TWINLAB CONSOLIDATED HOLDINGS, INC. [TLCC] Filings

 

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 2023

 

OR

 

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

 

For the transition period from ____ to ____

 

Commission File Number: 000-55181

 

Twinlab Consolidated Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

(561) 443-4301

(Registrant’s telephone number, including area code)

 

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

 

 

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

 

Common Stock

(Title of Class)

 

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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐  

 

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

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262 (b)) by the registered public accounting firm that prepared or issued its audit report.      ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.       ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).       ☐  

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

 

The aggregate market value of common stock held by non-affiliates of the registrant at June 30, 2023 was $3,257,773 (computed by reference to the high/low price on such date).

 

The number of shares of common stock, $0.001 par value, outstanding on March 15, 2024 was 259,092,833 shares.

 

DOCUMENTS INCORPORATED BY REFERENCE

None.

 

TABLE OF CONTENTS​

			Page No.
	PART I		4
	Item 1.	Business.	6
	Item 1A.	Risk Factors.	13
	Item 1B.	Unresolved Staff Comments.	22
	Item 1C.	Cybersecurity.	22
	Item 2.	Properties.	22
	Item 3.	Legal Proceedings.	22
	Item 4.	Mine Safety Disclosures.	22
	PART II		23
	Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	23
	Item 6.	Reserved.	23
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	23
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	30
	Item 8.	Financial Statements and Supplementary Data.	30
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	30
	Item 9A.	Controls and Procedures.	30
	Item 9B.	Other Information.	31
	Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.	31
	PART III		32
	Item 10.	Directors, Executive Officers and Corporate Governance.	32
	Item 11.	Executive Compensation.	34
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	37
	Item 13.	Certain Relationships and Related Transactions, And Director Independence.	38
	Item 14.	Principal Accountant Fees and Services.	39
	PART IV		40
	Item 15.	Exhibits and Financial Statement	40
	Item 16.	Form 10-K Summary.	51
	SIGNATURES		52

 

 

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:

 

 

•

the departures of executive offices and directors and our ability to recruit and retain new executive officers and directors;

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

 

        

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. Our operational focus redirected to TCC which, through its operating subsidiaries, developed, manufactured, and marketed high-quality, science-based nutritional supplements, as well as through 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. (sometimes referred to herein as "NutraScience" or "NSL") on February 6, 2015.  The second was 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, on October 5, 2015. 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. The addition of innovative new brands and concepts is what ties together the TCC family of brands.

 

TCC was incorporated on October 1, 2013 in the state of Delaware. TCC was formed to affect 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 to capitalize on the opportunity for consolidation that we believe exists in the H&W Industry.

 

In August 2014, TCC acquired Idea Sphere Inc., a Michigan corporation ("Idea Sphere"), and its subsidiaries. Also in August 2014, the name of Idea Sphere was changed to Twinlab Holdings, Inc. (“THI”), which is a holding company that owns and operates Twinlab Corporation, Inc., a marketer of high-quality, science-based nutritional supplements under a number of brand names.

 

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. The facility was later sold in March 2020.

 

We maintain our principal executive offices at 4800 T-Rex Avenue, Suite 225, Boca Raton, Florida, which we moved in September 2021. TCC's wholly owned subsidiaries are THI, NutraScience, NutraScience Labs IP Corporation, and Organic Holdings. THI's wholly owned subsidiaries are Twinlab Corporation (sometimes referred to herein as "Twinlab"), which markets nutritional supplements under its own brands and for others, and ISI Brands, Inc. ("ISI"), which holds title to the intellectual property used in the marketing activities of Twinlab Corporation. Organic Holdings' wholly owned operating subsidiaries are CocoaWell, LLC, Fembody, LLC, InnoVitamin Organics, LLC, Joie Essance, LLC, Organics Management LLC d/b/a Reserveage Nutrition, Re-Body, LLC, Reserve Life Organics, LLC, ResVitale, LLC, Reserve Life Nutrition, L.L.C., and Innovita Specialty Distribution LLC.  Reserveage Nutrition and ResVitale, LLC, both market nutritional supplements under their own respective brands.  Reserveage Nutrition also markets a line of skincare products.  InnoVitamin Organics, LLC, holds title to the intellectual property used in the marketing activities of Reserveage Nutrition and ResVitale, LLC.

In Q3 2023, due to history of operating losses associated with private label distributions business under NSL brand name, the Company has decided to cease operations associated with NSL. As such, NutraScience's fixed assets are determined to have minimal economic value to the Company and are disposed of through abandonment concurrently with the ceased operation. 

 

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 a marketer, distributor, and direct-to-consumer retailer of branded nutritional supplements and other natural products sold to and through domestic health and natural food stores, mass market retailers, specialty store retailers, on-line retailers, and websites. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers.

 

Through NutraScience Labs we also provided services between private label distributors and contract manufacturers. Our services business involved the facilitation of manufacture of custom products to the specifications of a customer who required finished products under the customer’s own brand name. We did not market these private label products as our business was to sell the products to the customer, who then marketed and sold the products to retailers or end consumers. The operations performed under NutraScience Labs ceased with the abandonment of operations that began in July 2023.  

 

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 Specialty and 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 develop, market and distribute our branded products, particularly the Twinlab®, Reserveage™, ResVitale®, Alvita® and Metabolife® brands. We market our branded products through a combination of our own sales force and independent brokers. We continue to seek out partners that have strong customer relationships, reach into our target channels and have acted to realign our independent broker network to gain market share. We believe the key to the strength of our brands and market position is innovation, as we seek to be a market leader in the development of new and innovative products. We believe that we benefit more from greater customer and product diversification than many of our competitors due to our research and development, and sales and marketing capabilities.

 

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. 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

 

We believe that the wellness and beauty market reached its present size due to a number of factors, including (i) interest in immune health due to the pandemic as well as living longer and living well, (ii) the publication of research findings supporting the positive health effects of certain nutritional supplements, and (iii) the growth of the wellness conscious millennial population, combined with the aging of the "Baby Boom" and "Gen X" generations making a mindful choice to purchase more nutritional supplements and natural foods.

 

Products

 

We formulate and market nutritional supplements. Our products include vitamins, minerals, resveratrol, collagen, keratin, skincare and sports nutrition products primarily under the Twinlab®, Reserveage™ and ResVitale® brands. We also 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, stick packs, liquids, and powders.

 

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 United States, (iii) conducting cost savings initiatives to identify opportunities for improved margin, (iv) reviewing competitive product pricing to make recommendations for market pricing alignment and (v) 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 our Internet sites are not incorporated by reference into this Report.

 

Sales

 

We employ a sales force dedicated to each of the individual sales 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 sales 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 innovation and expanded categories, product trial, advertising and promotional programs 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/Influencers – Outreach to media and 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.

 

Sampling – Many products are immediately experiential either because of their taste or effect. We use samples and retail demo programs to allow for trial and education of our products. These are generally conducted in-store using our own brand ambassadors or third-party representatives.

