NEW AGE BEVERAGES : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K)

Overview

You should read the following discussion and analysis of our financial condition
and results of operations together with our financial statements and related
notes included in Item 8 of this Report. Some of the information contained in
this discussion and analysis or set forth elsewhere in this Report, including
information with respect to our plans and strategy for our business and related
financing, includes forward-looking statements that involve risks and
uncertainties. See "Special Note Regarding Forward-Looking Statements" at the
beginning of this Report. Our actual results may differ materially from those
described below. You should also read the "Risk Factors" section set forth in
Item 1A of this Report for a discussion of important factors that could cause
actual results to differ materially from the results described in or implied by
the forward-looking statements contained in the following discussion and
analysis.



Certain figures, such as interest rates and other percentages included in this
section, have been rounded for ease of presentation. Percentage figures included
in this section have not in all cases been calculated on the basis of such
rounded figures but on the basis of such amounts prior to rounding. For this
reason, percentage and dollar amounts in this section may vary slightly from
those obtained by performing the same calculations using the figures in our
consolidated financial statements or in the associated text. Certain other
amounts that appear in this section may similarly not sum due to rounding.

Our Business Model



We are a healthy beverages and lifestyles company engaged in the development and
commercialization of a portfolio of organic, natural and other better-for-you
healthy beverages, liquid dietary supplements, cannabidiol ("CBD") topical
products, and other healthy lifestyle products. We compete in the growth
segments of the beverage industry as a leading one-stop shop supplier for major
retailers and distributors. We also are one of a few companies in our industry
that commercializes its business across multiple channels including traditional
retail, ecommerce, direct to consumer, and the medical channel. We market a full
portfolio of Ready-to-Drink ("RTD") better-for-you beverages including
competitive offerings in the kombucha, tea, yerba mate, coffee, functional
waters, relaxation drinks, energy drinks, rehydrating beverages, and functional
medical beverage segments. We also offer liquid dietary supplement products,
including Tahitian Noni® Juice, through a direct-to-consumer model using
independent distributors called independent product consultants ("IPCs"). We
differentiate our brands through functional performance characteristics and
ingredients and offer products that are organic and natural, with no
high-fructose corn syrup ("HFCS"), no genetically modified organisms ("GMOs"),
no preservatives, and only natural flavors, fruits, and ingredients. We rank
among the largest healthy beverage companies in the world as well as one of the
fastest growing beverage companies according to Beverage Industry Magazine
annual rankings. Our goal is to become the world's leading healthy beverage and
better-for-you products company, with leading brands for consumers, and leading
growth for retailers and distributors. Our target market is health conscious
consumers who are becoming more interested in and better educated on what is
included in their diets, causing them to shift away from less healthy options
such as carbonated soft drinks or other high caloric beverages and towards
alternative beverage choices. We believe consumer awareness of the benefits of
healthier lifestyles and the availability of heathier beverages is rapidly
accelerating worldwide, and we are seeking to capitalize on that shift.



We market our RTD beverage products using a range of marketing mediums,
including direct-to-consumer channels, in-store merchandising and promotions,
experiential marketing, events and sponsorships, digital marketing and social
media, direct marketing, and traditional media including print, radio and
outdoor.



Our core business is to develop, market, sell, and distribute healthy liquid
dietary supplements and ready-to-drink beverages. The beverage industry
comprises $870 billion in annual revenue according to Euromonitor and Booz &
Company and is highly competitive with three to four major multibillion-dollar
multinationals that dominate the sector. We compete by differentiating our
brands as healthier and better-for-you alternatives that are natural, organic,
and/or have no artificial ingredients or sweeteners. Our brands include Tahitian
Noni Juice, TruAge, Xing Tea, Aspen Pure®, Marley, Búcha® Live Kombucha,
PediaAde, Coco Libre, BioShield, and 'NHANCED Recovery, all competing in the
existing growth and newly emerging dynamic growth segments of the beverage
industry. Morinda also has several additional consumer product offerings,
including a TeMana line of skin care and lip products, a Noni + Collagen
ingestible skin care product, wellness supplements, and a line of essential

oils.



Operating Segments

For the years ended December 31, 2018 and 2019, our operating segments have
consisted of the Morinda segment and the NewAge segment. We recently announced
that Morinda has begun doing business as Noni by NewAge. As a result of this
change, we refer to our former Morinda segment as the Noni by NewAge segment of
our business.



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The Noni by NewAge segment is engaged in the development, manufacturing, and
marketing of Tahitian Noni® Juice, MAX and other noni beverages as well as other
nutritional, cosmetic and personal care products. The Noni by NewAge segment has
manufacturing operations in Tahiti, Germany, Japan, the United States, and
China. The Noni by NewAge's products are sold and distributed in more than 60
countries using IPC's through its direct to consumer selling network and
e-commerce business model. Approximately 80% of the net revenue of the Noni by
NewAge segment is generated in the key Asia Pacific markets of Japan, China,
Korea, Taiwan, and Indonesia.



The NewAge segment manufactures, markets and sells a portfolio of healthy
beverage brands including Xing® Tea, Marley, Búcha® Live Kombucha, Coco-Libre®,
Evian® and Volvic®. These products are distributed through the Company's DSD
network and a hybrid of other routes to market throughout the United States and
in 25 countries around the world. The NewAge brands are sold in all channels of
distribution including hypermarkets, supermarkets, pharmacies, convenience,

gas
and other outlets.



Recent Developments



The Morinda business combination that closed on December 21, 2018 significantly
impacted our 2019 operating results compared to 2018. Reference is made to Notes
4, 6, 7, 8, and 9 to our consolidated financial statements included in Item 8 of
this Report for a discussion of recent developments during 2019, including (i) a
new credit facility (the "EWB Credit Facility") with East West Bank ("EWB") in
March 2019 for $25.0 million of funding, as discussed in Note 8, (ii) the
related repayment and termination of a revolving credit facility (the "Siena
Revolver") with Siena Lending Group LLC ("Siena") in March 2019, as discussed in
Note 8, (iii) a sale leaseback of real estate in Tokyo, Japan in March 2019 that
resulted in a net selling price of $53.5 million, as discussed in Note 7, (iv)
an At the Market Offering agreement entered into in April 2019 that has resulted
in net proceeds of $19.5 million through December 31, 2019, as discussed in Note
9, (v) the closing of a business combination with BWR for total consideration of
approximately $1.0 million in July 2019, as discussed in Note 4, and (vi) an
amendment to the EWB Credit Facility in March 2020 as discussed in Note 16.
These recent developments are also discussed below under the caption Liquidity
and Capital Resources.



In December 2019, a novel strain of coronavirus (also known as COVID-19) was
reported to have surfaced in Wuhan, China. In January 2020, this coronavirus
spread to other countries, including the United States and Europe. The outbreak
has continued to spread and is currently classified as a pandemic. Efforts to
contain the spread of this coronavirus has intensified. To date, COVID-19 has
not had a significant impact on our business. Although we currently expect that
the disruptive impact of coronavirus on our business will be temporary, this
situation continues to evolve and therefore we cannot predict the extent to
which the coronavirus will directly or indirectly affect our business and
operating results. The impact could be material.

Key Components of Consolidated Statements of Operations

Net revenue. We recognize revenue when we satisfy our performance obligations
and we transfer control of the promised products to our customers, which
generally occurs over a very short period of time. Performance obligations are
typically satisfied by shipping or delivering products to customers, which is
also the point when title transfers to customers. Revenue consists of the gross
sales price, net of estimated returns and allowances, discounts, and personal
rebates that are accounted for as a reduction from the gross sale price.
Shipping and handling charges that are billed to customers are included as

a
component of revenue.



Cost of goods sold. Cost of goods sold primarily consists of direct costs
attributable to the purchase from third party suppliers or the internal
manufacture of beverage products. It also includes freight costs, shrinkage,
ecommerce fulfillment, distribution and warehousing costs related to products
sold.

Commissions. Commissions earned by our sales and marketing personnel are charged to expense in the same period that the related sales transactions are recognized.

