The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , which was filed with theSecurities and Exchange Commission (the "SEC") onApril 16, 2021 . This discussion and analysis and other parts of this Quarterly Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Any statements contained herein that are not statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial position made in this report are forward-looking. We often use words such as "anticipates", "believes", "estimates", "expects", "intends", "predicts", "hopes", "should", "plans", "will" and similar expressions to identify forward-looking statements. These statements are based on management's current expectations and accordingly are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained herein due to various important factors, including (but not limited to): the impact of the COVID-19 pandemic; the efficacy and distribution of COVID-19 vaccines; consumer preferences, spending and debt levels; the general economic and credit environment; interest rates; variations in consumer purchasing activities; competitive pressures on sales; the loss of a significant customer or material reduction of business with a significant customer; pricing and gross sales margins; the associated fees or estimated cost savings from contract renegotiations; and our ability to establish and maintain acceptable commercial terms with contract manufacturers. We undertake no obligation to publicly update or revise any forward-looking statements except as required by law. Overview We are an integrated formulator, 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 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®, Reserveage and ResVitale® brands. We also formulate, market and sell diet and energy products under the Metabolife® brand, and a full line of herbal teas under the Alvita® brand. To accommodate consumer preferences, our products come in various formulations and delivery forms, including capsules, tablets, softgels, chewables, liquids, sprays, powders, and whole herbs. These products are sold primarily through health and natural food stores and on-line retailers, supermarkets, and mass-market retailers. We 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. In most periods since our formation, we have generated losses from operations. We also perform services between private label distributors and contract manufacturers under theNutraScience Labs ("NSL") brand name. NSL facilitates the production of new supplements to market and reformulates existing products to include scientifically-backed ingredients. We provide our customers with numerous production services, including manufacturing, testing, label and packaging design, order fulfillment, and regulatory compliance. NSL facilitates the contract manufacture of a variety of high-quality vitamin and supplement products, including but not limited to, immune support supplements, cognitive support products, prebiotics and probiotics, supplements for weight management, and sports nutrition supplements. Our role in the production of these products is to help our customers manufacture or reformulate dietary supplements for sale and distribution. We do this by working with contract manufacturers to build scientifically backed formulas for resale to our end customers. We also simplify the production process by providing quality control checks, storing inventory on site, labeling and designing finished products, and drop shipping finished products ready for sale to our end customers. We do not market these private label products, but rather sell the products to the customer, who is then responsible for the marketing, distribution, and sale to retailers or to their end customers.
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Going Concern Uncertainty The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. In most periods since our formation, we have generated losses from operations. AtSeptember 30, 2021 , we had an accumulated deficit of$333.0 million . Historical losses are primarily attributable to lower than planned sales resulting from low fill rates on demand due to limitations of our working capital, delayed product introductions and postponed marketing activities, merger-related and other restructuring costs, interest and refinancing charges associated with our debt refinancing, and impairment of goodwill and intangible assets. Losses have been funded primarily through issuance of common stock and third-party or related party debt. Because of our history of operating losses and increase in debt over time, we have a working capital deficiency of$115.5 million atSeptember 30, 2021 . We also have$100.2 million of debt, net of discount, which could be due within the next 12 months. These continuing conditions, among others, raise substantial doubt about our ability to continue as a going concern. Management has addressed operating issues through the following actions: focusing on growing the core business and brands; continuing emphasis on major customers and key products; reducing manufacturing and operating costs and continuing to negotiate lower prices from major suppliers. We believe that we may need additional capital to execute our business plan. If additional funding is required, there can be no assurance that sources of funding will be available when needed on acceptable terms or at all.
The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Results of Operations
Comparison of the Three and Nine Month Periods Ended
The following table summarizes our financial results for the three and nine
month periods ended
Three Months Ended Nine Months Ended September 30, Increase % September 30, Increase % 2021 2020 (Decrease) Change 2021 2020 (Decrease) Change Net sales$ 18,272 $ 18,371 $ (99 ) -1 %$ 55,841 $ 47,012 $ 8,829 19 % Cost of sales 12,230 14,669 (2,439 ) -17 % 37,844 35,322 2,522 7 % Gross profit 6,042 3,702 2,340 63 % 17,997 11,690 6,307 54 % Operating costs and expenses: Selling expenses 912 420 492 117 % 2,538 1,044 1,494 143 % General and administrative expenses 4,096 2,981 1,115 37 % 9,067 12,567 (3,500 ) -28 %
Income (loss) from
operations 1,034 301 733 244 % 6,392 (1,921 ) 8,313 433 % Other income (expense):
Interest expense,
net (2,208 ) (2,183 ) 25 1 % (6,619 ) (6,489 ) 130 2 % Gain on change in derivative liabilities - 178 (178 ) -100 % - 35 (35 ) -100 % Other income (expense) (14 ) (148 ) (134 ) -91 % 504 (3 ) 507 16,900 % Total other expense (2,222 ) (2,153 ) 69 3 % (6,115 ) (6,457 ) (342 ) -5 %
Income (loss)
before income
taxes (1,188 ) (1,852 ) 664
36 % 277 (8,378 ) 8,655 103 %
Provision for income taxes - - - - Total net income (loss)$ (1,188 ) $ (1,852 ) $ 664
36 %$ 277 $ (8,378 ) $ 8,655 103 % 23
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Net sales decreased by 1% for the three month period endedSeptember 30, 2021 compared to the same period in 2020 due to a recovery of sales related to COVID-19 in 2020 that was not similarly realized in 2021. The increase in our net sales of 19% for the nine month period endedSeptember 30, 2021 compared to the same period in 2020 is due to a recovery from the negative impacts of the COVID-19 pandemic upon 2020 sales figures as well as increased demand from some of our major customers. Gross Profit Our overall gross profit increase of 63% and 54% for the three month and nine month periods endedSeptember 30, 2021 compared to the same periods in 2020 was primarily due to a focus on SKUs with higher margins and a reduction in supply chain costs as part of the recovery from the negative impacts of the COVID-19 pandemic. Selling Expenses Our selling expenses increased by 117% and 143% for the three month and nine month periods endedSeptember 30, 2021 compared to the same periods in 2020 primarily due to increased advertising and marketing campaigns related to a new product launch, as well as the launch of our new websites and trade show attendance.