 

Retail Activation – Utilizing on-shelf promotional tactics, including coupons and associate engagement tools, to generate awareness and differentiate our brand.

 

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.

 

ResVitale®

 

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

 

Twinlab® Brand Vitamins

 

Twinlab® is a heritage brand of vitamins that has been in the market for over 50 years and carries a great deal of brand awareness amongst health and natural food consumers. Twinlab® is predominantly sold in HNF, eTailers and Internationally.

 

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:

 

Public Relations and Bloggers – Outreach to media and blogger influencers has resulted in features and reviews in online and print media channels.

 

Retailer Promotions – In-store promotional programs can drive consumer awareness when they are making purchase decisions. 

 

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

 

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®.

 

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®. After reaching 100 years, Alvita® has become the oldest herbal tea brand. Today, Alvita® has more than 30 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 Labs helped 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 focused on promoting the services it offered with a focus on acquiring new customers through digital marketing and trade media and not advertising of products. The services performed under NutraScience Labs ceased with the abandonment of operations that began in July 2023.

Research and Development; Quality Assurance

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 and quality assurance ("QA") efforts, as well as our relationships with select and current Good Manufacturing Practices (“cGMPs”) audited contract manufacturing partners, 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 dietary supplements or identifying new ingredients that can be used in dietary supplements. Our efforts are designed to lead not only to the development of new and improved products, but also to ensure effective manufacturing quality assurance measures.

We conduct research and formulation aspects of R&D in-house, and also work with contract manufacturers and third-party laboratories to perform testing and other aspects of R&D. We currently employ various professionals in R&D and quality assurance with expertise in, among other things, nutrition, herbal medicine, and chemistry.

Our quality assurance and safety programs seek to ensure the safety and superior quality of our products and that they are manufactured in accordance with cGMPs. We have always had a focus on safety, quality, efficacy and compliance with law. We always conduct a comprehensive cGMP audit to qualify a contract manufacturer before conducting business with them.

Significant Customers

Sales to our top three customers aggregated to approximately 31% and 21% of total consolidated sales in 2023 and 2022, respectively. Sales to one of those customers were approximately 15% and 8% of total sales in 2023 and 2022, respectively. Accounts receivable from these customers were approximately 33% and 28% of total accounts receivable as of December 31, 2023 and 2022, respectively. 

Manufacturing

Our products are manufactured by highly qualified third-party providers located primarily in the U.S. 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 increasing manufacturing capabilities through our contract manufacturer partners provides us with competitive advantages.

In 2018, we transitioned out of manufacturing in the Company’s Utah manufacturing facility and leveraged the supply chain of the Company’s subsidiary, NutraScience Labs., and third-party logistics providers. This allows us to utilize exclusive technologies and processes that contribute to product innovation, while still providing the high-quality products our customers know us for. The services performed under NutraScience Labs ceased with the abandonment of operations that began in July 2023. 

Materials and Suppliers

We employ a supply chain staff that works with marketing, product development, formulations and quality assurance personnel to oversee contract manufacturers and source raw materials for products as well as other items purchased by us. Raw materials are sourced by a variety of domestically and internationally approved suppliers principally from the United States, Europe and China. We believe our relationships with our principal suppliers are good. Our top two suppliers accounted for 18% of our purchases for the year ended December 31, 2023. Whenever possible, we have adopted dual sourcing for raw materials to mitigate the impact of raw materials shortages that happen from time to time.

 

Government Regulation

 

The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by a number of United States 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 some exceptions 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. In addition, dietary ingredients and applicable excipients on the FDA’s GRAS list (Generally Regarded As Safe) may be included in dietary supplement formulations. 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 Food Allergen Labeling and Consumer Protection Act of 2004 ("FALCPA") addresses, among other issues, the labeling of foods (including dietary supplements) that contain certain food allergens. Under FALCPA, a "major food allergen" is an ingredient that contains protein derived from one of the following: milk, egg, fish, Crustacean shellfish, tree nuts, wheat, peanuts or soybeans.

 

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 that 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 Vitamin, Minerals, and Supplements Market (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 number of companies (or brands) sell nutritional supplement products and other natural products in the mass market channels, such as Pharmavite (Nature Made), KKR & Co. L.P. (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).

 

 

Intellectual Property

 

We own numerous trademarks that have been registered with the United States Patent and Trademark Office and have filed applications to register additional trademarks. In addition, we claim domestic trademark and service mark rights in numerous additional marks that we use. We own a number of trademark registrations in countries outside the United States. Federally registered trademarks in the United States have a perpetual life, as long as they are maintained and renewed on a timely basis and used properly as trademarks, subject to the rights of third parties to seek cancellation of the trademarks if they claim priority or confusion of usage. Most foreign trademark offices use similar trademark renewal processes. Additionally, we hold several patents that have been registered with the United States Patent and Trademark Office and may file additional applications. We regard our trademarks, patents and other proprietary rights as valuable assets and believe they make a significant positive contribution to the marketing of our products.

 

We protect our legal rights concerning our intellectual property by taking 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 many products that include patented ingredients. We purchase these ingredients from parties that we believe are licensed by the patent owner to sell and manufacture goods with the patent ingredients. 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" directly from them under threat that patent ingredient we properly obtain, infringes on their patent rights. We generally obtain indemnification from the patent owner through separate end user licensing agreements to increase our protection from these third parties or “non-practicing entities,” should they try to enforce such claim through litigation. The cost of these patented ingredients is typically higher than the cost of non-patented ingredients.

 

Employees

 

As of March 15, 2024, we had approximately 17 full-time employees and 1 part-time employee. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.

 

 

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:

 

Market and Channel Risks

Geopolitical issues, conflicts and other global events could adversely affect our results of operations and financial condition.

Our business is subject to global political issues and conflicts. Such political issues and conflicts could have a material adverse effect on our results of operations and financial condition if they escalate in areas in which we do business or to the extent that they impact the global macroeconomic systems. In addition, changes in and adverse actions by governments in foreign markets in which we do business could have a material adverse effect on our results of operations and financial condition. For example, the continuing conflict arising from the Russian invasion into Ukraine could adversely impact macroeconomic conditions, give rise to regional instability and result in heightened economic tariffs, sanctions and import-export restrictions from the U.S. and the international community in a manner that adversely affects us, financial condition, results of operations, cash flows and performance. 

 

Adverse economic conditions related to the COVID-19 pandemic or future pandemic may harm our business.

 

Inflation and other changes in economic conditions related to the ongoing COVID-19 pandemic, and the future outbreak of other highly infectious or contagious diseases, could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.

 

The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.