Selling, general and administrative expenses. Selling, general and
administrative ("SG&A") expenses consist primarily of personnel costs for our
administrative, human resources, finance and accounting employees and
executives. General and administrative expenses also include contract labor and
consulting costs, travel-related expenses, legal, auditing and other
professional fees, rent and facilities costs, repairs and maintenance,
advertising and marketing costs, and general corporate expenses.



Business combination expenses. When we enter into business combinations, the
acquisition-related transaction costs are accounted for as expenses in the
periods in which such costs are incurred. A portion of the consideration in
business combinations may be contingent on future operating performance of the
acquired business. In these circumstances, we determine the fair value of the
contingent consideration as a component of the purchase price, and all future
changes in the fair value of our obligations are reflected as an adjustment to
our operating expenses in the period in which the change is determined. In
periods when the fair value of contingent consideration increases, we recognize
an expense and when the fair value of contingent consideration decreases, we
recognize a gain.



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Impairment expense. We periodically consider if events and circumstances have
occurred that would indicate if it is "more likely than not" that an impairment
of our long-lived assets has occurred. We also perform an annual goodwill
impairment evaluation during the fourth quarter of each calendar year.
Evaluating whether impairment exists involves substantial judgment and
estimation. If we determine that impairment exists, we recognize an impairment
charge to reduce the carrying value of the long-lived assets to the expected
discounted cash flows associated with the impaired assets.



Depreciation and amortization expense. Depreciation and amortization expense is
comprised of depreciation expense related to property and equipment,
amortization expense related to leasehold improvements, and amortization expense
related to identifiable intangible assets.



Gains from sale of property and equipment. Gains from the sale of property and
equipment are reflected in the period that the sale transaction closes. Gains
result when we sell assets for an amount in excess of the net carrying value.
Losses from the disposal of property and equipment are netted against gains for
presentation in our consolidated statements of operations.



Interest expense. Interest expense is incurred under our revolving credit
facilities and other debt obligations. The components of interest expense
include the amount of interest payable in cash at the stated interest rate,
"make-whole" premium, accretion and amortization of debt discounts and issuance
costs, and the write-off of debt discounts and issuance costs if we prepay the
debt before the maturity date.



Gain (loss) on change in fair value of derivatives. We periodically enter into
certain debt instruments that contain embedded derivatives that are required to
be bifurcated and recorded at fair value. Examples of embedded derivatives are
provisions that require us to pay the lender default interest upon the existence
of an event of default and to pay "make-whole" interest or premiums for certain
mandatory and voluntary prepayments of the outstanding principal balance. We
also enter into interest rate swap agreements to effectively convert variable
rate debt to fixed rate debt. We perform valuations of all material derivatives
on a quarterly basis. Changes in the fair value of derivatives are reflected as
net non-operating gains or losses in our consolidated statements of operations.



Interest and other income (expense), net. Interest and other income (expense),
net consists of non-operating expenses which are partially offset by interest
and other non-operating income.



Income tax expense. The provision for income taxes is based on the amount of our
taxable income and enacted federal, state and foreign tax rates, as adjusted for
allowable credits and deductions. Substantially all of our provision for current
income taxes consists of foreign taxes for the periods presented since we had no
taxable income for U.S. federal or state purposes.



  22







Results of Operations

Our consolidated statements of operations for the years ended December 31, 2019 and 2018 are presented below (in thousands):

                                                2019            2018           Change

 Net revenue                                 $   253,708     $    52,160     $   201,548
 Cost of goods sold                              101,001          42,865          58,136

 Gross profit                                    152,707           9,295         143,412
 Gross margin                                         60 %            18 %

 Operating expenses:
 Commissions                                      75,961           2,781          73,180

 Selling, general and administrative             114,982          20,288   

94,694

Business combination expense (gain):

Financial advisor and other transaction

 costs                                                 -           3,189   

(3,189 )

Change in fair value of earnout

 obligations                                     (13,809 )           100   

(13,909 )

Long-lived asset impairment expense:

Goodwill and identifiable intangible

 assets                                           44,925               -   

44,925

 Right-of-use assets                               2,265               -   

2,265

 Depreciation and amortization expense             8,382           2,310   

       6,072

 Total operating expenses                        232,706          28,668         204,038

 Operating loss                                  (79,999 )       (19,373 )       (60,626 )

Non-operating income (expenses):

 Gain from sale of property and equipment          6,365               -   

6,365

 Interest expense                                 (3,677 )        (1,068 ) 

(2,609 )

Gain (loss) from change in fair value of

 derivatives, net                                    371            (470 ) 

841

 Interest and other income (expense), net           (227 )          (151 ) 

         (76 )

 Loss before income taxes                        (77,167 )       (21,062 )       (56,105 )
 Income tax benefit (expense)                    (12,668 )         8,927         (21,595 )

 Net loss                                    $   (89,835 )   $   (12,135 )   $   (77,700 )

Comparison of Years ended December 31, 2019 and 2018

Inflation and changing prices. For the years ended December 31, 2019 and 2018,
the impact of inflation and changing prices have not had a significant impact on
our net revenue, cost of goods sold and operating expenses.



Net Revenue. Net revenue increased from $52.2 million for the year ended
December 31, 2018 to $253.7 million for the year ended December 31, 2019, an
increase of $201.5 million or 386%. For the year ended December 31, 2019, this
increase was primarily attributable to the Noni by NewAge, which had an increase
in net revenue of $196.9 million. This was because the Morinda business
combination did not close until December 21, 2018, whereby only $3.8 million of
net revenue was generated by the Noni by NewAge segment for the year ended
December 31, 2018 compared to $200.7 million for the year ended December 31,
2019.



Net revenue for the NewAge segment increased by $4.7 million from $48.3 million
for the year ended December 31, 2018 to $53.0 million for the year ended
December 31, 2019. The increase in net revenue for the NewAge segment was
attributable to the acquisition of BWR, which had net revenue of $4.9 million
for the period from the closing date on July 10, 2019 through December 31, 2019,
partially offset by a decrease of $0.2 million in net revenue attributable to
the legacy products of the NewAge segment.



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Cost of goods sold. Cost of goods sold increased from $42.9 million for the year
ended December 31, 2018 to $101.0 million for the year ended December 31, 2019,
an increase of $58.1 million. For the year ended December 31, 2019, $44.1
million of this increase was attributable to the Noni by NewAge segment. The
Morinda business combination did not close until December 21, 2018, whereby only
$0.9 million of cost of goods sold was incurred by the Noni by NewAge segment
for the year ended December 31, 2018 as compared to $56.0 million for the year
ended December 31, 2019. The remainder of the increase in cost of goods sold of
$13.1 million was attributable to the NewAge segment, which increased from $42.0
million for the year ended December 31, 2018 to $56.0 million for the year ended
December 31, 2019, an increase of 33%. This increase in cost of goods sold for
the NewAge segment was due to (i) the acquisition of BWR, which had cost of
goods sold of $4.9 million for the period from the closing date on July 10, 2019
through December 31, 2019, and (ii) approximately $8.2 million attributable to
the legacy products of NewAge due to higher product costs incurred in the second
half of 2018 due to smaller production runs and buying raw materials in smaller
amounts on the spot market, which was related to our working capital constraints
in 2018. In fiscal 2019, the Company incurred significant discounting of branded
products from national distributors which decreased our margins on these
products. For the year ended December 31, 2019, we continued to cycle through
these higher cost inventories, which increased our cost of goods sold.
Additionally, during the year ended December 31, 2019, we completed full
inventory counts and reconciliations which resulted in an expense of $1.6
million.



Gross profit. Gross profit increased from $9.3 million for the year ended
December 31, 2018 to $152.7 million for the year ended December 31, 2019, an
increase of $143.4 million. Gross margin increased from 18% for the year ended
December 31, 2018 to 60% for the year ended December 31, 2019. The increase in
gross profit and gross margin was attributable to the business combination with
Morinda on December 21, 2018. Gross profit for the Noni by NewAge segment
increased by $152.8 million and resulted in a gross margin of 78%.