General and Administrative Expenses
Our general and administrative expenses increased by 37% for the three month period endedSeptember 30, 2021 compared to the same period in 2020 primarily due to an increase in staffing levels. For the nine month period endedSeptember 30, 2021 , our general and administrative expenses decreased by 28% compared to the same period in 2020 due to the recognition of bad debt in 2020 due to the bankruptcy of the Company's largest customer. Interest Expense, Net Our interest expense slightly increased by$25 and$130 , or 1% and 2%, for the three month and nine month periods endedSeptember 30, 2021 compared to the same periods in 2020. The increases were primarily due to increased debt via the addition of two PPP loans (See Other Debt in Note 6).
Gain on Change in Derivative Liabilities
We have recorded the estimated fair value of the warrants as of the date of issuance. Due to the variable terms of the warrant agreements, changes in the estimated fair value of the warrants from the date of issuance to each balance sheet reporting date are recorded as derivative liabilities with a corresponding charge to our condensed consolidated statements of operations. As ofSeptember 30, 2021 , none of the warrants that resulted in the recording of the related derivative liabilities are outstanding.
Liquidity and Capital Resources
AtSeptember 30, 2021 , we had an accumulated deficit of$333.0 million 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$115.5 million atSeptember 30, 2021 . Losses have been funded primarily through the issuance of common stock and warrants, borrowings from our stockholders and third-party debt and proceeds from the exercise of warrants. As ofSeptember 30, 2021 , we had cash of$2,148 . 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$730 for the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2021 , we incurred net borrowings from our revolving credit facility of$1,257 . Our total liabilities increased by$9.4 million to$146.5 million atSeptember 30, 2021 from$137.1 million atDecember 31, 2020 primarily due to the increase of$4.9 million in accrued interest and$3.3 million in notes payable.
Cash Flows from Operating, Investing and Financing Activities
Net cash used in operating activities was$0.7 million for the nine months endedSeptember 30, 2021 as a result of our net income of$0.3 million , a recovery for losses on accounts receivable of$682 in doubtful accounts receivable, other non-cash expenses totaling$653 , net and a decrease in net operating assets and liabilities of$978 . By comparison, for the nine months endedSeptember 30, 2020 , net cash used in operating activities was$4.4 million as a result of our net loss of$8.4 million , a recovery for losses on accounts receivable of$3,251 in doubtful accounts receivable, a non-cash gain on change in derivative liabilities of$35 , other non-cash expenses totaling$1,981 net, and an increase in net operating assets and liabilities of$5,275 .
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Net cash provided by financing activities was$2,601 for the nine months endedSeptember 30, 2021 , consisting of net borrowings of$1,257 under our revolving credit facility, and proceeds from the issuance of debt of$1,344 .
Ongoing Funding Requirements
As set forth above, we obtained additional debt financing in the year ended
In response to COVID-19 and to protect our liquidity and cash position, we have taken a number of steps. In August of 2020, we obtained deferment letters from each ofGreat Harbor Capital, LLC ,Little Harbor, LLC , andGolisano LLC , pursuant to which each lender agreed to defer all payments due under outstanding notes held by each lender throughOctober 22, 2021 and agreed to refrain from declaring a default and/or exercising any remedies under the outstanding notes. Amendments to extend the maturity date and related payment deferrals have not been executed and these notes are currently in default. We anticipate extending the maturity dates and related payment deferrals with the lending parties in December of 2021. OnMay 7, 2020 , TCC received the proceeds of a loan fromFifth Third Bank in the amount of$1.7 million obtained under the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was enactedMarch 27, 2020 (the "PPP Loan"). The PPP Loan, evidenced by a promissory note datedMay 5, 2020 (the "PPP Note"), has a two-year term and bears interest at a rate of 1.0% per annum, with the monthly principal and interest payments that were due beginningDecember 1, 2020 ; however, the Company is applying for debt forgiveness for this loan. OnJanuary 25, 2021 , TCC applied for another PPP Loan withFifth Third Bank in the amount of$1.3 million (the "Second PPP Loan"). The Second PPP Loan, evidenced by a promissory note datedFebruary 5, 2021 (the "Second PPP Note"), has a two-year term and bears interest at a rate of 1.0% per annum, with expected monthly principal and interest payments that were due to beginSeptember 1, 2021 ; however, the Company is applying for debt forgiveness for this loan. TCC may prepay 20% or less of the principal balances of the notes at any time without notice. TCC used the proceeds of the PPP Loans for payroll, office rent, and utilities which allows the Company to seek forgiveness of these loans. While we intend to pursue the forgiveness of the PPP loan and Second PPP loan received in accordance with the requirements and limitations under the CARES Act, no assurance can be provided that forgiveness of any portion of the PPP Loan will be obtained. Until such time, if ever, as we can generate substantial product revenues, we intend to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. There can be no assurance that any of those sources of funding will be available when needed on acceptable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or relationships with third parties when needed or on acceptable terms, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts; abandon our business strategy of growth through acquisitions; or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under applicable
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