TWINLAB CONSOLIDATED HOLDINGS, INC. - Annual Report: 2016 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2016

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: common stock, par value $0.001 per share

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ 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 ☑ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to Form 10-K. ☐

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): Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☑

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

The aggregate market value of common stock held by non-affiliates of the registrant at June 30, 2016 was $26,826,344 (computed by reference to the average bid and asked price on such date).

The number of shares of common stock, $0.001 par value, outstanding on March 31, 2017 was 252,924,027 shares.

DOCUMENTS INCORPORATED BY REFERENCE

TABLE OF CONTENTS

PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements in this Annual Report on Form 10-K ("Report" or "10-K") that are not descriptions of historical facts are forward-looking statements that are based on management's current expectations and assumptions and are subject to risks and uncertainties. If such risks or uncertainties materialize or such assumptions prove incorrect, our business, operating results, financial condition and stock price could be materially negatively affected. In some cases, you can identify forward-looking statements by terminology including "anticipates," "believes," "can," "continue," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "should," "will," "would" or the negative of these terms or other comparable terminology. Factors that could cause actual results to differ materially from those currently anticipated include those set forth in the section titled "Risk Factors" including, without limitation, risks relating to:

We operate in a very competitive and rapidly changing environment and new risks emerge from time to time. As a result, it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements included in this Report speak only as of the date hereof, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Report to conform these statements to actual results or to changes in our expectations. 

Item 1.     Business.

General Development of Business

Twinlab Consolidated Holdings, Inc. (references to “we”, “our”, “us”, the “company”, or “TCH”) was incorporated on October 24, 2013 under the laws of the State of Nevada. 

In September 2014, TCH became a holding company with the completion of a Plan of Merger (“Merger”) between Twinlab Consolidation Corporation (“TCC”) and a subsidiary of TCH with TCC surviving the Merger as a wholly-owned subsidiary of TCH. Operational focus redirected to TCC, which through its operating subsidiaries developed, manufactured and marketed high-quality, science-based nutritional supplements, as well as to our consolidation strategy of additional acquisitions and integration of acquired companies, as more fully described below under "Business Strategy." As part of such strategy, following the Merger, we focused significantly on successfully obtaining funding for and completing two acquisitions for which TCC had acquired options prior to the Merger, and which in combination with the TCC operating businesses acquired in the Merger form the foundation for our consolidation and growth strategy. The first was the acquisition of the customer relationships of Nutricap Labs, LLC ("Nutricap"), a provider of dietary supplement contract manufacturing services, into our subsidiary NutraScience Labs, Inc. ("NutraScience") on February 6, 2015, and the second was completed on October 5, 2015 with the acquisition of 100% of the equity interests of Organic Holdings, LLC ("Organic Holdings"), a market leader in the healthy aging and beauty from within categories and owner of the award-winning Reserveage™ Nutrition brand.

TCC was incorporated on October 1, 2013 in the state of Delaware. TCC was formed to effect a consolidation strategy in the fragmented vitamin, mineral, herbal and other nutritional supplements sectors of the health and wellness industry (the "H&W Industry"). Since TCC's formation we have executed on this strategy in an effort to capitalize on the opportunity for consolidation that we believe exists in the H&W Industry.

THI was incorporated on April 10, 2001. In November 2005, THI completed the acquisition of Metabolife International, Inc. and its subsidiary Alpine Health Products, LLC. Through this acquisition, THI expanded its presence in the diet and energy category. In September 2006, THI acquired the assets of Cole Water Company, LLC ("Cole Water"), which owned an aquifer with a recharging spring of naturally calcium-enriched water. This transaction included the acquisition of real property at 51 Strawtown Pike, Peru, Indiana that holds the natural aquifer as well as a bottling facility. Cole Water has marketed calcium-enriched water under a number of brand names. In December 2013, THI discontinued operations of its water products line.

In November 2013, THI acquired certain assets of PatentHealth LLC, primarily the Trigosamine® brand, out of receivership, expanding THI's brand footprint to include the fast growing joint support category in the mass market and drugstore channels. In February 2015, TCC’s NutraScience Labs, Inc. acquired the customer relationships of Nutricap, a provider of nutritional supplement contract manufacturing services. In October 2015, TCC acquired all of the membership units of Organic Holdings, which, through its subsidiaries, is engaged in the business of developing and selling premium nutritional supplements, including the award-winning Reserveage™ Nutrition brand. With this acquisition, we significantly expanded our brand portfolio through the addition of a market leader for resveratrol and collagen supplements in the expanding healthy aging and beauty from within categories.

For convenience in this report, the terms "Company," "we" and "us" may be used to refer to Twinlab Consolidated Holdings, Inc. and/or its subsidiaries, except where indicated otherwise, and the term "TCC" may be used to refer to Twinlab Consolidation Corporation and/or its subsidiaries.

Business Overview

General

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 retailers, on-line retailers and websites. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers.

Our products include vitamins, minerals, specialty supplements and sports nutrition products primarily under the Twinlab® (including the Twinlab® Fuel brand of sports nutrition products), Reserveage™ and ResVitale® brands. We also manufacture and sell diet and energy products under the Metabolife® and Re-Body® brands and a full line of herbal teas under the Alvita® brand. To accommodate consumer preferences, our products come in various formulations and delivery forms, including capsules, tablets, softgels, chewables, liquids, sprays, powders and whole herbs.   

We also perform contract manufacturing services for private label products.  Our contract manufacturing business involves the manufacture of custom products to the specifications of a customer who requires finished product under the customer’s own brand name.  We do not market these private label products as our business is to manufacture and sell the products to the customer, who then markets and sells the products to retailers or end consumers. This strategy of procuring higher margin private label contract manufacturing business will enable us to leverage our manufacturing platform and over time, is believed to be another growth avenue for our Company.

Business Strategy

We target consumers searching for high quality nutritional supplements and other natural products. We believe many of these consumers shop in sales channels that offer meaningful education, service and support to their customers.

The primary channel that offers this type of support to consumers in the United States has been the health and natural food channel ("HNF"). Our primary focus and strength has been and remains on this channel. This strategy has enabled us to benefit from the growth of the HNF channel. The HNF channel consists of approximately 35,500 retailers, including (i) independent health and natural food stores, (ii) health and natural food stores affiliated with local, regional and national health and natural food chains (including health and natural food store chains, such as Whole Foods Market, and vitamin store chains, such as The Vitamin Shoppe and Vitamin World) and (iii) GNC stores. The HNF channel principally caters to our primary target consumers: those who desire product education, service and high quality nutritional supplements and other natural products.

We also believe that consumers seeking high quality products are also purchasing them through other channels, such as health care practitioners and direct to consumer channels and we continue to seek opportunities to reach our target consumers through these and additional channels.

An integral part of our business strategy has been 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 provides ongoing financial and operational synergies through increased scale and market penetration, as well as strengthened customer relationships. Our near-term focus is on harnessing the respective strengths of our existing businesses, while continuing to seek longer-term opportunities that will either strengthen our product offering, and/or expand our distribution and geographic reach.

Industry

According to Nutrition Business Journal, the total retail natural products market (the "Natural Products Market") is highly fragmented and totaled approximately $180.6 billion in retail sales in 2015. The Natural Products Market is comprised of the following submarkets (with estimated 2015 sales indicated): (i) personal care, $17.4 billion, (ii) natural and organic foods, $68.9 billion, (iii) functional foods, $55.5 billion and (iv) vitamins, minerals and supplements, $38.8 billion. Historically, our primary focus has been on vitamins, minerals and supplements (the "VMS Market"). Our business plan could include expansion into one or several of the other three channels of the Natural Products Market: natural and organic personal care, natural and organic foods, and functional foods.

The total retail VMS Market is highly fragmented with estimated sales of $38.8 billion in 2015, $36.7 billion in 2014 and $34.9 billion in 2013. We believe that the VMS Market reached its present size due to a number of factors, including (i) interest in healthier lifestyles, living longer and living well, (ii) the publication of research findings supporting the positive health effects of certain nutritional supplements and (iii) the aging of the "Baby Boom" generation combined with the tendency of consumers to purchase more nutritional supplements and natural foods as they age.

Products

We currently market our products through a multiple brand strategy to offer more customer choice and to encourage retailers to allocate additional shelf space to our brands. We have worked to enhance the strength of our brands by instituting business strategies that have included (i) consolidating our product assortment to focus on top selling, profitable products, (ii) engaging independent brokers to support sales across the US, (iii) creating performance and growth-based incentives for sales representatives, (iv) conducting cost savings initiatives to identify opportunities for improved margin, (v) reviewing competitive product pricing to make recommendations for market pricing alignment and (vi) completing product certifications to increase our competitive position. We believe our current portfolio of products resonates well with target consumers and retailers, and provides us with significant competitive differentiation.

