Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission (the "SEC") on March 19, 2024. This discussion and analysis and other parts of this Quarterly Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Any statements contained herein that are not statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial position made in this report are forward-looking. We often use words such as "anticipates," "believes," "estimates," "expects," "intends," "predicts," "hopes," "should," "plans," "will" and similar expressions to identify forward-looking statements. These statements are based on management's current expectations and accordingly are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained herein due to various important factors, including (but not limited to): widespread health concerns; supply chain disruptions; the impact of inflation; consumer preferences, spending and debt levels; the general economic and credit environment; interest rates; variations in consumer purchasing activities; competitive pressures on sales; the loss of a significant customer or material reduction of business with a significant customer; pricing and gross sales margins; the associated fees or estimated cost savings from contract renegotiations; and our ability to establish and maintain acceptable commercial terms with contract manufacturers. We undertake no obligation to publicly update or revise any forward-looking statements except as required by law.

Overview

We are an integrated formulator, marketer, distributor, and retailer of branded nutritional supplements and other natural products sold to and through domestic health and natural food stores, mass market retailers, specialty retailers, on-line retailers, and websites. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers.

Our products include vitamins, minerals, specialty supplements, and sports nutrition products primarily under the Twinlab®, Reserveage and ResVitale® brands. We also formulate, market and sell diet and energy products under the Metabolife® brand. To accommodate consumer preferences, our products come in various formulations and delivery forms, including capsules, tablets, softgels, chewables, liquids, sprays, and powders. These products are sold primarily through health and natural food stores and on-line retailers, supermarkets, and mass-market retailers.

We distribute oneof the broadest branded product lines in the industry with approximately 70stock 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 reformulated 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. The services performed under NSL ceased with the abandonment of operations that began in July 2023.

Going Concern Uncertainty

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. In most periods since our formation, we have generated losses from operations. At September 30, 2024, we had an accumulated deficit of $376.5million. 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 $146.6 million at September 30, 2024. We also have $93.0 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 is addressing 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 condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Results of Operations

Comparison of the Three and NineMonth Periods Ended September 30, 2024and 2023 (amounts in thousands, except share and per share amounts)

The following table summarizes our financial results for the three and ninemonth periods ended September 30, 2024and 2023:

Net Sales

The decrease in our net sales of 37% and decrease of 22% for the three and nine month period ended September 30, 2024, respectively, compared to the same period in 2023 was primarilydue to supply chain issues on our top-selling, high-margin products.

Gross Profit

The overall gross profit decrease of 52% and decrease of 32% for the three and ninemonth period ended September 30, 2024, respectively, compared to the same period in 2023was primarilydue to supply chain issues on our top-selling, high-margin products and a decreased demand in the first three months of 2024 from major retailers on our high-margin products.

Selling Expenses

Our selling expenses decreased by 63% and 63% for the three and nine month period ended September 30, 2024, respectively, compared to the same period in 2023, primarily due to the decrease of certain advertising costs including reduction to our digital advertising and general marketing costs.

General and Administrative Expenses

For the three month period ended September 30, 2024, our general and administrative expenses increased by 6% 2023 primarily due to a lease impairment. The decrease by 18% in our general and administrative expenses for the nine months ended September 30, 2024 compared to the same period in 2023 was primarily due to decreases in salary and wages, as well as right-sizing of other operational expenses.

Interest Expense, Net

Our interest expense, net decreased by 7% and 8% for the three and ninemonth period ended September 30, 2024 compared to the same period in 2023, respectively, which was primarilydue to a decrease in the cost of lending and associated interest fees.

Other Income

The decrease of other income of $16 thousand for the three months ended September 30, 2024 compared to the same period in 2023 was due to repayments in 2023 from a vendor for work never completed. The decreasein other income of $6 thousand for the nine months ended September 30, 2024compared to the same period in 2023was related to reimbursements in 2023 of certain rental expenses associated with our Tampa sublease for prior year charges and a smaller 2024 reimbursement of charges for workers compensation insurance.

Liquidity and Capital Resources

At September 30, 2024, we had an accumulated deficit of $376.5million primarily because of our history of operating losses.We had a working capital deficiency of $146.6 million at September 30, 2024. Losses have been funded primarily through the issuance of common stock and warrants, borrowings from our stockholders, and third-party debt. As of September 30, 2024, we had cash of $0.0 million. Cash provided by operating activities was $0.63 million for the nine months ended September 30, 2024. During the nine months ended September 30, 2024, we had repayments to our revolving credit facility of $0.6 million.

Our total liabilities increasedby $5.0million to $153.0million at September 30, 2024from $148.0million at December 31, 2023 primarily due to an increase of $4.9 million in accrued interest; partiallyoffset by a decreaseof $0.6 million in notes payable and current portion of long-term debt.

Cash Flows from Operating, Investing and Financing Activities

Net cash provided by operating activities was $0.63million for the nine months ended September 30, 2024as a result of our net loss of $6.4million,and an increasein net operating assets and liabilities of $7.0million. By comparison, for the nine months ended September 30, 2023, net cash provided by operating activities was $1.2million as a result of our net loss of $12.2million and an increase in net operating assets and liabilities of $9.4million, and other non-cash expenses totaling $0.4 million net.

Net cash used in financing activities was $0.6 million for the nine months ended September 30, 2024, consisting of net repayments of $0.6 million to our revolving credit facility. Net cash used in financing activities was $2.0 million for the nine months ended September 30, 2023, consisting of net repayments of $2.0 million under our revolving credit facility.

Ongoing Funding Requirements

We will need additional funding from our revolving credit facility to continue supporting our operations during the next twelvemonths. 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.

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 Capital, LLC, Little Harbor, LLC, and Golisano Holdings LLC, 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 exercisingany remedies under the outstanding notes. Amendments to extend the maturity date and related payment deferrals of the aforementioned noteshave not been executed and these notes are currently in default. We continue to anticipate extending the maturity dates and related payment deferrals with the lenders, but we cannot guarantee that such extensions and payment deferrals will be successfully obtained.

Until such time, if ever, as we can generate substantial product revenues, we intend to finance our cash needs through a combination of equity offerings, debt 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, sales of assets, 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. We currently have reduced the number of stock keep units and marketing efforts due to a lack of resources.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.