growth rate of 120%. For further information concerning our results of operations, see “Item 6. Selected Financial Data” and “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”

As used in this Annual Report on Form 10-K, the terms “Company,” “we,” “our,” “MusclePharm” or “MP” refer to MusclePharm Corporation and its predecessors, subsidiaries and affiliates, unless the context indicates otherwise.

Products and Distribution

We focus the MusclePharm Brand product portfolio for athlete’s and active lifestyle use. We market our branded products in multiple performance and active lifestyle distribution channels that reach athletes of many types and demographics. Our goal is to serve the needs of all types of athletes, while fueling the engine of sport for all ages and genders. Our portfolio of brands targets every type of fitness enthusiast, from professional, combat sport, weight training, bodybuilding, running, basketball, soccer, cross fit, golf, tennis, volleyball and other active lifestyle activities.

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We place considerable emphasis on transparency, high-quality ingredients, innovation and science with our ingredients. Products are placed through rigorous 3^rd party independent testing to ensure safe, quality ingredients that support an athletic lifestyle. Tests performed on products include: banned substance testing and protein verification.

MusclePharm^® Sport Series – Scientifically-advanced, performance-driven supplements that cover the needs of athletes including their workout needs. This line of independent-tested products help fuel athletes safely by increasing strength, endurance, hydration, recovery, and overall athletic performance. MusclePharm Hybrid Series products like Assault, Amino1 and Combat Protein Powder contain ingredients that are designed to deliver performance. MusclePharm Core products, such as BCAA 3:1:2, CLA Core and Fish Oil, are designed to meet the day-in and day-out demands of athletes.

FitMiss^® – Designed and formulated specifically for the active woman’s lifestyle utilizing ingredients that covers the range of busy women’s needs including weight loss, multi-vitamins, protein shakes, detox, skin care, and pre-workout energy mixes.

Sales and Marketing

Our core marketing strategy is to brand MusclePharm as the “must have” fitness brand for workout enthusiasts and elite athletes. We seek to be known as The Athletes Company^®, run by athletes who create their products for other athletes both professional and enthusiast. We believe that our marketing strategy of sports endorsements and sponsorships coupled with product sampling with our retail partners is an optimal strategy to increase sales.

The MusclePharm brands are marketed across major global retail distribution channels – Specialty, International and Food, Drug, and Mass (FDM). Our three largest customers each accounted for more than 10% of our 2015 net revenue. For further information concerning our customer concentration, see Note 2 to the Consolidated Financial Statements.

Specialty Market: This channel is comprised of brick-and-mortar sales and e-commerce. Due to high competition within this market, we continually seek to respond to customer trends and shifts by adjusting the mix of existing product offerings, developing new innovative products and influencing preferences by extensive and strategic marketing.

International: We intend to focus on growing our international presence by continuing to offer new products, as well as improving the supply cycles and opening new distribution centers in select regions of the world to reduce tariffs, taxes and fees, as well as shipping time. Our principal international markets are Europe, the Middle East, Asia and South America.

During 2014, we established a subsidiary in Ireland to primarily market and distribute in the EU. During 2015, we established a subsidiary in Australia to market and distribute in Australia, New Zealand and the surrounding region.

FDM (Food, Drug, and Mass): This is a relatively new sales channel for MusclePharm that we intend to continue to grow by distribution expansion. We utilize the assistance of brokers to sell into this channel.

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Below is a table of net revenue by our major distribution channel:

Our advertising and promotions consist primarily of athletic endorsements and sponsorships, which includes both cash and stock-based compensation, promotional giveaways, trade show events, FDM distribution costs, and digital, print and media advertising. In connection with our restructuring plan commenced during the third quarter of 2015, we have begun negotiating or terminating a number of contracts with endorsers in a strategic shift away from such costly arrangements, and toward more cost effective brand partnerships as well as grass-roots marketing and advertising efforts.

We believe that influential brand partners such as MMA Team – Team Elevation, Olympian Jordan Burroughs, and other professional athletes help boost brand credibility by exposing our brand to millions of potential customers.

We believe that, along with our innovative products, providing superior, relevant and memorable brand experience drives our success. Our websites, including musclepharm.com, Arnold.com, fitmiss.com, and mpssi.com also provide additional educational information to consumers, customers, and healthcare professionals.

As noted above, we market our products globally. The following table sets forth revenue, net by customer geographic area based off shipping address (in thousands):

Charitable Youth Sports Program

In March 2014, the Board of Directors of the Company approved and the Company established a charitable youth sports grant program (the “Program”) pursuant to which the Company will donate product, equipment and cash to organizations such as schools, sports teams and training facilities. The Company had tentatively established an annual budget of approximately $250,000 for the Program. The primary intent of the Program was to build MusclePharm brand awareness with youth athletes. The Company’s other business purposes in establishing the Program was to help needy organizations achieve their goals, promote the Company’s brand, help athletes

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develop stronger and better skills and to build the reputation of the Company as a contributor to the community. A committee formerly consisting of the Company’s former President, former Director of Team Development, and former Chief Operating Officer oversaw the Program. In 2014, the Company made an initial grant in the amount of approximately $250,000 to Arvada West High School and similar charitable contributions to other charitable sports organizations of approximately $30,000. The Company’s former Chief Executive Officer, Mr. Brad Pyatt, is a graduate of Arvada West High School and serves as a volunteer football coach. The Company did not make a charitable grant to Arvada West High School during 2015. The Company did make charitable grants to other youth sports organizations during 2015 totaling approximately $278,000. We expect this amount to decrease substantially in 2016 and any future grant will be approved by the Chief Executive Officer and Chief Financial Officer.

Product Research, Development and Quality Control

Science, product research and innovation are key factors to our success. Customers’ belief in the science and safety of our products is critical. Continued innovation in delivery techniques and ingredients, new product line extensions for existing products and new product offerings are important in order to create new market opportunities, meet consumer demand and strengthen consumer relationships. To support our research and development efforts, we invest in formulation, processing and packaging development, perform product quality and stability studies, complete product efficacy and safety studies, and conduct consumer market research to sample consumer opinions on product concepts, design, packaging, advertising and marketing campaigns.

MusclePharm’s lines of supplements are developed through a six-stage research process that utilizes the expertise of nutritional scientists, doctors and universities and strives to assure that each promote quality and safety for our customers.

MusclePharm is committed to science and sport being equal in our product development. We believe real-world applications are essential. The MP Sports Science Institute in Denver, Colorado is a state-of-the-art, 30,000 square-foot training and performance facility—the only professional facility in the world to use the ultrasound, Omega Wave, DEXA and Keiser performance equipment to gather cutting-edge feedback about our formulations. In addition, in our clinic, we can perform bone scans, blood work and ultrasounds to determine body composition as well as muscle and fat evaluations. Feedback and testing data helps our team strive to improve our products and allows MusclePharm to continue to be innovative. Active athlete testing also allows us to fine tune dosages, ensure proper ingredient combinations, and implement consumer safety measures.

Our quality control team follows detailed and supplier selection and certification processes, validation of raw material verification processes, analytical testing, process audits, and other quality control procedures. The quality management systems we employ also include a professionally equipped and staffed laboratory enabling finished goods testing for compliance to our specifications. Our products are also subject to extensive shelf life stability testing. We also use third party laboratories to routinely evaluate our internal testing processes and to supplement our internal testing procedures and capabilities.

We qualify ingredients, suppliers and facilities by performing site assessments and conducting on-going performance and process reviews. Dedicated quality teams regularly audit and assess manufacturing facilities for compliance Good Manufacturing Practices (“GMPs”), as regulated by the U.S. Food and Drug Administration (“FDA”) to ensure our compliance with all MusclePharm, regulatory and certification standards and requirements. To ensure overall consistency, our quality assurance team adheres to strict written procedures. From the raw ingredient stage to finished product stage, we monitor and perform quality control checks. Before distributing our products, we place our products under quarantine to test for environmental contaminants and verify that the finished product meets label claims. Once a product has successfully passed quality assurance testing and conforms to specifications for identity, purity, strength and composition, we then conduct testing with third-party laboratories for added label claim verification. Multi-level practices are part of our product development process to ensure athletes and our consumers receive what we believe to be the most scientifically-

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innovative and safe supplements on the market. Post-distribution, we have standard operating procedures in place for investigating and documenting any adverse events or product quality complaints.

We are committed to the process of having all of our products certified to be banned-substance-free before they are available to our athletes and consumers. We complete third party analytical testing on our products through Eurofins. We also have engaged an independent lab to validate our quality processes and conduct banned-substance testing on every branded MusclePharm product.