Sales, Marketing and Promotion  

Our marketing and sales efforts are directed to promote demand for our products by educating retailers, who in turn educate their customers, on the quality and attributes of our natural nutritional supplements and other products. Our branded products are sold globally and our primary market is the United States where our key sales channel is HNF. We believe that our products are attractive to HNF retailers due to factors such as the strength of our brand names, the breadth of our product offerings, the quality and efficacy of our products and the availability of service, sales support and educational materials. We have developed numerous Internet sites (including www.alvita.com, www.metabolife.com, www.reserveage.com, www.resvitale.com, and www.twinlab.com) that provide information about our branded lines and the various products within each brand. We have included our Internet sites here and elsewhere only as an inactive textual reference. The information contained on the Internet site is not incorporated by reference into this Report.

Sales

We employ a sales force dedicated to each of the individual channels in which we sell our products. The dynamics and buying patterns of the various channels require strategic initiatives and tactics. Our sales strategy includes several models that are applied to best serve the respective channels where our products are sold:

Marketing and Promotion

TCC markets to consumers shopping through numerous retail channels and online e-tailers. Each channel demands a different approach that meets its distinctive needs. The following is a brief overview of the channels in which we market our varied brands:

Marketing Efforts by Brand

Reserveage™ Nutrition

Reserveage™ Nutrition uses consistent messaging to emphasize our use of premium and traceable ingredients that are backed by published clinical studies. The brand takes a 360 degree marketing approach to drive sales to our retail partners. The focus is to grow brand awareness and increase sales directed at both the retail community and our end consumers.

Marketing strategies for Reserveage™ Nutrition include two main initiatives: 1) introduce new users to our core categories – anti-aging and beauty from within – through product trial and 2) increase in-store education through dedicated brand ambassadors in strategic markets.

Marketing and promotional efforts for Reserveage™ Nutrition focus on both trade and consumer tactics:

Public Relations/Bloggers – Outreach to media and blogger influencers has resulted in features and reviews in online and print media channels. This channel is especially important in our beauty from within line of products, where online influencers can both positively or negatively affect the success of a product.

Consumer and Trade Print Ads – Print advertising is coordinated with product introductions.

Digital/Social Activation - Target and retarget prospective consumers through search engine optimization, search engine marketing, and social media campaigns.

Re-Body®

Re-Body® products are science-backed dietary supplements and foods that help consumers achieve their weight-loss goals and maintain a healthy weight. The Re-Body® brand is primarily sold through the direct to consumer channel and QVC, a home shopping network.

ResVitale®

The ResVitale® brand of dietary supplements is marketed and sold exclusively to GNC. Marketing strategies for the ResVitale® brand include two main initiatives: 1) introduce new users to our core categories – anti-aging and beauty from within – through product trial and 2) increase in-store education through brand ambassadors in strategic markets.

Twinlab® Brand Vitamins

Twinlab® is a heritage brand of vitamins that has been in the market for over 49 years and carries a great deal of brand awareness amongst health and natural food consumers. Since Twinlab® is a distributed brand (shipping to certain major retailers, but also to nationwide distributors who resell to smaller retailers), we deliver training to distributor sales teams and participate in distributor and retailer shows designed to reach retailers and store managers.

Marketing strategies for Twinlab® include two main initiatives: 1) awareness and trial of key existing products and 2) awareness, trial and education for new products.

Marketing and promotional efforts for Twinlab® focus on both trade and consumer tactics:

Retailer Promotions – In-store promotional programs can drive consumer awareness when they are making purchase decisions. Manufacturer charge-backs, which deduct the cost of these programs from retailer product purchases, are created for retailers to support product features and promotions throughout the year. These programs are designed to incentivize the retailer to display products in secondary placement (multiple store locations) and often provide a discount to create excitement and deliver incremental savings in order to drive consumer purchases.

Coupons – Coupons are incorporated into different communication vehicles when appropriate to drive product trial use and create excitement.

Trade Shows – Retailer relations and new product launches are the main areas of focus during trade shows. Display and promotion of products at several industry trade shows annually is a key component of support for Twinlab®.

Twinlab® Fuel

Marketing and promotional efforts for Twinlab® Fuel focus on consumer tactics:

Promotions - Promotional activity, including branded gear, helps keep consumers interested in the brand dynamic.

International Marketing - Internationally, we partner with our top distributors who follow a similar strategy at a local level, helping to create awareness, interest and drive sales. 

Social Media - Instagram and Facebook are mainstays for our digital strategy, with exploration into new “Live” options offered by each platform, allowing us to deepen our connection with our consumers. 

Alvita® Teas

Started in 1922, Alvita® Teas is an herbal therapeutic tea line with a rich history and loyal customer base. The herb alfalfa, long known for its beneficial nutrients, was packaged in tea bags and sold to an emerging health food market. This product became known as Alvita®. Over 90 years later, Alvita® has become the oldest herbal tea brand. Today, Alvita® has more than 40 single ingredient high potency teas, each with distinct health benefits. Each tea is committed to third party certifications and offers the purity standards of Organic, Gluten-free, non-GMO, caffeine free and Kosher certifications.  

Marketing tactics for Alvita® include retailer promotions, coupons and trade show participation.

NutraScience Labs, Inc.

NutraScience helps dietary supplement companies bring high-quality formulations to the market by delivering best-in-class, turnkey manufacturing, packaging design, and fulfillment services “under one roof”. Marketing activities for NutraScience Labs focuses on acquiring new customers through digital marketing and trade media.  

Research and Development; Quality Control

We have a commitment to research and development (“R&D”) and to introducing innovative products to correspond with consumer trends and scientific research. We believe that product quality and innovation are fundamental to our long-term growth and success. Through our R&D efforts, we seek to (i) test the safety, purity and potency of products, (ii) develop testing methods for ensuring and verifying the consistency of the dosage of ingredients included in our products, (iii) develop new, more effective product delivery forms and (iv) develop new products either by combining existing ingredients used in nutritional supplements or identifying new ingredients that can be used in nutritional supplements. Our efforts are designed to lead not only to the development of new and improved products, but also to ensure effective manufacturing quality control measures.

We conduct R&D in our own facilities and also work with outside firms to perform testing and other aspects of R&D. We currently employ various professionals in R&D and quality control with expertise in, among other things, chemistry, microbiology and engineering. In addition, we retain the services of outside laboratories to validate our product standards and manufacturing protocols.

Our quality control and safety programs seek to ensure the safety and superior quality of our products and that they are manufactured in accordance with current Good Manufacturing Practices (“cGMPs”). We have always had a focus on safety, quality, efficacy and compliance with law. Our processing methods are monitored closely to ensure that only quality ingredients are used and to ensure product purity.

Significant Customers

Sales to our top three customers aggregated to approximately 27% and 23% of total consolidated sales in 2016 and 2015, respectively. Sales to one of those customers were approximately 12% and 15% of total sales in 2016 and 2015, respectively. Accounts receivable from these customers were approximately 29% and 24% of total accounts receivable as of December 31, 2016 and 2015, respectively. Our strategy remains to diversify our offerings and channels so as to lessen dependence upon any one customer or customers.

Manufacturing

Our manufacturing process generally consists of the following operations: (i) sourcing ingredients for products, (ii) warehousing raw ingredients, (iii) measuring ingredients for inclusion in products, (iv) blending, grinding, and chilsonating ingredients into a mixture with a homogeneous consistency and (v) encapsulating, tableting, pouring, pouching, bagging or boxing the blended mixture into the appropriate dosage form using either automatic or semiautomatic equipment. The next step, bottling and packaging, involves placing the product in packaging with appropriate tamper-evident features and sending the packaged product to a distribution point for delivery to retailers. We place special emphasis on quality control, including raw material verification, homogeneity testing, weight deviation measurements and quality sampling. See "Research and Development; Quality Control."

We also have numerous contract manufacturers geographically spread across the country. These contract manufacturers include softgel manufacturers, liquid manufacturers and other specialty manufacturers as and when needed. These contract manufacturers do business with us under both short and long term contracts depending on our needs. We do not manufacture any of the basic materials used in packaging (bottles, boxes, shipping cartons, caps, tamper resistant films, etc.). We believe that our manufacturing capabilities, coupled with our contract manufacturer partners, provides us with competitive advantages.

Materials and Suppliers

Government Regulation

The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by a number of federal agencies, including the Food and Drug Administration ("FDA"), the Federal Trade Commission ("FTC"), the Consumer Product Safety Commission ("CPSC"), the United States Department of Agriculture (“USDA”), Department of Labor Occupational Safety and Health Agency (“OSHA”), Department of Homeland Security Customs and Boarder Protection (“CBP”), Department of Transportation (“DOT”), and the Environmental Protection Agency (“EPA”), by various governmental agencies for the states and localities in which our products are sold, and by governmental agencies in countries outside the United States in which our products are sold.

