TWINLAB CONSOLIDATED HOLDINGS, INC. 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
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 also perform contract manufacturing services for private label products. Our contract manufacturing services business involves the manufacture of custom products to the specifications of a customer who requires finished products under the customer's own brand name. We do not market these private label products as our business is to sell the products to the customer, who then markets and sells the products to retailers or end consumers.
We distribute one of the broadest branded product lines in the industry with
approximately 260 stock keeping units, or SKUs. We believe that as a result of
our emphasis on innovation, quality, loyalty, education and customer service,
our brands are widely recognized in health and natural food stores and among
their customers. In most periods since our formation, we have generated losses
from operations. As of
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
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Because of our history of operating losses and increase in debt over time, we
have a working capital deficiency of
Management has addressed operating issues through the following actions: focusing on growing the core business and brands; continuing emphasis on major customers and key products; reducing manufacturing and operating costs and continuing to negotiate lower prices from major suppliers. We believe that we may need additional capital to execute our business plan. If additional funding is required, there can be no assurance that sources of funding will be available when needed on acceptable terms or at all.
The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Results of Operations
Comparison of the Three Month Periods Ended
The following table summarizes our results of operations for the three month
period ended
Three Months Ended
March 31, Increase %
2021 2020 (Decrease) Change
Net sales $ 19,460 $ 16,429 $ 3,031 18 %
Cost of sales 12,342 11,265 1,077 10 %
Gross profit 7,118 5,164 1,954 38 %
Operating costs and expenses:
Selling expenses 889 283 606 214 %
General and administrative
expenses 3,658 6,857 (3,199 ) -47 %
Income (loss) from operations 2,571 (1,976 ) 4,547 230 %
Other income (expense):
Interest expense, net (2,169 ) (2,158 ) 11 -1 %
Loss on change in derivative
liabilities - (1,030 ) (1,030 ) -100 %
Other income (expense) (19 ) - 19 0 %
Total other income (expense) (2,188 ) (3,188 ) (1,000 ) -31 %
Income (loss) before income
taxes 383 (5,164 ) 5,547 107 %
Provision for income taxes - -
Total net income (loss) $ 383 $ (5,164 ) $ 5,547 107 %
Net Sales
The increase in our net sales by 18% for the three month period ended
Gross Profit
Our overall gross profit increase of 38% for the three month period ended
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Selling Expenses
Our selling expenses increased by 214% for the three month period ended
General and Administrative Expenses
Our general and administrative expenses decreased by 47% for the three month
period ended
Interest Expense, Net
Our interest expense was relatively unchanged with a
Gain (Loss) on Change in Derivative Liabilities
We have recorded the estimated fair value of the warrants as of the date of
issuance. Due to the variable terms of the warrant agreements, changes in the
estimated fair value of the warrants from the date of issuance to each balance
sheet reporting date are recorded as derivative liabilities with a corresponding
charge to our condensed consolidated statements of operations. During the three
months ended
Liquidity and Capital Resources
At
Our total liabilities increased by
Cash Flows from Operating, Investing and Financing Activities
Net cash used in operating activities was
Net cash provided by financing activities was
Ongoing Funding Requirements
As set forth above, we obtained additional debt financing in the year ended
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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
TCC may prepay 20% or less of the principal balance of the Notes at any time without notice. TCC will use the proceeds of the PPP Loans for payroll, office rent, and utilities. While we intend to pursue the forgiveness of the PPP loan and Second PPP loan received in accordance with the requirements and limitations under the CARES Act, no assurance can be provided that forgiveness of any portion of the PPP Loan will be obtained.
Until such time, if ever, as we can generate substantial product revenues, we intend to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. There can be no assurance that any of those sources of funding will be available when needed on acceptable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or relationships with third parties when needed or on acceptable terms, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts; abandon our business strategy of growth through acquisitions; or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under applicable
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