Delaware
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90-0890517
|
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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2400 Boswell Road,
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91914
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Chula Vista, CA
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(Zip Code)
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(Address of principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act: | Name of each exchange on which registered | |
None | ||
Securities registered pursuant to Section 12(g) of the Act:
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||
Common stock $0.001 par value
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Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
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Smaller reporting company [X]
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(Do not check if a
smaller reporting company)
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2 | ||
16 | ||
32 | ||
32 | ||
32 | ||
32 | ||
33 | ||
35 | ||
36 | ||
47 | ||
48 | ||
89 | ||
89 | ||
90 | ||
91 | ||
95 | ||
98 | ||
100 | ||
101 | ||
102 | ||
104 |
●
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Nutritional products
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●
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Gourmet coffee
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●
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Sports and energy drinks
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●
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Skincare and cosmetics
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●
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Health and wellness-related services
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●
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Weight loss
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Lifestyle products (spa, bath, garden, and pet related products)
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●
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Pharmacy discount cards
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●
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Digital products including Scrap books and Memory books
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Packaged foods
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Apparel and fashion accessories
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100% Colombian Premium Blend;
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●
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Italian Espresso;
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●
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House Blend;
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Decaffeinated Coffee;
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Dark Roast;
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Half Caff Espresso;
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●
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Donut Shop;
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●
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Green Coffee Beans;
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Flavored Coffees;
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Organic Coffees; and
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●
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Espresso;
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Select Water Decaffeinated.
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●
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www.youngevity.com
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www.ygyi.com
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www.90forlife.com
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www.clrroasters.com
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www.cafelarica.com
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www.heritagemakers.com
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www.mkcollab.com
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●
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liability for information retrieved from or transmitted over the Internet;
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●
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online content regulation;
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●
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commercial e-mail;
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●
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visitor privacy; and
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taxation and quality of products and services.
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intellectual property ownership and infringement;
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consumer protection;
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obscenity;
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defamation;
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●
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employment and labor;
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●
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the protection of minors;
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health information; and
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personal privacy and the use of personally identifiable information.
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●
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difficulties in assimilating acquired operations or products, including the loss of key employees from acquired businesses and disruption to our direct selling channel;
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●
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diversion of management's attention from our core business;
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●
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adverse effects on existing business relationships with suppliers and customers; and
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●
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risks of entering markets in which we have limited or no prior experience.
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●
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the possibility that local civil unrest, political instability or changes in diplomatic or trade relationships might disrupt our operations in an international market;
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●
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the lack of well-established or reliable legal systems in certain areas;
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●
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the presence of high inflation in the economies of international markets;
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●
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the possibility that a foreign government authority might impose legal, tax or other financial burdens on us or our coffee operations, or sales force, due, for example, to the structure of our operations in various markets;
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●
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the possibility that a government authority might challenge the status of our sales force as independent contractors or impose employment or social taxes on our sales force; and
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●
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the possibility that governments may impose currency remittance restrictions limiting our ability to repatriate cash.
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General business and economic conditions;
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●
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Adverse publicity or negative misinformation about us or our products;
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●
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Public perceptions about network marketing programs;
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●
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High-visibility investigations or legal proceedings against network marketing companies by federal or state authorities or private citizens;
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●
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Public perceptions about the value and efficacy of nutritional, personal care, or weight management products generally;
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●
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Other competing network marketing organizations entering into the marketplace that may recruit our existing distributors or reduce the potential pool of new distributors; and
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●
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Changes to our compensation plan required by law or implemented for business reasons that make attracting and retaining distributors more difficult.
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●
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variations in our quarterly operating results;
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●
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announcements that our revenue or income/loss levels are below analysts’ expectations;
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●
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general economic slowdowns;
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●
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changes in market valuations of similar companies;
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announcements by us or our competitors of significant contracts; or
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●
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acquisitions, strategic partnerships, joint ventures or capital commitments.
