TWINLAB CONSOLIDATED HOLDINGS, INC. - Quarter Report: 2015 September (Form 10-Q)

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

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

For the quarterly period ended September 30, 2015

OR

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

For the transition period from ________ to __________

Commission file number 000-55181

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

The number of shares of common stock, $0.001 par value, outstanding on November 16, 2015 was 295,704,136 shares.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

TWINLAB CONSOLIDATED HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

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

TWINLAB CONSOLIDATED HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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

TWINLAB CONSOLIDATED HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(AMOUNTS IN THOUSANDS)

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

TWINLAB CONSOLIDATED HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(AMOUNTS IN THOUSANDS) - Continued

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

TWINLAB CONSOLIDATED HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

Organization

Twinlab Consolidated Holdings, Inc. (the “Company”) was incorporated on October 24, 2013 under the laws of the State of Nevada as Mirror Me, Inc. On August 7, 2014, the Company amended its articles of incorporation and changed its name to Twinlab Consolidated Holdings, Inc.

Nature of Operations

The Company and its subsidiaries manufacture and market high-quality, science-based nutritional supplements, and also provide health and wellness information and dietary supplement contract manufacturing services. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Twinlab Consolidation Corporation (“TCC”), Twinlab Holdings, Inc. (“THI”), Twinlab Corporation (“Twinlab”), ISI Brands, Inc. (“ISI”), NutraScience Labs, Inc. (“NutraScience”) and NutraScience IP Corporation.

Products include vitamins, minerals, specialty supplements and sports nutrition products primarily under the Twinlab® brand name (including the Twinlab® Fuel family of sports nutrition products); diet and energy products under the Metabolife® brand name; a line of products that promote joint health under the Trigosamine® brand name; and a full line of herbal teas under the Alvita® brand name. These products are sold primarily through health and natural food stores and national and regional drug store chains, supermarkets, and mass market retailers.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Nutricap Purchase Agreement

As further discussed in Note 3, on February 6, 2015, NutraScience acquired the customer relationships of Nutricap Labs, LLC, a provider of dietary supplement contract manufacturing services.

Organic Holdings Purchase Agreement

As further discussed in Note 13, on October 5, 2015, TCC acquired all of the outstanding equity interests of Organic Holdings, LLC, a marketer and distributor of nutritional products.

Basis of Presentation and Unaudited Information

The condensed consolidated interim financial statements included herein have been prepared by the Company in accordance with United States generally accepted accounting principles, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. Financial results for any interim period are not necessarily indicative of financial results that may be expected for the fiscal year. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2015.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Significant management estimates include those with respect to returns and allowances, the allowance for doubtful accounts, the reserve for inventory obsolescence, the recoverability of long-lived assets and the estimated value of derivative liabilities.

Significant Concentration of Credit Risk

Sales to the Company’s top three major customers aggregated to approximately 37% and 33% of total sales for the three months ended September 30, 2015 and 2014, respectively, and approximately 33% and 29% of total sales for the nine months ended September 30, 2015 and 2014, respectively. Sales to one of those customers were approximately 18% and 16% of total sales for the three months ended September 30, 2015 and 2014, respectively, and approximately 23% and 15% of total sales for the nine months ended September 30, 2015 and 2014, respectively. Accounts receivable from these customers were approximately 30% and 26% of total accounts receivable as of September 30, 2015 and December 31, 2014, respectively.

Fair Value of Financial Instruments

The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 – inputs are quoted prices in active markets for identical assets that the reporting entity has the ability to access at the measurement date.

Level 2 – inputs are other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly.

Level 3 – inputs are unobservable inputs for the asset that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability.

The following table summarizes the financial instruments of the Company measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014:

Net Loss per Common Share

Basic net income or loss per common share (Basic EPS) is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted net income or loss per common share (Diluted EPS) is computed by dividing net income or loss by the sum of the weighted average number of common shares outstanding and the dilutive potential common share equivalents then outstanding. Potential dilutive common share equivalents consist of shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock.

Due to the fact that for all periods presented the Company incurred net losses, potential dilutive common share equivalents as of September 30, 2015 and December 31, 2014, totaling 29,628,612 and 84,683,227 shares, respectively, are not included in the calculation of Diluted EPS because they are anti-dilutive. Therefore, basic loss per common share is the same as diluted loss per common share for the three and nine months ended September 30, 2015 and 2014.

Recent Accounting Pronouncements

In July 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, “Inventory (Topic 330), Simplifying the Measurement of Inventory.” An entity is required to measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Other than the change in the subsequent measurement guidance from the lower of cost or market to the lower of cost and net realizable value for inventory within the scope of this Update, there are no other substantive changes to the guidance on measurement of inventory. For public companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this Update are to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently unable to determine the impact on our consolidated financial statements of the adoption of this new accounting pronouncement.

In April 2015, the FASB issued ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs.” To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public companies, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted for financial statements that have not been previously issued. We adopted the new guidance effective January 1, 2015. Our prior period financial statements were not impacted by the early adoption of this Update.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016; however, in July 2015, the FASB agreed to delay the effective date by one year. The proposed deferral may permit early adoption, but would not allow adoption any earlier than the original effective date of the standard. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently assessing the impact the adoption of ASU 2014-09, including possible transition alternatives, will have on our financial statements

NOTE 2 – GOING CONCERN

The accompanying consolidated financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. Since their formation, the Company and its subsidiaries have operated at a loss. At September 30, 2015, the Company had an accumulated deficit of $218,533 and a total stockholders’ deficit of $15,325. These losses were associated with start-up activities and brand and infrastructure development. Recently, losses were primarily attributable to lower than planned sales resulting from low fill rates on ordered demand due to our working capital deficiency, delayed product introductions and postponed marketing activities, merger-related and other restructuring costs, and interest and refinancing charges associated with the Company’s debt refinancing. Losses have been funded primarily through issuance of common stock and third-party debt.

Because of this history of operating losses, significant interest expense on the Company’s debt, and the recording of significant derivative liabilities, the Company has a working capital deficiency of $24,282 at September 30, 2015. The Company also has significant debt payments due within the next 12 months.

Management continues to address and make progress with the operating issues; however, these continuing conditions raise substantial doubt about the Company's ability to continue as a going concern.

Management has addressed operating issues through the following actions: focusing on growing the core business and brands; continuing emphasis on major customers and key products; and reducing manufacturing and operating costs and continuing to negotiate lower prices from major suppliers. Management believes that it will be able to service its debt obligations for the remainder of 2015 and for 2016, however, there can be no assurance that the Company will be able to meet its debt obligations as they become due. In connection with a merger completed in 2014, management was able to convert a majority of the Company’s then-outstanding debt to equity. Additionally, management believes that by improving operations, continuing to focus on cost reductions and harnessing synergies from the Nutricap asset acquisition discussed in Note 3 and the Organic acquisition discussed in Note 13, the Company will be able to fund operations over the next twelve months; however, there can be no assurance that the Company will be able to improve operations or reduce costs.

The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

NOTE 3 – NUTRICAP ASSET ACQUISITION

TCC entered into an option agreement in September 2014 (the “Option Agreement”) that gave TCC an exclusive option to purchase certain assets of a provider of dietary supplement contract manufacturing services (“Nutricap”). Pursuant to the Option Agreement, as amended and restated and further amended, and an Asset Purchase Agreement (the “Nutricap Purchase Agreement”), dated and effective as of February 4, 2015, the acquisition was consummated on February 6, 2015 by NutraScience. 

Nutricap provides dietary supplement contract manufacturing services. Pursuant to the Nutricap Purchase Agreement, NutraScience acquired Nutricap’s customer relationships. NutraScience assumed certain of the liabilities of Nutricap, including, without limitation, liabilities for (i) certain taxes; and (ii) NutraScience’s agreement to offer a credit to any customer in an amount equal to the amount of any Customer Deposit (as defined in the Nutricap Purchase Agreement) placed by such customer in connection with an existing purchase order with respect to which such customer agrees to novate such purchase order with NutraScience pursuant to a Novation Contract (as defined in the Nutricap Purchase Agreement).

The aggregate consideration for the purchased assets is comprised of the following:

The purchase price has been allocated as follows:

The customer relationships are amortized over an estimated economic life of ten years using the straight-line method.

The short-term notes payable to Nutricap include a promissory note of $2,500 bearing interest at a rate of 6% per annum and maturing 60 days after the closing of the acquisition and a promissory note of $1,478 bearing interest at a rate of 3% per annum, payable in 12 equal monthly installments of principal and interest commencing in February 2015. As further discussed in Note 7, on June 30, 2015, NutraScience and Nutricap entered into an Amended and Restated Promissory Note in the original principal amount of $2,750, representing the original principal amount of $2,500 plus a late fee of $250, with a maturity date of January 1, 2016.