The FDA regulates the formulation, manufacturing, packaging, labeling, distribution and sale of food, including dietary supplements, cosmetics, and over-the-counter ("OTC") drugs. The FTC regulates the advertising of these products. Federal agencies, primarily the FDA and the FTC, have a variety of procedures and enforcement remedies available to them, including initiating investigations, issuing warning letters and cease-and-desist orders, requiring corrective labeling or advertising, requiring consumer redress, seeking injunctive relief or product seizures, imposing civil penalties or commencing criminal prosecution. In addition, certain state agencies have similar authority.  

The Dietary Supplement Health and Education Act (“DSHEA”) was enacted in 1994, amending the Federal Food, Drug, and Cosmetic Act (“FDCA”). Dietary ingredients marketed in the United States before October 15, 1994 may be marketed without the submission of a "new dietary ingredient" premarket notification to the FDA. New dietary ingredients, with exception, not marketed in the United States before October 15, 1994, are required to be submitted to the FDA at least seventy-five days before marketing. Among other things, DSHEA prevents the FDA from regulating dietary ingredients in dietary supplements as "food additives" and allows the use of statements of structure function claims on product labels and in labeling, so long as those statements do not constitute disease claims and are truthful and sufficiently substantiated. Some of our products are also regulated as conventional foods under the Nutrition Labeling and Education Act of 1990 (“NLEA”).

The FDA issued a Final Rule on GMPs (Good Manufacturing Practices) for dietary supplements in June 2007. The GMPs cover manufacturers, packagers, labelers, distributors, and holders of finished dietary supplement products, including dietary supplement products manufactured outside the United States that are imported for sale into the United States. Among other things, these GMPs require identity testing on all incoming dietary ingredients, call for a "scientifically valid system" for ensuring finished products meet all specifications, include requirements related to process controls such as statistical sampling of finished batches for testing and requirements for written procedures and require extensive recordkeeping.

The Dietary Supplement and Nonprescription Drug Consumer Protection Act went into effect in December 2007. The law requires, among other things, that companies that manufacture or distribute nonprescription drugs or dietary supplements report serious adverse events allegedly associated with their products to the FDA and institute recordkeeping requirements for all adverse events (serious and non-serious).

The Consumer Product Safety Improvement Act of 2008 ("CPSIA") primarily addresses children's product safety but also improves the administrative process of the CPSC. Among other things, the CPSC/CPSIA impact on dietary supplements is principally in requirements for use of child resistant closures, performance validation of such closures, and requirements for packaging and labeling of iron-containing products. The CPSIA also requires testing and certification of certain products and enhances the CPSC's authority to order recalls. 

The FDA Food Safety Modernization Act ("FSMA"), enacted in January 2011, amended the FDCA to significantly enhance the FDA's authority over various aspects of food regulation. The FSMA granted the FDA mandatory recall authority when the FDA determines there is a reasonable probability that a food is adulterated or misbranded and that the use of, or exposure to, the food will cause serious adverse health consequences or death to humans or animals. Other changes include, but are not limited to, the FDA's expanded access to records; the authority to suspend food facility registrations and require high risk imported food to be accompanied by a certification; stronger authority to administratively detain food; the authority to refuse admission of an imported food if it is from a foreign establishment to which a U.S. inspector is refused entry for an inspection; and the requirement that importers verify that the foods they import meet domestic standards.

Although dietary supplement facilities are exempt from preventive controls requirements, dietary ingredient facilities might not qualify for the exemption. FDA's proposed preventative controls regulations would require that facilities develop and implement preventive controls to assure that identified hazards are significantly minimized or prevented, monitor the effectiveness of the preventive controls, and maintain numerous records related to those controls. 

California Proposition 65 (“Prop 65”) is particularly impactful and imposing among state regulations. Its impact on product formulations, testing, and labeling are extensive and significant. Because of national brand distribution, the impact of Prop 65 is far reaching. TCC has several Prop 65 consent agreements which afford compliance protections.  

The sale of our products in countries outside the United States is regulated by the governments of those countries. Our plans to commence or expand sales in those countries may be prevented or delayed or even suspended by such regulations or regulators in those countries. In countries in which we have distributors, compliance with such regulations is generally undertaken by our distributors, but even in these cases we often cooperate by providing information to distributors. In the case of Canada, TCC complies with Health Canada’s Natural Health Products Directorate (“NHPD”) with “site licensing” of the TCC manufacturing plant and registration of products.

Competition

Health and Natural Foods

The Natural Products Market and the VMS Market are highly competitive. Our principal competitors in the VMS market that sell to the health and natural foods channel include a number of large, nationally-known brands (such as Bluebonnet, Country Life, Enzymatic Therapy, Garden of Life, Jarrow Formulas, Natural Factors, Nature's Plus, Nature's Way, Nordic Naturals, Now Foods, New Chapter and Solgar) and many smaller brands, manufacturers and distributors of nutritional supplements. Because both the health and natural foods market and the VMS Market generally have low barriers to entry, additional competitors enter the market regularly.

Private label products of our customers also provide competition to our products. Whole Foods Market, The Vitamin Shoppe, Sprouts Farmers Market, Natural Grocers and many health and natural food stores also sell a portion of their offerings under their own private labels. Private label products are often sold at a discount to branded products.

We believe that stores in the HNF channel are increasingly likely to align themselves with those companies that offer a wide variety of high-quality products, have a loyal consumer base, support their brands with strong marketing and education programs and provide consistently high levels of customer service. We believe that we compete favorably with other nutritional supplement companies because of our comprehensive line of products and brands, premium brand names, commitment to quality, ability to rapidly introduce innovative products, competitive pricing, strong and effective sales force, distribution strategy and sophisticated marketing and promotional support. The wide variety and diversity of the forms, potencies and categories of our products are important points of differentiation between us and many of our competitors.

Mass Market  

Metabolife® is our primary focus in the Mass Market retail channel. It is possible that as an increasing numbers of companies (or brands) sell nutritional supplement products and other natural products in the mass market channels, such as Pharmavite (Nature Made), The Carlyle Group (Nature's Bounty), Reckitt Benckiser Group (Schiff), Hain Celestial and Church & Dwight, our mass market brands will be negatively impacted. In addition, several major pharmaceutical companies continue to offer nutritional supplement lines in the mass market channel, including Pfizer (Centrum) and Bayer (One-A-Day).

Performance

Intellectual Property

We protect our legal rights concerning our intellectual property by appropriate legal action. We rely on common law trademark rights to protect our unregistered trademarks. Common law trademark rights do not provide us with the same level of protection as afforded by a United States federal registration of a trademark. In addition, common law trademark rights are limited to the geographic area in which the trademark is actually used. We have registered and intend to register certain trademarks in certain limited jurisdictions outside the United States where our products are sold, but we may not register all or even some of our trademarks in every country in which we conduct business or intend to conduct business.

We sell a number of products that include patented ingredients. We purchase these ingredients from parties that we believe have the right to manufacture and sell those ingredients to us. However, there are a large number of patents that have been granted or applied for in the dietary supplement industry, and there may be an increased possibility that third parties will seek to compel us and our competitors to purchase their patented ingredients or file infringement actions. The cost of these patented ingredients is typically higher than the cost of non-patented ingredients.

Employees 

As of March 31, 2017, we had 226 full-time employees and 3 part-time employees. None of our employees is represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.

Item 1A. Risk Factors

Our business, financial condition, results of operations, cash flows, prospects, and the prevailing market price and performance of our common stock may be adversely affected by a number of factors, including the matters discussed below. Certain statements and information set forth in this Annual Report on Form 10-K, including without limitation statements regarding our strategic initiatives and expectations for the future performance of our business, as well as other written or oral statements made from time to time by us, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact, including statements that describe our objectives, plans, or goals, are, or may be deemed to be, forward-looking statements. Known and unknown risks, uncertainties, and other factors may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these statements. The risks, uncertainties, and other factors that our stockholders and prospective investors should consider include the following:

Regulatory, Product Liability and Insurance Risks

Our products are subject to government regulation, both in the United States and abroad, which could increase our costs significantly and limit or prevent the sale of our products.

The manufacture, packaging, labeling, advertising, promotion, distribution and sale of our products are subject to regulation by numerous national and local governmental agencies in the United States and other countries. The primary regulatory bodies in the United States are the FDA and FTC, and we are also subject to similar regulatory bodies in all the countries in which we do business. Failure to comply with regulatory requirements may result in various types of penalties or fines. These include injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. Individual U.S. states also regulate nutritional supplements. A state may seek to interpret claims or products presumptively valid under federal law as illegal under that state's regulations. For example, in February 2015, the New York Attorney General issued cease and desist letters to several national retailers regarding certain herbal supplements and since that time both the New York Attorney General and other states Attorneys General have engaged in inquiries regarding the manufacture and sale of various supplements, and pursuant to such inquiries could seek to take actions against industry participants or amend applicable regulations in their State. In markets outside the United States, we are usually required to obtain approvals, licenses, or certifications from a country's ministry of health or comparable agency, as well as labeling and packaging regulations, all of which vary from country to country.