Manufacturing and Distribution

We have a strategic working relationship with multiple contract manufacturers. Currently, the majority of our products are produced by third party powder and capsule manufacturing facilities located in Tennessee, New York, Utah and our subsidiary, BioZone, in California. Certain of our vendors supply in excess of 10% of our products. In particular, one of our third-party suppliers, Capstone, was responsible for 59% of our manufacturing spend in 2015. We have undertaken an evaluation of our agreements with Capstone, and at this time cannot anticipate whether Capstone will continue to be a principal vendor to us. See Note 2 to the consolidated Financial Statements for a discussion of these vendors. Once a product is manufactured, it is sent to one of our distribution centers. Our main distribution center is located in Spring Hill, Tennessee, and we have a second distribution center in Pittsburg, California. We also utilize contract manufacturers to ship products directly to our customers. All of our manufacturing and distribution facilities are designed and operated to meet the current GMPs as promulgated by the FDA.

Our manufacturing process generally consists of the following operations: (i) qualifying ingredients for products, (ii) testing of all raw ingredients, (iii) measuring ingredients for inclusion in production, (iv) granulating, blending and grinding ingredients into a mixture with a homogeneous consistency, (v) encapsulating or filling the blended mixture into the appropriate dosage form using either automatic or semiautomatic equipment, and (vi) testing finished products prior to distribution.

We maintain and operate a system that integrates with distribution, warehousing and quality control, providing real-time lot and quality tracking of raw materials, work in progress and finished goods.

We employ a supply chain staff that works with sales, marketing, product development and quality control personnel to create our products.

Our Competitors

The nutritional supplements market is very competitive and the range of products is diverse. Competitors use price, shelf space and store placement, brand and product recognition, new product introductions and raw materials to create market share.

Our range of competitors includes numerous nutritional supplement companies that are highly fragmented in terms of geographic market coverage, distribution channels and product categories. In addition, large pharmaceutical companies and packaged food and beverage companies compete with us in the nutritional supplement market. Many of these companies have greater financial and distribution resources available to them than MusclePharm and many of these companies compete through vertical integration. Private label entities have gained a foothold in many nutrition categories and also are direct competitors. A few of these are private label entities have become market leaders. Our principal competitors are Optimum Nutrition, Inc., Cellucor, and Quest Nutrition, LLC.

In this industry, most of the companies are privately held. With respect to retailer sales, we cannot fully gauge their sizes and our relative ranking. We believe that retailers look to partner with suppliers who demonstrate brand awareness, market intelligence, customer service and science. We believe we are competitive in all of these areas.

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Government Regulation

The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of each of our major product groups are subject to regulation by one or more governmental agencies. The most active of these is the FDA, which regulates our products under the Federal Food, Drug and Cosmetic Act (“FDCA”) and regulations promulgated thereunder. The FDCA defines the terms “food” and “dietary supplement” and sets forth various conditions that, unless complied with, may constitute adulteration or misbranding of such products. The FDCA has been adjusted several times with respect to dietary supplements, most recently by the Nutrition Labeling and Education Act of 1990 (the “NLEA”) and the Dietary Supplement Health and Education Act of 1994.

FDA regulations relating specifically to foods and dietary supplements for human use are set forth in Title 21 of the Code of Federal Regulations. These regulations include basic labeling requirements for both foods and dietary supplements. Additionally, FDA regulations require us to meet relevant good manufacturing practice regulations for the preparation, packaging and storage of our food and dietary supplements.

Our business practices and products are also regulated by the Federal Trade Commission (“FTC”), the Consumer Product Safety Commission, the United States Department of Agriculture (“USDA”) and the Environmental Protection Agency. Our activities, including our direct selling distribution activities, are also regulated by various agencies of the states, localities and foreign countries in which our products are sold.

In foreign markets, prior to commencing operations and prior to making or permitting sales of our products in the market, we may be required to obtain an approval, license or certification from the country’s ministry of health or comparable agency. Prior to entering a new market in which a formal approval, license or certificate is required, we work extensively with local consultants and authorities in order to obtain the requisite approvals. We must also comply with product labeling and packaging regulations that vary from country to country. Our failure to comply with these regulations can result in a product being removed from sale in a particular market, either temporarily or permanently.

Intellectual Property

We regard our trademarks and other proprietary rights as valuable assets and believe that protecting our key trademarks is crucial to the continued successful implementation of our business strategy of building strong brand name recognition. Since we regard our intellectual property as a crucial element of our business with significant value in the marketing of our products, our policy is to pursue registrations for our trademarks associated with our products.

We have over 140 trademark applications in the United States, 51 of which are currently registered with the United States Patent and Trademark Office for our MusclePharm brands and certain of our products and slogans.

We also have filed for protection of various marks throughout the world and are committed to a significant long-term strategy to build and protect the MusclePharm brand globally. We have applied for the “MusclePharm” mark in 18 countries, including the United States. The mark has been granted final trademark registration in 16 of those countries.

Seasonality

Our business does not typically experience seasonal variations but revenue may fluctuate based upon promotions. During 2015, revenue fluctuated mainly due to issues in supply chain, which limited availability of inventory. Additionally, we experienced periods of mis-match of inventory on hand relative to customer sales orders.

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Employees

As of December 31, 2015, we had 248 total employees, of which 153 were full time. None of the employees are represented by a union. Management considers its relations with our employees to be good and to have been maintained in a normal and customary manner.

Corporate Information

Our principal executive offices are located at 4721 Ironton Street, Building A, Denver, Colorado 80239 and our telephone number is (303) 396-6100. We were incorporated in the State of Nevada in 2006. As used in this Annual Report on Form 10-K, the terms the “Company”, “we”, “our”, “MusclePharm”, or “MP” refer to MusclePharm Corporation and its predecessors, subsidiaries and affiliates, unless the context indicates otherwise. Our Internet addresses are www.musclepharm.com and www.musclepharmcorp.com. The information contained on to our websites is not incorporated herein.

Available Information

On company website is www.musclepharmcorp.com. We post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission: our Annual Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as amended.

All such filings are available free of charge on the Investor Relations section of our website, or from the SEC’s website at www.sec.gov. Information on our website does not constitute part of this report. Also available on the Investor Relations section of our website are the charters of the committees of our Board of Directors, as well as our corporate governance guidelines and code of ethics. Copies of any of these documents will be provided in print to any shareholder who submits a request in writing to MusclePharm Investor Relations, 4721 Ironton Street, Building A, Denver, CO 80239. Additionally, our filings with the SEC may be read and copied at the SEC Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.

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Certain factors may have a material adverse effect on our business, financial condition and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occurs, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business and Industry

Because our auditors have issued a going concern opinion, there is a substantial uncertainty that we will continue operations, in which case you could lose your investment.

Our auditors have issued a going concern opinion in their report on our financial statements for the fiscal year ended December 31, 2015. We have not established an ongoing source of revenue sufficient to cover our operating costs, and are dependent on obtaining adequate capital to continue operations, which raises substantial doubt as to our ability to continue as a going concern. Revenue was $166.9 million for the year ended December 31, 2015, cost of revenue was $109.9 million, operating expenses were $106.9 million and we incurred a net loss of $51.9 million. Our accumulated deficit as of December 31, 2015 was $147.5 million and we have had recurring losses from operations. We anticipate incurring additional losses until such time we can generate significant revenues, and/or reduce operating costs.

We have not yet established an ongoing source of revenue sufficient to cover our current level of operating costs for at least the next 12 months and allow us to continue as a going concern. Our ability to meet our total liabilities of $73.8 million as of December 31, 2015, and to continue as a going concern, is dependent on us obtaining adequate capital to fund operating losses until we become profitable. We can give no assurances that any additional capital that we are able to obtain, if any, will be sufficient to meet our needs, or that any such financing will be obtained on acceptable terms. If we are unable to obtain adequate capital, we could be forced to cease operations or substantially curtail our commercial activities. As of December 31, 2015, we had cash in the amount of $7.1 million and $20.0 million in working capital deficit.

As a result of our going concern qualification, there is an increased risk that you could lose the entire amount of your investment in our company.

We may not be able to obtain additional financing to fund our operations.

We believe we will need to raise additional funds in the future. There can be no assurance that sufficient debt or equity financing will be available at all or, if available, that such financing will be at terms and conditions acceptable to us. Should we fail to obtain additional debt financing or raise additional capital, we may not be able to achieve our longer term business objectives and may face other serious adverse consequences. If we raise additional funds by issuing equity securities or convertible debt, investors may experience significant dilution of their ownership interest, and the newly-issued securities may have rights senior to those of the holders of our common stock. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility and may require us to provide collateral to secure the loan. In addition, in a liquidation, debtholders will be entitled to repayment before any proceeds can be paid to our equityholders.

We may be unable to make payments on our debt.