The parties entered into a Transition Services Agreement, dated February 6, 2015, pursuant to which Nutricap provided NutraScience with certain transitional services to assist in the transfer of the customer relationships acquired pursuant to the Nutricap Purchase Agreement (the “TSA”). The services provided under the TSA include, among other services, (i) the services of certain Nutricap personnel; (ii) the right to use Nutricap’s premises; (iii) access to Nutricap’s information services; and (iv) accounting services.

The original Transition Services Agreement related to the Nutricap asset acquisition was in effect until August 6, 2015 and has expired under its terms. The parties entered into a Second Transition Services and License Agreement on August 12, 2015 pursuant to which Nutricap will provide limited transition services through December 31, 2016.

NOTE 4 – INVENTORIES

Inventories consisted of the following at:

NOTE 5 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at:

Assets held under capital leases are included in machinery and equipment and amounted to $1,852 and $2,169 as of September 30, 2015 and December 31, 2014, respectively.

Depreciation and amortization expense totaled $122 and $114 for the three months ended September 30, 2015 and 2014, respectively, and $366 and $495 for the nine months ended September 30, 2015 and 2014, respectively.

NOTE 6 – INTANGIBLE ASSETS

Intangible assets consisted of the following at:

Trademarks are amortized over a period of 30 years and customer relationships are amortized over periods ranging from 10 to 16 years. Amortization expense was $204 and $127 for the three months ended September 30, 2015 and 2014, respectively, and $584 and $351 for the nine months ended September 30, 2015 and 2014, respectively.

NOTE 7 – DEBT

Debt consisted of the following at:

Little Harbor, LLC

Pursuant to a July 2014 Debt Repayment Agreement with Little Harbor, LLC (“Little Harbor”), an entity owned by certain stockholders of the Company, the Company is obligated pay such party $4,900 per year in structured monthly payments for 3 years provided that such payment obligations will terminate at such earlier time as the trailing ninety day volume weighted average closing sales price of the Company’s common stock on all domestic securities exchanges on which such stock is listed equals or exceeds $5.06 per share. Pursuant to a stock purchase agreement with Little Harbor discussed in Note 10, the Company issued shares of its common stock in lieu of $2,500 worth of periodic payments due under this agreement.

Penta Mezzanine SBIC Fund I, L.P.

On November 13, 2014, the Company raised proceeds of $8,000, less certain fees and expenses, from the issuance of a note to Penta Mezzanine SBIC Fund I, L.P. (“Penta”), an institutional investor. The note matures on November 13, 2019 with payments of principal due on a quarterly basis commencing November 13, 2017 in installments starting at $360 per quarter and increasing to $520 per quarter. Interest at an original rate of 12% is payable monthly from November 30, 2014. The Company (i) granted Penta a security interest in the Company’s assets and (ii) pledged the shares of its subsidiaries as security for the note. Penta also agreed to purchase from the Company an additional note in the amount of $2,000, no later than November 13, 2015. The Company issued warrants in connection with this loan (see Note 8 below).

On February 6, 2015, the Company raised proceeds of $2,000, less certain fees and expenses, from Penta. The proceeds were restricted to pay a portion of the Nutricap acquisition discussed in Note 3. This note matures on November 13, 2019 with payments of principal due on a quarterly basis from November 13, 2017 in installments of $90 per quarter and increasing to $130 per quarter. Interest at an original rate of 12% is payable monthly commencing on February 28, 2015. The Company issued warrants in connection with this loan (see Note 8 below).

Pursuant to a stock purchase agreement with Penta discussed in Note 10, the Company issued shares of its common stock in lieu of $613 worth of interest payments due under these agreements.

Midcap Funding X Trust

On January 22, 2015, the Company paid off all amounts owed under its credit facility with Fifth Third Bank and entered into a new three-year $15,000 revolving credit facility (the “Senior Credit Facility”) based on the Company’s accounts receivable and inventory, increasable to up to $20,000, with MidCap Financial Trust, which assigned the agreement to an affiliate, Midcap Funding X Trust (“MidCap”), on January 23, 2015. The Company (i) granted MidCap a first priority security interest in certain of its assets and (ii) pledged the shares of its subsidiaries as security for amounts owed under the credit facility. The Company is required to pay Midcap an unused line fee of 0.042% per month and a collateral management fee of 0.10% per month. The Company issued warrants in connection with this loan (see Note 8 below).

JL-BBNC Mezz Utah, LLC

On January 22, 2015, the Company raised proceeds of $5,000, less certain fees and expenses, from the sale of a note to JL-BBNC Mezz Utah, LLC (“JL”). The proceeds were restricted to pay a portion of the Nutricap asset acquisition discussed in Note 3. The note matures on February 13, 2020 with payments of principal due on a quarterly basis commencing March 1, 2017 in installments starting at $250 per quarter and increasing to $350 per quarter. Interest is payable monthly from February 2, 2015. The Company (i) granted JL a security interest in the Company’s assets, including real estate and (ii) pledged the shares of its subsidiaries as security for the note. The Company issued warrants in connection with this loan (see Note 8 below). Pursuant to a stock purchase agreement with JL discussed in Note 10, the Company issued shares of its common stock in lieu of $307 worth of interest payments due under this agreement.

Nutricap Asset Acquisition Notes and Essex Capital Corporation Payment Guarantee

The short-term notes payable issued in the Nutricap asset acquisition (Note 3) included a promissory note of $2,500 bearing interest at a rate of 6% per annum and maturing 60 days after the closing of the acquisition and a promissory note of $1,478 bearing interest at a rate of 3% per annum, payable in 12 equal monthly installments of principal and interest commencing in February 2015. On June 30, 2015, NutraScience and Nutricap entered into an Amended and Restated Promissory Note (the “Nutricap Note”) in the original principal amount of $2,750, representing the original principal amount of $2,500 plus a late fee of $250, with a maturity date of January 1, 2016. As a condition to the extension provided in the Nutricap Note, Nutricap required that payment be guaranteed by TCC and also, jointly and severally, by Essex Capital Corporation, a California corporation (“Essex”), and its owner Ralph Iannelli (“Iannelli”). Accordingly, on June 30, 2015, TCC entered into a Payment Guaranty with Nutricap (the “TCC Guaranty”), and Essex and Iannelli, jointly and severally, entered into a Payment Guaranty with Nutricap (the “Essex Guaranty”), with both the TCC Guaranty and the Essex Guaranty guaranteeing payment in full to Nutricap of all amounts as and when due by NutraScience under the Nutricap Note, including payment in full of all amounts due and owing upon maturity, as well as any costs of enforcement incurred by Nutricap in connection therewith.

On June 30, 2015, Twinlab entered into a bill of sale with Essex pursuant to which Twinlab sold certain machinery and equipment associated with Twinlab’s manufacturing operations in American Fork, Utah to Essex for an aggregate purchase price of $2,900 in exchange for (i) Essex’s agreement to enter into the Essex Guaranty described above, and (ii) Essex’s agreement, in addition to simply providing the Essex Guaranty, to in fact make all payments to Nutricap as and when due under the Nutricap Note, including payment in full of all amounts due and owing at maturity thereof, thus extinguishing the Nutricap Note of $2,750. On the same date, Twinlab leased the same machinery and equipment back from Essex, pursuant to two 36-month commercial lease agreements requiring monthly lease payments by Twinlab of $89 and $5, respectively.

Certain of the foregoing debt agreements require the Company to meet certain affirmative and negative covenants, including maintenance of specified ratios. As of March 31, 2015, the Company’s adjusted EBITDA (as defined in its debt agreements) was not in compliance with the Minimum Adjusted EBITDA covenants in the Senior Credit Facility and certain notes payable to institutional investors. Consequently significant obligations to these lenders were included in current liabilities in our condensed consolidated balance sheet as of March 31, 2015. Subsequently, on June 30, 2015, the Company, Midcap, Penta and JL entered into agreements that provided a limited waiver of the Company’s failure to comply with the Minimum Adjusted EBITDA covenant as of March 31, 2015, and the respective financing agreements were amended such that Minimum Adjusted EBITDA covenants previously in place for the periods ending June 30, September 30 and December 31, 2015 were replaced with a new Minimum Adjusted EBITDA covenant of negative $700 for each of the months of July and August 2015. Consequently, we believe the presentation of debt as current or long-term liabilities in our condensed consolidated balance sheet as of September 30, 2015 is in accordance with the terms of our debt agreements.

NOTE 8 – WARRANTS, COMMON STOCK PUT AGREEMENT AND REGISTRATION RIGHTS AGREEMENTS

Van Andel Warrants

In connection with a September 3, 2014 debt agreement with David Van Andel (“Van Andel”), a Director of the Company, TCC issued to Van Andel a warrant to acquire 5,592,105 shares of TCC common stock at a purchase price of $0.76 per share at any time prior to September 6, 2017. The warrant was subsequently assumed by the Company. The warrant agreement contained certain anti-dilution provisions, and subsequently, the number of common shares that could be acquired was increased by 185,306 shares. Pursuant to a June 2, 2015 stock purchase agreement discussed below and in Note 10, the warrant to purchase a total of 5,777,411 shares of common stock was cancelled.