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2015
|
2014
|
|||||||||||||||
High
|
Low
|
High
|
Low
|
|||||||||||||
First Quarter
|
$
|
0.27
|
$
|
0.22
|
$
|
0.26
|
$
|
0.14
|
||||||||
Second Quarter
|
$
|
0.41
|
$
|
0.24
|
$
|
0.29
|
$
|
0.16
|
||||||||
Third Quarter
|
$
|
0.39
|
$
|
0.23
|
$
|
0.34
|
$
|
0.21
|
||||||||
Fourth Quarter
|
$
|
0.35
|
$
|
0.26
|
$
|
0.28
|
$
|
0.18
|
ISSUER PURCHASES OF EQUITY SECURITIES
|
||||||||||||||||
Period ending December 31, 2015
|
Total Number
of Shares Purchased (*)
|
Average Price Paid per Share
|
Total Number of Shares Purchased as Part of Publicly
Announced Plans or Programs
|
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
|
||||||||||||
October 1 to October 31
|
74,413
|
0.30
|
74,413
|
11,263,928
|
||||||||||||
November 1 to November 30
|
66,500
|
0.29
|
66,500
|
11,197,428
|
||||||||||||
December 1 to December 31
|
3,600
|
0.30
|
3,600
|
11,193,828
|
||||||||||||
Total
|
144,513
|
0.30
|
144,513
|
11,193,828
|
||||||||||||
(*) On December 11, 2012, we authorized a share repurchase program to repurchase up to 15 million of our issued and outstanding common shares from time to time on the open market or via private transactions through block trades. The initial expiration date for the stock repurchase program was December 31, 2013. On October 7, 2013, the Board voted to extend the stock repurchase program until a date is set to revoke the program.
|
Plan category
|
Number of securities
issued under equity
compensation plan
|
Weighted-average exercise
price of outstanding options
|
Number of securities remaining available for
future issuance under equity compensation plans
|
||||||
Equity compensation plans approved by security holders
|
-
|
$
|
-
|
-
|
|||||
Equity compensation plans not approved by security holders
|
23,521,600
|
$
|
0.22
|
16,111,725
|
Year Ended December 31,
|
||||||||||||||||||||
2015
|
2014
|
2013
|
2012
|
2011
|
||||||||||||||||
Statements of Operations Data:
|
||||||||||||||||||||
Revenues
|
$ | 156,597 | $ | 134,043 | $ | 85,627 | $ | 75,004 | $ | 40,670 | ||||||||||
Cost of revenues
|
63,628 | 57,718 | 34,326 | 31,179 | 15,962 | |||||||||||||||
Gross profit
|
92,969 | 76,325 | 51,301 | 43,825 | 24,708 | |||||||||||||||
Distributor compensation
|
63,276 | 52,646 | 32,985 | 30,526 | 16,986 | |||||||||||||||
Selling and marketing, general and administrative expense
|
24,287 | 20,310 | 13,964 | 13,580 | 7,446 | |||||||||||||||
Impairment of goodwill (1)
|
- | - | - | - | 151,798 | |||||||||||||||
Operating income (loss)
|
5,406 | 3,369 | 4,352 | (281 | ) | (151,522 | ) | |||||||||||||
Interest expense, net
|
(4,491 | ) | (2,356 | ) | (1,249 | ) | (90 | ) | (427 | ) | ||||||||||
Extinguishment loss on debt
|
(1,198 | ) | - | - | - | - | ||||||||||||||
Change in fair value of warrant derivative liability
|
(39 | ) | (15 | ) | - | - | - | |||||||||||||
Income (loss) before income taxes
|
(322 | ) | 998 | 3,103 | (368 | ) | (151,949 | ) | ||||||||||||
Income tax (benefit) provision
|
1,384 | (4,371 | ) | 452 | 196 | 246 | ||||||||||||||
Net income (loss)
|
$ | (1,706 | ) | $ | 5,369 | $ | 2,651 | $ | (564 | ) | $ | (152,195 | ) | |||||||
Other Financial Data
|
||||||||||||||||||||
Depreciation and amortization
|
$ | 3,354 | $ | 2,686 | $ | 2,079 | $ | 1,905 | $ | 1,064 | ||||||||||
Stock based compensation
|
455 | 534 | 848 | 629 | - | |||||||||||||||
Change in fair value of warrant derivative liability
|
39 | 15 | - | - | - | |||||||||||||||
Extinguishment loss on debt | 1,198 | - | - | - | - | |||||||||||||||
Adjusted EBITDA (1)
|
9,215 | 6,589 | 7,279 | 3,170 | 1,340 | |||||||||||||||
Balance Sheet Data
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | 3,875 | $ | 2,997 | $ | 4,320 | $ | 3,025 | $ | 1,390 | ||||||||||
Inventory
|
17,977 | 11,783 | 5,973 | 4,675 | 4,981 | |||||||||||||||
Total assets
|
62,785 | 55,732 | 34,853 | 24,907 | 24,367 | |||||||||||||||
Stockholders’ Equity
|
18,881 | 18,589 | 11,499 | 9,879 | 9,078 | |||||||||||||||
Weighted average shares outstanding, diluted
|
392,075,608 | 389,795,108 | 391,953,473 | 387,392,118 | 329,229,717 |
(1)
|
Impairment of Goodwill in 2011 was as a result of the reverse acquisition of Javalution. This was excluded from Adjusted EBITDA calculations. Adjusted EBITDA is a non-GAAP financial measure. We calculate Adjusted EBITDA by taking net income, and adding back the expenses related to interest, taxes, depreciation, amortization, stock based compensation expense, change in the fair value of warrant derivative and non-cash impairment loss and debt extinguishment gain or loss, as each of those elements are calculated in accordance with GAAP. Adjusted EBITDA should not be construed as a substitute for net income (loss) (as determined in accordance with GAAP) for the purpose of analyzing our operating performance or financial position, as Adjusted EBITDA is not defined by GAAP. Management believes that Adjusted EBITDA, when viewed with our results under GAAP, provides useful information about our period-over-period growth. Adjusted EBITDA is presented because management believes it provides additional information with respect to the performance of our fundamental business activities and is also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. We also rely on Adjusted EBITDA as a primary measure to review and assess the operating performance of our company and our management team.