 

Certain states and cities, including where our principal place of business is located, reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, and/or restrictions on types of business that may continue to operate. While these restrictions have been lifted or significantly curtailed, the Company cannot predict if future impacts of COVID-19, including the emergence of new variants, will lead to the reinstitution of similar restrictions or the implementation of new restrictions. The COVID-19 pandemic has negatively impacted almost every industry directly or indirectly, including industries in which the Company and our customers and business partners operate. The effects of an ongoing period of remote work, could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business. The COVID-19 pandemic, or a future pandemic, could also have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:

	●	the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption;
	●	a complete or partial closure of, or other operational issues at our third-party logistics provider (“3PL”) resulting from government action;
	●	the reduced economic activity severely impacts our customers' businesses, financial condition and liquidity and may cause one or more of our customers to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations;
	●	the reduced economic activity could result in a prolonged recession, which could negatively impact consumer discretionary spending and lead to reduced demand for our products and a decrease in sales;
	●	difficulty accessing debt and equity capital on attractive terms, or at all, impacts to our credit ratings, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis and our customers' ability to fund their business operations and meet their obligations to us;
	●	the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our credit facility and other debt agreements and result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our ability to make additional borrowings under our revolving credit facility;
	●	any impairment in value of our tangible or intangible assets that could be recorded as a result of a weaker economic conditions; and
	●	a deterioration in our or our customers' ability to operate in affected areas or delays in the supply of products or services to us or our customers from vendors that are needed for our or our customers’ efficient operations could adversely affect our operations and those of our customers.

 

 

The extent to which the COVID-19 pandemic or another pandemic in the future may impact our operations and those of our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Any future closures by our customers of their stores could reduce our cash flows.

 

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 the 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, the impact of wide spread health concerns or pandemics 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 future increases to utility and fuel costs.

 

Future increases in 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 higher 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, increases in 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 future increases in fuel prices.

 

Business Strategy and Operational Risks

 

If we are unable to retain key personnel and members of our Board of Directors, our ability to manage our business effectively could be negatively impacted.

Key management employees of the company and its subsidiaries include Kyle Casey as the Interim Chief Executive Officer and Chief Financial Officer. This key management employee is primarily responsible for our day-to-day operations, and we believe our success depends in part on our ability to retain him and to continue to attract additional qualified individuals to our management team. We have experienced several resignations from management and the Board of Directors in 2022, including Craig Fabel who served as the Chief Executive Officer, Daniel DiPofi who previously served as Chief Executive Officer, and B. Thomas Golisano and Seth Ellis who were members of the Board of Directors. The loss or limitation of the services of any of our key management employees or members of our Board of Directors 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 completed and may pursue 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 above, 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 our raw materials for the manufacture of our products from third-party suppliers. Currently, we rely on third-party co-packers for our products; our reliance on them has increased as the result of winding down our Utah manufacturing facility in 2018. We have selective agreements for the continued supply of materials and products. Several 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.

 

We rely on our information systems to conduct our business, and any failure to protect these systems against security breaches or failure of these systems themselves could adversely affect our business, results of operations and liquidity and could result in litigation and penalties. If these systems fail or become unavailable for any significant period of time, our business could be harmed. Additionally, the inappropriate use of social media vehicles could harm our reputation and adversely impact our business.

 

The efficient operation of our business is dependent on computer hardware and software systems. Among other things, these systems collect and store certain personal information from customers, vendors and employees and process customer payment information. Our information systems and those maintained by our third-party vendors and the sensitive data they are designed to protect are vulnerable to security breaches by computer hackers, cyber terrorists and other cyber attackers. We rely on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on our information systems, and we rely on our third-party vendors to take appropriate measures to protect the confidentiality of the information on those information systems. However, these measures and technology may not adequately prevent security breaches. Our information systems may become unavailable or fail to perform as anticipated for any reason, including viruses, loss of power or human error. Any significant interruption or failure of our information systems or those maintained by our third-party vendors or any significant breach of security could adversely affect our reputation with our customers, vendors and employees and could adversely affect our business, results of operations and liquidity and could result in litigation against us or the imposition of penalties. A significant interruption, failure or breach of the security of our information systems or those of our third-party vendors could also require us to expend significant resources to upgrade the security measures and technology that guard sensitive data against computer hackers, cyber terrorists and other cyber attackers.

 

 

Additionally, we rely on search engine marketing and social media platforms to attract and retain customers as part of our marketing efforts. A variety of risks are associated with the use of social media, including the improper disclosure of proprietary information, negative comments about our company and our products, exposure of personally identifiable information, fraud, or outdated information. The inappropriate use of social media vehicles by our customers or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation.

 

To the extent that we currently rely on third-party manufactures, now and in the future, we are dependent upon the uninterrupted and efficient operation of those third-party facilities, which may experience power failures, the breakdown, failure or substandard performance of equipment, the improper installation or operation of equipment, natural disasters, pandemic outbreaks 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 third-party manufacturing partners. Those operations may experience power failures, the breakdown, failure or substandard performance of equipment, the improper installation or operation of equipment, natural disasters, pandemic outbreaks 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. During the fourth quarter of fiscal 2023, we completed our annual impairment test of goodwill and intangible assets and recognized impairment charges, see Note 5 in the Notes to Consolidated Financial Statements included in this report.

 

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 beyond the next twelve months. 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. 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. The economic impact of world events and inflation could make it more difficult or challenging to obtain additional financing or adversely affect the favorability of the terms of any available financing. 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.

 

 

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 had recurring net operating losses in fiscal year 2023.  We had negative working capital at the end of fiscal year 2023 and 2022. As of December 31, 2023, and 2022, our accumulated deficit was $370.1 million and $356.4 million, 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 a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. Our independent registered public accounting firm has issued its report dated March 19, 2024, 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.    

 

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:

	•	requirements for the reformulation of certain or all products to meet new standards,
	•	the recall or discontinuance of certain or all products,
	•	additional record keeping,
	•	expanded documentation of the properties of certain or all products,
	•	expanded or different labeling,
	•	adverse event tracking and reporting, and
	•	additional scientific substantiation.

 

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 distributor of products for human consumption, we experience from time to time product liability claims and litigation to prosecute such claims. Additionally, the sale and distribution 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 hard to obtain for such claims, these claims 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 and/or retailer 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. In the past we have had a claim tendered to us to defend approximately forty putative class actions alleging primarily that two products failed to contain sufficient active ingredients to meet label claims. We accepted such tender subject to a reservation of various rights and vigorously defend these cases.  The matter culminated in a confidential settlement with the plaintiffs, which did not have a material adverse effect on our financial condition/results of operations or cash flows or liquidity at that time; however, 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.

 

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 OTC Markets PK ("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. The price per share of our common stock 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. 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 controls and procedures may not timely institute proper controls, or compensating controls when necessary or our controls may fail, which may result in a material adverse effect on our business, financial condition and results of operations.

On May 14, 2021, the Company announced that an internal investigation had discovered that a recently terminated employee in the Company’s accounting department had been embezzling Company funds. The investigation indicated losses of approximately $500,000 occurring between 2016 and 2021. As a result of the findings of the investigation, the terminated employee returned the majority of the embezzled funds to the Company. The employee had taken advantage of a complex consolidation process between multiple enterprise resource planning ("ERP") systems, a lack of segregation of duties, weak internal controls, and a lack of managerial oversight. In the first quarter of 2021, the Company transitioned into a single ERP system which allows for establishment of increased segregation of duties and improvements of internal controls within the ERP system itself. Additionally, remediation of internal control weaknesses includes additional focus on managerial oversight and staffing changes within the accounting department.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f) and 15d-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. 