Capstone Warrants and Put Agreement

The Company issued a Series A Warrant (the “Series A Warrant”) to Capstone Financial Group, Inc. (“Capstone”), effective as of September 30, 2014. Pursuant to the Series A Warrant, Capstone had the right to purchase up to 52,631,579 shares of common stock at an exercise price of $0.76 per share. The Series A Warrant was exercisable from October 1, 2014 through October 31, 2017. The Series A Warrant provides for equitable adjustments in the event of a stock split, stock dividend, reclassification, consolidation or merger.

The Company also issued a Series B Warrant (the “Series B Warrant”) to Capstone, effective as of September 30, 2014. Pursuant to the Series B Warrant, Capstone has the right to purchase up to 22,368,421 shares of common stock at an exercise price of $0.76 per share. The Series B Warrant is exercisable from October 1, 2014 through October 31, 2017 but only to the extent and in the same proportions as exercises by Capstone of the Series A Warrant. The Series B Warrant provides for equitable adjustments in the event of a stock split, stock dividend, reclassification, consolidation or merger. The Company has agreed with Capstone that if the Company issues a security (i) exercisable or exchangeable for or (ii) convertible into shares of common stock at a date after October 1, 2014 and such security provides for anti-dilution protection, the shares of common stock issuable under the Series B Warrant shall enjoy the same anti-dilution protection as that first issued security.

The Company and Capstone entered into a Registration Rights Agreement, dated as of September 30, 2014 (the “Registration Agreement”). Pursuant to the Registration Agreement, Capstone can require the Company to register the shares of common stock acquired upon exercise of the Series A Warrant and the Series B Warrant at such time as the Company is eligible to register securities on a Registration Statement on Form S-3 and thereafter file additional registration statements if requested by Capstone on a quarterly basis. The Registration Agreement contains terms and conditions customary for the grant of registration rights.

The Company and Capstone entered into a Common Stock Put Agreement, dated as of September 30, 2014, as amended on December 15, 2014 (as so amended, the “Put Agreement”), pursuant to which Capstone indicated its intent to exercise the Series A Warrant over a 36 month term at a monthly rate of no less than 1,461,988 shares of common stock commencing on November 15, 2014 and on a monthly basis thereafter. In the event that Capstone did not exercise the Series A Warrant such that as of February 16, 2015 or any applicable exercise date thereafter, Capstone’s cumulative purchases of common stock pursuant to the Series A Warrant had not been at a rate that was equal to or in excess of the minimum rate, then the Company had the right to notify Capstone of the Company’s exercise of its put rights under the Put Agreement.

In April 2015, Capstone exercised the Series A Warrant to purchase a total of 657,895 shares of the Company’s common stock, with proceeds to the Company of $500.

On May 28, 2015, the Company and Capstone entered into a Compromise Agreement and Release (the “Compromise Agreement”) pursuant to which (i) Capstone surrendered the remaining 51,973,684 shares purchasable under the Series A Warrant to the Company; (ii) the Put Agreement was terminated; and (iii) the Series B Warrant was amended.

The Company and Capstone executed Amendment No. 1 to Series B Warrant, which amendment (i) reduced the number of shares of common stock issuable under such Warrant to 18,000,000; (ii) deleted certain anti-dilution protection previously in effect; and (iii) divided the Series B Warrant into the following deemed tranches: (a) Tranche 1 consisting of 2,000,000 shares which tranche can only be exercised through November 30, 2015; (b) Tranche 2 consisting of 4,000,000 shares which tranche can only be exercised through March 31, 2016; (c) Tranche 3 consisting of 6,000,000 shares which tranche can only be exercised through July 31, 2016; and (d) Tranche 4 consisting of 6,000,000 shares which tranche can only be exercised through November 30, 2016.

Pursuant to the Compromise Agreement, Capstone granted the Company certain call rights, providing that in the event that (i) Capstone does not exercise in full any of Tranches 2, 3 or 4 under the Series B Warrant, and (ii) the Company maintains a Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) of not less than 1.15x during certain periods preceding the expiration date for each such tranche under the Series B Warrant, then the Company shall have the right to require Capstone to sell shares of common stock owned by Capstone to the Company for a purchase price of $0.01 per share in an amount of shares equal to 25% of the unexercised portion of any of the three Series B tranches to which such call right is applicable subject to the conditions above.

The Company and Capstone agreed that Capstone has identified, and may in the future identify, to the Company persons to whom Capstone might sell shares of common stock owned by Capstone from its holdings. The Company agreed that it will not, without Capstone’s prior written consent, privately place the Company’s equity securities to any persons heretofore or hereafter first introduced to the Company by Capstone as described above; provided that the Company may, without Capstone’s consent, privately place equity securities to such a person at any time after the earlier of (a) the date the entire Series B Warrant has expired and/or been exercised, or (b) the first anniversary of such particular introduction.

The Registration Agreement remains in effect.

Penta Warrants

In connection with the November 13, 2014 note for $8,000 (see Note 7), Penta was issued a warrant to acquire 4,091,122 shares of the Company’s common stock at an aggregate purchase price of $0.01, through November 13, 2019. Subsequently, and in connection with the additional $2,000 note from Penta, the warrant was cancelled and replaced on February 6, 2015 by a warrant to purchase a total of 4,960,740 shares of the Company’s common stock at an aggregate exercise price of $0.01. The other terms of this warrant are the same as the warrant issued on November 13, 2014. In connection with Penta’s consent to the terms of additional debt obtained by the Company on January 22, 2015, the Company granted Penta a warrant to acquire a total of 869,618 shares of common stock at a purchase price of $1.00 per share, through November 13, 2019. Both warrant agreements grant Penta certain registration rights, commencing October 1, 2015, for the shares of common stock issuable on exercise of the warrants.

Penta has the right, under certain circumstances, to require the Company to purchase all or any portion of the equity interest in the Company issued or represented by the warrant to acquire 4,960,740 shares at a price based on the greater of (i) the product of (x) ten times the Company’s adjusted EBITDA with respect to the twelve months preceding the exercise of the put right times (y) the investor’s percentage ownership in the Company assuming full exercise of the warrant; or (ii) the fair market value of the investor’s equity interest underlying the warrant. In the event (i) the Company does not have the funds available to repurchase the equity interest under the warrant or (ii) such repurchase is not lawful, adjustments to the principal of the note purchased by Penta will be made or, under certain circumstances, interest will be charged on the amount otherwise due for such repurchase.

The Company has the right, under certain circumstances, to require Penta to sell to the Company all or any portion of the equity interest issued or represented by the warrant to acquire 4,960,740 shares. The price for such repurchase will be the greater of (i) the product of (x) eleven times the Company’s adjusted EBITDA with respect to the twelve months preceding the exercise of the call right times (y) the investor’s percentage ownership in the Company assuming full exercise of the warrant; or (ii) the fair market value of the equity interests underlying the warrant; or (iii) $3,750.

Pursuant to a Stock Purchase Agreement dated June 30, 2015, a warrant was issued to Penta to purchase an aggregate 807,018 shares of the Company’s common stock at a price of $0.01 per share at any time prior to the close of business on June 30, 2020. In addition to adjustments on terms and conditions customary for a transaction of this nature in the event of (i) reorganization, recapitalization, stock split-up, combination of shares, mergers, consolidations and (ii) sale of all or substantially all of the Company’s assets or property, the number of shares of common stock issuable pursuant to the warrant shall be adjusted as follows: In the event that 50% of the Fair Market Value (as defined in the warrant agreement) of the common stock (i) in a private placement by the Company completed prior to December 18, 2018 (but excluding certain specified placements), (ii) as of December 31, 2018, or (iii) on the date of any partial or whole exercise of the warrant prior to December 31, 2018, is less than $0.385 per share, then in each case the existing Current Holder’s Equity Interest (as defined in the warrant agreement) applicable to the warrant at such time (or in the case of a partial exercise, then with respect to the number of shares so exercised) shall increase (but not decrease) to a new Current Holder’s Equity Interest pursuant to the following formula: New Holder’s Equity Interest = [(2 x Existing Current Holder’s Equity Interest) x ($0.385 ÷ 50% of FMV)] – Existing Current Holder’s Equity Interest.

The Company granted Penta certain registration rights, commencing October 1, 2015, for the shares of common stock issuable upon exercise of the warrant.

Effective August 14, 2015, the Company cancelled the June 30, 2015 Penta warrant for 807,018 shares and issued a new warrant to Penta for 807,018 shares, eliminating the variable anti-dilution and/or price protection mechanisms contained in the June 30, 2015 warrant agreement.

Midcap Warrants

In connection with the line of credit agreement with MidCap described in Note 7, the Company issued MidCap a warrant, exercisable through January 22, 2018, for an aggregate of 500,000 shares of the Company’s common stock at an exercise price of $0.76 per share (the “MidCap Warrant”). The Company and MidCap have entered into a Registration Rights Agreement, dated as of January 22, 2015, granting MidCap certain registration rights, commencing October 1, 2015, for the shares of common stock issuable on exercise of the MidCap Warrant.