|
For the years ended
December 31,
|
Percentage
change
|
||||||||||
Segment Revenues
|
2015
|
2014
|
|||||||||
Direct selling
|
$ | 138,927 | $ | 116,365 | 19.4 | % | |||||
Commercial coffee
|
17,670 | 17,678 | (0.0) | % | |||||||
Total
|
$ | 156,597 | $ | 134,043 | 16.8 | % |
Gross Profit %
For the years ended December 31,
|
||||||||
Segment Gross Profit
|
2015
|
2014
|
||||||
Direct selling
|
67.4 | % | 65.8 | % | ||||
Commercial coffee
|
(3.6 ) | % | (1.2) | % | ||||
Consolidated
|
59.4 | % | 56.9 | % |
Years Ended
|
||||||||
December 31,
|
||||||||
2015
|
2014
|
|||||||
Net (loss) Income
|
$ | (1,706 | ) | $ | 5,369 | |||
Add
|
||||||||
Interest, net
|
4,491 | 2,356 | ||||||
Income taxes
|
1,384 | (4,371 | ) | |||||
Depreciation
|
1,242 | 753 | ||||||
Amortization
|
2,112 | 1,933 | ||||||
EBITDA
|
7,523 | 6,040 | ||||||
Add
|
||||||||
Stock based compensation
|
455 | 534 | ||||||
Change in the fair value of warrant derivative
|
39 | 15 | ||||||
Extinguishment loss on debt
|
1,198 | - | ||||||
Adjusted EBITDA
|
$ | 9,215 | $ | 6,589 |
Current
|
Long-Term
|
|||||||||||||||||||||||||||
Contractual Obligations*
|
Total
|
2016
|
2017
|
2018
|
2019
|
2020
|
Thereafter
|
|||||||||||||||||||||
Operating Leases
|
$
|
4,445
|
$
|
1,199
|
$
|
973
|
$
|
723
|
$
|
371
|
$
|
345
|
$
|
834
|
||||||||||||||
Capital Leases
|
405
|
111
|
117
|
114
|
39
|
24
|
-
|
|||||||||||||||||||||
Purchase Obligations
|
1,327
|
1,327
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||
Convertible Notes Payable, “July 2014 Private Placement”(*)
|
4,750
|
-
|
-
|
-
|
4,750
|
-
|
-
|
|||||||||||||||||||||
Notes Payable, January 2015 Private Placement
|
250
|
250
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||
Convertible Notes Payable, “November 2015 Private Placement” (*)
|
7,188
|
-
|
-
|
7,188
|
-
|
-
|
-
|
|||||||||||||||||||||
Notes Payable, Operating
|
4,853
|
206
|
167
|
235
|
155
|
155
|
3,935
|
|||||||||||||||||||||
Contingent Acquisition Debt
|
7,438
|
264
|
344
|
333
|
149
|
312
|
6,036
|
|||||||||||||||||||||
Total
|
$
|
30,656
|
$
|
3,357
|
$
|
1,601
|
$
|
8,593
|
$
|
5,464
|
$
|
836
|
$
|
10,805
|
|
|
Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Youngevity International, Inc. and Subsidiaries
|
||||||||
Consolidated Balance Sheets
|
||||||||
(In thousands, except share amounts)
|
||||||||
As of
|
||||||||
December 31,
2015
|
December 31,
2014
|
|||||||
ASSETS
|
||||||||
Current Assets
|
||||||||
Cash and cash equivalents
|
$
|
3,875
|
$
|
2,997
|
||||
Accounts receivable, due from factoring company
|
556
|
827
|
||||||
Accounts receivable, trade
|
1,068
|
965
|
||||||
Income tax receivable
|
173
|
308
|
||||||
Deferred tax assets, net current
|
711
|
801
|
||||||
Inventory
|
17,977
|
11,783
|
||||||
Prepaid expenses and other current assets
|
3,868
|
3,753
|
||||||
Total current assets
|
28,228
|
21,434
|
||||||
Property and equipment, net
|
12,699
|
10,319
|
||||||
Deferred tax assets, long-term
|
1,821
|
3,140
|
||||||
Intangible assets, net
|
13,714
|
14,516
|
||||||
Goodwill
|
6,323
|
6,323
|
||||||
Total assets
|
$
|
62,785
|
$
|
55,732
|
||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
Current Liabilities
|
||||||||
Accounts payable
|
$
|
7,015
|
$
|
5,407
|
||||
Accrued distributor compensation
|
4,223
|
4,177
|
||||||
Accrued expenses
|
3,605
|
2,332
|
||||||
Deferred revenues
|
2,580
|
5,075
|
||||||
Other current liabilities
|
577
|
477
|
||||||
Capital lease payable, current portion
|
111
|
24
|
||||||
Notes payable, current portion
|
456
|
228
|
||||||