Approvals or licensing may be conditioned on reformulation of products or may be unavailable with respect to certain products or product ingredients. Any of these government agencies, as well as legislative bodies, can change existing regulations, or impose new ones, or could take aggressive measures, causing or contributing to a variety of negative consequences, including:

Any or all of these requirements could have a material adverse effect on us. There can be no assurance that the regulatory environment in which we operate will not change or that such regulatory environment, or any specific action taken against us, will not result in a material adverse effect on us.

If we experience regulatory investigations or product recalls, we may incur significant and unexpected costs, and our business reputation could be adversely affected.

We may be exposed to regulatory investigations or product recalls and adverse public relations if our products are alleged to cause injury or illness, or if we are alleged to have violated governmental regulations. A regulatory investigation or product recall could result in substantial and unexpected expenditures, which would reduce operating profit and cash flow. In addition, a regulatory investigation or product recall may require significant management attention. Regulatory investigations and product recalls may hurt the value of our brands and lead to decreased demand for our products. Regulatory investigations or product recalls also may lead to increased scrutiny by federal, state or international regulatory agencies of our operations and increased litigation and could have a material adverse effect on our business, results of operations, financial condition and cash flows. Regulatory investigations or product recalls could also result in our incurring substantial costs, losing revenues and implementing a change in the design, manufacturing process or the indications for which our products may be used, each of which could harm our business.

We may experience product liability claims and litigation to prosecute such claims, and although we maintain product liability insurance, which we believe to be adequate for our needs, there can be no assurance that our insurance coverage will be adequate or that we will be able to obtain adequate insurance coverage in the future. In addition, we may be subject to consumer fraud claims, including consumer class action claims regarding product labeling and advertising, and litigation to prosecute such claims; these claims are generally not covered by insurance.

As a manufacturer and a distributor of products for human consumption, we experience from time to time product liability claims and litigation to prosecute such claims. Additionally, the manufacture and sale of these products involves the risk of injury to consumers as a result of tampering by unauthorized third parties or product contamination. We carry insurance coverage in the types and amounts that we consider reasonably adequate to cover the risks we face from product liability claims. If insurance coverage is inadequate or unavailable or premium costs continue to rise, we may face additional claims not covered by insurance, and claims that exceed coverage limits or that are not covered could have a material adverse effect on us. Moreover, liability claims arising from a serious adverse event may in addition to increasing our costs through higher insurance premiums and deductibles, may make it more difficult to secure adequate insurance coverage in the future. In addition, consumer fraud claims, including consumer class action claims regarding product labeling and advertising, are increasingly common as to food and dietary supplement products. Because insurance is generally not available for such claims, these could have a material adverse effect on us. A product liability claim, regardless of its merit or ultimate outcome, could result in:

We may be required to indemnify our contract manufacturing customers, the payment of which could have a material adverse effect on our business, financial condition and operating results.

We provide certain rights of indemnification to our contract manufacturing customers, one of whom has tendered to us the defense and indemnification of approximately forty putative class actions alleging primarily that two products failed to contain sufficient active ingredients to meet label claims. We have accepted such tenders subject to a reservation of various rights. We intend to vigorously defend these cases, but any litigation involves risk and is inherently unpredictable. If any plaintiff is successful in certifying a class and thereafter prevailing on the merits of their complaint, such an adverse result could have a material adverse effect on us. In addition, due to the nature and scope of the indemnity and defense we will likely need to provide, the legal fees associated with such indemnification could be significant enough to have a material adverse effect on our cash flows until such matters are fully and finally resolved.

We may experience Lanham Act claims by competitors, and litigation to prosecute such claims.

The Lanham Act empowers competitors to file suit regarding any promotional statements that the competitor believes to be false or misleading. If a competitor prevails, it could obtain monetary damages (including potentially treble damages and attorneys' fees). A court can also order corrective advertising, or even a product recall if the offending claims are found on the product's packaging and labeling. If we experience a Lanham Act claim filed against us, this could have a material adverse effect on us and on our products' reputation.

Market and Channel Risks

Our success is linked to the size and growth rate of the vitamin, mineral and supplement market and an adverse change in the size or growth rate of that market could have a material adverse effect on us.

An adverse change in size or growth rate of the vitamin, mineral and supplement market could have a material adverse effect on us. Underlying market conditions are subject to change based on economic conditions, consumer preferences and other factors that are beyond our control, including media attention and scientific research, which may be positive or negative.

Because a substantial portion of our sales are to or through health food stores, we are dependent to a large degree upon the success of this channel as well as the success of specific retailers in the channel.

We sell primarily in the United States and, in this market, a significant portion of our sales are through health food stores. Because of this, we are dependent to a large degree upon the success of that channel as well as the success of specific retailers in the channel. There are some large chains of health food stores, such as Whole Foods Market and The Vitamin Shoppe, but many health food stores are individual stores or very small chains. We rely on these health food stores to purchase, market, and sell our products. A fair portion of our success is dependent, to a large degree, on the growth and success of the health and natural foods channel, which is outside our control. There can be no assurance that the health and natural foods channel will be able to grow or prosper as it faces price and service pressure from other channels, including the mass market. There can be no assurance that retailers in the health and natural foods channel, in the aggregate, will respond or continue to respond to our stated loyalty to this channel.

We are highly dependent upon consumers' perception of the safety and quality of our products as well as similar products distributed by other companies in our industry, and adverse publicity and negative public perception regarding particular ingredients or products or our industry in general could limit our ability to increase revenue and grow our business.

Decisions about purchasing made by consumers of our products may be affected by adverse publicity or negative public perception regarding particular ingredients or products or our industry in general. This negative public perception may include publicity regarding the legality or quality of particular ingredients or products in general or of other companies or our products or ingredients specifically. Negative public perception may also arise from regulatory investigations, regardless of whether those investigations involve us. We are highly dependent upon consumers' perception of the safety and quality of our products as well as similar products distributed by other companies. Thus, the mere publication of reports asserting that such products may be harmful could have a material adverse effect on us, regardless of whether these reports are scientifically supported. Publicity related to nutritional supplements may also result in increased regulatory scrutiny of our industry and/or the healthy foods industry. Adverse publicity may have a material adverse effect on our business, financial condition and results of operations. There can be no assurance of future favorable scientific results and media attention or of the absence of unfavorable or inconsistent findings. 

We face intense competition from competitors that are larger, more established and that possess greater resources than we do, and if we are unable to compete effectively, we may be unable to maintain sufficient market share to sustain profitability.

Numerous manufacturers and retailers compete actively for consumers. There can be no assurance that we will be able to compete in this intensely competitive environment. In addition, nutritional supplements can be purchased in a wide variety of channels of distribution. These channels include mass market retail stores and the Internet. Because these markets generally have low barriers to entry, additional competitors could enter the market at any time. Private label products of our customers also provide competition to our products. Additional national or international companies may seek in the future to enter or to increase their presence in the healthy foods industry or the vitamin, mineral and supplement market. Increased competition in either or both could have a material adverse effect on us. 

The nutritional supplement industry increasingly relies on intellectual property rights and although we seek to ensure that we do not infringe the intellectual property rights of others, there can be no assurance that third parties will not assert intellectual property infringement claims against us, which claims may result in substantial costs and diversion of management and other resources and could have a material adverse effect on our business, financial condition and operating results. Our inability to acquire, protect or maintain our intellectual property could harm our ability to compete or grow.

Recently it has become more and more common for suppliers and competitors to apply for patents or develop proprietary technologies and processes. We seek to ensure that we do not infringe the intellectual property rights of others, but there can be no assurance that third parties will not assert intellectual property infringement claims against us. These developments could prevent us from offering or supplying competitive products or ingredients in the marketplace. They could also result in litigation or threatened litigation against us related to alleged or actual infringement of third-party rights. If an infringement claim is asserted or litigation is pursued, we may be required to obtain a license of rights, pay royalties on a retrospective or prospective basis or terminate our manufacturing and marketing of our products that are alleged to have infringed. Litigation with respect to such matters could result in substantial costs and diversion of management and other resources and could have a material adverse effect on our business, financial condition and results of operations. We have numerous United States and foreign trademarks and service marks. There can be no assurance that the protection afforded by these trademarks and service marks will provide us with a competitive advantage or that we will be able to assert our intellectual property rights in infringement actions.

We may be affected adversely by increased utility and fuel costs.