If our cash flows and capital resources are insufficient to fund our interest and/or principal payments under our loans, we may be forced to take alternative measures to meet our cash requirements, including sales and

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disposition of our assets, including those used as collateral for the loans, which may have an adverse effect on our business and results of operations. If additional financing and/or replacement financing is not available when required or is not available on acceptable terms, we may be forced to cease operations or substantially curtail our commercial activities, or we may not be able to expand our business, develop or enhance our products, take advantage of business opportunities or respond to competitive pressures, which could result in lower revenue and reduce the competitiveness of our products.

We have recently undertaken a restructuring of our business. The restructuring may take longer than we anticipate or require us to incur a greater amount of charges than we currently estimate.

On August 24, 2015, our Board of Directors authorized us to undertake steps to commence a restructuring of our business and operations. In doing so, we closed certain facilities, reduced headcount, discontinued products, and terminated or renegotiated certain contracts. Although we expected the restructuring, workforce reduction and facility closures, product discontinuance and contract renegotiations and terminations to be completed by December 31, 2015, the restructuring has taken longer than anticipated, which could cause disruption to our business activities, diminish anticipated savings and/or result in increased restructuring costs, which would adversely affect our operating results and financial condition. We incurred approximately $21.2 million in restructuring and other charges during the year ended December 31, 2015 in connection with this restructuring, of which $9.4 million remains accrued for at year end.

If we fail to effectively manage our growth, our business and operating results could be harmed.

We have experienced and expect to continue to experience growth in our business both domestically and abroad, which has placed, and will continue to place, significant demands on our management, and our operational and financial infrastructure. To effectively manage this growth, we expect that we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. To accomplish these objectives, we may need to hire additional employees, make certain enhancements to our technology systems, make significant capital expenditures and utilize management resources. Failure to implement these proposed growth objectives could have a material adverse effect on our business and operating results.

We have a history of losses, and we may not be able to achieve profitability.

We have incurred a net loss in each year since our inception, including a net loss of $51.9 million, $13.8 million and $17.7 million in 2015, 2014, and 2013, respectively. As of December 31, 2015, and since our inception, we had incurred accumulated losses from operations of $147.5 million. For 2015 and 2014, our revenue was $166.9 million and $177.4 million, respectively, representing a decrease of 6% year-over-year. In future years, we may not be able to generate sufficient revenue to achieve profitability. We expect to continue to expend substantial financial and other resources on the following, which may increase our net losses:

These investments may not result in increased revenue or growth of our business, which also could increase our net losses. If we fail to continue to grow our revenue at a rate greater than our expenses, our operating results and business will be harmed.

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Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.

Our operating results may fluctuate as a result of a number of factors, many of which may be outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our quarterly, year-to-date, and annual expenses as a percentage of our revenues may differ significantly from our historical or projected rates. Our operating results in future quarters may fall below expectations. Each of the following factors, as well as other factors, may affect our operating results:

Because our business is changing and evolving, our historical operating results may not be useful to you in predicting our future operating results.

The concentration of stock ownership with Mr. Drexler may influence the outcome of certain matters requiring stockholder approval.

As of December 31, 2015, Mr. Ryan Drexler, our Interim Chief Executive Officer, President, and Chairman, beneficially owned approximately 25% of our outstanding shares of common stock, including debt which is convertible into common stock at Mr. Drexler’s election. As a result, Mr. Drexler may be able to substantially influence the strategic direction of the Company and the outcome of matters requiring approval by our stockholders. Mr. Drexler’s interests, including his interests as a holder of a convertible secured promissory note for $6.0 million, may not be, at all times, the same as those of our other stockholders, and his control may delay, deter or prevent acts that may be favored by our other stockholders.

In connection with the Company entering into the convertible promissory note with Mr. Drexler, the Company granted Mr. Drexler the right to designate two directors to the Company’s Board of Directors. The Company agreed to take all actions necessary to permit such designation.

Our failure to respond appropriately to competitive challenges, changing consumer preferences and demand for new products could significantly harm our customer relationships and product sales.

The nutritional sports supplement industry is characterized by intense competition for product offerings and rapid and frequent changes in consumer demand. Our failure to predict accurately product trends could negatively impact our products and cause our revenues to decline.

Our success with any particular product offering (whether new or existing) depends upon a number of factors, including our ability to:

Furthermore, products often have to be promoted heavily in stores or in the media to obtain visibility and consumer acceptance. Acquiring distribution for products is difficult and often expensive due to slotting and other promotional charges mandated by retailers. Products can take substantial periods of time to develop consumer awareness, consumer acceptance and sales volume. Accordingly, some products may fail to gain or maintain sufficient sales volume and as a result may have to be discontinued. In a highly competitive marketplace, it may be difficult to have retailer’s open stock-keeping units (SKU’s) for new products.

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Our industry is highly competitive, and our failure to compete effectively could adversely affect our market share, financial condition and future growth.

The nutritional supplement industry is highly competitive with respect to:

Most of our competitors are larger, more established companies and possess greater financial strength, personnel, distribution and other resources than we have. MusclePharm faces competition in the supplement market from a number of large nationally known manufacturers, private label brands and many smaller manufacturers.

Our industry is highly regulated. We may in the future incur increased compliance costs and/or incur substantial judgments, fines, legal fees and other costs.

Our industry is highly regulated. The manufacture, labeling and advertising for our products are regulated by various federal, state and local agencies as well as those of each foreign country to which we distribute. Our compliance costs may increase in the future, and those increases could be material. In addition, governmental authorities may commence regulatory or legal proceedings, which could restrict the permissible scope of our product claims or the ability to manufacture and sell our products in the future. For example, the FDA regulates our products to ensure that the products are not adulterated or misbranded. Failure to comply with FDA requirements may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. Our advertising is subject to regulation by the FTC under the Federal Trade Commission Act. In recent years, the FTC has initiated numerous investigations of dietary supplement and weight loss products and companies. Additionally, some states also permit advertising and labeling laws to be enforced by private attorney generals, who may seek relief for consumers, seek class action certifications, seek class wide damages and product recalls of products sold by us. Any of these types of adverse actions could have a material adverse effect on our business, financial condition and results of operations.

We rely on a limited number of customers for a substantial portion of our sales, and the loss of or material reduction in purchase volume by any of these customers would adversely affect our sales and operating results.

During 2015, our three largest customers, Costco, GNC and Bodybuilding.com, accounted for 41% of our net revenue. During 2014, our two largest customers, Costco and Bodybuilding.com, accounted for 29% of our net revenue. During 2013, our two largest customers, Bodybuilding.com and Europa, accounted for 35% of our net revenue. Net revenue is equal to our gross revenue less product discounts, customer rebates and incentives. The loss of any of our major customers, a significant reduction in purchases by any major customer, or any serious financial difficulty of a major customer is likely to have a material adverse effect on our sales and operating results.

Adverse publicity or consumer perception of our products and any similar products distributed by others could harm our reputation and adversely affect our sales.

We believe we are highly dependent upon positive consumer perceptions of the safety and quality of our products as well as similar products distributed by other sports nutrition supplement companies. Consumer perception of sports nutrition supplements and our products in particular can be substantially influenced by scientific research or findings, national media attention and other publicity about product use. Adverse publicity from these sources regarding the safety, quality or efficacy of nutritional supplements and our products could harm our reputation

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and results of operations. The mere publication of news articles or reports asserting that such products may be harmful or questioning their efficacy could have a material adverse effect on our business, financial condition and results of operations, regardless of whether such news articles or reports are scientifically supported or whether the claimed harmful effects would be present at the dosages recommended for such products.

We may be exposed to material product liability claims, which could increase our costs and adversely affect our reputation and business.

As a marketer and distributor of products designed for human consumption, we could be subject to product liability claims if the use of our products is alleged to have resulted in injury or undesired results. Our products consist of vitamins, minerals, herbs and other ingredients that are classified as dietary supplements and in most cases are not subject to pre-market regulatory approval in the United States or internationally. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur.

We have not had any significant product liability claims filed against us, but in the future we may be subject to various product liability claims, including due to tampering by unauthorized third parties, product contamination and claims that our products had inadequate instructions for use, or inadequate warnings concerning possible side effects and interactions with other substances. The cost of defense can be substantially higher than the cost of settlement even when claims are without merit. The high cost to defend or settle product liability claims could have a material adverse effect on our business and operating results and our insurance, if any, may not be adequate.

In addition, the perception of our products resulting from a product liability claim also could have a material adverse effect on our business and operating results.

Our insurance coverage or third party indemnification rights may not be sufficient to cover our legal claims or other losses that we may incur in the future.