Warrant derivative liability
|
4,716
|
3,712
|
||||||
Contingent acquisition debt, current portion
|
264
|
2,765
|
||||||
Total current liabilities
|
23,547
|
24,197
|
||||||
Capital lease payable, net of current portion
|
294
|
4
|
||||||
Notes payable, net of current portion
|
4,647
|
4,839
|
||||||
Convertible notes payable, net of debt discount
|
8,242
|
396
|
||||||
Contingent acquisition debt, net of current portion
|
7,174
|
7,707
|
||||||
Total liabilities
|
43,904
|
37,143
|
||||||
Commitments and contingencies
|
||||||||
Stockholders’ Equity
|
||||||||
Convertible Preferred Stock, $0.001 par value: 100,000,000 shares authorized; 161,135 shares issued and outstanding at December 31, 2015 and December 31, 2014
|
-
|
-
|
||||||
Common Stock, $0.001 par value: 600,000,000 shares authorized; 392,583,015 and 390,301,312 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively
|
393
|
390
|
||||||
Additional paid-in capital
|
169,432
|
167,386
|
||||||
Accumulated deficit
|
(150,618
|
) |
(148,912
|
)
|
||||
Accumulated other comprehensive loss
|
(326
|
)
|
(275
|
)
|
||||
Total stockholders’ equity
|
18,881
|
18,589
|
||||||
Total Liabilities and Stockholders’ Equity
|
$
|
62,785
|
$
|
55,732
|
Years Ended
December 31,
|
||||||||
2015
|
2014
|
|||||||
Revenues
|
$
|
156,597
|
$
|
134,043
|
||||
Cost of revenues
|
63,628
|
57,718
|
||||||
Gross profit
|
92,969
|
76,325
|
||||||
Operating expenses
|
||||||||
Distributor compensation
|
63,276
|
52,646
|
||||||
Sales and marketing
|
8,212
|
7,363
|
||||||
General and administrative
|
16,075
|
12,947
|
||||||
Total operating expenses
|
87,563
|
72,956
|
||||||
Operating income
|
5,406
|
3,369
|
||||||
Interest expense, net
|
(4,491
|
)
|
(2,356
|
)
|
||||
Extinguishment loss on debt
|
(1,198
|
)
|
-
|
|||||
Change in fair value of warrant derivative liability
|
(39
|
)
|
(15
|
)
|
||||
Total other expense
|
(5,728
|
)
|
(2,371
|
)
|
||||
Net (loss) income before income taxes
|
(322
|
)
|
998
|
|||||
Income tax provision (benefit)
|
1,384
|
(4,371
|
)
|
|||||
Net (loss) income
|
(1,706
|
)
|
5,369
|
|||||
Preferred stock dividends
|
(12
|
)
|
(15
|
)
|
||||
Net (loss) income available to common stockholders
|
$
|
(1,718
|
)
|
$
|
5,354
|
|||
Net (loss) income per share, basic
|
$
|
0.00
|
$
|
0.01
|
||||
Net (loss) income per share, diluted
|
$
|
0.00
|
$
|
0.01
|
||||
Weighted average shares outstanding, basic
|
392,075,608
|
389,427,336
|
||||||
Weighted average shares outstanding, diluted
|
392,075,608
|
389,795,108
|
Years Ended
December 31,
|
||||||||
2015
|
2014
|
|||||||
Net (loss) income
|
$
|
(1,706
|
)
|
$
|
5,369
|
|||
Foreign currency translation
|
(51
|
)
|
(110
|
)
|
||||
Total other comprehensive loss
|
(51
|
)
|
(110
|
)
|
||||
Comprehensive (loss) income
|
$
|
(1,757
|
)
|
$
|
5,259
|
Preferred Stock
|
Common Stock
|
Note Receivable for Stock Purchase
|
Additional Paid-in Capital
|
Accumulated Other Comprehensive Loss
|
Accumulated Deficit
|
Total Stockholders' Equity
|
Non-controlling Interest
|
Total Equity
|
||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||||||||||||
Beginning Balance at December 31, 2013
|
211,135
|
$
|
-
|
388,686,445
|
$
|
389
|
$
|
-
|
$
|
165,759
|
$
|
(165
|
)
|
$
|
(154,281
|
)
|
$
|
11,702
|
$
|
(203
|
)
|
$
|
11,499
|
|||||||||||||||||||||
Net income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
5,369
|
5,369
|
5,369
|
||||||||||||||||||||||||||||||||||
Deconsolidation of non-controlling interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
203
|
203
|
|||||||||||||||||||||||||||||||||