Gross profit for the NewAge segment decreased by $9.4 million, resulting in
negative gross profit of $3.0 million for the year ended December 31, 2019.
Gross profit for the BWR reporting unit acquired in July 2019 was breakeven with
net revenue and cost of goods sold of $4.9 million. For the year ended December
31, 2019, the overall reduction of $9.4 million in gross profit for the legacy
products of the NewAge segment was due to cost of goods sold that increased by
22% compared to net revenue that decreased by 1%. The poor performance by the
NewAge segment was a key factor that resulted in significant charges for
impairment of long-lived assets discussed below. Based on the fiscal 2019
results of the BWR and legacy brands businesses, the Company is reviewing its
strategic alternatives for these products.



Commissions. Commissions increased from $2.8 million for the year ended December
31, 2018 to $76.0 million for the year ended December 31, 2019, an increase of
$73.2 million. The Morinda business combination accounted for $72.9 million of
the increase in commissions. The remainder of the increase in commissions of
$0.3 million was primarily attributable to the NewAge segment, including $0.1
million attributable to the BWR reporting unit. For the year ended December 31,
2019, commissions for the Noni by NewAge segment amounted to approximately 37%
of the related net revenue whereas commissions for the NewAge segment were
approximately 3% of the related net revenue of the NewAge segment.



Selling, general and administrative expenses. SG&A expenses increased from $20.3
million for the year ended December 31, 2018 to $115.0 million for the year
ended December 31, 2019, an increase of $94.7 million. This increase consisted
of $83.1 million related to the Noni by NewAge segment and $11.6 million related
to the NewAge segment. The key components of the $83.1 million of SG&A expenses
for the Noni by NewAge segment consist of (i) compensation and benefit costs of
$44.5 million, including stock-based compensation expense of $3.1 million, (ii)
business meetings, awards, promotions and travel of $17.0 million, (iii) rent,
repairs and other occupancy costs of $10.0 million, (iv) professional fees of
$4.1 million, and (v) transaction fees, communications expense and other of

$7.5
million.



The increase in SG&A for the NewAge segment was partially driven by the business
combination with BWR that accounted for $2.9 million of SG&A for the period from
July 10, 2019 through December 31, 2019. The remainder of the increase in SG&A
for the NewAge segment of $8.7 million consisted of (i) compensation and
benefits of $3.2 million, including an increase in stock-based compensation of
$0.7 million, (ii) rent and occupancy costs of $3.0 million, (iii) director and
officer insurance premiums and other costs of $1.2 million, and (iv)
professional fees of $1.3 million.



Change in fair value of earnout obligations. For the year ended December 31,
2019, we recognized a gain of $13.8 million from changes in the fair value of
earnout obligations. A gain of $12.9 million was attributable to the Morinda
business combination and a gain of $0.9 million was attributable to the Marley
business combination, for a total of $13.8 million.



In connection with the Morinda business combination, we issued Series D
Preferred Stock that provides for an annual dividend of $0.2 million and a
milestone dividend of up to an aggregate of $15.0 million if the Adjusted EBITDA
of Morinda is at least $20.0 million for the year ended December 31, 2019. As of
December 31, 2019 and December 31, 2018, the estimated fair value of the Series
D Preferred Stock was approximately $0.2 million and $13.1 million,
respectively. The reduction in fair value was due to our assessment that the
Adjusted EBITDA target would not be achieved and that the only value associated
with the Series D Preferred Stock is approximately $0.2 million for the annual
dividend. Accordingly, we recognized an unrealized gain of approximately $12.9
million for the year ended December 31, 2019.



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We are also subject to an earnout obligation in connection with the Marley
business combination that provides for a one-time payment of $1.25 million
beginning at such time that revenue for the Marley reporting unit is equal to or
greater than $15.0 million during any trailing 12 calendar month period. As of
December 31, 2018, the estimated fair value of the Marley earnout was
approximately $0.9 million. Due to deteriorating net revenue and gross profit
for the Marley reporting unit, we determined that it is unlikely that the Marley
earnout will ever be achieved. Accordingly, there was no fair value associated
with the Marley earnout obligation as of December 31, 2019, which resulted in a
gain of $0.9 million. For the year ended December 31, 2018, the fair value of
the Marley earnout increased by $0.1 million, which was reported as a business
combination expense for the year ended December 31, 2018.



Impairment expense. For the year ended December 31, 2019, we recognized an
aggregate charge of $47.2 million for the impairment of long-lived assets.
During the fourth quarter of 2019, we performed our annual goodwill impairment
testing. Our qualitative assessment indicated that impairment may exist for each
reporting unit within the NewAge segment. Therefore, as of December 31, 2019 we
also performed a quantitative assessment of the fair value of each of our
reporting units within the NewAge and Noni by NewAge segments. The primary basis
for our quantitative assessment was a valuation report for all of our reporting
units that was performed by an independent specialist. The result of this
valuation resulted in an aggregate impairment charge of $44.9 million to
eliminate the net carrying value of all goodwill and substantially all
identifiable intangible assets related to all of the reporting units of the
NewAge segment.



In June 2019, we began attempting to sublease a portion of our right-of-use
("ROU") assets previously used for warehouse space that were no longer needed
for current operations. As a result, an impairment evaluation was completed that
resulted in recognition of an impairment charge of $1.5 million in June 2019.
This evaluation was based on the expected time to obtain a suitable subtenant
and current market rates for similar commercial properties. As of December 31,
2019, we were continuing our efforts to obtain a subtenant for this space.
Accordingly, an updated impairment evaluation was performed which resulted in an
additional impairment charge of $0.8 million for total impairment of $2.3
million for the year ended December 31, 2019. It is possible that further
impairment charges will be incurred if we are not able to locate a subtenant in
the next six to eight months, or if the sublease terms are less favorable than
our current expectations.



Depreciation and amortization expense. Depreciation and amortization expense
included in operating expenses increased from $2.3 million for the year ended
December 31, 2018 to $8.4 million for the year ended December 31, 2019, an
increase of $6.1 million. Approximately $6.3 million of this increase was due to
assets acquired in the Morinda business combination, which accounted for
approximately $2.9 million of depreciation related to property and equipment and
$3.4 million of amortization related to identifiable intangible assets.
Identifiable intangible assets acquired in the BWR business combination also
accounted for an increase in amortization expense of $0.1 million. These
increases totaled $6.4 million and were partially offset by a reduction in
amortization expense of $0.3 million due to the impairment charges that
eliminated the net carrying value of substantially all of the intangible assets
of the NewAge segment.

Gain from sale of building. On March 22, 2019, we entered into an agreement with
a major Japanese real estate company resulting in the sale for approximately
$57.0 million of the land and building in Tokyo that serves as the corporate
headquarters of Morinda's Japanese subsidiary. Concurrently with the sale, we
entered into a lease of this property for an expected term of 20 years with an
extension option for an additional seven years. The sale of this property
resulted in a gain of $24.1 million. We determined that $17.6 million of the
gain was the result of above-market rent inherent in the leaseback arrangement.
The $17.6 million portion of the gain related to above-market rent is being
accounted for as a lease financing obligation whereby the gain will result in a
reduction of rent expense of approximately $0.9 million per year over the
20-year lease term. The remainder of the gain of $6.4 million was attributable
to the highly competitive process among the entities that bid to purchase the
property and, accordingly, is recognized as a gain in our consolidated statement
of operations for the year ended December 31, 2019. For the year ended December
31, 2018, no gain or loss was recognized since we did not sell any of our
property and equipment.



Gain on change in fair value of derivatives. For the year ended December 31,
2019, we recognized a net gain from the change in fair value of derivatives of
$0.4 million compared to a loss of $0.5 million for the year ended December 31,
2018. In July 2019, we entered into an interest rate swap agreement with EWB.
This swap agreement provides for a total notional amount of $10.0 million at a
fixed interest rate of approximately 5.4% through May 1, 2023, in exchange for a
floating rate indexed to the prime rate plus 0.5%. Through December 31, 2019, we
had an unrealized loss from this interest rate swap agreement of approximately
$0.1 million. This unrealized loss was offset by a gain of $0.5 million from the
change in fair value of embedded derivatives related to the Siena Revolver that
was terminated in March 2019. As a result of these two derivatives, we
recognized a net gain from change in fair value of derivatives of $0.4 million
for the year ended December 31, 2019. For the year ended December 31, 2018, we
had a loss from the change in fair value of embedded derivatives of $0.5 million
related to our former Siena Revolver credit facility.