Increasing fuel costs may affect our results of operations adversely in that consumer traffic to health and natural food stores may be reduced and the costs of our sales may increase as we incur fuel costs in connection with our manufacturing operations and the transportation of goods from our warehouse and distribution facilities to health and natural food stores. Also, high oil costs can affect the cost of our raw materials and components and the competitive environment in which we operate may limit our ability to recover higher costs resulting from rising fuel prices.

Adverse economic conditions may harm our business.

Inflation or other changes in economic conditions that affect demand for nutritional supplements could adversely affect our revenue. Uncertainty about current global economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit markets, negative financial news and/or declines in income or asset values, each of which could have a material negative effect on the demand for our products. Other factors that could influence demand include conditions in the residential real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and results of operations.

Business Strategy and Operational Risks

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

Key management employees of the company and its subsidiaries include Naomi L. Whittel as the Chief Executive Officer, Alan S. Gever, Chief Financial Officer and Chief Operating Officer, Mary L. Marbach, Chief Legal Officer and Secretary and Gregory T. Grochoski as Executive Vice President and Chief Science Officer. These key management employees are primarily responsible for our day-to-day operations, and we believe our success depends in part on our ability to retain them and to continue to attract additional qualified individuals to our management team. The loss or limitation of the services of any of our key management employees or the inability to attract additional qualified management personnel could have a material adverse effect on our business, financial condition and results of operations.

As a part of our business strategy, we have made and may make acquisitions in the future that could disrupt our operations and harm our operating results.

An element of our strategy includes expanding our product offerings, gaining shelf-space and gaining access to new skills and other resources through strategic acquisitions when attractive opportunities arise. Acquiring additional businesses and the implementation of other elements of our business strategy are subject to various risks and uncertainties. Some of these factors are within our control and some are outside our control. These risks and uncertainties include, but are not limited to, the following:

There can be no assurance that attractive acquisition opportunities will be available to us, that we will be able to obtain financing (on acceptable terms or at all) for or otherwise consummate any future acquisitions, including those described below, or that any acquisitions which are consummated will prove to be successful. There can be no assurance that we can successfully execute all aspects of our business strategy.

Because we depend on outside suppliers with whom we may not have long-term agreements for raw materials, we may be unable to obtain adequate supplies of raw materials for our products at favorable prices or at all, which could result in product shortages and back orders for our products, with a resulting loss of net sales and profitability.

We acquire all of our raw materials for the manufacture of our products from third-party suppliers. We also rely on third-party co-packers for some of our products. We have selective agreements for the continued supply of these materials and products. A number of our products contain one or more ingredients that may only be available from a single source or supplier. Any of our suppliers could discontinue selling to us at any time. In certain situations, we may be required to alter our products or substitute different materials from different alternative sources. Our suppliers or government regulators may interpret new regulations (including cGMP regulations) in such a way as to cause a disruption in our supply chain as these parties undertake increased scrutiny of raw materials and components of raw materials and products, causing certain suppliers or us to discontinue, change or suspend the sale of certain ingredients or components. Although we believe that we could establish alternate sources for most of these materials, any delay in locating and establishing relationships with other sources could result in product shortages and back orders for the products, with a resulting loss of net sales and profitability. We are also subject to delays associated with raw materials. These can be caused by conditions not within our control, including:

These factors could result in a delay in or disruption of the supply of certain raw materials. Any significant delay in or disruption of the supply of raw materials could have a material adverse effect upon us. 

Because we manufacture a significant percentage of our products, we are dependent upon the uninterrupted and efficient operation of our single manufacturing facility, which may experience power failures, the breakdown, failure or substandard performance of equipment, the improper installation or operation of equipment, natural or other disasters and the need to comply with the requirements or directives of government agencies, including the FDA.

We are dependent upon the uninterrupted and efficient operation of our manufacturing facility in American Fork, Utah. Those operations may experience power failures, the breakdown, failure or substandard performance of equipment, the improper installation or operation of equipment, natural or other disasters and the need to comply with the requirements or directives of government agencies, including the FDA. There can be no assurance that the occurrence of these or any other operational problems at our facility would not have a material adverse effect on our business, financial condition and results of operations.

We may become a party to lawsuits that arise in the ordinary course of business in the future.

We may become a party to lawsuits that arise in the ordinary course of business in the future. The possibility of such litigation, and its timing, is in large part outside our control. It is possible that future litigation could arise that could have material adverse effects on us.

If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.

Under generally accepted accounting principles, we review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. Factors that may indicate that the carrying value of our goodwill or intangible assets may not be recoverable include a decline in stock price and market capitalization, reduced future cash flow estimates and slower growth rates in our industry. Our results of operations may be materially impacted if we are required to record a significant charge due to an impairment of our goodwill or intangible assets. 

We may need additional capital in the future to finance our operations and to execute our business strategy, which we may not be able to raise or it may only be available on terms unfavorable to us and or our stockholders. This may result in our inability to fund our working capital requirements and harm our operational results.

Our current cash on hand is insufficient to fund our operations. We believe that cash flows from operations and other committed sources of additional liquidity will be sufficient to fund our operations in the ordinary course of business through fiscal 2017. However, if we experience extraordinary expenses or other events beyond our control, we will need to raise additional funds to continue our operations.

Additional financing might not be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our business or otherwise respond to competitive pressures would be significantly limited.

Changes in accounting standards, especially those that relate to management estimates and assumptions, are unpredictable and may materially impact how we report and record our financial condition.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the value of our assets or liabilities and financial results and are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain. From time to time the Financial Accounting Standards Board ("FASB") and the Securities and Exchange Commission (the "SEC") change the financial accounting and reporting standards that govern the preparation of our financial statements. In addition, accounting standard setters and those who interpret the accounting standards (such as the FASB, the SEC, banking regulators and our outside auditors) may change or even reverse their previous interpretations or positions on how these standards should be applied. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements.

We are an "emerging growth company" under the JOBS Act of 2012, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"), and we take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We have elected to adopt these reduced disclosure requirements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.

We will remain an "emerging growth company" for up to five years, although we will lose that status sooner if our revenues exceed $1,000,000, if we issue more than $1,000,000 in non-convertible debt in a three-year period, or if the market value of our common stock that is held by non-affiliates exceeds $700,000 and as a result we become a large accelerated filer.

Because of our history of accumulated deficits, recurring losses and negative cash flows from operating activities, we must improve profitability and may be required to obtain additional funding if we are to continue as a "going concern."

We incurred negative cash flows from operating activities and recurring net operating losses in fiscal year 2016.  We had negative working capital at the end of fiscal 2016 and 2015.  As of December 31, 2016 and 2015, our accumulated deficit was $224,472 and $223,788, respectively.  These factors raise substantial doubt about our ability to continue as a going concern. The financial statements included with this report do not include any adjustments that might result from the outcome of this uncertainty.  In order for us to remove substantial doubt about our ability to continue as a going concern, we must achieve profitability, generate positive cash flows from operating activities and obtain necessary debt or equity funding.  

Our financial statements have been prepared on the assumption that we will continue as a going concern.  Our independent registered public accounting firm has issued its report dated March 31, 2017, which includes an explanatory paragraph stating that our recurring losses, among other things, raise substantial doubt about our ability to continue as a going concern.  It has been necessary to rely upon debt and the sale of our equity securities to sustain operations.  Our management anticipates that we may require additional capital over the next 12 months to fund ongoing operations.  There can be no guarantee that we will be able to obtain such funds, or obtain them on satisfactory terms, and that such funds would be sufficient.   

Risks Relating to Our Common Stock

Our common stock currently has very limited trading volume and holders of our securities may not be able to sell quickly any significant number of shares.

Our common stock is quoted on the OTCPK. There has been very limited trading volume of our common stock. Because of this, holders of our securities may not be able to sell quickly any significant number of such shares, and any attempted sale of a large number of our shares will likely have a material adverse impact on the price of our common stock. When a limited number of shares begin trading, the price per share is subject to volatility and may be subject to rapid price swings in the future.

Because the trading price of our common stock is below $5.00 per share it is deemed a low-priced "Penny" stock and an investment in our common stock should be considered high risk and subject to marketability restrictions.

Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. Since the trading price of the common stock is below $5.00 per share, trading in the common stock will be subject to the penny stock rules of the Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:

Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.

We have the ability to issue additional shares of our common stock and shares of preferred stock without asking for stockholder approval, which could cause your investment to be diluted.

Our Articles of Incorporation authorize the Board of Directors to issue up to 5,000,000,000 shares of common stock and 500,000,000 shares of preferred stock. The power of the Board of Directors to issue shares of common stock, preferred stock or warrants or options to purchase shares of common stock or preferred stock is generally not subject to stockholder approval. Shares of preferred stock could be given voting rights, dividend rights, liquidation rights or other similar rights superior to those of our shares of common stock. Additionally, any additional issuance of our common stock, or preferred stock that may be convertible into common stock, may have the effect of diluting your investment.