Foreign currency translation adjustment
|
-
|
-
|
-
|
-
|
-
|
-
|
(110
|
)
|
-
|
(110
|
)
|
-
|
(110
|
)
|
||||||||||||||||||||||||||||||
Beneficial conversion feature of convertible notes payable
|
-
|
-
|
-
|
-
|
-
|
1,053
|
-
|
-
|
1,053
|
-
|
1,053
|
|||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to the exercise of warrants
|
-
|
-
|
2,750,000
|
1
|
-
|
369
|
-
|
-
|
370
|
-
|
370
|
|||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to the exercise of stock options
|
-
|
-
|
10,250
|
-
|
-
|
5
|
-
|
-
|
5
|
-
|
5
|
|||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to the conversion of preferred stock
|
(50,000
|
)
|
-
|
300,164
|
-
|
-
|
25
|
-
|
-
|
25
|
-
|
25
|
||||||||||||||||||||||||||||||||
Repurchase of common stock
|
-
|
-
|
(1,445,547
|
)
|
-
|
-
|
(344
|
)
|
-
|
-
|
(344
|
)
|
-
|
(344
|
)
|
|||||||||||||||||||||||||||||
Dividends on preferred stock
|
-
|
-
|
-
|
-
|
-
|
(15
|
)
|
-
|
-
|
(15
|
)
|
-
|
(15
|
)
|
||||||||||||||||||||||||||||||
Stock based compensation expense
|
-
|
-
|
-
|
-
|
-
|
534
|
-
|
-
|
534
|
-
|
534
|
|||||||||||||||||||||||||||||||||
Balance at December 31, 2014
|
161,135
|
$
|
-
|
390,301,312
|
$
|
390
|
$
|
-
|
$
|
167,386
|
$
|
(275
|
)
|
$
|
(148,912
|
)
|
$
|
18,589
|
$
|
-
|
$
|
18,589
|
||||||||||||||||||||||
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,706
|
)
|
(1,706
|
)
|
-
|
(1,706
|
)
|
||||||||||||||||||||||||||||||
Foreign currency translation adjustment
|
-
|
-
|
-
|
-
|
-
|
-
|
(51
|
)
|
-
|
(51
|
)
|
-
|
(51
|
)
|
||||||||||||||||||||||||||||||
Beneficial conversion feature of convertible notes payable, net of tax
|
-
|
-
|
-
|
-
|
-
|
10
|
-
|
-
|
10
|
-
|
10
|
|||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to Notes Payable
|
-
|
-
|
2,450,000
|
2
|
-
|
585
|
-
|
-
|
587
|
-
|
587
|
|||||||||||||||||||||||||||||||||
Issuance of warrants pursuant to Convertible Notes Payable debt financing
|
-
|
-
|
-
|
-
|
-
|
384
|
-
|
-
|
384
|
-
|
384
|
|||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to the exercise of warrants
|
-
|
-
|
806,250
|
1
|
-
|
201
|
-
|
-
|
202
|
-
|
202
|
|||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to the exercise of stock options
|
-
|
-
|
369,675
|
-
|
-
|
70
|
-
|
-
|
70
|
-
|
70
|
|||||||||||||||||||||||||||||||||
Repurchase of common stock
|
-
|
-
|
(1,344,222
|
)
|
-
|
-
|
(426
|
)
|
-
|
-
|
(426
|
)
|
-
|
(426
|
)
|
|||||||||||||||||||||||||||||
Dividends on preferred stock
|
-
|
-
|
-
|
-
|
-
|
(12
|
)
|
-
|
-
|
(12
|
)
|
-
|
(12
|
)
|
||||||||||||||||||||||||||||||
Warrant modification expense
|
-
|
-
|
-
|
-
|
-
|
253
|
-
|
-
|
253
|
-
|
253
|
|||||||||||||||||||||||||||||||||
Warranty liability reclassified to equity
|
-
|
-
|
-
|
-
|
-
|
526
|
-
|
-
|
526
|
526
|
||||||||||||||||||||||||||||||||||
Stock based compensation expense
|
-
|
-
|
-
|
-
|
-
|
455
|
-
|
-
|
455
|
-
|
455
|
|||||||||||||||||||||||||||||||||
Balance at December 31, 2015
|
161,135
|
$
|
-
|
392,583,015
|
$
|
393
|
$
|
-
|
$
|
169,432
|
$
|
(326
|
)
|
$
|
(150,618
|
)
|
$
|
18,881
|
$
|
-
|
$
|
18,881
|
Years Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Cash Flows from Operating Activities:
|
||||||||
Net (loss) income
|
$
|
(1,706
|
)
|
$
|
5,369
|
|||
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
3,354
|
2,686
|
||||||
Stock based compensation expense
|
455
|
534
|
||||||
Warrant modification expense
|
253
|
-
|
||||||
Amortization of deferred financing costs
|
899
|
41
|
||||||
Amortization of prepaid advisory fees
|
20
|
-
|
||||||