We maintain insurance at what we believe are adequate levels for property, general product liability, product recall, directors and officer’s liability, and workers’ compensation to protect ourselves against potential loss exposures. In the future, insurance coverage may not be available at adequate levels or on adequate terms to cover potential losses, including on terms that meet our customer’s or manufacturer’s requirements. If insurance coverage is inadequate or unavailable, we may face claims that exceed coverage limits or that are not covered, which could increase our costs and adversely affect our operating results.

During 2014, we submitted insurance claims for coverage of our costs associated with the investigation by the SEC to our insurance carrier, which has denied payment of our claims. On February 12, 2015, we filed a complaint in the District Court, City and County of Denver, Colorado against Liberty Insurance Underwriters, Inc. (“Liberty”) claiming wrongful and unreasonable denial of coverage for the cost and expenses that we have incurred and continued to incur in connection with SEC investigation and related matters under our Directors and Officers insurance policies. We have commenced litigation against our insurer. The claims and the litigation may make it more difficult for us to obtain insurance at competitive prices or at all and our insurance costs may increase as a result.

We rely on skilled personnel and, if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.

Our future success depends on our continuing ability to identify, hire, develop, motivate and retain skilled personnel for all areas of our organization, particularly sales and marketing. Competition in our industry for qualified employees is intense. In addition, our compensation arrangements, such as our bonus programs, may not always be successful in attracting new employees or retaining and motivating our existing employees.

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If we are unable to retain key management personnel, our ability to manage our business effectively and grow could be negatively impacted.

We believe our success depends in part on our ability to retain our key management personnel. Currently, we have executed employment agreements with our key management employees that extend through December 31, 2017 or beyond. On March 15, 2016, Mr. Brad Pyatt resigned as our Chief Executive Officer and President. In connection with Mr. Pyatt’s resignation, Mr. Ryan Drexler, the Executive Chairman of our Board of Directors, was appointed as our interim Chief Executive Officer, President and Chairman. Our Board of Directors has begun a search for a permanent replacement. There can be no assurance that we will be able to attract a qualified, permanent Chief Executive Officer who has the desired qualifications on acceptable terms, or at all. The loss or limitation of the services of any of our key management employees or the inability to additional qualified replacement personnel could have a material adverse effect on our business and results of operations.

Changes in the economies of the markets in which we do business may affect consumer demand for our products.

Consumer spending habits, including spending for our products, are affected by, among other things, prevailing economic conditions, levels of employment, fuel prices, changes in exchange rates, salaries and wages, the availability of consumer credit, consumer confidence and consumer perception of economic conditions. Economic slowdowns in the markets in which we do business and an uncertain economic outlook may adversely affect consumer spending habits, which may result in lower sales of our products in future periods. A prolonged global or regional economic downturn could have a material negative impact on our financial position, results of operation or cash flows.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our results of operations.

Our consolidated results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. For 2015, 28% of our revenues were from international sales. The majority of our revenue is denominated in U.S. Dollars, with the exception of Canada and Ireland, where we invoice primarily in local currencies. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in North America and Europe. Revenue resulting from selling in local currencies and costs incurred in local currencies are exposed to foreign currency exchange rate fluctuations that can affect our operating income. As exchange rates vary, our operating income may differ from expectations. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative instruments.

Taxation and transfer pricing affect our operations.

As a U.S. company doing business in international markets, we are subject to foreign tax and intercompany pricing laws, including those relating to the flow of funds between our parent Company and our subsidiaries. These pricing laws are designed to ensure that appropriate levels of income and expense are reported by our U.S. and foreign entities, and that they are taxed appropriately. If regulators challenge our corporate structures, transfer pricing methodologies or intercompany transfers, our operations may be harmed, and our effective tax rate may increase. We are eligible to receive foreign tax credits in the United States for certain foreign taxes actually paid abroad. In the event any audits or assessments are concluded adversely to us, we may not be able to offset the consolidated effect of foreign income tax assessments through the use of U.S. foreign tax credits. Because the laws and regulations governing U.S. foreign tax credits are complex and subject to periodic legislative amendment, we cannot be sure that we would in fact be able to take advantage of any foreign tax credits in the future. The various customs, exchange control and transfer pricing laws are continually changing, and are subject to the interpretation of governmental agencies.

Despite our efforts to be aware of and to comply with such laws and changes to the interpretations thereof, there is a risk that we may not continue to operate in compliance with such laws. We may need to adjust our operating

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procedures in response to these interpretational changes, and such changes could have a material negative impact on our financial position, results of operation or cash flows.

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brand.

We have invested significant resources to protect our brands and trademarks. However, we may be unable or unwilling to strictly enforce our intellectual property rights, including our brands and trademarks, from infringement. Our failure to enforce our intellectual property rights could diminish the value of our brands and product offerings and harm our business and future growth prospects.

We may be subject to intellectual property rights claims, which are costly to defend, could require us to pay damages and could limit our ability to sell some of our products.

Our industry is characterized by vigorous pursuit and protection of intellectual property rights, which has resulted in protracted and expensive litigation for several companies. Third parties may assert claims of misappropriation of trade secrets or infringement of intellectual property rights against us or against our end customers or partners for which we may be liable.

As our business expands, the number of products and competitors in our markets are expected to increase and product overlaps may occur and infringement claims may increase in number and significance. Intellectual property lawsuits are subject to inherent uncertainties due to the complexity of the technical issues involved, and we cannot be certain that we would be successful in defending ourselves against intellectual property claims. Further, many potential litigants have the capability to dedicate substantially greater resources than we can to enforce their intellectual property rights and to defend claims that may be brought against them. Furthermore, a successful claimant could secure a judgment that requires us to pay substantial damages or prevents us from distributing products or performing certain services.

An increase in product returns could negatively impact our operating results and profitability.

We permit the return of damaged or defective products and accept limited amounts of product returns in certain instances. While such returns from established customers have historically been nominal and within management’s expectations and the provisions established, future return rates may differ from those experienced in the past. Any significant increase in damaged or defective products or accepted returns could have a material adverse effect on our operating results for the period or periods in which such returns materialize.

We outsource a majority of our manufacturing and anticipate continued reliance on third-party manufacturers for the development and commercialization of most of our products.

Currently, we rely on third-party manufacturers to produce products required to meet substantially all of our sales needs. We plan to continue to rely upon contract manufacturers to produce commercial quantities of most of our products.

If our contract manufacturers fail to maintain high manufacturing standards and processes, it could harm our business. In the event of a natural disaster or business failure, including due to bankruptcy of a contract manufacturer, we may not be able to secure a replacement of our products on a timely or cost-effective basis, which could result in delays, additional costs and reduced revenues.

One of our third-party suppliers, Capstone, was responsible for 59% of our manufacturing spend in 2015, and others were responsible for 25% and 11%, respectively. Our supplier concentration exacerbates the risks described above.

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We may seek to enter into similar or different manufacturing arrangements in the future.

A shortage in the supply of key raw materials or a price increase could increase our costs or adversely affect our sales.

All of our raw materials for our products are obtained from third-party suppliers. Since all of the ingredients in our products are commonly used, we have not experienced any shortages or delays in obtaining raw materials. If circumstances changed, shortages could result in materially higher raw material prices or adversely affect our ability to have a product manufactured. Prices for our raw materials can and do fluctuate. Price increases from a supplier would directly affect our profitability if we are not able to pass price increases on to customers. Our inability to obtain adequate supplies of raw materials in a timely manner or a material increase in the price of our raw materials could have a material adverse effect on our business, financial condition and results of operations.

Our arrangements with Capstone may not have value to us.

We have undertaken an evaluation of the agreements with Capstone Nutrition (“Capstone”) and related agreements as well as a review of the performance of Capstone under the Manufacturing Agreement and prices for products. The Company is engaged in a dispute with Capstone, there can be no assurance that we have or will realize value from the Capstone arrangements nor that we will exercise the option agreement or that the warrant will have value to us in the future.

System and technology failures and obsolescence could harm our business.

Our business is highly dependent upon our information technology infrastructure (websites, supply chain, and ERP applications) to manage effectively and efficiently our operations, including order entry, customer billing, accurately tracking purchases and managing accounting, finance and inventory. The occurrences of natural disasters, security breaches or other unanticipated problems could result in interruptions in our day-to-day business that could adversely affect us.

Our share price has been and may continue to be volatile.

The market price of our common shares is subject to significant fluctuations in response to a multitude of factors, including variations in our quarterly operating results and financial condition. Factors other than our financial results that may affect our share price include, but are not limited to, market expectations of our performance, market perception or our industry, the activities of our managers, customers, and investors, and the level of perceived growth in the industry in which we participate, general trends in the markets for our products, general economic, business and political conditions in the countries and regions in which we conduct our business, and changes in government regulation affecting our business, many of which are not within our control.