JL Warrants

In connection with the January 22, 2015 note payable to JL, the Company issued JL warrants to purchase an aggregate of 2,329,400 shares of the Company’s common stock, at an aggregate exercise price of $0.01, through February 13, 2020. On February 4, 2015, the Company also granted to JL a warrant to acquire a total of 434,809 shares of common stock at a purchase price of $1.00 per share, through February 13, 2020. Both warrant agreements grant JL certain registration rights, commencing October 1, 2015, for the shares of common stock issuable upon exercise of the warrants.

Pursuant to a Stock Purchase Agreement dated June 30, 2015, a warrant was issued to JL to purchase an aggregate 403,509 shares of the Company’s common stock at a price of $0.01 per share at any time prior to the close of business on June 30, 2020. In addition to adjustments on terms and conditions customary for a transaction of this nature in the event of (i) reorganization, recapitalization, stock split-up, combination of shares, mergers, consolidations and (ii) sale of all or substantially all of the Company’s assets or property, the number of shares of common stock issuable pursuant to the warrant shall be adjusted as follows: In the event that 50% of the Fair Market Value (as defined in the warrant agreement) of the common stock (i) in a private placement by the Company completed prior to December 18, 2018 (but excluding certain specified placements), (ii) as of December 31, 2018, or (iii) on the date of any partial or whole exercise of the warrant prior to December 31, 2018, is less than $0.385 per share, then in each case the existing Current Holder’s Equity Interest (as defined in the warrant agreement) applicable to the warrant at such time (or in the case of a partial exercise, then with respect to the number of shares so exercised) shall increase (but not decrease) to a new Current Holder’s Equity Interest pursuant to the following formula: New Holder’s Equity Interest = [(2 x Existing Current Holder’s Equity Interest) x ($0.385 ÷ 50% of FMV)] – Existing Current Holder’s Equity Interest.

The Company granted JL certain registration rights, commencing October 1, 2015, for the shares of common stock issuable upon exercise of the warrant.

Effective August 14, 2015, the Company amended the June 30, 2015 JL warrant for 403,509 shares to eliminate the variable anti-dilution and/or price protection mechanisms contained in the warrant agreement.

JL Properties, Inc. Warrants

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

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

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

The Company has granted JL Properties certain registration rights, commencing October 1, 2015, for the shares of common stock issuable on exercise of the two warrants.

Van Andel Trust Warrants

Pursuant to a Stock Purchase Agreement dated June 2, 2015, two warrants were issued to the David Van Andel Trust, a related party (the “Van Andel Trust”). Pursuant to the first warrant, the Van Andel Trust has the right to acquire an aggregate 3,289,474 shares of the Company’s common stock at a price of $0.01 per share. In addition to adjustments on terms and conditions customary for a transaction of this nature in the event of (i) reorganization, recapitalization, stock split-up, combination of shares, mergers, consolidations and (ii) sale of all or substantially all of the Company’s assets or property, the number of shares of common stock issuable pursuant to the first warrant shall be adjusted as follows: In the event that 50% of the Fair Market Value (as defined in the first warrant) of the common stock (i) in a private placement by the Company completed prior to December 31, 2018 (but excluding certain specified placements), (ii) as of December 31, 2018, or (iii) on the date of any partial or whole exercise of the first warrant prior to December 31, 2018, is less than $0.385 per share, then in each case the existing Current Holder’s Equity Interest (as defined in the warrant agreement) applicable to the first warrant at such time (or in the case of a partial exercise, then with respect to the number of shares so exercised) shall increase (but not decrease) to a new Current Holder’s Equity Interest pursuant to the following formula: New Holder’s Equity Interest = [(2 x Existing Current Holder’s Equity Interest) x ($0.385 ÷ 50% of FMV)] – Existing Current Holder’s Equity Interest.

Pursuant to the second warrant, the Van Andel Trust has the right to acquire an aggregate 12,987,012 shares of the Company’s common stock at a price of $0.385 per share. In addition to adjustments on terms and conditions customary for a transaction of this nature in the event of (i) reorganization, recapitalization, stock split-up, combination of shares, mergers, consolidations and (ii) sale of all or substantially all of the Company’s assets or property, the exercise price shall be subject to decrease (but not increase) as follows: In the event that prior to the September 30, 2017 expiration date, the Company completes a private placement of common stock (other than certain specified placements) and 50% of the Fair Market Value (as defined in the second warrant) of such private placement is less than $0.385 per share, then the exercise price of the second warrant shall automatically on such date be decreased (but not increased) to 50% of the Fair Market Value of such private placement. In the event the Van Andel Trust exercises the second warrant in whole or in part prior to the expiration date and 50% of the Fair Market Value on the date of such exercise is less than $0.385 per share (or in the event that the exercise price has previously been decreased in accordance with the immediately preceding sentence, less than the exercise price following such adjustment), then the exercise price shall be adjusted to 50% of such Fair Market Value for the shares so exercised.

The Company granted the Van Andel Trust certain registration rights, commencing October 1, 2015, for the shares of common stock issuable upon exercise of the first and second warrants.

Effective August 14, 2015, the Company amended the two June 2, 2015 Van Andel Trust warrants to eliminate the variable anti-dilution and/or price protection mechanisms contained in the warrant agreements.

On September 10, 2015, the Van Andel Trust exercised the June 2, 2015 warrant for 12,987,012 shares and the Company received aggregate proceeds of $5,000.

On September 30, 2015, the Van Andel Trust exercised the June 2, 2015 warrant for 3,289,474 shares and the Company received aggregate proceeds of $33.

Little Harbor Warrants

Pursuant to a Stock Purchase Agreement dated June 2, 2015, a warrant was issued to Little Harbor to purchase an aggregate 3,289,474 shares of the Company’s common stock at a price of $0.01 per share. In addition to adjustments on terms and conditions customary for a transaction of this nature in the event of (i) reorganization, recapitalization, stock split-up, combination of shares, mergers, consolidations and (ii) sale of all or substantially all of the Company’s assets or property, the number of shares of common stock issuable pursuant to the warrant shall be adjusted as follows: In the event that 50% of the Fair Market Value (as defined in the warrant) of the common stock (i) in a private placement by the Company completed prior to December 31, 2018 (but excluding certain specified placements), (ii) as of December 31, 2018, or (iii) on the date of any partial or whole exercise of the warrant prior to December 31, 2018, is less than $0.385 per share, then in each case the existing Current Holder’s Equity Interest (as defined in the warrant) applicable to the warrant at such time (or in the case of a partial exercise, then with respect to the number of shares so exercised) shall increase (but not decrease) to a new Current Holder’s Equity Interest pursuant to the following formula: New Holder’s Equity Interest = [(2 x Existing Current Holder’s Equity Interest) x ($0.385 ÷ 50% of FMV)] – Existing Current Holder’s Equity Interest.

The Company granted Little Harbor certain registration rights, commencing October 1, 2015, for the shares of common stock issuable upon exercise of the warrant.

Effective August 14, 2015, the Company amended the June 2, 2015 Little Harbor warrant to eliminate the variable anti-dilution and/or price protection mechanisms contained in the warrant agreement.

On September 30, 2015, Little Harbor exercised the June 2, 2015 warrant for 3,289,474 shares and the Company received aggregate proceeds of $33.

Essex Warrants

In connection with the guarantee of the Nutricap Note and equipment financing by Essex discussed in Note 7, Essex was issued a warrant exercisable for an aggregate 1,428,571 shares of the Company’s common stock at a purchase price of $0.77 per share, at any time prior to the close of business on June 30, 2020. The number of shares issuable upon the exercise of the warrant is subject to adjustment on terms and conditions customary for a transaction of this nature in the event of (i) reorganization, recapitalization, stock split-up, combination of shares, mergers, consolidations and (ii) sale of all or substantially all of the Company’s assets or property.

A summary of the status of the warrants issued by the Company as of September 30, 2015, and changes during the nine months then ended, is presented below:

NOTE 9 – DERIVATIVE LIABILITIES

The number of shares of common stock issuable pursuant to certain warrants issued in January 2015, February 2015 and April 2015 will be increased if the Company’s audited adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) or the market price of the Company’s common stock do not meet certain defined amounts. The Company has recorded these warrants as derivative liabilities due to the variable terms of the warrant agreements. In addition, the Company has determined that a put agreement entered into in September 2015 is a derivative. Accordingly, the Company has estimated the total fair value of the derivative liabilities at $13,599 as of September 30, 2015.

During the nine months ended September 30, 2015, the Company had the following activity in its derivative liabilities account:

NOTE 10 – STOCKHOLDERS’ DEFICIT

The Company has authorized preferred stock of 500,000,000 shares. No shares of the preferred stock have been issued.