Concurrent with year-end reporting, under the supervision and with the participation of our management, including our interim chief executive officer and chief financial 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.

Management and our audit committee will continue to monitor the effectiveness of our internal controls and procedures. Other than as described above, there were no changes in our internal controls over financial reporting during the year ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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 over 80% 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.

 

 

Not Applicable.

Item 1C.

Cybersecurity

We recognize the critical importance of maintaining the safety and security of our systems and data and have a holistic process for overseeing and managing cybersecurity and related risks. This process is supported by both management and our Board of Directors . 

As of the date of this Form 10-K, the Company is not aware of any cybersecurity incidents that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition and that are required to be reported in this Form 10-K.

 

 

We occupy approximately 1,500 rentable square feet on the 2nd floor of an office building in Boca Raton, Florida under a lease that expires October 2024. We lease approximately 13,000 rentable square feet on the 3rd floor of office space within the same building of our current office in Boca Raton, Florida under a lease agreement that expires February 2026. On October 1, 2021, we entered into a sublease agreement for the 3rd floor. 

We occupied certain space at NutraScience's offices in Farmingdale, New York under a lease agreement that was surrendered to the landlord, as part of the abandonment of operations, on May 12, 2023.

We also occupied additional space at NutraScience's facilities in Hauppauge, New York under a lease agreement that was forfeited to the landlord, as part of the abandonment of operations, on September 30, 2023. 

We had possession of approximately 30,600 rentable square feet of office space, evenly split between the 5th and 6th floor of an office building in St. Petersburg, Florida under a lease that expires April 30, 2027. On December 1, 2019, we entered into a sublease for the 6th floor space that expires April 2027, and on December 1, 2016, we entered into a sublease for the 5th floor space which expired on June 30, 2022. Currently the Company is seeking new sub tenant opportunities to fill the 5th floor space.

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

 

 

 

The Company is, from time to time, a party to legal proceedings that arise in the ordinary course of business. We do not believe that the outcome of these matters will have a material adverse effect on the Company.

 

 

Not Applicable.

 

 

Market Information

Our common stock is traded in the 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. Over-the-counter market quotations of our common stock reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Holders of Common Stock

 

As of March 15, 2024, there were approximately 375 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.

 

 

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the ‘‘Risk Factors’’ section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by these forward-looking statements. 

 

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 77 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 performed services between private label distributors and contract manufacturers under the NutraScience Labs ("NSL") brand name. NSL facilitated the production of new supplements to market and reformulates existing products to include scientifically-backed ingredients. We provided our customers with numerous production services, including manufacturing, testing, label and packaging design, order fulfillment, and regulatory compliance.

 

NSL facilitated 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 was to help our customers manufacture or reformulate dietary supplements for sale and distribution. We did this by working with contract manufacturers to build scientifically backed formulas for resale to our end customers. We also simplified 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 did not market these private label products, but rather sold the products to the customer, who was then responsible for the marketing, distribution, and sale to retailers or to their end customers. 

In Q3 2023, due to history of operating losses associated with private label distributions business under NSL brand name, the Company has decided to cease operations associated with NSL. As such, NutraScience’s fixed assets were determined to have minimal economic value to the Company and were disposed of through abandonment concurrently with the ceased operation.

 

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. In most periods since our formation, we have generated losses from operations. At December 31, 2023, we had an accumulated deficit of $370.1 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 significant interest expense on our debt, we have a working capital deficiency of $140.1 million at December 31, 2023. We also have $93.6 million of debt, presented in current liabilities. 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 will need additional capital to execute our business plan. 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

 

Our management’s discussion and analysis of our consolidated financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, will be reflected in the financial statements prospectively from the date of change in estimates.

 

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.

 

Revenue Recognition

 

Revenue from product and service sales and the related cost of sales are recognized when the performance obligations are satisfied. The performance obligations are typically satisfied upon shipment of physical goods or as the services are performed over time. In addition to the satisfaction of the performance obligations, the following conditions are required for revenue recognition: an arrangement exists, there is a fixed price, and collectability is reasonably assured. Discounts, returns and allowances related to sales, including an estimated reserve for the returns and allowances, are recorded as reduction of revenue.

 

 

Accounts Receivable and Allowances

 

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

 

Inventories

 

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

 

  

Value of Warrants Issued with Debt

 

We estimate the grant date value of certain warrants issued with debt using a valuation method, such as the Black-Scholes option pricing model, or, if the terms are more complex, 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.

 

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.

 

Results of Operations

 

The following table summarizes our results of operations for the years ended December 31, 2023 and December 31, 2022:

 

  

Net Sales

 

The decrease in our net sales by 21% for the year ended December 31, 2023 compared to 2022, is primarily due to production backlogs at manufacturers, resulting in extended lead-time for production and fulfillment of sales, as well as a reduction in demand from some of our major customers and retailers for some of our branded products.

 

Gross Profit

 

Our overall gross profit decrease of 39% for the year ended December 31, 2023 compared to 2022, is primarily due to reduced demand from some of our major customers and increased product input costs at the supplier and manufacturing levels.

Selling Expenses

 

Our selling expenses decreased by 56% for the year ended December 31, 2023 compared to 2022, primarily due to the reduction of certain advertising costs, such as marketing consultants and brand ambassadors as we did not have a major product launch in 2023 as occurred in the prior year. 

 

 

General and Administrative Expenses

 

Our general and administrative expenses decreased by 25% for the year ended December 31, 2023 compared to 2022, primarily due to modifications to staffing levels resulting in decreased salary costs, as well as a reduction in other costs such as insurance, made by proactively assessing all costs and ensuring that expenses are right-sized for a leaner company.

 

Impairment of Goodwill and Intangible Assets

 

Due to the immaterial net book value of our remaining intangible assets, annual impairment testing was not performed nor was an impairment loss recognized in 2023. During the fourth quarter of fiscal 2022, we completed our annual impairment test of goodwill and intangible assets and recognized impairment of $0.3 million as of December 31, 2022. 

Interest Expense, Net

 

Our interest expense increased by $0.4 million or 5% for the year ended December 31, 2023 compared to 2022. The increase is primarily due to rising interest rates on existing debt. 

 

Other Income

 

The decrease in other income of 98% is related to the forgiveness of our remaining PPP Loans in 2022. Other income for the year ended December 31, 2023 related to the sale of certain domain names no longer in use. 

Liquidity and Capital Resources

 

At December 31, 2023, we had an accumulated deficit of $370.1 million primarily because of our history of operating losses. We had a working capital deficiency of $140.1 million at December 31, 2023. Losses have been funded primarily through the issuance of common stock and warrants, borrowings from our stockholders and third-party debt. As of December 31, 2023, we had cash of $19 thousand. On an ongoing basis, we also seek to improve operating cash through trade receivables and payables management as well as inventory stocking levels. Net cash used in operating activities for the year ended December 31, 2023 was $2.9 million. During the year ended December 31, 2023, we incurred net borrowings from our revolving credit facility of $3.6 million.