We may, in the future, issue additional shares of common stock and/or preferred stock, which would reduce investors’ percent of ownership and may dilute our share value.

Our articles of incorporation, as amended, authorize the issuance of 100,000,000 shares of common stock and 10,000,000 shares of preferred stock, As of December 31, 2015, we do not have any outstanding shares of preferred stock. The future issuance of common stock and preferred stock may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.

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We may issue additional shares of preferred stock in the future that may adversely impact your rights as holders of our common stock.

Our Board of Directors has the authority to fix and determine the relative rights and preferences of our authorized but undesignated preferred stock, as well as the authority to issue shares of such preferred stock, without further stockholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends are declared to holders of our common stock, and the right to the redemption of such preferred stock, together with a premium, prior to the redemption of the common stock. To the extent that we do issue such additional shares of preferred stock, your rights as holders of common stock could be impaired thereby, including, without limitation, dilution of your ownership interests in us. In addition, shares of preferred stock could be issued with terms calculated to delay or prevent a change in control or make removal of management more difficult, which may not be in your interest as a holder of common stock.

Our indebtedness may limit our operating flexibility.

As of the date hereof, we had a convertible secured promissory note with the Interim Chief Executive Officer, President and Chairman, Ryan Drexler, with an aggregate principle amount of $6.0 million.

Our indebtedness could have important consequences to us. For example, it could:

In addition, our ability to pay or refinance our debt depends on our successful financial and operating performance, cash flows and capital resources, which in turn depend upon prevailing economic conditions and certain financial, business and other factors, many of which are beyond our control. These factors include, among others:

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations, seek to obtain additional capital, or restructure our debt. There is no assurance we will be able to access capital on terms that would be acceptable. In the event that we are required to dispose of material assets or operations to meet our debt service and other obligations, the value realized on such assets or operations will depend on market conditions and the availability of buyers. Accordingly, any such sale may not, among other things, be for a sufficient dollar amount. The convertible promissory note is secured by a security interest in all of our operating company’s inventories, receivables and proceeds from those items. The foregoing encumbrances may limit our ability to dispose of material assets or operations. We also may not be able to restructure our indebtedness on favorable economic terms, if at all.

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We may incur additional indebtedness in the future. Our incurrence of additional indebtedness would intensify the risks described above.

For a description of our indebtedness see “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations–Liquidity and Capital Resources.”

Our convertible promissory note agreement contains covenants that limit our ability to incur additional debt and grant liens on assets.

Our convertible promissory note agreement that we have entered into with Ryan Drexler, Interim Chief Executive Officer, President and Chairman, contains restrictive covenants that limit our ability to, among other things, incur additional debt and grant liens on assets. If we fail to comply with the restrictions in such convertible promissory note agreement, a default may allow Mr. Drexler to accelerate the related debt and to exercise his remedies under the agreement, which includes the right to declare the principal amount of that debt, together with accrued and unpaid interest and other related amounts, immediately due and payable, and to exercise any remedies he may have to foreclose on assets that are subject to liens securing that debt.

For additional details regarding our indebtedness, see Note 9 to our Consolidated Financial Statements.

If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.

If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our business could be adversely impacted. Continued effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed and investors could lose confidence in our reported financial information. In the past, we have discovered significant deficiencies in our internal controls and procedures with respect to perquisites, related party transactions and certain other matters that did not amount to material weaknesses. While we have implemented new controls regarding these deficiencies, we may not have rectified all of these matters and may continue to face internal control failures resulting in potential legal or regulatory issues if we fail to take corrective actions.

Our common stock is quoted on the OTCQB which may have an unfavorable impact on our stock price and liquidity.

Our common stock is quoted on the OTCQB Marketplace (“OTCQB”). The OTCQB is an automated quotation service operated by OTC Markets, LLC. The quotation of our shares on the OTCQB may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, in part because of the inability or unwillingness of certain investors to acquire shares of common stock not traded on a national securities exchange, and could depress the trading price of our common stock and have a long-term adverse impact on our ability to raise capital in the future.

Nevada corporation laws limit the personal liability of corporate directors and officers and require indemnification under certain circumstances.

Section 78.138(7) of the Nevada Revised Statutes provides that, subject to certain very limited statutory exceptions or unless the articles of incorporation provide for greater individual liability, a director or officer of a Nevada corporation is not individually liable to the corporation or its stockholders for any damages as a result of any act or failure to act in his or her capacity as a director or officer, unless it is proven that the act or failure to act constituted a breach of his or her fiduciary duties as a director or officer and such breach involved intentional

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misconduct, fraud or a knowing violation of law. We have not included in our articles of incorporation any provision intended to provide for greater liability as contemplated by this statutory provision.

In addition, Section 78.7502(3) of the Nevada Revised Statutes provides that to the extent a director or officer of a Nevada corporation has been successful on the merits or otherwise in the defense of certain actions, suits or proceedings (which may include certain stockholder derivative actions), the corporation shall indemnify such director or officer against expenses (including attorneys’ fees) actually and reasonably incurred by such director or officer in connection therewith.

Our articles of incorporation, our amended and restated by-laws and Nevada law could deter a change of our management, which could discourage or delay offers to acquire us.

Certain provisions of Nevada law and of our articles of incorporation, and by-laws, as amended, could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter transactions that stockholders may otherwise consider to be in their best interests or in our best interests. These provisions include:

None.

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As of December 31, 2015, we leased office facilities across the U.S., Canada and Ireland totaling approximately 200,000 square feet, including approximately 30,000 square feet for our corporate headquarters and MP Sports Science Center in Denver, Colorado. We do not own any real property. Our office space and locations as of December 31, 2015 can be seen in the below table.

The following is a summary of the more significant legal matters involving our company.

The Company is engaged in a dispute with Capstone concerning amounts allegedly owed under the Manufacturing Agreement. Capstone claims that it is owed approximately $22.0 million of outstanding accounts payable. The Company claims that Capstone owes the Company at least $13.5 million in losses caused by, among other things, Capstone’s failure to timely manufacture and supply the Company’s products. On February 12, 2016, Capstone commenced a mediation with the American Arbitration Association. As of the date of this report, the mediation has not yet been scheduled.

On January 15, 2016, ThermoLife International LLC (“ThermoLife”), a supplier of nitrates to MusclePharm, filed a complaint against the Company in Arizona state court. In its complaint, ThermoLife alleges that the Company failed to meet minimum purchase requirements contained in the parties’ supply agreement. On March 14, 2016, the Company filed an answer to ThermoLife’s complaint denying the allegations contained in the complaint, and a counterclaim alleging that ThermoLife breached its express warranty to MusclePharm because ThermoLife’s products were defective and could not be incorporated into the Company’s products. The action is pending.

As previously disclosed by us in a Current Report on Form 8-K filed with the SEC on January 6, 2016, on December 30, 2015, we accepted notice by Mr. Richard Estalella (“Estalella”) to terminate his employment as

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our President. Although Estalella sought to terminate his employment with us for “Good Reason,” as defined in Estalella’s employment agreement with us, we advised Estalella that we deemed his resignation to be without Good Reason.

On February 3, 2016, Estalella filed a complaint in Colorado state court against the Company and the Interim Chief Executive Officer, President and Chairman, alleging, among other things, that we breached the employment agreement, and seeking certain equitable relief and unspecified damages. The Company believes Estalella’s claims are without merit. Estalella remains a member of our Board of Directors.

The Company is engaged in a dispute with ETW Corp. (“ETW”) concerning the validity of, and payments allegedly owed under, amendments to an endorsement agreement with professional golfer Tiger Woods, (the “Endorsement Agreement”). ETW claims that the Company owes approximately $7.0 million under the Endorsement Agreement. The Company believes that it does not owe any amounts under the Endorsement Agreement and has demanded the return of payments previously made. The parties have agreed to mediate the dispute. The mediation has yet to be scheduled.

On October 27, 2015 Brian D. Gartner, derivatively and on behalf of MusclePharm Corporation, filed a verified shareholder derivative complaint in the 8th District Court, State of Nevada, Clark County (No. A-15-726810-B) alleging, among other things, breaches of fiduciary duty as members of the Board of Directors and/or executive officers of the Company against Brad Pyatt, Lawrence S. Meer, Donald W. Prosser, Richard Estalella, Jeremy R. Deluca, Michael J. Doron, Cory Gregory, L. Gary Davis, James J. Greenwell, John H. Bluher and Daniel J. McClory. Plaintiff alleges a series of accounting and disclosure failures resulted in the filing of materially false and misleading filings with the SEC from 2010 through July 2014 resulting in settlement with the SEC requiring payment of $700,000 of civil penalties. Plaintiff seeks various remedies, including interpretation of bylaws provisions, permanent injunctive relief, damages against defendants for breaches of their fiduciary duty, corporate governance changes to ensure the Company maintain proper internal controls and SEC reporting procedures, as well as costs and reasonable attorney’ fees, accountants’ and experts’ fees, costs and expenses. Individual defendants seek removal of the action to federal court and a scheduling stipulation is contemplated.