Change in fair value of warrant derivative liability
|
39
|
15
|
||||||
Amortization of debt discount
|
967
|
428
|
||||||
Amortization of warrant issuance costs
|
21
|
-
|
||||||
Expenses allocated in profit sharing agreement
|
(528
|
)
|
(211
|
)
|
||||
Change in fair value of contingent acquisition debt
|
(446
|
)
|
179
|
|||||
Extinguishment loss on debt
|
1,198
|
-
|
||||||
Gain on disposal of assets
|
-
|
(1
|
)
|
|||||
Deconsolidation of non-controlling interest
|
-
|
203
|
||||||
Deferred income taxes
|
1,409
|
(4,664
|
)
|
|||||
Changes in operating assets and liabilities, net of effect from business combinations:
|
||||||||
Accounts receivable
|
168
|
|
(665
|
)
|
||||
Inventory
|
(6,194
|
)
|
(5,810
|
)
|
||||
Prepaid expenses and other current assets
|
885
|
(2,095
|
)
|
|||||
Accounts payable
|
1,608
|
2,643
|
||||||
Accrued distributor compensation
|
46
|
1,466
|
||||||
Deferred revenues
|
(2,495
|
)
|
1,767
|
|||||
Accrued expenses and other liabilities
|
1,278
|
325
|
||||||
Income taxes receivable
|
136
|
(308
|
)
|
|||||
Net Cash Provided by Operating Activities
|
1,367
|
1,902
|
||||||
Cash Flows from Investing Activities:
|
||||||||
Acquisitions, net of cash acquired
|
(32
|
)
|
(2,100
|
)
|
||||
Purchases of property and equipment
|
(3,198
|
)
|
(3,037
|
)
|
||||
Net Cash Used in Investing Activities
|
(3,230
|
)
|
(5,137
|
)
|
||||
Cash Flows from Financing Activities:
|
||||||||
Proceeds from issuance of secured promissory notes and common stock, net of offering costs
|
5,080
|
-
|
||||||
Proceeds from issuance of convertible notes payable, net
|
2,383
|
4,260
|
||||||
Proceeds from the exercise of stock options and warrants, net
|
272
|
375
|
||||||
Proceeds from factoring company, net
|
82
|
538
|
||||||
Payments of notes payable, net
|
(1,214
|
)
|
(225
|
)
|
||||
Payments of contingent acquisition debt
|
(3,338
|
)
|
(2,488
|
)
|
||||
Payments of capital leases
|
(47
|
)
|
(94
|
)
|
||||
Repurchase of common stock
|
(426
|
)
|
(344
|
)
|
||||
Net Cash Provided by Financing Activities
|
2,792
|
2,022
|
||||||
Foreign Currency Effect on Cash
|
(51
|
)
|
(110
|
)
|
||||
Net increase (decrease) in cash and cash equivalents
|
878
|
(1,323
|
)
|
|||||
Cash and Cash Equivalents, Beginning of Period
|
2,997
|
4,320
|
||||||
Cash and Cash Equivalents, End of Period
|
$
|
3,875
|
$
|
2,997
|
||||
Supplemental Disclosures of Cash Flow Information
|
||||||||
Cash paid during the period for:
|
||||||||
Interest
|
$
|
2,127
|
$
|
2,387
|
||||
Income taxes
|
$
|
-
|
$
|
698
|
||||
Supplemental Disclosures of Noncash Investing and Financing Activities
|
||||||||
Acquisitions of net assets in exchange for contingent acquisition debt (see Note 2 for non-cash activity)
|
$
|
1,136
|
$
|
5,912
|
||||
Common stock issued in connection with financing
|
$
|
587
|
$
|
-
|
||||
Common stock issued for the conversion of preferred stock and accrued dividends
|
$
|
-
|
$
|
25
|
||||
Capital lease and accounts payable agreements for manufacturing equipment
|
$
|
429
|
$
|
-
|
||||
During 2015, the Company issued certain convertible notes payable that included warrants. The related beneficial conversion feature, valued at approximately $15,000 was classified as an equity instrument and recorded as a discount to the carrying value of the related debt. The warrants, valued at approximately $1,491,000, were recognized as a derivative liability. In addition, the Company issued warrants to the placement agent, valued at approximately $384,000 was classified as an equity instrument and recorded as issuance costs.