 

Our total liabilities increased by $1.8 million to $148.0 million at December 31, 2023 from $146.2 million at December 31, 2022. This increase in our total liabilities was primarily due to the increase of $0.6 million in accrued interest and $0.4 in accounts payable, partially offset by an increase of $0.2 million in accrued expenses and other current liabilities.

 

Cash Flows from Operating, Investing and Financing Activities

 

Net cash used in operating activities was $2.9 million for the year ended December 31, 2023 as a result of our net loss of $13.7 million, other non-cash expenses totaling $0.1 million net, and an increase in net operating assets and liabilities of $2.8 million. By comparison, for the year ended December 31, 2022, net cash used in operating activities was $4.3 million as a result of our net loss of $8.2 million, forgiveness of PPP loan of $1.7 million, a non-cash impairment of goodwill and intangible assets of $0.3 million, other non-cash expenses totaling $1.1 million net, and an increase in net operating assets and liabilities of $4.2 million.

 

Net cash used in financing activities was $3.7 million for the year ended December 31, 2023, consisting of net payments of $3.6 million under our revolving credit facility. Net cash provided by financing activities was $1.6 million for the year ended December 31, 2022, consisting of net borrowings on our revolving credit facility of $1.6 million. 

 

 

Ongoing Funding Requirements

 

As set forth above, we obtained additional debt financing in the year ended December 31, 2023 to support operations. We will need additional funding from our revolving credit facility to continue supporting our operations during the next twelve months. However, we cannot predict whether future borrowings will be available to us under our credit facility and future developments associated with the current economic environment will materially affect our long-term liquidity position.

 

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 of Great Harbor (defined below), Little Harbor (defined below) and Golisano Holdings (defined below) pursuant to which each lender agreed to defer all payments due under outstanding notes held by each lender through October 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 of the aforementioned notes have not been executed and these notes are currently in default. We continue to anticipate extending the maturity dates and related payment deferrals with the lending parties, but we cannot guarantee that such extensions and payment deferrals will be successfully obtained on a timely basis or at all.

On May 7, 2020, TCC, the operating subsidiary of the Company, received the proceeds of a loan from Fifth Third Bank, National Association 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 enacted March 27, 2020 (the "PPP Loan”). The PPP Loan, evidenced by a promissory note dated May 5, 2020 (the “Note”), had a two-year term and bore interest at a rate of 1.0% per annum, with the monthly principal and interest payments due beginning December 1, 2020. TCC used the proceeds of the PPP Loan for payroll, office rent, and utilities which allowed the Company to seek forgiveness of this loan. The Company submitted its application for 100% forgiveness for this loan in November 2021. In January 2022, the full amount of the PPP Loan was forgiven by the Small Business Administration ("SBA"). As a result, the Company recorded a gain on the forgiveness of the loan in the amount of $1.7 million.

On January 25, 2021, TCC applied for another PPP loan with Fifth Third Bank in the amount of $1.3 million (the "Second PPP Loan”). The Second PPP Loan, evidenced by a promissory note dated February 5, 2021 (the "Second PPP Note”), had a two-year term and bore interest at a rate of 1.0% per annum, with expected monthly principal and interest payments that were due to begin September 1, 2021. TCC used the proceeds of the Second PPP Loan for payroll, which allowed the Company to seek forgiveness for this loan. The Company submitted its application for 100% forgiveness for this loan in November 2021. In December 2021, the full amount of the Second PPP Loan was forgiven by the SBA. As a result, the Company recorded a gain on the forgiveness of the loan in the amount of $1.3 million.

 

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 financing, 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 financing 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; or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

 

Accounting Pronouncements

 

In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional guidance to companies to ease the potential burden associated with transitioning away from reference rates that are expected to be discontinued. The new guidance provides optional expedients and exceptions to apply GAAP to contract modifications and hedging relationships, subject to certain criteria, that reference London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. We adopted this ASU prospectively on December 14, 2022, on one of our Term Loan Notes and Agreements which was amended on this date to transition from LIBOR to the Secured Overnight Financing Rate ("SOFR"). The adoption of this ASU did not have a material impact on our consolidated financial statements.

 

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit losses (Topic 326): Measurement of Credit losses on Financial Instruments. ASU 2016-13 requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. We adopted this standard prospectively on the first day of our 2023 fiscal year. The adoption of this standard did not have a material impact on our consolidated financial statements.

 

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 have had or will have a material impact on our consolidated financial position or results of operations. 

Material Contractual Obligations

 

As of December 31, 2023, we had total debt of $93.6 million, of which $90.8 million is considered to be related-party debt. For discussion of our debt financing, see Notes 6 and 7 in the Notes to Consolidated Financial Statements included in this report.

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 "St. Petersburg Lease"). The agreement expires in April 2027 and has a monthly base rent of $59 thousand for year 1 to $76 thousand for year 12.

 

On November 30, 2016, we entered into a sublease agreement to sublease half of the 31,000 square feet of office space in St. Petersburg, Florida. The sublease term commenced on February 1, 2017 and expired on June 30, 2022. Currently the Company is seeking new sub tenant opportunities to fill the space.

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

 

On June 2, 2017, we entered into an operating lease agreement for approximately 18,700 square feet of office space in Farmingdale, New York. The lease agreement was surrendered to the landlord as part of the abandonment of operations of NutraScience Labs on May 12, 2023.

On July 12, 2019, we entered into a sublease agreement to sublease the other half of the 31,000 square feet of office space in St. Petersburg, Florida. The sublease term commenced on December 1, 2019 and expires on April 30, 2027.

On April 22, 2021, we entered into an operating lease agreement for approximately 13,500 square feet of office space in Hauppauge, New York. The agreement was surrendered to the landlord as part of the abandonment of operations of NutraScience Labs on September 30, 2023. 

On August 26, 2021, we entered into an operating lease agreement for an additional 1,500 square feet approximately of office space in Boca Raton, Florida. The agreement expires in October 2024 and has a monthly base rent of $5 thousand. The commencement date was September 2021, the date on which we moved our main executive offices from 4800 T-Rex Avenue, Suite 305, Boca Raton, Florida 33431 to 4800 T-Rex Avenue, Suite 225, Boca Raton, Florida 33431.

On September 12, 2021, we entered into sublease agreement to sublease the approximately 13,000 square feet of office space in Boca Raton, Florida. The sublease term commenced on October 1, 2021 and expires on February 28, 2026.

Manufacturing and Distribution Licensing Agreement

 

On April 24, 2019, the Company entered into a manufacturing and distribution licensing agreement with Amherst Industries, Inc. (“Amherst”) to manufacture and distribute the Alvita Tea brand of products worldwide. On October 20, 2021, the Company ended the licensing agreement with Amherst and began production and distribution of Alvita in 2022.