FINRA sales practice requirements may also limit a stockholder's ability to buy and sell our stock.

In addition to the "penny stock" rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares. 

Our internal controls are inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. 

In the prior year, we identified material weakness in our system of internal control over financial reporting disclosure controls and procedures primarily as a result of insufficient time to document, validate and update the prior controls and procedures of the company that we adopted as a result of our reverse merger. The material weakness was due to our lack of documentation or testing and correction procedures of internal control procedures as the accounting staff of TCC had been solely focused on accounting work to be completed for a private company. Accordingly, we engaged an experienced certified public accountant as a consultant to assist us to assess and improve our controls and financials and engaged a Sarbanes-Oxley consultant in order to assess our timeline for full compliance. As a result of engaging the independent consultant, we have made significant progress in identifying the changes to our procedures and controls that are necessary to remediate the material weakness. However, recent turnover in the chief financial officer position has restricted our ability to implement the identified remedial measures. Accordingly, we currently continue to have material weakness in our system of internal control over financial reporting disclosure controls and procedures.

Concurrent with year-end reporting, under the supervision and with the participation of our management, including our chief executive officer, we conducted an evaluation of the effectiveness of the overall design of our system of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 (COSO). Under standards established by the Public Company Accounting Oversight Board of the United States, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

In performing this evaluation, management identified the following material weaknesses in the Company’s internal control over financial reporting:.

Information technology general controls (including access to programs and data, program changes, data backups) were not appropriately designed or followed.

There is a lack of segregation of duties in accounting functions.

There is a lack of documentation of proper review and approval.

Necessary adjustments and accruals were not recorded on a timely basis.

Deficient controls for calculating diluted earnings per share.

An excess of a majority of our outstanding voting securities are beneficially owned by two individuals, and these two individuals can elect all directors (except for one director that may be appointed by a lender pursuant to a loan agreement) who in turn elect all officers, without the votes of any other stockholders.

The Chairman of our Board of Directors and one other stockholder beneficially own 81.1% of our outstanding voting securities and, accordingly, have effective control of us and may have effective control of us for the near and long term future. Votes of other stockholders can have little effect when we are managed by our Board of Directors and operated through our officers, all of whom can be elected by two individuals.

We do not expect to pay dividends in the near future.

We do not expect to declare or pay any dividends on our common stock in the foreseeable future. The declaration and payment in the future of any cash or stock dividends on the common stock will be at the discretion of our Board of Directors and will depend upon a variety of factors, including our ability to service our outstanding indebtedness, if any, and to pay dividends on securities ranking senior to the common stock, our future earnings, if any, capital requirements, financial condition and such other factors as our Board of Directors may consider to be relevant from time to time. Our earnings, if any, are expected to be retained for use in expanding our business. 

Item 1B.        Unresolved Staff Comments.

Not Applicable.

Item 2.           Properties 

We occupy approximately 3,600 rentable square feet of office space in Grand Rapids, Michigan under a lease that expires in September 2017. We have possession of the 5^th and 6^th floor of an office building which is approximately 30,600 rentable square feet of office space in St. Petersburg, Florida under a lease that expires April 30, 2027. On December 1, 2016, we entered into a sublease for approximately 15,300 square feet on the 5^th floor. We occupy approximately 170,000 square feet of manufacturing, R&D, warehousing and shipping space, which includes roughly 30,000 square feet of office space, in American Fork, Utah under a lease that expires in February 2028. We occupy approximately 13,000 rentable square feet in Boca Raton, Florida under a lease that expires 103 months after the commencement date, which we expect will occur later this year. We occupy certain space at Nutricap's offices in Farmingdale, New York under a lease agreement that expires March 2021. We also own a water capture and bottling facility that has been discontinued in Peru, Indiana that is approximately 47,000 square feet. We believe that our facilities are sufficient to meet our current needs and that suitable additional space will be available as and when needed.

TCH Properties

Item 3.           Legal Proceedings

Dennis Frisco v. Organics Management, LLC d/b/a Reserveage, Reserve Life Organics, LLC d/b/a Reserveage, Wal-Staf Services, Inc., and Wal-Staf Temporary Services, Inc., Case No: 01-2014-CA-000308 Div. J, in the Circuit Court of the Eighth Judicial Circuit in and for Alachua County, Florida. The plaintiff in this matter was hired by our subsidiary, Organics Management, LLC, on a temporary basis through a third-party temporary staffing service to assist with the hiring of sales people during a limited period of particularly high sales growth. As that period of unusual growth waned and services for hiring sales people were no longer necessary for the needs of the business, Organics Management ended plaintiff’s temporary staffing engagement. Plaintiff alleges that Organics Management (or one of its affiliates) in fact intended to hire him on a full-time basis and that their failure to do so was based on age and gender discrimination. On February 27, 2017, we entered into a confidential settlement of this matter with the Plaintiff, which does not have a material adverse effect on our financial condition/results of operations or cash flows.

In re: Herbal Supplements Marketing and Sales Practice Litigation, MDL No. 2619, Case No. 1:15-cv-5070, U.S. District Court for the Northern District of Illinois. We are not a party to this matter, which joined in a multidistrict litigation a number of purported class actions arising from allegations raised by a state attorney general claiming that DNA barcoding testing conducted on behalf of the attorney general indicated that certain herbal supplement products did not contain the herbal ingredients stated on the label. We do, however, pursuant to contractual obligations provide indemnity and defense with respect to certain of the claims in this litigation. The defendants in this litigation intend to take all necessary steps to vigorously defend this matter.

Amy Mathews v. Wal-Mart Stores, Inc. and Wal-Mart Stores Arkansas LLC, Case No. CV-2015-0294, in the Circuit Court of Independence County, Arkansas, Civil Division. This purported class action alleges a violation of the Arkansas Deceptive Trade Practices Act based on the same allegations of the state attorney general that serve as the basis for the claims in the Herbal Supplements multidistrict litigation referenced above, and seeks certification of a class of Arkansas residents purportedly impacted by the allegations. We are not a party to this litigation but provide indemnity and defense with respect to certain of the claims in this litigation.

Item 4.           Mine Safety Disclosures.

Not Applicable.

PART II

Item 5.           Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock is traded in the OTC Markets PK (OTCPK), under the symbol "TLCC". We have been eligible to participate in the OTCPK since June 25, 2014 and from that time until the date of this Report our common stock has had only minimal trading.

Holders of Common Stock

As of March 31, 2017, there were approximately 348 stockholders of record of our common stock. This number does not include shares held by brokerage clearing houses, depositories or others in unregistered form.

Dividends

We have not declared or paid any cash dividends on our common stock during our two most recent fiscal years. Any decisions regarding dividends will be made by our Board of Directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our Board of Directors has complete discretion on whether to pay dividends. Even if our Board of Directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the Board of Directors may deem relevant.

Item 6.           Selected Financial Data.

We are a smaller reporting company as defined by Regulation S-K and, as such, we are not required to provide the information contained in this item pursuant to Regulation S-K. 

Item 7.           Management’s Discussion and Analysis of Financial Condition and Results of Operations.
                        (Amounts in thousands, except per share amounts.)

Overview

This Annual Report on Form 10-K 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-K 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 our forward-looking statements. We undertake 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 retailers, on-line retailers and websites. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers.

Our products include vitamins, minerals, specialty supplements and sports nutrition products primarily under the Twinlab® (including the Twinlab® Fuel brand of sports nutrition products), Reserveage™ and ResVitale® brands. We also manufacture and sell diet and energy products under the Metabolife® and Re-Body® brands and a full line of herbal teas under the Alvita® brand. To accommodate consumer preferences, our products come in various formulations and delivery forms, including capsules, tablets, softgels, chewables, liquids, sprays, powders and whole herbs. These products are sold primarily through health and natural food stores and national and regional drug store chains, supermarkets, and mass-market retailers.

We manufacture and/or distribute one of the broadest branded product lines in the industry with approximately 260 stock keeping units, or SKUs. We believe that as a result of our emphasis on innovation, quality, loyalty, education and customer service, our brands are widely recognized in health and natural food stores and among their customers. 

We focused significantly in 2016 on integrating our two 2015 acquisitions. The first was the acquisition of the customer relationships of Nutricap, a provider of dietary supplement contract manufacturing services, into our subsidiary, NutraScience, on February 6, 2015, and the second was the acquisition of 100% of the equity interests of Organic Holdings, a market leader in the healthy aging and beauty from within categories and owner of the award-winning Reserveage™ Nutrition brand. We believe that both of these acquisitions significantly strengthened our product offerings, contract manufacturing services and our sales and marketing capabilities, providing us with opportunities to improve our market position. Consequently, the results of our operations for the year ended December 31, 2016 generally will not be comparable to the results of our operations for the year ended December 31, 2015.