|
||||||||
During 2014, the Company issued certain convertible notes payable that included warrants. The related beneficial conversion feature, valued at approximately $1,053,000 was classified as an equity instrument and recorded as a discount to the carrying value of the related debt. The warrants, valued at approximately $3,697,000, were recognized as a derivative liability.
|
December 31,
|
||||||||
2015
|
2014
|
|||||||
Finished goods
|
$
|
9,893
|
$
|
7,817
|
||||
Raw materials
|
8,970
|
4,444
|
||||||
18,863
|
12,261
|
|||||||
Reserve for excess and obsolete
|
(886
|
)
|
(478
|
)
|
||||
Inventory, net
|
$
|
17,977
|
$
|
11,783
|
December 31,
|
||||||||
2015
|
2014
|
|||||||
Balance as of January 1,
|
$
|
(478
|
)
|
$
|
(336
|
) | ||
Addition to provision
|
(1,114
|
)
|
(245
|
) | ||||
Write-off of inventory
|
706
|
103
|
||||||
Balance as of December 31,
|
$
|
(886
|
)
|
$
|
(478
|
) |
December 31,
|
||||||||
2015
|
2014
|
|||||||
Building
|
$
|
3,503
|
$
|
2,948
|
||||
Leasehold improvements
|
2,349
|
1,701
|
||||||
Land
|
2,544
|
2,544
|
||||||
Land improvements
|
726
|
255
|
||||||
Producing coffee trees
|
553
|
553
|
||||||
Manufacturing equipment
|
4,399
|
3,272
|
||||||
Furniture and other equipment
|
1,417
|
1,080
|
||||||
Computer software
|
1,100
|
901
|
||||||
Computer equipment
|
663
|
378
|
||||||
Vehicles
|
103
|
103
|
||||||
17,357
|
13,735
|
|||||||
Accumulated depreciation
|
(4,658
|
)
|
(3,416
|
)
|
||||
Total property and equipment
|
$
|
12,699
|
$
|
10,319
|
December 31, 2015
|
December 31, 2014
|
|||||||||||||||||||||||
Cost
|
Accumulated
Amortization
|
Net
|
Cost
|
Accumulated
Amortization
|
Net
|
|||||||||||||||||||
Distributor organizations
|
$
|
11,173
|
$
|
6,086
|
$
|
5,087
|
$
|
10,475
|
$
|
5,126
|
$
|
5,349
|
||||||||||||
Trademarks and trade names
|
4,666
|
537
|
4,129
|
4,441
|
304
|
4,137
|
||||||||||||||||||
Customer relationships
|
6,787
|
2,751
|
4,036
|
6,400
|
1,932
|
4,468
|
||||||||||||||||||
Internally developed software
|
720
|
258
|
462
|
720
|
158
|
562
|
||||||||||||||||||
Intangible assets
|
$
|
23,346
|
$
|
9,632
|
$
|
13,714
|
$
|
22,036
|
$
|
7,520
|
$
|
14,516
|
Years ending December 31,
|
||||
2016
|
$
|
2,149
|
||
2017
|
2,101
|
|||
2018
|
1,746
|
|||
2019
|
1,152
|
|||
2020
|
1,063
|
Direct selling
|
Commercial coffee
|
Total
|
||||||||||
Balance at December 31, 2013
|
$ | 2,709 | $ | 3,314 | $ | 6,023 | ||||||
Goodwill recognized
|
300 | - | 300 | |||||||||
Goodwill impaired
|
- | - | - | |||||||||
Balance at December 31, 2014
|
$ | 3,009 | $ | 3,314 | $ | 6,323 | ||||||
Goodwill recognized
|
- | - | - | |||||||||
Goodwill impaired
|
- | - | - | |||||||||
Balance at December 31, 2015
|
$ | 3,009 | $ | 3,314 | $ | 6,323 |
Distributor organization
|
$
|
350
|
||
Customer-related intangible
|
200
|
|||
Trademarks and trade name
|
150
|
|||
Total purchase price
|
$
|
700
|
Distributor organization
|
$
|
68
|
||
Customer-related intangible
|
52
|
|||
Total purchase price
|
$
|
120
|
Distributor organization
|
$
|
140
|
||
Customer-related intangible
|
110
|
|||
Trademarks and trade name
|
60
|
|||
Initial cash payment
|
(25
|
)
|
||
Total purchase price
|
$
|
285
|
Trademarks and trade name
|
$
|
165
|
||
Customer-related intangible
|
375
|
|||
Distributor organization
|
435
|
|||
Accrued expenses
|
(250
|
)
|
||
Total purchase price
|
$
|
725
|
Trademarks and trade name
|
$
|
150
|
||
Customer-related intangible
|
250
|
|||
Distributor organization
|
250
|
|||
Accrued expenses