 

 

Off-Balance Sheet Arrangements

 

None.

 

 

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

 

 

The financial statements required to be filed pursuant to Item 8 are appended to this report. An index of those financial statements is found in Item 15.

 

 

None.

 

 

Internal Control Over Financial Reporting

 

Background

 

We previously reported a material weakness in internal control over financial reporting for the year ended December 31, 2022 related to the following:

 

We have addressed the material weakness related to our third-party logistics and fulfillment provider in 2022. However, we are still addressing the material weakness related to staffing and the ability to close the books timely and accurately.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our interim chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023 pursuant to Rule 13a-15(e) and 15d-15(e) 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 SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. On the basis of this review, our management, including our interim chief executive officer and chief financial officer, has concluded that as of the end of the period covered by this report, our disclosure controls and procedures were not effective to give reasonable assurance that the information required to be disclosed in our reports filed with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our interim chief executive officer and chief financial officer, in a manner that allows timely decisions regarding required disclosure.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined by Rule 13a-15(f) and 15d-15(f) under the Exchange Act). In assessing the effectiveness of our internal control over financial reporting as of December 31, 2023, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

 

The Company has a lack of appropriate staffing in our accounting and information technology departments to address the Company’s ability to continue to close the books both timely and accurately and to meet internal control documents. The Company’s ability to address this material weakness is limited due to the lack of financing.

 

 

Although the Company is working to remediate this material weaknesses, it currently has not been resolved. Any failure to maintain or implement required new or improved controls, or any difficulties that may be encountered in their implementation, could result in additional material weaknesses, cause us to fail to meet our periodic or annual reporting obligations or result in material misstatements in our financial statements.  Any such failure could also adversely affect the results of periodic management evaluations regarding the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes Oxley Act of 2002 and the rules promulgated thereunder. The existence of material weaknesses could result in errors in our financial statements that could result in a restatement of those financial statements.

Inherent Limitation on the Effectiveness of Internal Control

 

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but we cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

 

Remediation in Internal Control over Financial Reporting

 

To address the material weakness related to appropriate staffing, the Company made efforts to hire, train and retain the appropriate staffing in the accounting, finance and information technology departments including technical accountants to support and alleviate the workload on the current team. The additional staffing should proactively identify and account for transactions of a complex or non-routine nature, identify and reduce inefficiencies, and better identify weaknesses in internal controls. Furthermore, the additional staffing should be responsible for managing the day-to-day responsibilities of Sarbanes Oxley compliance, including enhanced documentation of process and general controls. However, the Company has not yet been able to complete all of the training and additional staffing may still be required.

Changes in Internal Control over Financial Reporting

  

Except as discussed above, there were no changes in our internal control over financial reporting that occurred during 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We have determined that our internal controls over financial reporting during the year ended December 31, 2023 continues to be ineffective. 

None.

 

Not Applicable.

 

 

 

 

 

The current members of the Board of Directors are as follows: 

 

The principal occupations and business experience, for at least the past five years, of each Director are as follows: 

  

Mr. Van Andel was appointed to the Board on February 23, 2015 and elected Chairman on February 26, 2016. He is Chairman and CEO of the Van Andel Institute for Education and Medical Research. He currently serves on the Board of Directors of Amway Corporation and serves on its Executive, Governance and Audit Committees and prior to leading the Van Andel Institute held various positions at Amway since 1977. He was a shareholder and member of the Board of Directors of Twinlab Holdings, Inc. ("THI") from January 1, 2013 through August 7, 2014 when THI was acquired by and became a subsidiary of Twinlab Consolidated Corporation ("TCC"). He co-founded IdeaSphere Inc., a predecessor of THI. He holds a Bachelor of Art in Business Administration from Hope College. Mr. Van Andel has an extensive history as a director and stockholder of certain of the Company’s predecessors. In addition, he has extensive experience as a corporate executive and investor in numerous industries. The Board believes this public company and legacy experience qualifies him to serve as a director.

 

 

Mr. Zolezzi was appointed to the Board on May 8, 2018. He served as the Company's Chief Executive Officer and President from July 2018 to August 2019. Prior to joining the Company as Chief Executive Officer and President, Mr. Zolezzi spent 5 years serving as an Operating Partner at Pegasus Capital Advisors, a private alternative asset management firm, where he is also Co-Chair of its Wellness Committee. In the past, Mr. Zolezzi has been the Chief Executive Officer of several successful, health and wellness companies including Wild Oats Marketplace, Code Blue Innovations, Natural Pet Nutrition, The New Organics Company and Pacific Basin Foods. Mr. Zolezzi has also served as an advisor for New Chapter Whole Foods Supplements, Wild Oats Private Label Supplements, Waste Management, Nestle and Whole Foods on several health, wellness and sustainability programs and projects. Mr. Zolezzi has his Bachelor of Science degree in Biology from Loyola Marymount University, Los Angeles, California. The Board believes this health and wellness experience qualifies him to serve as a director.

 

 

Mr. DiPofi was appointed to the Board on January 1, 2021. He served as the Company's Chief Executive Officer from January 2020 to August 2022. Mr. DiPofi resigned from the Board, effective November 30, 2023. 

 

We believe that all of our current Board members possess the professional and personal qualifications necessary for Board service and have highlighted particularly noteworthy attributes for each Board member in the individual biographies above.

 

(b)     Identification of Executive Officers

 

The following table identifies our current executive officer:

 

 

Mr. Casey joined the Company in April 2019 and served as the Company’s Controller prior to his appointment as interim Chief Financial Officer of the Company, effective October 8, 2019. He was then appointed Chief Financial Officer as of January 13, 2020. Mr. Casey was appointed Interim Chief  Executive Officer and Chief Financial Officer as of January 26, 2023. Before joining the Company, Mr. Casey was with Gulfstream Park Racetrack and Casino from December 2015 through November 2018, most recently serving as the Vice President of Finance. Prior to his employment with Gulfstream Park Racetrack and Casino, Mr. Casey served as Chief Auditing Officer for the Florida Department of Business and Professional Regulation from March 2014 through December 2015. Mr. Casey holds a Bachelor of Science in Accounting and Finance, as well as a Master of Science in Taxation, from Florida State University. Mr. Casey is a licensed Certified Public Accountant. 

 

(c)     Identification of Certain Significant Employees

 

Not applicable.

 

(d)     Family Relationships

 

There are no family relationships among our executive officers and directors.

 

(e)     Business Experience

 

The business experience of each of our current directors and executive officers is set forth in Part III, Item 10(a), “Identification of Directors” and Part III, Item 10(b), “Identification of Executive Officers,” respectively.

 

The directorships currently held, and held during the past five years, by each of our directors in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or subject to Section 15 of such Act or any company registered as an investment company under the Investment Company Act of 1940, as amended, are set forth in Part III, Item 10(a), “Identification of Directors.”