  25

Interest expense. Interest expense increased from $1.1 million for the year
ended December 31, 2018 to $3.7 million for the year ended December 31, 2019, an
increase of $2.6 million. For the year ended December 31, 2019, interest expense
was primarily attributable to (i) termination of the Siena Revolver, which
resulted in a make-whole prepayment penalty of $0.5 million, (ii) accretion of
discount and write-off of debt issuance costs of $0.5 million related to the
Siena Revolver, (iii) accretion of discount and amortization of debt discount
for a total of $1.2 million related to the Morinda business combination
liabilities and the EWB Credit Facility, (iv) imputed interest expense of $0.5
million related to a deferred lease financing obligation, and (v) interest
expense based on the contractual rates and swap settlements under the EWB Credit
Facility of $0.7 million based on a weighted average interest rate of 5.6% and
weighted average borrowings outstanding of $15.5 million for the year ended
December 31, 2019.



For the year ended December 31, 2018, we incurred interest expense of $1.1
million which was primarily related to a senior secured convertible promissory
note with a principal balance of $4.75 million that was borrowed in June 2018.
Due to the early extinguishment of this note in August 2018, we recognized
accretion for all of the debt discount and issuance costs of $0.6 million,
interest expense at the stated rate for $0.1 million, and a make-whole
prepayment fee of $0.2 million. In addition, for the year ended December 31,
2018, we incurred interest expense for an aggregate of $0.2 million under a
revolving credit agreement with U.S. Bank, the Siena Revolver and the Maverick
Series B note payable.

Other expense, net. For the years ended December 31, 2019 and 2018, we had other
expense, net of $0.3 million and $0.2 million, respectively. Other expense, net
for the year ended December 31, 2019 consisted of other non-operating expense of
$0.5 million, partially offset by interest income of $0.2 million. Other
expense, net for the year ended December 31, 2018 consisted of miscellaneous
non-operating expense of $0.2 million.



Income tax expense. For the year ended December 31, 2019, we recognized income
tax expense of $12.7 million, which consisted of foreign income taxes of $17.6
million, partially offset by a net deferred income tax benefit of $4.9 million.
Foreign income taxes consisted of approximately $11.9 million that was incurred
in March 2019 due to our sale leaseback of the building that serves as Morinda's
Japanese headquarters, and the remaining $5.7 million was primarily attributable
to profitable operations in foreign jurisdictions.



For the year ended December 31, 2018, we recognized an income tax benefit of
$8.9 million as a result of deferred income tax liabilities recorded in
connection with the Morinda business combination. We determined that our net
operating loss carryforwards will offset any income tax expense related to the
deferred income tax liabilities for Morinda. Accordingly, we recognized an $8.9
million deferred income tax benefit for the year ended December 31, 2018.



  26

Liquidity and Capital Resources

Overview

As of December 31, 2019, we had cash and cash equivalents of $60.8 million and working capital of $33.5 million. For the year ended December 31, 2019, we incurred a net loss of $89.8 million and we used cash in our operating activities of $31.8 million.

As of December 31, 2019, we have contractual obligations of approximately $21.6
million that are due during the year ending December 31, 2020, including (i)
payables to the former stockholders of Morinda of $5.7 million as discussed
below, (ii) operating lease payments of $8.4 million, (iii) up to $2.8 million
for principal and estimated interest payments due under our EWB Credit Facility
(as defined below), (iv) open purchase orders for inventories of $3.4 million,
and (v) payments under employment agreements of $1.3 million. Our contractual
obligations discussed above exclude discretionary principal payments under the
EWB Revolver for $9.7 million that were paid on January 2, 2020 and which can be
reborrowed subject to the terms of the EWB Credit Facility.



As discussed below, we entered into the third amendment and waiver (the "Third
Amendment") to the EWB Credit Facility on March 13, 2020. The Third Amendment is
expected to have a significant impact on our liquidity and capital resources for
the year ending December 31, 2020, because we are required to maintain an
aggregate of $15.1 million in restricted cash balances with EWB. Accordingly,
this portion of our cash resources will be available for future principal
payments under the EWB Term Loan but may not be used for any other purposes. The
Third Amendment also requires us to raise equity infusions of $15.0 million for
the first six months of 2020 (of which $6.3 million was received in January
2020), and to raise cumulative equity infusions of $30.0 million for the year
ending December 31, 2020. We intend to raise the required cumulative equity
infusions of $30.0 million through the ATM Offering Agreement (described below).
The ATM Offering Agreement is scheduled to terminate on April 30, 2020, but we
intend to seek an extension. We may also meet the requirement for equity
infusions through other types of equity offerings. We believe we will be able to
raise the remaining $23.7 million of the equity infusions by December 31, 2020.
However, there can be no assurance that we will be successful in raising such
funds at terms acceptable to us or at all.



We believe our existing cash resources of $60.8 million, combined with our
ability to raise equity funding through the ATM Offering Agreement or through
other equity offerings, will be sufficient to fund the restricted cash required
by EWB of $15.1 million, our contractual obligations of $21.6 million, and
working capital requirements for the next 12 months.



For the year ended December 31, 2019, a sale leaseback of Morinda's Japanese
headquarters, public offerings under the ATM Offering Agreement, the refinancing
of our bank debt, and payments related to the Morinda business combination had a
significant impact on our liquidity and capital resources. These transactions
are discussed further below.



Sale Leaseback

On March 22, 2019, we entered into an agreement with a major Japanese real
estate company resulting in the sale for approximately $57.1 million of the land
and building in Tokyo that serves as the corporate headquarters of Morinda's
Japanese subsidiary. Concurrently with the sale, we entered into a lease of this
property for a term of 27 years with the option to terminate at any time after
seven years. The monthly lease cost is ¥20.0 million (approximately $183,000
based on the exchange rate as of December 31, 2019) for the initial seven-year
term, and thereafter either party may elect to adjust the monthly lease payment
to the then current market rate for similar buildings in Tokyo. In order to
secure our obligations under the lease, we provided a refundable security
deposit of approximately $1.8 million. If the lease is terminated before the
20th anniversary of the lease inception date, then we will be obligated to
perform certain restoration obligations. We determined that the restoration
obligations are a significant penalty whereby there is reasonable certainty that
we will not elect to terminate the lease prior to the 20-year anniversary.
Therefore, we determined the lease term was 20 years for financial reporting
purposes.

In connection with this transaction, the following payments were or will be
made: (i) $25.0 million to the former stockholders of Morinda to settle the
contingent financing liability that we paid in June 2019, (ii) $2.6 million to
terminate the mortgage on the building which was paid directly to the mortgage
holder to eliminate the lien on the property, (iii) transaction costs of $1.9
million, (iv) post-closing repair obligations of $1.7 million, and (v) Japanese
income taxes of $11.9 million that were paid in February 2020. After all of
these payments are made, the net increase in our liquidity and capital resources
from the sale leaseback was approximately $12.6 million.



  27

At the Market Offering Agreement

On April 30, 2019, we entered into an At the Market Offering Agreement (the "ATM
Offering Agreement") with Roth Capital Partners, LLC (the "Agent"), pursuant to
which we may offer and sell from time to time up to an aggregate of $100 million
in shares of our Common Stock (the "Placement Shares"), through the Agent. We
have no obligation to sell any of the Placement Shares under the ATM Offering
Agreement, which terminates on April 30, 2020 and may be earlier terminated by
both parties. We intend to use the net proceeds from the offering for general
corporate purposes, including working capital. Under the terms of the ATM
Offering Agreement, we agreed to pay the Agent a commission equal to 3% of the
gross proceeds from the gross sales price of the Placement Shares up to $30
million, and 2.5% of the gross proceeds from the gross sales price of the
Placement Shares in excess of $30 million. Through December 31, 2019, we sold an
aggregate of approximately 6.0 million shares of Common Stock for gross proceeds
of approximately $20.7 million. Total commissions and other offering costs
deducted from the proceeds were $1.2 million for net proceeds of $19.5 million.
In January 2020, we received additional net proceeds under the ATM Offering
Agreement of $6.3 million from the issuance of approximately 3.5 million shares
of our Common Stock.