Nutricap Asset Acquisition

In September 2014, we entered into an option agreement that gave us an exclusive option to purchase certain assets of Nutricap, a provider of dietary supplement contract manufacturing services. Pursuant to the agreement, dated and effective as of February 4, 2015, the acquisition of Nutricap’s customer relationships was consummated on February 6, 2015 by NutraScience. The purchase price paid for the acquired assets totaled $12,328, comprised of (i) $6,126 in cash ($8,000 less certain downward adjustments), (ii) deposit of $350 paid in 2014; (iii) assumption of certain liabilities of $1,874; and (iv) promissory notes in an aggregate principal amount of $3,978.

Organic Holdings Acquisition 

In September 2014, we entered into an option agreement that gave us an exclusive option to purchase 100% of the outstanding equity interests of Organic Holdings, a marketer and distributor of nutritional products.  We paid $2,000 to acquire the option.  Effective August 13, 2015, TCC exercised the option and entered into a Unit Purchase Agreement, with the owners of the membership interests of Organic Holdings. The parties subsequently agreed to extend the closing date of the Purchase Agreement to October 5, 2015. On October 5, 2015, TCC closed the transactions contemplated by the Purchase Agreement and TCC acquired all of the equity interests of Organic Holdings for a total purchase price of $41,710.

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 our formation, we have operated at a loss. At December 31, 2016, we have an accumulated deficit of $224,472 and a total stockholders’ equity of $1,766. These losses were associated with start-up activities and brand and infrastructure development. Recently, losses are primarily attributable to lower than planned sales resulting from low fill rates on demand due to limitations of our working capital, delayed product introductions and postponed marketing activities, merger-related and other restructuring costs, and interest and refinancing charges associated with our debt refinancing. Losses have been funded primarily through issuance of common stock and related party and third-party debt.

Because of this history of operating losses, and significant interest expense on our debt, and the recording of significant derivative liabilities, we have a working capital deficiency of $4,050 at December 31, 2016. We also have significant debt due within the next 12 months. These continuing conditions, among others, 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; reducing manufacturing and operating costs and continuing to negotiate lower prices from major suppliers. As of December 31, 2016, we had cash of $5,097, which we believe is insufficient for current operations. As set forth more fully in Note 16 to our consolidated financial statements, we obtained debt funding totaling $3,267 subsequent to December 31, 2016 to fund current operations. However, we believe that we may need additional capital to execute our business plan. If additional funding is required, there can be no assurance that sources of funding will be available when needed on acceptable terms or at all.

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

Our critical accounting policies and estimates include the following:

Revenue Recognition

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

Accounts Receivable and Allowances

We grant credit to customers and generally do not require collateral or other security. We perform credit evaluations of our customers and provide for expected claims, related to promotional items; customer discounts; shipping shortages and damages; and doubtful accounts based upon historical bad debt and claims experience.

Inventories 

Inventories are stated at the standard cost 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.

Intangible Assets

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

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

Goodwill

Goodwill is not 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 income tax assets are recorded when we are unable to conclude that it is more likely than not that such deferred income tax assets will be realized.

Value of Warrants Issued with Debt

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

Share-Based Compensation

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

Derivative Liabilities

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

Results of Operations

Our consolidated financial statements include the accounts of TCH and its subsidiaries, with all intercompany transactions and balances eliminated in consolidation. Our consolidated financial statements for the years ended December 31, 2016 and 2015 include the operations of Nutricap from the acquisition date of February 6, 2015 and the operations of Organic Holdings from its acquisition date of October 5, 2015. Therefore, the results of our operations for the year ended December 31, 2016 generally will not be comparable to the results of our operations for the year ended December 31, 2015.

Net Sales

Our net sales increased $4,651, or 6%, to $86,323 for the year ended December 31, 2016 from $81,672 for the year ended December 31, 2015. The increases in our net sales reflect the acquisition of Organic Holdings on October 5, 2015 and the acquisition of the Nutricap customer relationships on February 6, 2015. Without the 2015 acquisitions, our net sales would have decreased for the year ended December 31, 2016 due in part to operating cash constraints and the decision to exit certain lower margin, private label contract manufacturing.

Gross Profit

Our gross profit increased $9,504, or 82%, to $21,093, for the year ended December 31, 2016 from $11,589 for the year ended December 31, 2015. The increases in our gross profit reflect the gross profit contributed by our 2015 acquisitions.

Selling, General and Administrative Expenses 

Our selling, general and administrative expenses increased $7,931, or 31%, to $33,452 for the year ended December 31, 2016 from $25,521 for the year ended December 31, 2015. The increases in our selling, general and administrative expenses reflect incremental expenses from our 2015 acquisitions. Without the 2015 acquisitions, our selling, general and administrative expenses would have remained relatively unchanged however $1,378 of total expense was due to our severance package related to office relocation and $1,244 was related to Employee Stock Compensation expense.

Loss on Stock Purchase Price Guarantee

On August 6, 2016, the 18-month anniversary of the closing of a share purchase agreement, we were required to pay the purchaser of the common stock the difference between $2.29 per share and either a defined market price or a price per share determined by a valuation firm acceptable to both parties. Based on an outside professional valuation performed on the Company’s common stock, we estimated the stock price guarantee payment to be $3,210. Accordingly, we recorded a loss on the stock purchase price guarantee of $3,210 during the year ended December 31, 2016 and a corresponding liability for the same amount as of December 31, 2016, which is included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets. As of the filing date of this Form 10-K, we have not yet paid the liability to the purchaser and we are negotiating with the purchaser on extending the payment date. We cannot provide any assurance that it will be successful in negotiating an extension of the payment date. If we are not successful, the purchaser may sue the company for breach of contract.

Interest Expense, Net

Our interest expense increased $1,847, or 26%, to $8,848 for the year ended December 31, 2016 from $7,001 for year ended December 31, 2015. The increase in interest expense is due primarily to interest on new debt incurred in 2015 to complete the Nutricap and Organic Holdings acquisitions and new debt incurred in 2016, including the amortization of related debt discounts.

Gain (Loss) on Change in Derivative Liabilities

The number of shares of common stock issuable pursuant to certain warrants issued in 2015 will be increased if our 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. We have recorded the estimated fair value of the warrants as of the date of issuance. Due to the variable terms of the warrant agreements, changes in the estimated fair value of the warrants from the date of issuance to each balance sheet reporting date are recorded as derivative liabilities with a corresponding charge to our consolidated statements of comprehensive income (loss). During the year ended December 31, 2016, we reported a gain on change in derivative liabilities of $24,661. During the year ended December 31, 2015, we reported a loss on change in derivative liabilities of $15,951.

Liquidity and Capital Resources

At December 31, 2016, we had an accumulated deficit of $224,472, primarily because of our history of operating losses and our recording of derivative liabilities and loss on stock purchase guarantee. We have a working capital deficiency of $4,050 at December 31, 2016. Losses have been funded primarily through issuance of common stock, borrowings from our stockholders and third-party debt and proceeds from the exercise of warrants. As of December 31, 2016, we had cash of $5,097. On an ongoing basis, we also seek to improve operating cash through trade receivables and payables management as well as inventory stocking levels. We used net cash in operating activities of $25,330 for the year ended December 31, 2016. During the year ended December 31, 2016, we incurred new debt of $29,270 and net increase in borrowings on our senior credit facility of $3,479 to fund our operations and debt repayment of $3,442. 

Our total liabilities increased by $4,589 to $91,060 at December 31, 2016 from $86,471 at December 31, 2015. This increase in our total liabilities was primarily due to a net increase of $33,194 in debt, principally due to new debt financings obtained during 2016 offset by a decrease in our non-cash derivative liabilities of $26,636 and liabilities related to operations of $5,016, partially offset by an increase of $3,210 in liability on stock purchase guarantee. For discussion of our debt financings completed to date during 2016, see Notes 8 and 9 in the Notes to Consolidated Financial Statements included in this Report.

Cash Flows from Operating, Investing and Financing Activities

Net cash used in operating activities was $25,330 for the year ended December 31, 2016 as a result of our net loss of $684, a non-cash gain on change in derivative liabilities of $24,661 as well as other net non-cash expenses totaling $11,076 and an increase in net operating assets and liabilities of $11,061. By comparison, for the year ended December 31, 2015, net cash used in operating activities was $1,959 as a result of our net loss of $36,410, a non-cash loss on change in derivative liabilities of $15,951, a non-cash gain on sale of intangible assets of $750 as well as other non-cash expenses of $6,869 and a net decrease in net operating assets and liabilities of $12,381. See Consolidated Statements of Cash Flows included in this Report for additional information.