On September 3, 2014, TCC entered into a Subscription and Surrender Agreement with Thomas Tolworthy, which agreement was assumed by the Company on September 16, 2014 in connection with the merger with TCC (the “Surrender Agreement”). Pursuant to the Surrender Agreement, Mr. Tolworthy is required, upon request by the Company, to surrender up to 65,306,102 shares of common stock for use by the Company. Through September 30, 2015, the Company requested pursuant to the Surrender Agreement, and Mr. Tolworthy surrendered, a total of 22,092,277 shares to the Company, which shares have been placed in treasury.

The only equity compensation plan currently in effect is the Twinlab Consolidation Corporation 2013 Stock Incentive Plan (the “TCC Plan”), which was assumed by the Company on September 16, 2014. The TCC Plan originally established a pool of 20,000,000 shares of common stock for issuance as incentive awards to employees for the purposes of attracting and retaining qualified employees who will aid in the success of the Company. From January through September 2015, the Company granted to certain employees of the Company a total of 7,634,002 Restricted Stock Units pursuant to the TCC Plan. Each Restricted Stock Unit relates to one share of the Company’s common stock. The Restricted Stock Unit awards vest 25% each on January 1, 2016, January 1, 2017, January 1, 2018 and January 1, 2019. The Company estimated the grant date value of the Restricted Stock Units at $0.76 per share and is amortizing the total estimated grant date value over the vesting periods.

In April 2015, Capstone exercised the Series A Warrant to purchase a total of 657,895 shares of the Company’s common stock, with proceeds to the Company of $500.

In May and July 2015, the Company purchased an aggregate of 494,406 shares of its common stock from employees or former employees for total cash consideration of $0, equal to the employees’ original purchase price. These shares were unvested restricted shares previously acquired by the employee under the TCC Plan and have been placed in treasury.

On June 2, 2015, the Company, the Van Andel Trust and Van Andel entered into a Stock Purchase Agreement (the “Van Andel Trust SPA”). Pursuant to the Van Andel Trust SPA, the Company sold the the Van Andel Trust 3,289,474 shares of its common stock at $0.76 per share for aggregate proceeds to the Company of $2,500. In addition, pursuant to the Van Andel Trust SPA, Van Andel surrendered to the Company for cancellation that certain warrant, dated September 5, 2014, that had provided Van Andel the right to acquire an aggregate of 5,592,105 shares of common stock at $0.76 per share. As further described in Note 8, the Van Andel Trust SPA also provided for the issuance to the Van Andel Trust of two warrants to purchase shares of the Company’s common stock.

On June 2, 2015, the Company and Little Harbor entered into a Stock Purchase Agreement (the “LH SPA”). Pursuant to the LH SPA, the Company sold Little Harbor 3,289,474 shares of its common stock at $0.76 per share for aggregate proceeds to the Company of $2,500. Little Harbor delivered to the Company the purchase price for the shares in the form of Little Harbor’s irrevocable agreement to accept the shares issued by the Company pursuant to the LH SPA in lieu of $2,500 worth of periodic payments otherwise due Little Harbor under an outstanding debt agreement. As further described in Note 8, the LH SPA also provided for the issuance to Little Harbor of a warrant to purchase shares of the Company’s common stock.

On June 30, 2015, the Company and Penta entered into a Stock Purchase Agreement (the “Penta SPA”). Pursuant to the Penta SPA, the Company sold 807,018 shares of its common stock at $0.76 per share for aggregate proceeds to the Company of $613. Penta delivered to the Company the purchase price for the shares in the form of Penta’s irrevocable agreement to accept the shares issued by the Company in lieu of $613 worth of interest payments otherwise due Penta under an outstanding debt agreement. As further described in Note 8, the Penta SPA also provided for the issuance to Penta of a warrant to purchase shares of the Company’s common stock.

On June 30, 2015, the Company and JL entered into a Stock Purchase Agreement (the “JL SPA”). Pursuant to the JL SPA, the Company sold 403,509 shares of its common stock at $0.76 per share for aggregate proceeds to the Company of $307. JL delivered to the Company the purchase price for the shares in the form of JL’s irrevocable agreement to accept the shares issued by the Company in lieu of $307 worth of interest payments otherwise due JL under an outstanding debt agreement. As further described in Note 8, the JL SPA also provided for the issuance to JL of a warrant to purchase shares of the Company’s common stock.

On July 7, 2015, Capstone partially exercised the Series B Warrant issued to Capstone by the Company on September 30, 2014, as amended on May 28, 2015. Pursuant to such exercise, the Company issued Capstone an aggregate of 526,316 shares of the Company’s common stock at a per share purchase price of $0.76 or $400 in the aggregate. On July 23, 2015, Capstone further partially exercised the Series B Warrant for an aggregate of 131,579 shares of the Company’s common stock at a per share purchase price of $0.76 or $100 in the aggregate.

On September 29, 2015, the Van Andel Trust exercised in full a warrant issued to the Van Andel Trust by the Company on June 2, 2015. Pursuant to such exercise, the Company issued the Van Andel Trust an aggregate of 12,987,012 shares of the Company’s common stock at a per share purchase price of $0.385 or $5,000 in the aggregate.

On September 30, 2015, the Van Andel Trust exercised in full a warrant issued to the Van Andel Trust by the Company on June 2, 2015. Pursuant to such exercise, the Company issued the Van Andel Trust an aggregate of 3,289,474 shares of the Company’s common stock at a per share purchase price of $0.01 or $33 in the aggregate.

On September 30, 2015, Little Harbor exercised in full the warrant issued to the Little Harbor by the Company on June 2, 2015. Pursuant to such exercise, the Company issued Little Harbor an aggregate of 3,289,474 shares of the Company’s common stock at a per share purchase price of $0.01 or $33 in the aggregate.

NOTE 11 – OPTION AGREEMENT

In September 2014, TCC entered into an option agreement (the "Option”) that gave TCC an exclusive option to purchase 100% of the outstanding equity interests of Organic Holdings, LLC (“Organic”), a marketer and distributor of nutritional products, on certain agreed upon terms.  TCC paid $2,000 to acquire the Option, which is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets as of September 30, 2015 and December 31, 2014.  Effective August 13, 2015, TCC exercised the option and entered into a Unit Purchase Agreement, as amended (the “Purchase Agreement”) with the owners of the membership interests of Organic (the “Sellers”). The parties subsequently agreed to extend the closing date of the Purchase Agreement to October 5, 2015. As discussed in Note 13, the transactions contemplated by the Purchase Agreement were consummated on October 5, 2015.

NOTE 12 – OFFICE LEASE AGREEMENT

On April 7, 2015, the Company and TCC, as co-tenants, entered into an Office Lease Agreement (the “Lease”) for premises in St. Petersburg, Florida (the “Building”). The term of the Lease is for twelve years, commencing on May 1, 2015 and ending on April 30, 2027. The Company has options to extend the term of the Lease for two additional periods of five years each and certain rights of first offer and rights of first refusal to lease additional space at the Building. Upon delivery of the leased premises by the landlord, the Company will establish a new corporate headquarters in St. Petersburg, which shall be the Company’s principal offices.

The Company is initially leasing the fifth floor of the Building (the “Initial Premises”). Pursuant to the terms of the Lease, the Company is required to expand the Initial Premises to include the sixth floor of the Building (the “First Expansion Premises”) between February 1, 2016 and October 31, 2016, upon notice to the landlord and provided that the landlord is not obligated to deliver the First Expansion Premises unless the Company then has a traded market capitalization of $50,000 or more for the immediately preceding thirty days prior to the date of the Company’s exercise notice (the “Market Cap Test”).

The aggregate amount of Annual Base Rent to be paid over the term of the Lease is $4,466 for the Initial Premises (plus a proportionate share of annual Operating Expenses and Taxes as set forth in the Lease). In the event that the Company leases the First Expansion Premises, Annual Base Rent for the First Expansion Premises will be paid at the same rental rate payable for the Initial Premises and, if leased by the Company at the earliest date available under the Lease, will result in additional payments of up to approximately $4,552 (plus a proportionate share of annual Operating Expenses and Taxes as set forth in the Lease) over the term of the Lease.

The Lease required the Company to deposit a $1,000 security deposit with the landlord, which is payable in the form of cash or a letter of credit no later than July 1, 2015. If on May 1, 2018 (or on any subsequent May 1^st during the term of the Lease), the Company satisfies the Market Cap Test, the landlord is required to return the entire security deposit to the Company. As discussed in Note 8, on April 30, 2015, the Company and a current institutional investor and lender entered into a Reimbursement Agreement pursuant to which the investor agreed to arrange for and provide an unconditional, irrevocable, transferable, and negotiable commercial letter of credit to serve as the security deposit.

NOTE 13 – SUBSEQUENT EVENTS

Organic Holdings Acquisition

Pursuant to the exercise of an exclusive option to acquire all of the outstanding equity of Organic (Note 11), on October 5, 2015, TCC closed the transactions contemplated by the Purchase Agreement and TCC acquired all of the Units for a purchase price of $37,000.