In July 2013, we received a formal order of investigation (the “Investigation”) from the Denver Regional Office of the SEC, which was investigating various areas of potential violation of the federal securities laws involving us and our management.

In September 2015, our proposal regarding final settlement of the Investigation was accepted and all aspects of the Investigation related to us were terminated. Without admitting or denying the SEC claims, we agreed to a payment of $700,000, which was previously accrued for, and $400,000 had already been paid into escrow. We also agreed to appoint an independent consultant, mutually acceptable to the Company and SEC, for a 12-month period to monitor the Company’s reporting practices and internal controls. We and the SEC agreed to the appointment of Chord Advisors, LLC.

During 2014, we submitted insurance claims for coverage of our costs associated with the Investigation to our insurance carrier which has denied payment of our claims. On February 12, 2015, we filed a complaint in the District Court, City and County of Denver, Colorado against Liberty claiming wrongful and unreasonable denial of coverage for the cost and expenses that we have incurred and continued to incur in connection with SEC investigation and related matters under our Directors and Officers insurance policies. We have commenced litigation against our insurer. The claims and the litigation may make it more difficult for us to obtain insurance at competitive prices or at all and our insurance costs may increase as a result.

None.

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PART II

The following table shows the reported high and low bid quotations per share for our common stock based on information provided by the OTCQB, based upon the closing price. Our common stock is quoted on the OTCQB under the symbol “MSLP”.

Quotations on the OTCQB reflect bid and ask quotations, may reflect inter-dealer prices, without retail markup, markdown or commission, and may not represent actual transactions.

Our transfer agent is Corporate Stock Transfer, Inc., which is located at 3200 Cherry Creek Drive South, Suite 430, Denver, Colorado 80209.

Holders of Record

As of March 7, 2016, there were approximately 341 holders of record of our common stock. This figure does not take into account those stockholders whose certificates are held in street name by brokers and other nominees.

Unregistered Sale of Securities

None.

Dividend Policy

We have never declared dividends on our common stock, and currently do not plan to declare dividends on shares of our common stock in the foreseeable future. We expect to retain our future earnings, if any, for use in the operation and expansion of our business. Subject to the foregoing, the payment of cash dividends in the future, if any, will be at the discretion of our Board of Directors and will depend upon such factors as restrictions in debt agreements, earnings levels, capital requirements, our overall financial condition and any other factors deemed relevant by our Board of Directors.

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Performance Graph

This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of MusclePharm Corporation under the Securities Act or the Exchange Act.

The following graph compares the performance of our common stock to the Standard & Poor’s 500 Stock Index (S&P 500 Index) and the Nasdaq Composite Index (NASDAQ Composite) from November 26, 2012 (the effective date of our 1 for 850 reverse stock split) through December 31, 2015. The comparison assumes $4.59 (the closing price of our common stock on November 26, 2012) was invested in our common stock and in each of the foregoing indices, and it assumes reinvestment of dividends, if any.

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The consolidated statements of operations data for each of the years ended December 31, 2015, 2014 and 2013 and the consolidated balance sheets data as of December 31, 2015 and 2014 are derived from our audited consolidated financial statements included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. The consolidated statements of operations data for the years ended December 31, 2012 and 2011 and the consolidated balance sheets data as of December 31, 2013, 2012 and 2011 are derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of our results in any future period.

You should read the following selected consolidated financial data in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. See “Forward Looking Statements” and “Item 1A. Risk Factors.”

Overview

We are a scientifically driven, performance lifestyle company that develops, manufactures, markets and distributes branded nutritional supplements. We offer a broad range of powders, capsules, tablets and gels. Our portfolio of recognized brands, including MusclePharm^® Sport Series, and FitMiss^®, are marketed and sold in more than 120 countries and available in over 50,000 retail outlets globally. These clinically developed scientifically driven nutritional supplements are developed through a six-stage research process that utilizes the expertise of leading nutritional scientists, doctors and universities. We believe we are an innovator in the sports nutrition industry.

Our primary growth strategy is to:

Restructuring Plan

On August 24, 2015, our Board of Directors approved a restructuring plan for the Company. The approved restructuring plan was designed to reduce costs and to better align our resources for profitable growth. Specifically, through December 31, 2015, the restructuring plan resulted in: 1) a reduction in our workforce; 2) abandoning certain leased facilities; 3) renegotiating or terminating a number of contracts with endorsers in a strategic shift away from such arrangements and towards more grass-roots marketing and advertising efforts; 4) discontinuing a number of SKU’s due to lower than expected revenue or margin performance and writing down inventory to estimated sales price; and 5) writing off certain assets. The Company completed additional reductions in workforce during the first quarter of 2016. Management is continuing to execute the approved restructuring plan, and as such, additional restructuring charges may be necessary.

Components of Results of Operations

Revenue

Revenues in 2015, 2014 and 2013 were $166.9 million, $177.4 million and $110.9 million, respectively, while our net losses were $51.9 million, $13.8 million and $17.7 million, respectively, for the same periods.

We derive our revenues through the sales of our various branded nutritional supplements. As discussed further in “—Critical Accounting Policies and Estimates—Revenue Recognition”, revenue is recognized when persuasive

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evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collection is reasonably assured, which generally occurs upon shipment or delivery of the products. We record sales incentives as a direct reduction of revenue for various discounts provided to our customers consisting primarily of volume incentive rebates and advertising related credits. We accrue for sales discounts over the period they are earned. Sales discounts are a significant part of our marketing plan to our customers as they help drive increased sales and brand awareness with end users through promotions that we support through our distributors and re-sellers.

During 2015, our three largest customers, Costco, GNC and Bodybuilding.com, accounted for 41% of our net revenue. During 2014, our two largest customers, Costco and Bodybuilding.com, accounted for 29% of our net revenue. During 2013, our two largest customers, Bodybuilding.com and Europa, accounted for 35% of our net revenue.

Cost of Revenue and Gross Margin

Cost of revenue for MusclePharm products is directly related to the production, manufacturing and freight-in of the related products purchased from third party contract manufacturers. We mainly ship customer orders from our distribution centers in Spring Hill, Tennessee and Pittsburg, California. The facilities are operated with our equipment and employees, and we own the related inventory. We also use contract manufacturers to drop ship products directly to our customers.

In addition, BioZone, established in 2014 via an asset purchase agreement, manufactures products and, therefore, derives costs of revenue through the costs of raw materials, direct labor, freight-in and other supply and equipment expenses. We mainly ship BioZone customer orders from our distribution center in Pittsburg, California.

Our historical experience has been that, over the life cycle of a particular product, the cost of revenues as a percentage of total revenue has typically declined as a result of efficiencies and decreases in our product costs. The decrease in cost generally results from an increase in the volume purchased from manufacturing suppliers, as well as yield improvements and test enhancements.

Our gross profit fluctuates due to several factors, including sales incentives, new product introductions and upgrades to existing product lines, changes in customer and product mixes, the mix of product demand, shipment volumes, our product costs, pricing and inventory write downs. Cost of revenue is expected to decrease over time as a percentage of revenue due primarily to our focus on supply chain efficiency and negotiating better pricing with our manufacturers.

Operating Expenses

Advertising and Promotion

Our advertising and promotions consists primarily of athletic endorsements, and sponsorships which includes both cash and stock-based compensation, promotional giveaways, trade show events, FDM distribution costs, and digital, print, and media advertising.

Prior to our restructuring during the third quarter of 2015, advertising and promotions were a large part of both our growth strategy and brand awareness. We built strategic partnerships with sports athletes and fitness enthusiasts through endorsements, licensing, and co-branding agreements. Additionally, we have co-developed products with sports athletes and teams. We expect our advertising and promotion expenses to decrease in future periods as we seek to leverage existing brand recognition and move towards lower cost advertising outlets including social media.

Salaries and Benefits

Salaries and benefits consist primarily of salaries, bonuses, benefits and stock-based compensation. Personnel costs are a significant component of our operating expenses. During the third quarter of 2015, we executed a restructuring plan, resulting in a reduction in our workforce that continued through year-end. Salaries and benefits is expected to decrease due to a further reduction in headcount, limited headcount additions as well as future restricted stock awards, and a reduction in amortization of existing stock-based grants.