East West Bank Credit Facility

On March 29, 2019, we entered into a credit facility with East West Bank (the
"EWB Credit Facility"). The EWB Credit Facility matures on March 29, 2023 (the
"Maturity Date") and provides for (i) a term loan in the aggregate principal
amount of $15.0 million, which may be increased to $25.0 million subject to the
satisfaction of certain conditions (the "EWB Term Loan") and (ii) a $10.0
million revolving loan agreement (the "EWB Revolver"). As of December 31, 2019,
we had outstanding borrowings of $14.8 million under the EWB Term Loan and $9.7
million under the EWB Revolver. On January 2, 2020, we elected to make a
voluntary prepayment of $9.7 million to repay all outstanding borrowings under
the EWB Revolver.

Our obligations under the EWB Credit Facility are secured by substantially all
of our assets and guaranteed by certain of our subsidiaries. The EWB Credit
Facility requires compliance with certain financial and restrictive covenants
and includes customary events of default. Key financial covenants include
maintenance of minimum Adjusted EBITDA and a maximum Total Leverage Ratio (all
as defined and set forth in the EWB Credit Facility). During any periods when an
event of default occurs, the EWB Credit Facility provides for interest at a rate
that is 3.0% above the rate otherwise applicable to such obligations. As of
December 31, 2019, we were not in compliance with our minimum adjusted EBITDA
covenant. Our non-compliance with this covenant was waived in connection with
the Third Amendment to the EWB Credit Facility. There is no assurance EWB will
waive any future instances of noncompliance.



Borrowings outstanding under the EWB Credit Facility bear interest at the Prime
Rate (4.25% as of December 31, 2019) plus 0.5%. However, if the Total Leverage
Ratio (as defined in the EWB Credit Facility) is subsequently less than 1.50 to
1.00, borrowings will bear interest at the Prime Rate plus 0.25%. We may
voluntarily prepay amounts outstanding under the EWB Revolver without prepayment
charges on ten business days' prior notice to EWB. In the event the EWB Revolver
is terminated prior to the Maturity Date, we would be required to pay an early
termination fee in the amount of 0.50% of the revolving line. Additional
borrowing requests under the EWB Revolver are subject to various customary
conditions precedent, including satisfaction of a borrowing base test as more
fully described in the EWB Credit Facility. The EWB Revolver also provides for
an unused line fee equal to 0.5% per annum of the undrawn portion. The EWB
Revolver includes a subjective acceleration clause and a lockbox arrangement
where we are required to direct our customers to remit payments to a restricted
bank account, whereby all available funds are used to pay down the outstanding
principal balance under the EWB Revolver. Accordingly, we are required to
classify the entire outstanding principal balance of the EWB Revolver as a
current liability in our consolidated balance sheets.



Payments under the EWB Term Loan were interest-only through September 2019 and
are followed by monthly principal payments of $125,000 plus interest until the
Maturity Date of the EWB Term Loan. We may elect to prepay the EWB Term Loan
before the Maturity Date on 10 business days' notice to EWB subject to a
prepayment fee of 2% for the first year of the EWB Term Loan and 1% for the
second year of the EWB Term Loan. No later than 120 days after the end of each
fiscal year, commencing with the fiscal year ending December 31, 2019, we are
required to make a payment towards the outstanding principal amount of the EWB
Term Loan in an amount equal to 35% of the Excess Cash Flow (as defined in the
Credit Facility), if the Total Leverage Ratio is less than 1.50 to 1.00 or 50%
of the Excess Cash Flow if the Total Leverage Ratio is greater than or equal to
1.50 to 1.00. Mandatory principal payments based on Excess Cash Flow generated
in subsequent quarters are excluded from our current liabilities since they are
contingent payments based on the generation of working capital in the future.
For the year ended December 31, 2019, we were not required to make any principal
payments related to Excess Cash Flow.



On August 5, 2019, we entered into a first amendment to the EWB Credit Facility
effective as of July 11, 2019, pursuant to which EWB waived non-compliance by
the Company with certain covenants in the EWB Credit Facility that may have
occurred or would otherwise arise as a result of the BWR Merger Agreement.
Pursuant to the first amendment, BWR entered into a Supplement to Guarantee and
Pledge and an Intellectual Property Security Agreement. On October 9, 2019, we
entered into a second amendment to the EWB Credit Facility under which EWB
waived (i) any default for failure to maintain at least $5.0 million of net cash
with EWB in the United States or in China during the period from July 25, 2019
to October 9, 2019 and (ii) any default for failing to maintain primary
operating accounts with EWB, and ensuring that the Company's deposit and
investment accounts with third party financial institutions located in China
contain no more than 40% of the Company's total cash, cash equivalents and
investment balances maintained in China. The second amendment also amended the
EWB Credit Facility to (i) extend the time period to establish compliance with
the operating account provisions until November 30, 2019, (ii) to make the
covenants no longer applicable to the Company's subsidiaries in China, and (iii)
to decrease the amount of net cash from $5.0 million to $2.0 million that the
Company is required to maintain with EWB on and after December 31, 2019.



  28

On March 13, 2020, we entered into the Third Amendment to the EWB Credit Facility whereby EWB waived our failure to comply with the minimum adjusted EBITDA covenant for the 12-month period ended December 31, 2019. In addition, the Third Amendment modified the EWB Credit Facility as follows:

? We are required to maintain an aggregate of $15.1 million in restricted cash

accounts with EWB. In the future, this amount will be reduced by the amount of

future principal payments under the EWB Term Loan.

? Less stringent requirements are applicable for future compliance with the

minimum adjusted EBITDA covenant, the maximum total leverage ratio, and the

fixed charge coverage ratio. Additionally, compliance with the maximum total

leverage ratio and the fixed charge coverage ratio have been delayed until

June 30, 2021.

? The existing provisions related to "equity cures" that may be employed to

maintain compliance with financial covenants were increased from $5.0 million

to $15.0 million for the year ending December 31, 2020, and $10.0 million per

year for each calendar year thereafter.

? We are required to obtain equity infusions for at least $15.0 million for the

first six months of 2020, of which $6.3 million was received in January 2020.

In addition, cumulative equity infusions of $30.0 million must be received for

the year ending December 31,2020.

? The interest rate applicable to our outstanding borrowings under the EWB Term

Loan and the EWB Revolver increased to 2.0% in excess of the prime rate. If we

subsequently comply for two consecutive fiscal quarters with both the maximum

total leverage ratio and the fixed charge coverage ratio, the interest rate

    will be reduced to 0.50% in excess of the prime rate (assuming that the
    Company's total leverage ratio is less than 1.50 to 1.00).

Business Combination Liabilities

We issued series D preferred stock in connection with the Morinda business
combination. The series D preferred stock is classified as a liability in our
consolidated balance sheets. By April 15, 2020, we are obligated to pay an
annual dividend of $0.2 million. The series D preferred stock includes an
earnout payment based on the calculation of a milestone dividend. The maximum
milestone dividend is $15.0 million if the adjusted EBITDA of Morinda is $20.0
million or more for the year ended December 31, 2019. If adjusted EBITDA is
$17.0 million or less for the year ending December 31, 2019, no milestone
dividend is payable. Morinda's adjusted EBITDA for the year ended December 31,
2019 was less than $17.0 million and, accordingly, no milestone dividend is
payable.