 

(f)     Involvement in Certain Legal Proceedings

 

To the best of our knowledge, none of our directors or executive officers that served during the year ended December 31, 2023 ("Fiscal 2023") or currently has been involved during the past ten years in any legal proceedings required to be disclosed pursuant to Item 401(f) of Regulation S-K.

 

(g)     Promoters and Control Persons

 

Not applicable.

 

(h) and (i) Audit Committee and Audit Committee Financial Expert

 

The member of the standing Audit Committee is Anthony Zolezzi, an independent director as determined by the Nasdaq Rules. The responsibilities and duties of the Audit Committee consist of, but are not limited to:

 

● appointing, compensating, retaining and overseeing our independent registered public accounting firm;

 

● at least annually obtaining and reviewing our independent registered public accounting firms' report on independence and quality control;

 

● reviewing with our independent registered public accounting firm the scope and results of their audit, any audit problems or difficulties and management's response to any problems or difficulties;

 

● pre-approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;

 

● overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;

 

● reviewing the facts and circumstances of each related party transaction under the Company's Related Party Transaction Policy and Procedures and either approve or disapprove of each related party transaction;

 

● reviewing and monitoring compliance with laws, rules, regulations and the Company's Code of Ethics and Business Conduct; and

 

● establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls or auditing matters, and for the confidential and anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters.

 

Our Board has determined that Anthony Zolezzi qualifies as an “Audit Committee financial expert” within the meaning of applicable regulations of the Securities and Exchange Commission, promulgated pursuant to the Sarbanes-Oxley Act of 2002. Our board of directors has adopted a written charter for the Audit Committee which the Audit Committee reviews and reassesses for adequacy on an annual basis. A copy of the Audit Committee’s charter is located on our website at www.tchhome.com.

 

(j)     Procedures for Stockholder Nominations to the Board of Directors

 

No material changes to the procedures for nominating directors by our stockholders were made during Fiscal 2023.

Code of Conduct and Ethics

 

The Company has adopted a Code of Ethics and Business Conduct that applies to all of its directors, officers (including its Chief Executive Officer, Chief Financial Officer and any person performing similar functions) and employees. The Company has made this Code of Ethics and Business Conduct available on its website at www.tchhome.com/code-of- ethics. The Company intends to satisfy the disclosure requirements under applicable SEC rules relating to amendments to the Code of Ethics or waivers from any provisions thereof applicable to the Company's principal executive officer, principal financial officer and principal accounting officer by posting such information on the Company's website pursuant to SEC rules.

 

 

This section discusses the material components of the executive compensation program for our executive officers who are named in the "2023 Summary Compensation Table" below. In 2023, our "named executive officer" consisted of the following:

               Craig Fabel, former Chief Executive Officer

Kyle Casey, Interim Chief Executive Officer and Chief Financial Officer

 

2023 Summary Compensation Table

 

The following table sets forth information concerning the compensation of our named executive officers for the years ended December 31, 2023 and December 31, 2022.

 

¹ Mr. Fabel was appointed as Chief Executive Officer of the Company effective December 2, 2022. Mr. Fabel resigned from his position as Chief Executive Officer of the Company effective January 26, 2023. 

² Mr. Casey was appointed Chief Financial Officer of the Company effective January 13, 2020. Mr. Casey was appointed as Interim Chief Executive Officer and Chief Financial Officer of the Company effective August 1, 2022 and his compensation was modified to receive an annual base salary of $345,000. On December 2, 2022 Mr. Casey remained as Chief Financial Officer of the Company and his annual base salary was adjusted back to $262,000. On January 26, 2023, Mr. Casey was re-appointed as Interim Chief Executive Officer, in addition to his regular position as Chief Financial Officer, and his salary was modified to a base salary of $345,000.

 

 

Narrative Disclosure to Summary Compensation Table

 

Employment Agreement with Craig Fabel

 

Employment Term and Position

 

On December 2, 2022, the Company and Mr. Fabel entered into an at-will employment agreement to serve as the Chief Executive Officer of the Company. There is no set employment term or notice period required prior to termination of employment. Mr. Fabel resigned from his position as Chief Executive Officer of the Company effective January 26, 2023.

 

Base Salary, Annual Bonus, Benefits

 

Pursuant to the employment agreement, Mr. Fabel's base annual salary was $41,539 in 2023 and $360,000 in 2022. There was no discretionary bonus in 2023 or 2022. In addition, Mr. Fabel was eligible to participate in the Company’s standard employee benefits programs available to senior executives.

 

Restrictive Covenants

 

Pursuant to the employment agreement, Mr. Fabel was subject to (i) non-disclosure of confidential information restrictions while employed and for a period of two (2) years following the termination of employment, (ii) non-solicitation restrictions while employed and for a period of two (2) years following the termination of employment, and (iii) non-competition restrictions while employed and for a period of six (6) months following the termination of employment.

 

Employment Agreement with Daniel DiPofi

 

Employment Term and Position

 

On January 13, 2020, the Company and Mr. DiPofi entered into an at-will employment agreement to serve as the Chief Executive Officer of the Company. There was no set employment term or notice period required prior to termination of employment. Mr. DiPofi resigned form his position as Chief Executive Officer of the Company effective August 1, 2022. 

 

Base Salary, Annual Bonus, Benefits

 

Pursuant to the employment agreement, Mr. DiPofi's base annual salary was $0 in 2023 and $200,000 in 2022. There was no discretionary bonus in 2022. In addition, Mr. DiPofi was eligible to participate in the Company’s standard employee benefits programs available to senior executives. Mr. DiPofi did not serve as an executive director of the Company at any time during fiscal year 2023, and therefore did not receive any compensation from the Company in fiscal year 2023.

 

Restrictive Covenants

 

Pursuant to the employment agreement, Mr. DiPofi was subject to (i) non-disclosure of confidential information restrictions while employed and for a period of two (2) years following the termination of employment, (ii) non-solicitation restrictions while employed and for a period of two (2) years following the termination of employment, and (iii) non-competition restrictions while employed and for a period of six (6) months following the termination of employment.

 

Employment Agreement with Kyle Casey

 

Employment Term and Position

 

On January 13, 2020, the Company and Mr. Casey entered into an at-will employment agreement to serves as the Chief Financial Officer of the Company. There is no set employment term or notice period required prior to termination of employment. 

 

Base Salary, Annual Bonus, Benefits

 

Pursuant to the employment agreement, Mr. Casey's base annual salary went up from $262,000 in 2022 to $324,734 in 2023. Mr. Casey was appointed as Interim Chief Executive Officer, in addition to his regular position as Chief Financial Officer, of the Company effective August 1, 2022 and his compensation was modified to receive an annual base salary of $345,000. From December 2, 2022 until January 26, 2023, Mr. Casey did not serve as the Interim Chief Executive Officer and his salary was adjusted back to $262,000. As of January 26, 2023, Mr. Casey is again serving as Chief Executive Officer of the Company, in addition to his regular role as Chief Financial Officer, with an annual base salary of $345,000. Mr. Casey was eligible to participate in the Company's standard employee benefits program. There was no discretionary bonus paid in either 2022 or 2023. 