Organic, through its subsidiaries, is engaged in the business of developing and selling premium nutritional supplements, including under the well-known Reserveage™ Nutrition family of brands.

TCC and the Sellers each provided customary representations, warranties and covenants in the Purchase Agreement, and the Sellers agreed to be bound by certain non-compete and non-solicitation provisions. The Sellers also agreed to customary indemnification of TCC and its affiliates for certain losses and damages, by way of the cancellation of shares of common stock of the Company owned by Health, KP LLC (“Health”), an affiliate of the Sellers.

The Company has agreed to grant Health certain registration rights for the shares of common stock of the Company owned by Health.

GREAT HARBOR CAPITAL, LLC Stock Purchase Agreement

On October 1, 2015, the Company and GREAT HARBOR CAPITAL, LLC (“GH”), an entity owned by certain stockholders of the Company, entered into a Stock Purchase Agreement (the “GH SPA”). Pursuant to the GH SPA, the Company issued and sold to GH on October 2, 2015 41,379,310 shares of the Company’s common stock for an aggregate purchase price of $12,000. GH has the right to participate in certain future issuances of equity securities (including rights, options or warrants to purchase such equity securities or securities that are convertible or exchangeable into or exercisable for such equity securities) of the Company up to an amount sufficient to allow GH to maintain its then-proportional ownership interest in the Company. The Company agreed, upon request by GH, to enter into a registration rights agreement with GH with respect to the shares of common stock issued under the GH SPA.

Golisano Holdings LLC Securities Purchase Agreement

On October 2, 2015, the Company entered into a Securities Purchase Agreement with Golisano Holdings LLC, a New York limited liability company (“Golisano LLC”) (the “Golisano SPA”).

Pursuant to the Golisano SPA, on October 5, 2015 the Company issued and sold to Golisano LLC 88,711,241 shares of the Company’s common stock for an aggregate purchase price of $25,000. The foregoing shares constituted as of immediately following such sale thirty percent (30%) of the Company’s issued and outstanding common stock.

The Company was required to use the new proceeds from the sale of the shares solely for funding the purchase price due from the Company for the Organic acquisition discussed above.

At any time commencing on October 5, 2015 and ending at such time that all of the shares of the Company’s common stock owned by Golisano LLC may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) under the Securities Act of 1933, as amended (the “Securities Act”), and otherwise without restriction or limitation pursuant to Rule 144, if the Company fails for any reason to satisfy the current public information requirement under Rule 144(c) (a “Public Information Failure”) then the Company must pay Golisano LLC, in cash, by reason of any such delay in or reduction of its ability to sell such shares, an amount equal to two percent (2%) of the aggregate purchase price paid for the shares held by Golisano LLC on the day of a Public Information Failure and on every thirtieth day (pro-rated for periods totaling less than thirty days) thereafter until the earlier of (i) the date such Public Information Failure is cured, and (ii) such time that such public information is no longer required for Golisano LLC to transfer its shares pursuant to Rule 144. In addition to the foregoing payment, Golisano LLC has the right to pursue actual damages for the Public Information Failure and to pursue all remedies available to it at law or in equity. 

In addition to the 88,771,241 shares of common stock sold to Golisano LLC, the Company issued Golisano LLC a warrant (the “Golisano Warrant”), which Golisano Warrant is intended to maintain, following each future issuance of shares of common stock pursuant to the conversion, exercise or exchange of certain currently outstanding warrants to purchase shares of common stock held by third-parties (the “Outstanding Warrants”), Golisano LLC’s proportional ownership of the Company’s issued outstanding common stock so that it is the same thereafter as on October 5, 2015. The Company has reserved 12,697,977 shares of its common stock for issuance under the Golisano Warrant. The purchase price for any shares of common stock issuable upon exercise of the Golisano Warrant is $.001 per share. The Warrant is exercisable immediately and up to and including the date which is sixty days after the later to occur of the termination, expiration, conversion, exercise or exchange of all of the Outstanding Warrants and the Company’s delivery of notice thereof to Golisano LLC.

The Golisano Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of the assets of the Company. In addition, if any payments are made to a holder of an Outstanding Warrant in consideration for the termination of or agreement not to exercise such Outstanding Warrant, Golisano LLC will be entitled to equal treatment.

The Company and Golisano LLC have entered into a Registration Rights Agreement, dated as of October 5, 2015 granting Golisano LLC certain registration rights for the shares of common stock (i) sold pursuant to the Golisano SPA and (ii) issuable on exercise of the Golisano Warrant.

Golisano LLC also has the right to participate in certain future issuances of equity securities (including rights, options or warrants to purchase such equity securities or securities that are convertible or exchangeable into or exercisable for such equity securities) of the Company up to an amount equal to its then-proportional ownership interest in the Company.

The Company was required to pay Golisano LLC’s reasonable fees and expenses incurred in connection with the Golisano SPA.

Tolworthy Surrender Agreements

As discussed in Note 10, on September 22, 2014, TCC and Thomas A. Tolworthy entered into a Subscription and Surrender Agreement, dated as of September 3, 2014 (the “Original Surrender Agreement”). The Company assumed the Original Surrender Agreement on September 16, 2014.

On October 5, 2015, the Company and Mr. Tolworthy entered into a Surrender Agreement (the “New Surrender Agreement”). Pursuant to the New Surrender Agreement, Mr. Tolworthy agreed to surrender an aggregate of 60,470,957 shares of Common Stock including 26,564,030 shares of Common Stock in addition to the shares subject to surrender pursuant to the Original Surrender Agreement. The New Surrender Agreement provides that of the aggregate 60,470,957 shares of Common Stock to be surrendered (i) 33,906,927 shares of common stock shall be surrendered pursuant to the Original Surrender Agreement; (ii) 26,564,030 shares of Common Stock shall be surrendered pursuant to the New Surrender Agreement; and (iii) 9,306,898 shares of Common Stock held by Mr. Tolworthy shall remain subject to surrender to the Company pursuant to the Original Surrender Agreement. The shares of Common Stock surrendered pursuant to the (i) Original Surrender Agreement and (ii) New Surrender Agreement were required to be used in connection with certain prior issuances of the shares of the Company’s common and certain exercises of the Company’s warrants. The surrendered shares of the Company’s common stock have been placed in treasury.

In connection with the Stock Purchase Agreements with five investors discussed below, on October 21, 2015, the Company and Mr. Tolworthy entered into an additional Surrender Agreement, pursuant to which Mr. Tolworthy surrendered an aggregate of 3,448,276 shares of the Company’s common stock.

Amended Debt Agreements

In connection with the Organic Holdings acquisition and the related Golisano SPA and GH SPA discussed above, the Company entered into amended debt agreements with MidCap, Penta and JL to amend certain debt covenant calculations and ratios and to include the recent acquired subsidiaries in the debt covenants. Pursuant to limited waivers, the lenders waived the Company’s failure to meet the minimum Adjusted EBITDA covenant for July and August 2015.

Capstone Waiver

On October 1, 2015, the Company and Capstone entered into Amendment No. 1 to Agreement for Limited Waiver of Non-Circumvention Provision and to Compromise Agreement and Release (the “Capstone Waiver”). Pursuant to the Capstone Waiver, the Company and Capstone agreed to terminate the contingent call rights granted pursuant to a Compromise Agreement and Release entered into on June 3, 2015.

Stock Purchase Agreements

On October 21, 2015, the Company entered into separate Stock Purchase Agreements with five investors (collectively, the “October SPAs”). Pursuant to the October SPAs, the Company issued and sold to the investors, each such investor an “accredited investor” as defined in Regulation D (“Reg. D”) promulgated under the Securities Act, on October 21, 2015 an aggregate of 3,448,276 shares of the Company’s common stock, for an aggregate purchase price of $1,000.

Amounts in thousands, except share and per share amounts

Overview

This Quarterly Report on Form 10-Q contains forward-looking statements. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believes,” “anticipates,” “plans,” “expects,” ‘intends” and similar expressions identify some of the forward-looking statements. Forward-looking statements are not guarantees of performance or future results and involve risks, uncertainties and assumptions. The factors discussed elsewhere in this Form 10-Q and in subsequent Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K, could also cause actual results to differ materially from those indicated by the Company’s forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements.

Our Operations

We are an integrated manufacturer, marketer, distributor and retailer of branded nutritional supplements and other natural products sold to and through domestic health and natural food stores, mass market retailers, specialty stores and websites. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers. An integral part of our core business strategy is to acquire, integrate and operate businesses in the natural products industry that manufacture, market and distribute branded nutritional supplements. We believe that the consolidation and integration of these acquired businesses will provide ongoing financial synergies through increased scale and market penetration, as well as strengthened customer relationships.