The series D preferred stock is recorded in our financial statements at fair
value, which amounted to $0.2 million as of December 31, 2019. In addition, we
are obligated to make the final excess working capital ("EWC") payment in July
2020. The EWC obligation is $5.5 million and the net carrying value of this
obligation was approximately $5.3 million as of December 31, 2019.



In connection with the Marley business combination in 2017, we are obligated to
make a one-time earnout payment of $1.25 million over a period of two years
beginning at such time that revenue for the Marley reporting unit is equal to or
greater than $15.0 million during any trailing 12 calendar month period. Revenue
for the Marley reporting unit is not currently expected to exceed the $15.0
million earnout threshold, which resulted in the elimination of the net carrying
value of the liability in 2019.



  29

The table below summarizes the net carrying value and the range of cash settlements for the Marley and Morinda business combination liabilities as of December 31, 2019 (in thousands):

                                             Carrying             Gross Settlement Value
                                            Value, Net          Minimum             Maximum

Marley earnout obligation                 $            -     $           -       $       1,250
Payables to former Morinda
stockholders, net:
Excess Working Capital payable in July
2020                                               5,283             5,463               5,463
Earnout under Series D preferred stock
payable in April 2020                                225               225              15,225

Total                                     $        5,508     $       5,688       $      21,938




Cash Flows Summary

Presented below is a summary of our operating, investing and financing cash flows for the years ended December 31, 2019 and 2018 (in thousands):

                                             2019          2018         Change

Net cash provided by (used in):

         Operating activities              $ (31,801 )   $ (21,831 )   $  

(9,970 )

         Investing activities                 29,429       (29,438 )      

58,867

         Financing activities                 19,394        96,401       (77,007 )

Cash Flows Provided by Operating Activities

For the years ended December 31, 2019 and 2018, net cash used in operating
activities amounted to $31.8 million and $21.8 million, respectively. The key
components in the calculation of our net cash used in operating activities for
the years ended December 31, 2019 and 2018, are as follows (in thousands):

                                               2019             2018            Change

 Net loss                                  $    (89,835 )   $    (12,135 )   $    (77,700 )
 Non-cash expenses                               71,840            7,378           64,462

Change in fair value of earnout

 obligations and derivatives, net               (14,180 )            570   

(14,750 )

 Gain from sale of land and building             (6,365 )              -   

(6,365 )

 Deferred income tax benefit                     (4,944 )         (8,927 ) 

3,983

Changes in operating assets and

 liabilities, net                                11,683           (8,717 )         20,400

 Total                                     $    (31,801 )   $    (21,831 )   $     (9,970 )




For the year ended December 31, 2019, our net loss was $89.8 million compared to
a net loss of $12.1 million for the year ended December 31, 2018. Please refer
to the section Results of Operations above for a discussion of the factors that
resulted in our net loss for the years ended December 31, 2019 and 2018.



For the year ended December 31, 2019, non-cash expenses partially mitigated the
impact of our net loss by $71.9 million. Non-cash expenses consisted of (i)
long-lived asset impairment expense of $47.2 million, (ii) depreciation and
amortization expense of $8.8 million, (iii) non-cash lease expense of $7.1
million, (iv) stock-based compensation expense of $6.4 million, (v) accretion
and amortization of debt discount and issuance costs of $1.9 million, and (vi)
make-whole premium of $0.5 million.



For the year ended December 31, 2019, we recognized non-cash gains due to
changes in the fair value of the Morinda and Marley earnout obligations of $13.8
million, and derivatives of $0.4 million for a total of $14.2 million. For the
year ended December 31, 2019, for financial reporting purposes we had a gain on
sale of property and equipment of $6.4 million due to the sale of our land and
building in Tokyo. This $6.4 million gain is excluded from our operating cash
flows because it was generated from the receipt of investing cash flows.
Differences in the timing of our recognition of the gain on sale for income tax
and financial reporting purposes are primarily responsible for the deferred
income tax benefit of $4.9 million for the year ended December 31, 2019. All of
these non-cash gains and deferred tax benefits favorably impacted our net loss
but did not generate any operating cash flows for the year ended December 31,
2019.



  30







For the year ended December 31, 2019, changes in operating assets and
liabilities provided $11.8 million of operating cash flows. Changes that
increased operating cash flows include (i) a net increase in accounts payable
and accrued liabilities of $8.6 million that was driven by the increase in
current income taxes payable, (ii) a reduction in inventories of $2.8 million,
and (iii) a reduction in prepaid expenses, deposits and other assets of $0.9
million. These increases in operating cash flows total $12.3 million and were
partially offset by reduced cash flow due to an increase of $0.5 million in our
trade receivables. As of December 31, 2019, substantially all of our current
income tax liabilities of $15.2 million either have been paid, or are scheduled
for payment, in the first quarter of 2020. Accordingly, these payments will
result in negative operating cash flows in the period in which we are required
to make the payments.



For the year ended December 31, 2018, our net loss of $12.1 million, a deferred
income tax benefit of $8.9 million and changes in operating assets and
liabilities of $8.7 million resulted in combined negative operating cash flow of
$29.8 million. However, non-cash expenses of $7.4 million, and non-cash losses
related to the change in fair value of derivatives and earnout obligations for
an aggregate of $0.6 million, partially mitigated this impact to arrive at net
cash used in operating activities of $21.8 million. For the year ended December
31, 2018, non-cash expenses of $7.4 million included depreciation and
amortization expense of $2.3 million, stock-based compensation expense of $2.5
million, acquisition costs settled in shares of Common Stock for $1.2 million,
accretion and amortization of debt discount and issuance costs of $0.8 million,
non-cash lease expense of $0.4 million, and a cash expense for make-whole
applicable premium of $0.2 million that was classified as a financing cash
outflow since it related to the prepayment of debt..



For the year ended December 31, 2018, we recognized non-cash expenses due to
changes in the fair value of the Marley earnout obligations of $0.1 million, and
derivatives of $0.5 million for a total of $0.6 million. For the year ended
December 31, 2018, the net changes in operating assets and liabilities used $8.7
million of operating cash flows, including (i) an increase in inventories of
$3.4 million, (ii) an increase in prepaid expenses and other assets of $1.7
million, and (iii) a decrease in accounts payable and accrued liabilities of
$4.9 million. These uses of cash totaled $10.0 million and were partially offset
by cash collections that resulted in a decrease in accounts receivable of $1.3
million.

Cash Flows from Investing Activities

For the year ended December 31, 2019, cash provided by investing activities of
$29.4 million was primarily driven by the sale leaseback of our land and
building in Tokyo. The gross selling price was $57.1 million. After deducting
commissions and other selling expenses of $1.9 million, the net proceeds
amounted to $55.2 million. The net proceeds attributable to investing activities
included $36.2 million that was attributable to the sale of the property, and
$1.3 million that was designated to fund future repair obligations for a total
of $37.5 million. The remainder of the net proceeds of $17.6 million was a
financial inducement to enter into a 20-year operating lease as discussed under
Cash Flows from Financing Activities.



Investing cash outflows for the year ended December 31, 2019 included (i)
capital expenditures for property and equipment of $5.4 million, (ii) a security
deposit of $1.8 million withheld by the purchaser in the sale leaseback, and
(iii) cash paid for our business combination with BWR for $1.0 million. Our
capital expenditures included property and equipment for our Noni by NewAge
segment of $4.2 million, and capital expenditures for our NewAge segment of $1.2
million. Capital expenditures for the Noni by NewAge segment included leasehold
improvements of $2.0 million to the Tokyo, Japan headquarters facility,
manufacturing line improvements of $0.4 million in our Rongchang, China
facility, and leasehold improvement for a new leased facility in Shanghai,
China. Capital expenditures for the NewAge segment included leasehold
improvements related to our new distribution facility in Aurora, Colorado of
$0.3 million, transportation equipment of $0.2 million, and furniture and office
equipment primarily related to our new leased facilities in Aurora and Denver,
Colorado for a total of $0.4 million.