Restrictive Covenants

Pursuant to the employment agreement, Mr. Casey is subject to (i) non-disclosure of confidential information restrictions while employed and for a period of two (2) years following the termination of employment, (ii) non-solicitation restrictions while employed and for a period of two (2) years following the termination of employment, and (iii) non-competition restrictions while employed and for a period of six (6) months following the termination of employment.

 

 

Equity-Based Compensation Awards

 

The only equity compensation plan currently in effect is the Twinlab Consolidation Corporation 2013 Stock Incentive Plan (the “TCC Plan”), which was assumed by the Company on September 16, 2014. The TCC Plan originally established a pool of 20,000,000 shares of common stock for issuance as incentive awards to employees for the purposes of attracting and retaining qualified employees who will aid in our success. During 2018 and 2017, we granted Restricted Stock Units ("RSUs"), to certain employees pursuant to the TCC Plan. Each RSU relates to one share of the Company’s common stock. The RSU awards vested 25% each annually on various dates through 2019. We estimated the grant date fair market value per share of the RSUs and amortized the total estimated grant date value over the vesting periods. As of December 31, 2023, a total of 7,194,412 shares remain available for use in the TCC Plan.

 

Other Elements of Compensation

 

Retirement Plans

 

Until June 2016, the Company maintained a defined contribution retirement plan (the “Plan”) which qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. All employees over the age of 18 were eligible for participation in the Plan, on the 1st day of the 1st month following 30 days of employment with the Company. The Plan was a safe harbor plan, requiring the Company to match 100% of the first 1% of eligible salary contributed per pay period by participating employees, and to match 50% on the next 5% of eligible salary contributed per pay period by participating employees (with matching capped at 6% per pay period). Currently, we no longer offer matching contributions but do allow our employees to contribute to a 401(k) portfolio. The Company recognized no expenses related to the Plan in 2023 and 2022.

 

Outstanding Equity Awards at Fiscal Year-End

 

The outstanding equity awards at fiscal year-end table has been omitted as there is no required information to be disclosed for the fiscal year ended December 31, 2023. 

 

DIRECTOR COMPENSATION

 

The director compensation table has been omitted as no compensation was received by the directors during the year ended December 31, 2023. We do not currently have an established compensation package for Board members.

 

Compensation Committee

 

Due to the recent resignations of B. Thomas Golisano and Seth Ellis, there are currently no members of the Board of Directors that serve on the Compensation Committee. In the meantime, any compensation decisions relating to our executive officers or directors will be handled by the independent members of the Board of Directors. The Compensation Committee is responsible for, among other matters:

 

● reviewing and approving the compensation of our Chief Executive Officer (either alone or, if directed by the Board of Directors, in conjunction with a majority of independent directors) and reviewing and setting or making recommendations to the Board of Directors on the compensation of our other executive officers;

 

● reviewing and making recommendations to the Board of Directors on the compensation of our directors, if applicable;

 

● appointing and overseeing any compensation consultants, legal counsel or other advisers;

 

● reviewing and approving or making recommendations to the Board of Directors regarding incentive compensation and equity-based plans and arrangements; and

 

● reviewing and discussing with management the Company's "Compensation Discussion & Analysis" to the extent required to be included in filings with the SEC.

 

We believe our compensation policies present no risks that are reasonably likely to have a material adverse effect on our Company. The Compensation Committee has not retained a compensation consultant to review our policies and procedures with respect to executive compensation. A copy of the Compensation Committee's charter is located on our website at www.tchhome.com.

 

 

 

The following table presents information about the beneficial ownership of the Company's Common Stock as of March 15, 2024 by those persons known to beneficially own more than 5% of our capital stock and by our directors, named executive officers, and current executive officers and directors as a group. The percentage of beneficial ownership for the following table is based on 259,092,833 shares of Common Stock outstanding as of March 15, 2024. 

 

Beneficial ownership is determined in accordance with the rules of the SEC and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of Common Stock over which the stockholder has sole or shared voting or investment power. It also includes shares of Common Stock that the stockholder has a right to acquire within 60 days after March 15, 2024, pursuant to options, warrants, restricted stock units or other rights. The percentage of ownership of the outstanding Common Stock, however, is based on the assumption, expressly required by the rules of the SEC, that only the person or entity whose ownership is being reported has vested restricted stock units or converted options or warrants into shares of our Common Stock.

 

 

 

Equity Compensation Plan Information

 

The following table summarizes the Twinlab Consolidation Corporation 2013 Stock Incentive Plan equity compensation plans under which our securities may be issued as of December 31, 2023.

 

 

 

See Notes 6 and 7 and 11 in the Notes to Consolidated Financial Statements included in this report for details of related-party transactions.

 

 

Director Independence

 

The Board has determined that the following directors are independent pursuant to the rules of the Nasdaq Stock Market ("NASDAQ"): Messrs. Van Andel and Zolezzi. Since the OTCPK does not have rules regarding director independence, the Board makes its determination as to director independence based on the definition of “independence” as defined under the NASDAQ rules. In evaluating and determining the independence of the directors, the Board considered the relationships disclosed above under "Certain Relationships and Related Person Transactions" and determined that those relationships do not impair the directors' independence from us and our management under the NASDAQ rules. The sole member of the Audit Committee is Anthony Zolezzi, who is an independent director as determined by the NASDAQ rules. The members of our Compensation Committee are currently vacant. The member of our Nominating and Corporate Governance Committee is David L. Van Andel, Chairman, who is an independent director as determined by the NASDAQ rules. 

 

The following table summarizes the fees of Tanner LLC ("Tanner"), our independent registered public accounting firm, billed to us for each of the last two fiscal years for audit services:

 

 

AUDIT FEES

 

Tanner billed the Company $201,333 and $215,901, respectively, in the aggregate for services rendered for the audits of the Company's 2023 and 2022 fiscal years and the review of the Company's interim financial statements included in the Company's Quarterly Reports on Form 10-Q for the Company's 2023 and 2022 fiscal years.

 

AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES 

 

The Board of Directors of the Company has appointed an Audit Committee, which operates pursuant to a written charter. The charter provides for the pre-approval of all audit services and all permitted non-audit services to be performed for the Company by the independent registered public accounting firm, subject to the requirements of applicable law. The procedures for pre-approving all audit and non-audit services provided by the independent registered public accounting firm will include the Audit Committee reviewing audit-related services, tax services and other services. The Audit Committee will periodically monitor the services rendered by and actual fees paid to the independent registered public accounting firm to ensure that such services are within the parameters approved by the Audit Committee.

 

All of the audit, audit-related and tax services provided by Tanner LLC to us in 2023 and 2022 were approved by the Audit Committee pursuant to these procedures. All non-audit services provided in 2023 and 2022 were reviewed with the Audit Committee, which concluded that the provision of such services by Tanner LLC was compatible with the maintenance of that firm's independence in the conduct of its auditing function.