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Selling, General and Administrative

Our selling, general and administrative expenses consist primarily of freight out, depreciation, amortization, IT equipment and network, facilities related expenses, insurance, director’s fees, which include both cash and stock-based compensation, rental expenses related to equipment leases, supplies, legal settlement costs, and other corporate expenses. We expect our selling, general and administrative expenses to decrease due to our restructuring activities, as we have abandoned certain leased facilities and anticipate the disposal of our BioZone subsidiary.

Research and Development

Research and development expenses consist primarily of R&D personnel salaries, bonuses, benefits, and stock-based compensation, product quality control, which includes third-party testing, and research fees related to the development of new products. We expense research and development costs as incurred. Research and development is not a primary driver of our operating expenses and we expect research and development to decrease in future periods, as we have reduced the number of employees in this department.

Professional Fees

Professional fees consist primarily of legal fees, accounting and audit fees, consulting fees, which includes both cash and stock-based compensation, and investor relations costs. We expect our professional fees to increase in connection with our restructuring plan as we utilize professional service providers to defend ongoing and new legal matters and advise on corporate governance, internal controls, and process improvements.

Charitable Youth Sports Program

In March 2014, the Board of Directors of the Company approved and the Company established a charitable youth sports grant program (the “Program”) pursuant to which the Company will donate product, equipment and cash to organizations such as schools, sports teams and training facilities. The Company had tentatively established an annual budget of approximately $250,000 for the Program. The primary intent of the Program was to build MusclePharm brand awareness with youth athletes. The Company’s other business purposes in establishing the Program was to help needy organizations achieve their goals, promote the Company’s brand, help athletes develop stronger and better skills and to build the reputation of the Company as a contributor to the community. A committee formerly consisting of the Company’s former President, former Director of Team Development, and former Chief Operating Officer oversaw the Program. In 2014, the Company made an initial grant in the amount of approximately $250,000 to Arvada West High School and similar charitable contributions to other charitable sports organizations of approximately $30,000. The Company’s former Chief Executive Officer, Mr. Brad Pyatt, is a graduate of Arvada West High School and serves as a volunteer football coach. The Company did not make a charitable grant to Arvada West High School during 2015. The Company did make charitable grants to other youth sports organizations during 2015 totaling approximately $278,000. We expect this amount to decrease substantially in 2016 and any future grant will be approved by the Chief Executive Officer and Chief Financial Officer.

Other Income (Expense), Net

Other income (expense), net consists of interest, bargain purchase gain and contingent asset gain from a business acquisition, expenses related to the issuance and change in fair value of derivative liabilities, gains and losses on foreign currency transactions and purchased convertible notes, settlement of accounts payable and debt, foreign currency transactions and other miscellaneous expenses. The most significant of these consist of interest expense, the change in the fair value of our derivative liabilities and the bargain purchase gain and contingent asset gain from the business acquisition. Our derivative liabilities were related to embedded conversion features in certain shares of previously outstanding convertible preferred stock and warrants. These derivative instruments were no longer outstanding as of December 31, 2015 and 2014. However, prior to their settlement, they were marked to fair value each

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period with a corresponding gain or loss recognized through the consolidated statements of operations. Our bargain purchase gain and contingent asset gain was a one-time event related to the BioZone asset acquisition in January 2014. We do not expect to recognize any amounts from changes in fair value of derivative instruments or any bargain purchase gains going forward unless we enter into similar transactions again in the future. We do expect interest expense to increase in the near term, based on the interest rate on the convertible secured promissory note that we entered into in December 2015 and the Factor Agreement we entered into in January 2016.

Provision for Income Taxes

Provision for income taxes consists primarily of federal and state income taxes in the United States and income taxes in foreign jurisdictions in which we conduct business. Due to uncertainty as to the realization of benefits from our deferred tax assets, including net operating loss carry-forwards, research and development and other tax credits, we have a full valuation allowance reserved against such assets. We expect to maintain this full valuation allowance at least in the near term. Further, we are engaged with a Big Four accounting firm to advise us on our domestic and international tax strategy.

Results of Operations

The following table presents our historical operating results in dollars and as a percentage of revenues for the periods presented:

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Revenue

2015 compared to 2014. Revenue, net decreased $10.5 million or 6% to $166.9 million for the year ended December 31, 2015, compared to $177.4 million for the year ended December 31, 2014. Revenue, net for the year ended December 31, 2015 decreased due primarily to a misalignment of inventory on hand compared to customer sales orders, a reduction in international sales related to the strengthening of the US dollar and timing of the launch of the Arnold Schwarzenegger Series™ which was introduced late in 2013, resulting in significant initial sales during the first half of 2014 related to initial channel fill. Discounts and sales allowances increased to $29.5 million, or 15% of gross revenue, for the year ended December 31, 2015 from $28.2 million, or 14% of gross revenue, in 2014. The increase in discounts and allowances is primarily related to promotions of new product introductions and discounts and allowances on existing products with key customers.

2014 compared to 2013. Revenue, net increased 60% to $177.4 million in 2014, compared to $110.9 million in 2013. Revenue in 2014 increased due primarily to the introduction of two brands to our product portfolio as we continue to extend our brand and reach utilizing well known current and former athletes and moving into new and expanding markets. In particular, our Arnold Schwarzenegger Series™, which launched in the fourth quarter of 2013, resulted in an increase of $33.1 million from $16.5 million in 2013 to $49.6 million in 2014. In addition, our FitMiss^® series, which launched in the third quarter of 2013, resulted in an increase of $6.9 million from $2.6 million in 2013 to $9.5 million in 2014. We also recognized an increase of $28.5 million due to sales of our existing products as we continued to execute our growth strategy that includes driving innovation, serving the needs of all athletes, fueling the engine of sport through new products, brand extensions, and increasing our product distribution and sales through increased market penetrations both domestically and internationally. We also acquired BioZone, which resulted in a $12.4 million increase of revenue in 2014 compared to zero in 2013.

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Discounts and sales allowances increased to $28.2 million, or 14%, of gross revenue in 2014 from $17.4 million, or 14%, of gross revenue in 2013. The decrease in discounts and allowances as a percent of gross revenue is a result of continued focus to define customer terms and allowances.

Cost of Revenue and Gross Profit

2015 compared to 2014. Costs of revenue decreased 9% to $109.9 million for the year ended December 31, 2015, compared to $121.4 million for the same period in 2014. Accordingly, gross profit for the year ended December 31, 2015 was $56.9 million, or 34% of revenue, compared to $56.0 million, or 32% of revenue in 2014. During the third and fourth quarter of 2015, we restructured our business, discontinuing a number of products and recognizing a restructuring charge of $2.9 million, including an inventory write down of $2.6 million and accrual of purchase commitment of discontinued inventories not yet received of $350,000, which is included as a component of cost of revenue. This inventory write down negatively impacted our gross profit margin by 2%. The gross profit margin, when excluding this inventory write down, increases to 36% as we continue to optimize our product cost with our contract manufacturing partners.

2014 compared to 2013. Costs of revenue increased 56% to $121.4 million for the year ended December 31, 2014, compared to $77.7 million in 2013. Accordingly, gross profit for 2014 was $56.0 million, or 32% of revenue, compared to $33.2 million, or 30% of revenue in 2013. Our cost of revenue increased consistent with the related revenue and the primary components of the increase were an $18.0 million increase from the Arnold Schwarzenegger Series™, a $3.0 million increase from the FitMiss series, and an $18.4 million increase from existing products related primarily to executing our growth strategy. In addition, we recognized an increase in cost of revenue in the amount of $5.8 million due to the inclusion of BioZone, which was acquired in the first quarter of 2014. The increase in gross profit was generally due to improved focus on process efficiencies throughout all departments including a decrease in spoilage, and the integration and continued improvement of enterprise resource planning (ERP) and reporting systems.

Operating Expenses

2015 compared to 2014. Operating expenses for the year ended December 31, 2015 were $106.9 million, compared to $75.4 million in 2014. These expenses primarily include costs for advertising and promotions, specifically tradeshow costs to generate visibility and connect with our customers and end-users, costs of strategic partnerships with athletes and sports teams, strategic advertising agreements to promote our brand, investing in our staffing needs in order to stay competitive in our industry, stock-based compensation, legal and litigation related fees, consulting costs, and other charges. Additionally, as a result of the restructuring plan commenced during the third quarter of 2015, we incurred restructuring costs of $18.3 million related to: 1) a reduction in our workforce; 2) abandoning certain leased facilities; and 3) renegotiating or terminating a number of contracts with endorsers in a strategic shift away from such arrangements and towards more grass-roots marketing and advertising efforts.