For the year ended December 31, 2018, our principal use of cash in investing
activities resulted from a cash payment of $75.0 million to purchase the Noni by
NewAge segment in December 2018. This cash payment was offset by the cash, cash
equivalents and restricted cash of $46.3 million that we acquired from Morinda
for a net cash outlay of $28.7 million. For the year ended December 31, 2018, we
also made capital expenditures primarily for machinery and equipment for $0.7
million, of which approximately $0.6 million was paid in December 2018 related
to the Noni by NewAge segment.

Cash Flows from Financing Activities

Our financing activities provided net cash proceeds of $19.4 million for the
year ended December 31, 2019, as compared to net cash proceeds received of $96.4
million for the year ended December 31, 2018. For the year ended December 31,
2019, the principal sources of cash from our financing activities consisted of
(i) $61.3 million of borrowings, including $51.7 million under the EWB Credit
Facility and $9.6 million under the Siena Revolver that was terminated in March
2019, (ii) net proceeds of $20.1 million from the issuance of approximately 6.0
million shares of Common Stock pursuant to the ATM Offering Agreement, (iii)
proceeds of $17.6 million for the deferred lease financing obligation related to
the sale leaseback of our land and building in Tokyo, and (iv) proceeds from the
exercise of stock options of $0.6 million. These financing cash proceeds totaled
$99.6 million and were partially offset by (i) principal payments under debt
agreements of $43.9 million, including $29.2 million under the EWB Credit
Facility, $9.7 million under the Siena Revolver, $2.6 million to repay the
mortgage on the sale of our land and building in Tokyo, and $2.4 million to
terminate the line of credit assumed in the business combination with BWR, (ii)
payment of Morinda business combination liabilities of $34.0 million, (iii)
payments for debt issuance costs of $1.0 million to obtain the EWB Credit
Facility, (iv) payment of make-whole premium of $0.5 million as a result of the
termination of the Siena Revolver, (v) cash payments of $0.5 million for
offering costs related to the ATM Offering Agreement, and (vi) cash payments to
reduce a deferred lease financing obligation of $0.5 million as discussed below.
The Siena Revolver was terminated on March 29, 2019 and was replaced by the

EWB
Credit Facility.



  31







As discussed above, the net proceeds received from the buyer of our land and
building in Tokyo included $17.6 million that represented an inducement to enter
into the related leaseback financing arrangement. Since we agreed to pay above
market lease payments for the 20-year lease term in exchange for an up-front
cash payment included in the selling price, we have recognized a deferred lease
financing obligation for this amount. For financial reporting purposes, a
portion of the monthly operating lease payments is not being recognized as rent
expense, but rather is allocated to reduce this financial liability and
recognize imputed interest expense. For the year ended December 31, 2019, $0.5
million of our lease payments was allocated to reduce the financial liability.



Our financing activities provided net cash proceeds of $96.4 million for the
year ended December 31, 2018. For the year ended December 31, 2018, the
principal sources of cash from our financing activities consisted of (i) $99.9
million from four public offerings that resulted in the issuance of an aggregate
of 34.7 million shares of our Common Stock, (ii) $5.0 million for borrowings
under the Siena Revolver, and (iii) $4.6 million from a convertible debt
financing in June 2018. These financing cash proceeds totaled $109.5 million and
were partially offset by cash payments for (i) principal paid under the Siena
Revolver of $3.0 million, (ii) principal and make-whole premium in August 2018
to repay the convertible debt financing for $4.9 million, (iii) payment to
terminate our revolver with U.S. Bank for $2.0 million in June 2018, (iv)
payment of $2.2 million for incremental and direct offering costs associated
with the public offerings, and (v) payment of debt issuance costs associated
with the Siena Revolver for $0.6 million.



Contractual Obligations



The following table summarizes our contractual obligations on an undiscounted
basis as of December 31, 2019, and the period in which each contractual
obligation is due:



                                                          Year Ending December 31:
                                  2020        2021        2022         2023        2024        Thereafter       Total

Operating lease obligations     $  8,357     $ 6,836     $ 5,490     $  5,424     $ 5,275     $     28,648     $ 60,030
Payables to former Morinda
stockholders:
Morinda business combination
earnout (1)                          225           -           -            -           -                -          225
Excess working capital (EWC)
(2)                                5,463           -           -            -           -                -        5,463
EWB Revolver (3)
Principal                              -           -           -        9,700           -                -        9,700
Interest expense                     523         524         524          131           -                -        1,702
Unused line fees                       2           2           2            -           -                -            6
EWB Term Loan (4):
Principal                          1,500       1,500       1,500       10,250           -                -       14,750
Interest expense                     815         725         638          144           -                -        2,322
Installment notes payable              6           2           -            -           -                -            8
Employment agreements (5)          1,350           -           -            -           -                -        1,350
Open purchase orders               3,364           -           -            -           -                -        3,364

Total                           $ 21,605     $ 9,589     $ 8,154     $ 25,649     $ 5,275     $     28,648     $ 98,920






  (1) Represents the fair value of earnout consideration under the Series D

Preferred Stock as discussed further in Note 4 to the consolidated financial

statements included in Item 8 of this Report. The cash payment is due by

April 15, 2020.

(2) Represents the final EWC payment, excluding accretion of discount, payable

to Morinda's former stockholders in July 2020.

(3) Assumes the outstanding balance of the EWB Revolver as of December 31, 2019

remains outstanding until the maturity date in March 2023. Interest expense

is based on the rate in effect as of December 31, 2019 in conjunction with

an interest rate swap that fixes the rate at 5.4% for $10.0 million of

outstanding borrowings.

(4) Principal and interest payments under the EWB Term Loan assume scheduled

principal payments of $125,000 per month and no future Excess Cash Flow

principal reductions. Interest expense is based on the effective rate of

      5.75% as of December 31, 2019.
  (5) Consists of base salary payable to three individuals under employment
      agreements that renew annually for successive one-year terms, unless
      terminated by either party.




  32

Off-Balance Sheet Arrangements

During the years ended December 31, 2019 and 2018, we did not have any
relationships with unconsolidated organizations or financial partnerships, such
as structured finance or special purpose entities, which were established for
the purpose of facilitating off-balance sheet arrangements.



Foreign Currency Risks



We have foreign currency risks related to our net revenue and operating expenses
denominated in currencies other than the U.S. Dollar, primarily the Euro,
Chinese Yuan and Japanese Yen. We generated approximately 72% of our net revenue
from our international business for the year ended December 31, 2019. Increases
in the relative value of the U.S. Dollar to other currencies may negatively
affect our net revenue, partially offset by a positive impact to operating
expenses in other currencies as expressed in U.S. Dollars. We have experienced
and will continue to experience fluctuations in our net income (loss) as a
result of transaction gains or losses related to revaluing certain current asset
and current liability balances, including intercompany receivables and payables,
which are denominated in currencies other than the functional currency of the
entities in which they are recorded. While we have not engaged in the hedging of
our foreign currency transactions to date, we are evaluating such a program and
may in the future hedge selected significant transactions denominated in
currencies other than the U.S. Dollar.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, as well as the
reported net revenue and expenses during the reporting periods. These items are
monitored and analyzed for changes in facts and circumstances, and material
changes in these estimates could occur in the future. We base our estimates on
historical experience and on various other factors that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Changes in estimates are reflected in
reported results for the period in which they become known. Actual results may
differ from these estimates under different assumptions or conditions.