We manufacture and sell nutritional products, including primarily a full line of nutritional supplements under the Twinlab® brand (including the Twinlab® Fuel family of sports nutrition products). We also manufacture and sell diet and energy products under the Metabolife® brand name, a line of products that promote joint health under the Trigosamine® brand name, and a full line of herbal teas under the Alvita® brand name. These products are sold primarily through health and natural food stores and national and regional drug store chains, supermarkets, and mass market retailers.

We also perform contract manufacturing services and make private label products for third parties.  Our contract manufacturing business involves the manufacture of custom products to the specifications of a customer who requires finished product.  We do not market these products – we simply manufacture them and deliver them to the customer who then markets and sells the products to retailers or end users under the customer’s own brand name.

We manufacture and/or distribute one of the broadest branded product lines in the industry with approximately 650 stock keeping units, or SKUs, including approximately 250 SKUs sold internationally. We believe that as a result of our emphasis on innovation, quality, loyalty, education and customer service, our brands are widely recognized in health and natural food stores and among their customers.

Nutricap Asset Acquisition

Twinlab Consolidation Corporation (“TCC”), a wholly-owned subsidiary of the Company, entered into an option agreement in September 2014 (the “Option Agreement”) that gave TCC an exclusive option to purchase certain assets of a provider of dietary supplement contract manufacturing services (“Nutricap”). Pursuant to the Option Agreement, as amended and restated and further amended, and an Asset Purchase Agreement (the “Nutricap Purchase Agreement”), dated and effective as of February 4, 2015, the acquisition was consummated on February 6, 2015 by NutraScience Labs, Inc. (“NutraScience”), a wholly-owned subsidiary of the Company. Nutricap provides dietary supplement contract manufacturing services. Pursuant to the Nutricap Purchase Agreement, NutraScience acquired Nutricap’s customer relationships.

Organic Holdings Acquisition

In September 2014, TCC entered into an option agreement (the "Option”) that gave TCC an exclusive option to purchase 100% of the outstanding equity interests of Organic Holdings, LLC (“Organic”), a marketer and distributor of nutritional products, on certain agreed upon terms.  TCC paid $2,000 to acquire the Option, which is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets as of September 30, 2015 and December 31, 2014.  Effective August 13, 2015, TCC exercised the option and entered into a Unit Purchase Agreement, as amended (the “Purchase Agreement”) with the owners of the membership interests of Organic (the “Sellers”). On October 5, 2015, TCC closed the transactions contemplated by the Purchase Agreement and TCC acquired all of the membership units of Organic for a purchase price of $37,000. Organic, through its subsidiaries, is engaged in the business of developing and selling premium nutritional supplements, including under the well-know Reserveage™ Nutrition family of brands.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. Since their formation, the Company and its subsidiaries have operated at a loss. At September 30, 2015, the Company had an accumulated deficit of $218,533 and a total stockholders’ deficit of $15,325. These losses were associated with start-up activities and brand and infrastructure development. Recently, losses were primarily attributable to lower than planned sales resulting from low fill rates on ordered demand due to our working capital deficiency, delayed product introductions and postponed marketing activities, merger-related and other restructuring costs, and interest and refinancing charges associated with the Company’s debt refinancing. Losses have been funded primarily through issuance of common stock and third-party debt.

Because of this history of operating losses, significant interest expense on the Company’s debt, and recording significant derivative liabilities, the Company has a working capital deficiency of $24,282 at September 30, 2015. The Company also has significant debt payments due within the next 12 months.

Management continues to address and make progress with the operating issues; however, these continuing conditions raise substantial doubt about the Company's ability to continue as a going concern.

Management has addressed operating issues through the following actions: focusing on growing the core business and brands; continuing emphasis on major customers and key products; and reducing manufacturing and operating costs and continuing to negotiate lower prices from major suppliers. Management believes that it will be able to service its debt obligations for the remainder of 2015 and for 2016, however, there can be no assurance that the Company will be able to meet its debt obligations as they become due. In connection with a merger completed in 2014, management was able to convert a majority of the Company’s outstanding debt to equity. Additionally, management believes that by improving operations, continuing to focus on cost reductions and harnessing synergies from the Nutricap asset acquisition and the Organic acquisition, the Company will be able to fund operations over the next twelve months; however, there can be no assurance that the Company will be able to improve operations or reduce costs.

The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Critical Accounting Policies and Estimates

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

Our critical accounting policies and estimates include the following:

Revenue Recognition

Revenue from product sales, net of estimated returns and allowances, is recognized when evidence of an arrangement is in place, related prices are fixed and determinable, contractual obligations have been satisfied, title and risk of loss have been transferred to the customer and collection of the resulting receivable is reasonably assured. Shipping terms are generally freight on board shipping point.

Accounts Receivable and Allowances

Substantially all of our accounts receivable are from distributors or mass market customers. We grant credit to customers and generally do not require collateral or other security. We perform credit evaluations of our customers and provide for expected claims, related to promotional items; customer discounts; shipping shortages and damages; and doubtful accounts based upon historical bad debt and claims experience. We sell predominately in the North American and European markets, with international sales transacted in U.S. Dollars.

Inventories

Inventories are stated at the lower of cost or market. Costs are determined using the weighted average cost method and are reduced by an estimated reserve for obsolete inventory.

Impairment of Long-Lived Assets

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

Goodwill

Goodwill is not amortized, but tested for impairment on an annual basis at the end of our fiscal year and at an interim date if indicators of impairment exist.

Income Taxes

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

Value of Warrants Issued With Debt

We estimate the grant date value of certain warrants issued with debt using the Black-Scholes pricing model, recording the amounts as either interest expense or deferred financing costs. These estimates are based on multiple inputs and assumptions, including the market price of our stock, interest rates and our stock price volatility.

Share-Based Compensation

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

Derivatives

The Company has recorded certain warrants as derivative liabilities at estimated fair value due to the variable terms of the warrant agreements. In addition, the Company has determined that a put agreement entered into in September 2015 is a derivative. The estimated value of the derivative liabilities is estimated using multiple inputs and assumptions, which are subject to management’s judgment and which could vary materially from period to period.

RESULTS OF OPERATIONS

(Dollar Amounts in Thousands)

Net Sales

Our net sales increased $3,569, or approximately 27%, to $16,557 for the three months ended September 30, 2015 from $12,988 for the three months ended September 30, 2014. Our net sales increased $13,080, or approximately 28%, to $60,215 for the nine months ended September 30, 2015 from $47,135 for the nine months ended September 30, 2014. The increase in our net sales was attributed primarily to the additional sales resulting from the acquisition of the Nutricap customer relationships by NutraScience on February 6, 2015.

Gross Profit

Our gross profit decreased $376, or approximately 13%, to $2,438 for the three months ended September 30, 2015 from $2,814 for the three months ended September 30, 2014. Our gross profit decreased $1,716, or approximately 15%, to $9,399 for the nine months ended September 30, 2015 from $11,115 for the nine months ended September 30, 2014. This decrease in gross profit was attributable to lower margin sales initially made by NutraScience and an overall change in product mix toward lower margin items.

With the product focus described above and with our working capital needs supported, we expect to achieve a gross profit percentage of 27% to 32%. However, with needed funding it will require a full calendar quarter to achieve an in-stock position on our products. Further, we will have some of our older, lower margin products still making their way out of stock as well as numerous product margin actions going into effect. Therefore, we expect it may require six months from new capital funding to achieve this targeted gross profit percentage range.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses decreased $1,642, or approximately 21%, to $6,224 for the three months ended September 30, 2015 from $7,866 for the three months ended September 30, 2014. Our selling, general and administrative expenses increased $1,410, or approximately 7%, to $21,178 for the nine months ended September 30, 2015 from $19,768 for the nine months ended September 30, 2014. The decrease in selling, general and administrative expenses in the current year third quarter resulted from positive results from our cost reduction initiatives. The increase in selling, general and administrative expenses on a year-to-date basis was primarily due to the addition of expenses associated with the acquisition of the Nutricap customer relationships by NutraScience, higher than expected legal fees, and other restructuring costs.

We have recently implemented cost reduction initiatives that we believe will reduce our annual operating expenses by more than $5,000. We began realizing these cost reductions in the third quarter of 2015, with full implementation of cost reductions during the fourth quarter of 2015. After successful implementation of cost reduction initiatives, we expect our selling, general and administrative expenses will approximate $22,000 to $25,000 for the year ending December 31, 2016.

Interest Expense, Net

Our interest expense decreased $1,078, or approximately 41%, to $1,566 for the three months ended September 30, 2015 from $2,644 for the three months ended September 30, 2014. Our interest expense decreased $88, or approximately 2%, to $5,280 for the nine months ended September 30, 2015 from $5,368 for the nine months ended September 30, 2014. The decrease in interest expense is due primarily to our reduction of debt in September 2014, partially offset by an increase in interest expense in the current year due to the amortization of debt discount and additional interest related to the new debt incurred to finance the Nutricap asset acquisition.