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2014 compared to 2013. Operating expenses for the year ended December 31, 2014 were $75.4 million, compared to $47.5 million in 2013. These expenses primarily included costs for advertising and promotions, specifically tradeshow costs to generate visibility and connect with our customers and end-users, costs of strategic partnerships with star athletes and strategic advertising agreements to promote our brand, investing in our staffing needs in order to stay competitive in our industry, developing and testing new products, stock-based compensation and other charges.

Advertising and Promotion

2015 compared to 2014. Advertising and promotion expenses decreased 4% to $27.0 million for the year ended December 31, 2015, or 16% of revenue, compared to $28.1 million, or 16% of revenue, in 2014. Advertising and promotion expenses for the year ended December 31, 2015 included expenses related to strategic partnerships with athletes and sports teams. The expense associated with these partnerships decreased by $0.3 million as our agreement with the UFC expired during the fourth quarter of 2015 and we renegotiated or terminated a number of contracts as part of our restructuring activities. Additionally, our digital, print, and media advertising decreased by $2.3 million in 2015. This decrease was offset by an increase in trade shows and product giveaway costs of $1.2 million and an increase in outside sales costs of $0.6 million.

2014 compared to 2013. Advertising and promotion expenses increased 81% to $28.1 million for the year ended December 31, 2014, or 16% of revenue, compared to $15.5 million, or 14% of revenue, in 2013. Advertising and promotion expenses in 2014 included expenses related to strategic partnerships entered into with Tiger Woods and Johnny Manziel. These partnerships, along with our Arnold Schwarzenegger Series™ introduced in 2013, increased our strategic partnership stock expenses to $10.2 million in 2014, compared to $1.4 million in 2013.

Salaries and Benefits

2015 compared to 2014. Salaries and benefits increased 23% to $31.2 million, or 19% of revenue, for the year ended December 31, 2015 compared to $25.3 million, or 14% of revenue, in 2014. The increase was due to additional resources added to both our domestic operations and our foreign subsidiaries resulting in additional expense of $4.6 million as well as an increase in stock-based compensation charges of $1.1 million.

2014 compared to 2013. Salaries and benefits increased 114% to $25.3 million, or 14% of revenue, for the year ended December 31, 2014 compared to $11.8 million, or 11% of revenue, in 2013. The increase was due to additional resources added to both our domestic operations and our Canadian subsidiary. Another primary driver of the increase in salaries and benefits is due to an increase of $7.3 million in expenses related to restricted stock award grants.

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Selling, General and Administrative

2015 compared to 2014. Selling, general and administrative expenses increased 45% to $19.4 million, or 12% of revenue, for the year ended December 31, 2015 compared to $13.4 million, or 8% of revenue, in 2014. The increase was due primarily to freight shipping expense of $3.1 million, depreciation and amortization of $1.1 million related to additional capital asset purchases during 2014 and 2015, equipment rentals and supplies of $0.6 million due to the Pittsburg, California distribution center being operational for all of 2015, IT equipment and network of $0.5 million as we continue to invest in infrastructural needs, stock-based compensation related to reimbursement of administrative costs related to an attempted debt financing and grant of restricted shares to Ryan Drexler, our Interim Chief Executive Officer, President and Chairman, in consideration for executing his guarantee with a banking institution of $0.4 million, additional corporate insurance premiums of $0.4 million, director fees of $0.4 million including both cash and stock-based compensation, and facility related expenses of $0.2 million. These increases were offset by a decrease in litigation and settlement expenses of $0.6 million mainly related to the SEC settlement which was accrued for in 2014.

2014 compared to 2013. Selling, general and administrative expenses increased 86% to $13.4 million, or 8% of revenue, for the year ended December 31, 2014 compared to $7.2 million, or 6% of revenue, in 2013. The increase was primarily due to amortization of intangible assets related to our acquisition of Biozone, depreciation of acquired capital assets, rent expense insurance and investments in infrastructure costs and freight out expense, as our selling, general and administrative costs are driven by our continued growth in all aspects of operations.

Research and Development

2015 compared to 2014. Research and development expenses increased 6% to $4.3 million, or 2% of revenue, for the year ended December 31, 2015 compared to $4.0 million, or 2% of revenue, in 2014. The increase was mainly due to increased personnel related costs of $0.6 million including both cash and stock-based compensation, offset by a decrease in depreciation expense of fixed assets used for research and development of $0.3 million.

2014 compared to 2013. Research and development expenses increased 257% to $4.0 million, or 2% of revenue, for the year ended December 31, 2014 compared to $1.1 million, or 1% of revenue, in 2013. The increase was due to a $0.7 million increase in quality control costs as we improved the quality of our product and the operations that go into formulating and developing the product. Other cost increases were due to an increase of $0.4 million related to researching fees as we continued to develop and test new products and a $0.4 million increase in depreciation expense allocated to research and development.

Professional Fees

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2015 compared to 2014. Professional fees increased 47% to $6.8 million, or 4% of revenue, for the year ended December 31, 2015, compared to $4.6 million, or 3% of revenue, in 2014. The primary reason for the increase in professional fees is due to additional consulting fees of $1.0 million, accounting consulting fees of $0.9 million, and investor relations of $0.6 million. These increases were offset by a decrease in legal fees of $0.5 million as we resolved the SEC investigation early in 2015.

2014 compared to 2013. Professional fees decreased 61% to $4.6 million for the year ended December 31, 2014, compared to $11.8 million in 2013. The primary reason for the decrease in professional fees is due to the $6.6 million investment advisory expenses in 2013, compared to zero in 2014. In addition, professional fees in 2014 included $2.3 million of legal fees due to the SEC investigation and expenses related to SOX 404(b) preparedness.

Restructuring and Other Charges

2015 compared to 2014. For the year ended December 31, 2015, we incurred total restructuring and other charges of $21.2 million, of which $18.3 million was recorded in operating expenses. The restructuring charges to be paid in cash totaled $9.1 million, which are comprised of: (i) severance and termination benefit costs related to terminated employees of $1.3 million; (ii) charge of $7.0 million related to cancellation of certain contracts and sponsorship agreements; (iii) charge of $0.3 million related to purchase commitment of discontinued inventories not yet received; and (iv) costs associated with permanently vacating certain facilities of $0.5 million. Other non-cash charges associated with the restructuring totaled $9.5 million, which are comprised of: (i) stock-based compensation of terminated employees of $2.7 million; (ii) write-down of prepaid stock compensation related to terminated endorsement agreements of $5.4 million; (iii) write-down of prepaid asset related to terminated sponsorship agreements, discontinued products, and abandoned other agreements of $1.0 million; and (iv) write-off of long-lived assets related to the abandonment of certain lease facilities of $0.4 million. We anticipate incurring additional restructuring charges in 2016 to continue to move our business toward profitable operations.

2014 compared to 2013. There were no restructuring and other charges incurred in the years ending December 31, 2014 and 2013.

Other (Expense) Income, Net

The components of our other (expense) income, net consists of the following:

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2015 compared to 2014. Other (expense) income, net in 2015 was an expense of $1.8 million, compared to an income of $5.6 million in 2014. The significant fluctuations in other (expense) income, net were primarily related to the bargain purchase gain, foreign currency transaction gains and losses, and interest expense and interest income related to 2014.

2014 compared to 2013. Other (expense) income, net for the year ended December 31, 2014 was an income of $5.6 million, compared to an expense of $3.3 million in 2013. The significant fluctuations in other (expense) income, net were primarily related to the bargain purchase gain, changes in the derivative liabilities, gains and losses on accounts payable and debt settlements and on purchased convertible notes and interest.

Other (expense) income, net increased primarily due to a $5.3 million gain on the BioZone acquisition in 2014 and the $4.9 million decrease in the fair value of the derivative liabilities in 2013.

Summary of Unaudited Quarterly and Audited Annual Operations

The following tables set forth our unaudited quarterly and audited annual consolidated statements of income data in dollars and as a percentage of total revenue for each of the eight quarters and each year in the period ended December 31, 2015. We have prepared the quarterly consolidated statements of income data on a basis consistent with the audited consolidated financial statements included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. In the opinion of management, the financial information reflects all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of this data. This information should be read in conjunction with the audited consolidated financial statements and related notes included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. The results of historical periods are not necessarily indicative of the results of operations for any future period.

Quarterly Trends

We have historically experienced rapid growth, which has resulted in a historical increase in our revenue and a corresponding increase in our cost of revenue and operating expenses to support our growth. The historical increase in revenue was mainly due to an increase in product sales based upon customer demand, new products introductions and brand expansion. The slight decrease in revenue during 2015 was related to supply chain issues and mis-match of inventory on hand relative to customer sales orders. The increase in quarterly operating expenses was primarily due to the continued expansion of our infrastructure, athlete and sports team endorsements, increase in product promotion, expenses related to increases in employee headcount including stock-based compensation, and legal related fees.

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