We believe that of our significant accounting policies that are described in
Note 2 to our consolidated financial statements included in Item 8 of this
Report, the following accounting policies involve a greater degree of judgment
and complexity. Accordingly, these are the policies we believe are the most
critical to aid in fully understanding and evaluating our consolidated financial
condition and results of operations.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price of acquired businesses over
the estimated fair value of the identifiable net assets acquired. Goodwill and
other intangibles with indefinite useful lives are not amortized but tested for
impairment annually or more frequently when events or circumstances indicate
that the carrying value of a reporting unit more likely than not exceeds its
fair value. The goodwill impairment test is applied by performing a qualitative
assessment before calculating the fair value of the reporting unit. If, on the
basis of qualitative factors, it is considered more likely than not that the
fair value of the reporting unit is greater than the carrying amount, further
testing of goodwill for impairment is not required. In the course of preparing
our annual goodwill impairment testing, if we project a sustained decline in a
reporting unit's revenues and earnings, it will have a significant negative
impact on the fair value of the reporting unit which could result in material
future impairment charges for our goodwill and long-lived assets. Such a decline
could be driven by, among other things: (i) changes in strategic priorities;
(ii) anticipated decreases in product pricing, sales volumes, and long-term
growth rates as a result of competitive pressures or other factors; and (iii)
the inability to achieve, or delays in achieving the goals of our strategic
initiatives and synergies. Adverse changes to macroeconomic factors, such as
increases to long-term interest rates, would also negatively impact the fair
value of our reporting units. If the carrying amount of a reporting unit exceeds
the reporting unit's fair value, an impairment loss is recognized in an amount
equal to that excess, limited to the total amount of goodwill allocated to

that
reporting unit.



  33







Identifiable intangible assets acquired in business combinations are recorded at
the estimated acquisition date fair value. Finite lived intangible assets are
amortized over the shorter of the contractual life or their estimated useful
life using the straight-line method, which is determined by identifying the
period over which the cash flows from the asset are expected to be generated.

Impairment of Long-lived Assets

Long-lived assets include identifiable intangible assets, property and
equipment, and right-of-use assets. Under our accounting policies, at least
quarterly we consider whether events and circumstances have occurred that would
indicate if it is "more likely than not" that an impairment of our long-lived
assets has occurred. Evaluating whether impairment exists involves substantial
judgment and estimation. Impairment exists for identifiable intangible assets,
property and equipment and right-of-use assets if the carrying amounts of such
assets exceed the estimates of future net undiscounted cash flows expected to be
generated by such assets. If impairment is determined to exist, then an
impairment charge is recognized for the amount by which the carrying amount of
the asset, or asset group, exceeds its fair value. Fair value of our long-lived
assets is determined using the fair value concepts set forth in ASC 820, Fair
Value Measurement.



Revenue Recognition

We recognize product sales when we satisfy our performance obligations and
transfer control of the promised products to our customers, which generally
occurs over a very short period of time. Performance obligations are typically
satisfied by shipping or delivering products to customers, which is also the
point when title transfers to customers. Revenue is measured as the amount of
consideration expected to be received in exchange for transferring the related
products.



Net revenue consists of the gross sales price, less estimated returns and
allowances for which provisions are made at the time of sale, and less certain
other discounts, allowances, and personal rebates that are accounted for as a
reduction from gross revenue. Shipping and handling charges that are billed to
our customers are included as a component of revenue. Costs incurred by us for
shipping and handling charges are included in cost of goods sold.



Payments received for undelivered or back-ordered products are recorded as
deferred revenue. Our policy is to defer revenue related to distributor
convention fees, payments received on products ordered in the current period but
not delivered until the subsequent period, initial IPC fees, IPC renewal fees
and internet subscription fees until the products or services have been
provided.



Inventories



Inventories are adjusted to the lower of cost and net realizable value, using
the first-in, first-out method. The components of inventory cost include raw
materials, labor and overhead. The determination of net realizable value
involves various assumptions related to excess or slow-moving inventories,
non-conforming inventories, expiration dates, current and future product demand,
production planning, and market conditions. If future demand and market
conditions are less favorable than our assumptions, additional inventory
adjustments could be required in future periods.



Stock-Based Compensation

We measure the cost of employee and director services received in exchange for
all equity awards granted, including stock options, based on the fair market
value of the award as of the grant date. We compute the fair value of options
using the Black-Scholes-Merton option pricing model. We recognize the cost of
the equity awards over the period that services are provided to earn the award,
usually the vesting period. For awards granted which contain a graded vesting
schedule, and the only condition for vesting is a service condition,
compensation cost is recognized as an expense on a straight-line basis over the
requisite service period as if the award was, in substance, a single award. We
recognize the impact of forfeitures in the period that the forfeiture occurs,
rather than estimating the number of awards that are not expected to vest in
accounting for stock-based compensation.



Income Taxes



We account for income taxes under the asset and liability method. Under this
method, deferred income tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered or settled. Realization
of deferred income tax assets is dependent upon future taxable income. A
valuation allowance is recognized if it is more likely than not that some
portion or all of a deferred income tax asset will not be realized based on the
weight of available evidence, including expected future earnings.



We recognize an uncertain tax position in our financial statements when we
conclude that a tax position is more likely than not to be sustained upon
examination based solely on its technical merits. Only after a tax position
passes the first step of recognition will measurement be required. Under the
measurement step, the tax benefit is measured as the largest amount of benefit
that is more likely than not to be realized upon effective settlement. This is
determined on a cumulative probability basis. The full impact of any change in
recognition or measurement is reflected in the period in which such change
occurs. Interest and penalties related to income taxes are recognized in the
provision for income taxes.



  34

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial
Accounting Standards Board or other standard setting bodies that are adopted by
us as of the specified effective date. Unless otherwise discussed in Note 2 to
our consolidated financial statements included in Item 8 of this Report, we
believe that the impact of recently issued standards that are not yet effective
will not have a material impact on our financial position or results of
operations upon adoption. For additional information on recently issued
accounting standards and our plans for adoption of those standards, please refer
to the section titled Recent Accounting Pronouncements under Note 2 to our
consolidated financial statements.



Non-GAAP Financial Measures



The primary purpose of using non-GAAP financial measures is to provide
supplemental information that we believe may be useful to investors and to
enable investors to evaluate our results in the same way we do. We also present
the non-GAAP financial measures because we believe they assist investors in
comparing our performance across reporting periods on a consistent basis, as
well as comparing our results against the results of other companies, by
excluding items that we do not believe are indicative of our core operating
performance. Specifically, we use these non-GAAP measures as measures of
operating performance; to prepare our annual operating budget; to allocate
resources to enhance the financial performance of our business; to evaluate the
effectiveness of our business strategies; to provide consistency and
comparability with past financial performance; to facilitate a comparison of our
results with those of other companies, many of which use similar non-GAAP
financial measures to supplement their GAAP results; and in communications with
our board of directors concerning our financial performance. Investors should be
aware however, that not all companies define these non-GAAP measures
consistently.



We provide in the tables below a reconciliation from the most directly
comparable GAAP financial measure to each non-GAAP financial measure presented.
Due to a valuation allowance for our deferred tax assets, there were no income
tax effects associated with any of our non-GAAP adjustments.



EBITDA and Adjusted EBITDA. The calculation of our EBITDA and Adjusted EBITDA is
presented below for the years ended December 31, 2019 and 2018 (in thousands):



                                                               2019          2018

 Net loss                                                    $ (89,835 )   $ (12,135 )

EBITDA Non-GAAP adjustments:

 Interest expense                                                3,677     

1,068

 Income tax expense (benefit)                                   12,668     

(8,927 )

 Depreciation and amortization expense                           8,759     

2,310

 EBITDA                                                        (64,731 )   

(17,684 )

Adjusted EBITDA Non-GAAP adjustments:

 Stock-based compensation expense                                6,388     

2,533

Impairment of goodwill and identifiable intangible assets 44,925

       -

 Adjusted EBITDA                                             $ (13,418 )   $ (15,151 )

EBITDA is defined as net income (loss) adjusted to exclude GAAP amounts for
interest expense, income tax expense, and depreciation and amortization expense.
For the calculation of Adjusted EBITDA, we also exclude the following items

for
the periods presented:



Stock-Based Compensation Expense: Our compensation strategy includes the use of
stock-based compensation to attract and retain employees, directors and
consultants. This strategy is principally aimed at aligning the employee
interests with those of our stockholders and to achieve long-term employee
retention, rather than to motivate or reward operational performance for any
particular period. As a result, stock-based compensation expense varies for
reasons that are generally unrelated to operational decisions and performance in
any particular period.

Impairment of goodwill and identifiable intangible assets: We have excluded impairment write-downs related to goodwill and identifiable intangible assets because these non-cash charges are not indicative of our core operating performance.

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