Loss on Change in Derivative Liabilities

We have issued warrants for the purchase of our common stock that, due to certain variable terms of the warrant agreements, we have recorded as derivative liabilities at estimated fair value. In addition, we have determined that a put agreement entered into in September 2015 is a derivative. The estimated value of the derivative liabilities is estimated using multiple inputs and assumptions, which are subject to management’s judgment and which could vary materially from period to period. The derivative liabilities are generally estimated at the grant date of the warrants and at subsequent financial reporting dates. Changes in the estimated value of the derivative liabilities are recorded as gains or losses in our condensed consolidated statements of operations and comprehensive loss. The derivative liabilities will not require cash payments. During the three months and nine months ended September 30, 2015, we reported a loss on change in derivative liabilities of $4,167 and $14,523, respectively. We did not report a gain or loss on change in derivative liabilities for the three months and nine months ended September 30, 2014.

LIQUIDITY AND CAPITAL RESOURCES

(Dollar Amounts in Thousands)

At September 30, 2015, we had an accumulated deficit of $218,533 and a total stockholders’ deficit of $15,325. Primarily because of this history of operating losses and our recording of significant derivative liabilities, we have a working capital deficiency of $24,282 at September 30, 2015. Losses have been funded primarily through issuance of common stock, borrowings from our stockholders and third-party debt. On an ongoing basis, we also seek to improve operating cash through trade receivables and payables management as well as inventory stocking levels. We had net cash used in operating activities of $1,125 for the nine months ended September 30, 2015.

As of September 30, 2015, we had cash of $1,740, which we believe is insufficient for current operations; therefore, additional capital will be needed to execute our business plan, which includes an acquisition strategy, buying more inventory and increased operational expenses. We also will require capital to successfully absorb the recently acquired Nutricap customer relationships and Organic acquisition and bring these businesses to profitability. There can be no assurance that such capital will be available on acceptable terms or at all.

During the nine months ended September 30, 2015, we incurred significant new debt to complete the acquisition of the Nutricap customer relationships, and we assumed certain liabilities in the acquisition. In addition, we have recorded significant derivative liabilities associated with certain warrants issued with these new debt agreements, modified debt agreements and the issuance of shares of our common stock. As a result, our total indebtedness increased from $44,146 at December 31, 2014 to $60,581 at September 30, 2015. Included in this total indebtedness at September 30, 2015 is a non-cash derivative liability of $13,599.

In October 2015, we issued and sold an aggregate of 130,090,551 shares of our common stock to two investors for total proceeds of $37,000, which was used to fund the Organic acquisition. Also in October 2015, we issued and sold an aggregate of 3,448,276 shares of our common stock for total proceeds of $1,000.

Cash Flows

Net cash used in operating activities was $1,125 for the nine months ended September 30, 2015 as a result of our net loss of $31,155, non-cash gain of $750, increases in accounts receivable of $339 and other assets of $918, and a decrease in checks written in excess of cash of $708, partially offset by non-cash expenses totaling $20,217, decreases in inventories of $7,823 and prepaid expenses and other current assets of $619, and increases in accounts payable of $3,459 and accrued expenses and other current liabilities of $627.

By comparison, net cash used in operating activities for the nine months ended September 30, 2014 was $8,301 as a result of our net loss of $14,046, increase in prepaid expenses and other current assets of $2,786, and decreases in checks written in excess of cash of $28 and accrued expenses and other current liabilities of $1,296, partially offset by non-cash expenses totaling $5,230, decreases in accounts receivable of $1,422 and inventories of $1,911, and increases in accounts payable of $1,292.

Net cash used in investing activities for the nine months ended September 30, 2015 was $6,495, consisting of cash paid in the Nutricap acquisition of $6,126 and the purchase of property and equipment of $1,727, partially offset by proceeds from the sale of assets of $988 and a change in restricted cash of $370.

Net cash used in investing activities was $178 for the nine months ended September 30, 2014, consisting of the purchase of property and equipment of $174 and a change in restricted cash of $4.

Net cash provided by financing activities was $8,923 for the nine months ended September 30, 2015, consisting of proceeds from the exercise of warrants of $6,066, proceeds from the issuance of common stock of $2,500, proceeds from the issuance of debt of $7,000 and a decrease in security deposits of $56, partially offset by repayment of debt of $6,033 and payment of debt issuance costs of $666.

Net cash provided by financing activities was $8,200 for the nine months ended September 30, 2014, consisting of proceeds from the issuance of common stock of $40 and proceeds from the issuance of debt of $11,841, partially offset by repayment of debt of $3,592, purchase and retirement of treasury stock of $8 and payment of debt issuance costs of $81.

Funding Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we pursue our acquisition strategy.  Further, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our new product development programs or future commercialization efforts.

We expect that we will require funding in addition to our existing funding to enable us to fund our operating expenses and capital expenditure requirements, not including any future acquisitions, for at least the foreseeable future. Our future capital requirements will depend on many factors, including, in particular, any requirements we may have in connection with the integration of any future acquisitions which would include, but not be limited to, upgrading of our ERP/MRP systems and acquiring additional machinery.

Until such time, if ever, as we can generate substantial product revenues, we intend to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. There can be no assurance that any of those sources of funding will be available when needed on acceptable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or relationships with third parties when needed or on acceptable terms, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts; abandon our business strategy of growth through acquisitions; or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Recent Accounting Pronouncements

In July 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, “Inventory (Topic 330), Simplifying the Measurement of Inventory.” An entity is required to measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Other than the change in the subsequent measurement guidance from the lower of cost or market to the lower of cost and net realizable value for inventory within the scope of this Update, there are no other substantive changes to the guidance on measurement of inventory. For public companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this Update are to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently unable to determine the impact on our consolidated financial statements of the adoption of this new accounting pronouncement.

In April 2015, the FASB issued ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs.” To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public companies, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted for financial statements that have not been previously issued. We adopted the new guidance effective January 1, 2015. Our prior period consolidated financial statements were not impacted by the early adoption of this Update.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016; however, in July 2015, the FASB agreed to delay the effective date by one year. The proposed deferral may permit early adoption, but would not allow adoption any earlier than the original effective date of the standard. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently assessing the impact the adoption of ASU 2014-09, including possible transition alternatives, will have on our consolidated financial statements.

Off-Balance Sheet Arrangements

As more fully discussed in Note 12 to our condensed consolidated financial statements, on April 7, 2015, we entered into an operating lease agreement for premises in St. Petersburg, Florida. The term of the lease is for twelve years, commencing on May 1, 2015 and ending on April 30, 2027. We have options to extend the term of the lease for two additional periods of five years each and certain rights of first offer and rights of first refusal to lease additional space. The aggregate amount of annual base rent to be paid over the term of the Lease is $4,466 for the initial premises (plus a proportionate share of annual operating expenses and taxes as set forth in the lease agreement).

Other than the operating lease agreement described above, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to the Company.

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

Evaluation of Disclosure Controls and Procedures

Management of the Company is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”). In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures. On September 16, 2014, we, then a public shell company, acquired TCC in a transaction treated as a reverse acquisition. At such time we adopted the system of disclosure controls and procedures of TCC, as ours. Such disclosure controls and procedures were not adequate for a public reporting company and our management began the process of upgrading our disclosure controls and procedures.

At the end of the period covered by this report, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based on their evaluation of our disclosure controls and procedures, they concluded that at the end of the period covered by this report, such disclosure controls and procedures were not effective. This was due to our lack of documentation or testing and correction procedures of current internal control procedures. As the accounting staff of TCC has been solely focused on accounting in the private domain, there has not been sufficient time to update these controls, procedures or to validate the current controls and procedures. We have engaged an experienced public accountant to assist us to assess our controls and financials and consulted a Sarbanes-Oxley consultant in order to assess our timeline for full compliance. 

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II—OTHER INFORMATION

Risks and uncertainties that, if they were to occur, could materially adversely affect our business or cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and other public statements were set forth in the “Item 1A Risk Factors” section of our Annual Report on Form 10-K filed with the SEC on March 31, 2015 (the “10-K”).

In addition to the risk factors disclosed in the 10-K, we expect that we will require funding in addition to our currently committed funding to enable us to fund our operating expenses and capital expenditure requirements for our existing operations, and not including any future acquisitions, for at least the foreseeable future. Our future capital requirements will depend on many factors, including, in particular, any requirements we may have in connection with the integration of any future acquisitions which would include, but not be limited to, upgrading of our ERP/MRP systems and acquiring additional machinery. Until such time, if ever, as we can generate substantial product revenues, we intend to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. There can be no assurance that any of those sources of funding will be available when needed on acceptable terms or at all.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial conditions and/or operating results.

Issuer Purchases of Equity Securities

(1) In July 2015, the Company purchased an aggregate of 447,375 shares of its common stock from five former employees for total cash consideration of $44.74, equal to the employees’ original purchase price. These shares were unvested restricted shares previously acquired by the employees under the Twinlab Consolidation Corporation 2013 Stock Incentive Plan and have been placed in treasury.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.