Net cash used in investing activities for the year ended December 31, 2016 was $120, consisting of the purchase of property and equipment. Net cash used in investing activities for the year ended December 31, 2015 was $46,356, consisting of cash paid in the Nutricap acquisition of $45,692 and the purchase of property and equipment of $2,022, partially offset by proceeds from the sale of assets of $988 and cash provided by change in restricted cash of $370.

Net cash provided by financing activities was $29,307 for the year ended December 31, 2016, primarily consisting of proceeds from the issuance of debt of $29,270, net borrowings of $3,479 under our revolving credit facilities, partially offset by repayment of debt of $3,442. Net cash provided by financing activities was $49,118 for the year ended December 31, 2015, primarily consisting of proceeds from the exercise of warrants of $6,066, proceeds from the issuance of common stock of $40,497, proceeds from the issuance of debt of $8,499, a reduction in stock subscriptions receivable of $70 and a decrease in security deposits of $75, partially offset by repayment of debt of $5,148 and net repayments under our revolving credit facilities and payment of debt issuance costs of $941.

Ongoing Funding Requirements

Recent Accounting Pronouncements

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

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230)”, which clarifies the classification of certain cash receipts and payments in the statement of cash flows. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods. We do not expect the new guidance to have a significant impact on our consolidated financial statements or related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, “Stock Compensation (Topic 718)”, which is intended to simplify several aspects of the accounting for share-based payment award transactions, including the income tax impacts, the classification on the statement of cash flows, and forfeitures. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016, including interim periods. We have not yet determined the impact on our consolidated financial statements of the adoption of this new accounting pronouncement.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)”. The amendments in this ASU revise the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2018 and are to be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We have not yet determined the impact on our consolidated financial statements of the adoption of this new accounting pronouncement.

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

In May 2014, August 2015 and May 2016, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers, ASU 2015-14 Revenue from Contracts with Customers, Deferral of the Effective Date, and ASU 2016-12 Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, respectively, which implement ASC Topic 606. ASC Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance under US GAAP, including industry-specific guidance. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in these ASUs are effective for annual periods beginning after December 15, 2017, and interim periods therein, which will be effective for the Company for the year ending December 31, 2018. Early adoption is permitted for annual periods beginning after December 15, 2016. These ASUs may be applied retrospectively to all prior periods presented, or retrospectively with a cumulative adjustment to retained earnings in the year of adoption. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.

Material Contractual Obligations

On December 15, 2016, we entered into an operating lease agreement for approximately 13,000 square feet of office space in Boca Raton, Florida. The agreement expires 103 months after the commencement, which is expected to occur later this year, and has a monthly base rent of $17.

As of December 31, 2016, we have total debt of $62,619, of which $44,096 is considered to be related-party debt. For discussion of our debt financings, see Notes 8 and 9 in the Notes to Consolidated Financial Statements included in this Report.

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

Effective April 7, 2015, we entered into an operating lease agreement for approximately 31,000 square feet of office space in St. Petersburg, Florida. The agreement expires in April 2027 and has a monthly base rent of $59 for year 1 to $76 for year 12.

Off-Balance Sheet Arrangements

None.

Item 7A.        Quantitative and Qualitative Disclosures About Market Risk.

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

Item 8.           Financial Statements and Supplementary Data.

The report of the independent registered public accounting firm and consolidated financial statements listed in the accompanying index is filed as part of this Report. See "Index to Consolidated Financial Statements" on page F-1.

Item 9.           Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.        Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2016 pursuant to Rule 13a-15(b) under the Exchange Act. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. 

Based on the evaluation of our disclosure controls and procedures as of December 31, 2016, our management concluded that, as a result of material weaknesses in our internal control over financial reporting discussed below, our disclosure controls and procedures were not effective as of December 31, 2016. 

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.

Concurrent with year-end reporting, under the supervision and with the participation of our management, including our chief executive officer, we conducted an evaluation of the effectiveness of the overall design of our system of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 (COSO). Under standards established by the Public Company Accounting Oversight Board of the United States, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. 

In performing this evaluation, management identified the following material weaknesses in the Company’s internal control over financial reporting:.

Information technology general controls (including access to programs and data, program changes, data backups) were not appropriately designed or followed.

There is a lack of segregation of duties in accounting functions.

There is a lack of documentation of proper review and approval.

Necessary adjustments and accruals were not recorded on a timely basis.

Deficient controls for calculating diluted earnings per share 

Because of the material weaknesses described in the preceding paragraph, management concluded that, as of December 31, 2016, the Company’s internal control over financial reporting was not effective due to the deficiencies identified. However, management believes that the identified weaknesses have not affected our ability to present financial statements in accordance with U.S. generally accepted accounting principles (“US GAAP”) in this Form 10-K. During the year end financial statement close, we believe we were able to recognize and adjust our financial records to properly present our financial statements in accordance with US GAAP.. Management does not believe that our weakness with respect to our procedures and controls have had a pervasive effect upon our financial reporting and the overall control environment due to our ability to make the necessary reconciling adjustments to our financial statements.

Management’s Remediation Initiatives

Employ additional staff in our finance and accounting department to perform the required tasks to maintain optimal segregation of duties, review approval and verification procedures and provide optimal levels of management oversight.

Assign a specific individual to be responsible for organizing and maintaining documentation evidencing the operating effectiveness of internal controls over financial reporting.

Work throughout the year with our independent SOX consultant to help improve the overall design of our system of internal control over financial reporting, so we promptly identify and correct prior to year-end.

Continue to evaluate control procedures on an ongoing basis, and, where possible modify those control procedures to improve management oversight.

Implement and improve systems to automate certain financial reporting processes and to improve information accuracy.  

Management will continue the process of reviewing existing controls, procedures and responsibilities to more closely identify financial reporting risks and the required controls to address them. Key control and compensating control procedures will be developed to ensure that weaknesses are properly addressed and related financial reporting risks are mitigated. Periodic control validation and testing will also be implemented to ensure that controls continue to operate consistently and as designed. Management plans to complete this remediation process as quickly as possible. Although we expect it will take at least a year, we cannot estimate how long it will take to remediate the material weaknesses in our system of internal control over financial reporting. In addition, the remediation steps we have taken, are taking and expect to take may not effectively remediate the material weaknesses, in which case our internal control over financial reporting would continue to be ineffective. Even if we are able to complete these actions successfully, these measures may not adequately address our material weaknesses and may take more than a year to complete. In addition, it is possible that we will discover additional material weaknesses in our internal control over financial reporting or that our existing material weaknesses will result in additional errors in or restatements of our financial statements. 

Changes in Internal Control over Financial Reporting

Other than discussed above, there were no changes in our internal control over financial reporting during our most recent fiscal quarter that 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.

Item 9B.        Other Information.

None.

PART III

Item 10.         Directors, Executive Officers and Corporate Governance. 

Information regarding our directors, executive officers and corporate governance is incorporated herein by reference from our Definitive Proxy Statement for the 2017 Annual Meeting of Stockholders (“2017 Proxy”) to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year ended December 31, 2016.

Item 11.         Executive Compensation 

Information on executive compensation is incorporated herein by reference from our 2017 Proxy to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year ended December 31, 2016.  

Item 12.         Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information on security ownership of certain beneficial owners and management and related stockholder matters is incorporated herein by reference from our 2017 Proxy to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year ended December 31, 2016. 

Item 13.         Certain Relationships and Related Transactions, And Director Independence.

Information on certain relationships and related transactions and director independence is incorporated herein by reference from our 2017 Proxy to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year ended December 31, 2016.

Item 14.         Principal Accountant Fees and Services 

Information on principal accounting fees and services is incorporated herein by reference from our 2017 Proxy to be filed pursuant to Regulation 14A within 120 days after the close of the fiscal year ended December 31, 2016.

PART IV

Item 15.         Exhibits and Financial Statement Schedules.

(b) Exhibits. The following exhibits are filed as part of the report on Form 10-K:

* Management contract or compensatory plan, contract or agreement as defined in Item 402(a)(3) of Regulation S-K

**Filed herewith.

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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Twinlab Consolidated Holdings, Inc.

We have audited the accompanying consolidated balance sheets of Twinlab Consolidated Holdings, Inc. and subsidiaries (collectively, the Company) as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive loss, stockholders' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Twinlab Consolidated Holdings, Inc. and subsidiaries as of December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has negative working capital, has incurred operating losses and negative cash flows from operating activities, and has an accumulated deficit. These conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Tanner LLC

Salt Lake City, Utah

March 31, 2017

TWINLAB CONSOLIDATED HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

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

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

TWINLAB CONSOLIDATED HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE LOSS

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

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

TWINLAB CONSOLIDATED HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

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

YEARS ENDED DECEMBER 31, 2016 AND 2015

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

TWINLAB CONSOLIDATED HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)