|
(120
|
)
|
||
Total purchase price
|
$
|
530
|
Goodwill
|
$
|
300
|
||
Trademarks and trade name
|
300
|
|||
Customer-related intangible
|
1,300
|
|||
Distributor organization
|
1,400
|
|||
Accrued expenses
|
(200
|
)
|
||
Total purchase price
|
$
|
3,100
|
1)
|
“La Pita”, a dry-processing plant sitting on approximately 26 acres of land is located in Matagalpa, Nicaragua. The property includes buildings, structures, machinery and equipment, and furnishings and fixtures. The total purchase price was $1,904,840, of which CLR paid $1,050,000 and H&H paid $854,840. The purchase price allocation for La Pita (in thousands) is as follows:
|
Buildings and structures
|
$
|
832
|
||
Machinery and equipment
|
417
|
|||
Customer relationships, intangible
|
367
|
|||
Land
|
289
|
|||
Total purchase price
|
$
|
1,905
|
2)
|
“El Paraiso”, a coffee plantation located in Matagalpa, Nicaragua, consisting of approximately 450 acres of land. The total purchase price was $1,400,000 of which CLR paid $1,050,000 and H&H paid $350,000. The purchase price allocation for El Paraiso (in thousands) is as follows:
|
Land
|
$
|
1,400
|
||
Total purchase price
|
$
|
1,400
|
3)
|
Additionally, Siles has the desire to purchase “El Paraisito”, an approximate 450 acre plantation located adjacent to El Paraiso. The Company is currently in the process of completing final settlement of the purchase agreement. CLR and H&H has a deposit towards this purchase of $284,000. CLR paid $200,000 and H&H paid $84,000 and is recorded in prepaid expenses and other current assets on the Company’s consolidated balance sheets for the years ended December 31, 2015 and 2014.
|
Years ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Revenues
|
$
|
-
|
$
|
-
|
||||
Operating loss, net
|
$
|
-
|
$
|
(203)
|
Years ending December 31,
|
||||
2016
|
$
|
456
|
||
2017
|
167
|
|||
2018
|
7,423
|
|||
2019
|
4,905
|
|||
2020
|
155
|
|||
Thereafter
|
3,934
|
|||
Total
|
$
|
17,040
|
|
December 31, 2015
|
|
December 31, 2014
|
|||||
Convertible notes
|
|
$
|
11,938
|
|
|
$
|
4,750
|
|
Less: detachable warrants discount
|
|
(3,991
|
)
|
|
(3,697
|
)
|
||
Less: conversion feature discount
|
|
(1,068
|
)
|
|
(1,053
|
)
|
||
Amortization of debt discounts
|
|
1,363
|
|
|
396
|
|||
Convertible notes, net of discounts
|
|
$
|
8,242
|
|
|
$
|
396
|
|
December 31,
2015
|
December 31, 2014
|
|||||||
Stock price volatility
|
70
|
%
|
90
|
%
|
||||
Risk-free interest rates
|
1.76
|
%
|
1.65
|
%
|
||||
Annual dividend yield
|
0
|
%
|
0
|
%
|
||||
Expected life
|
3.6-4.9 years
|
4.7 years
|
Fair Value at December 31, 2015
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Liabilities:
|
||||||||||||||||
Contingent acquisition debt, current portion
|
$
|
264
|
$
|
-
|
$
|
-
|
$
|
264
|
||||||||
Contingent acquisition debt, less current portion
|
7,174
|
-
|
-
|
7,174
|
||||||||||||
Warrant derivative liability
|
4,716
|
-
|
-
|
4,716
|
||||||||||||
Total liabilities
|
$
|
12,154
|
$
|
-
|
$
|
-
|
$
|
12,154
|
Fair Value at December 31, 2014
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Liabilities:
|
||||||||||||||||
Contingent acquisition debt, current portion
|
$
|
2,765
|
$
|
-
|
$
|
-
|
$
|
2,765
|
||||||||
Contingent acquisition debt, less current portion
|
7,707
|
-
|
-
|
7,707
|
||||||||||||
Warrant derivative liability
|
3,712
|
-
|
-
|
3,712
|
||||||||||||
Total liabilities
|
$
|
14,184
|
$
|
-
|
$
|
-
|
$
|
14,184
|
Warrant Derivative Liability
|
||||
Balance at December 31, 2013
|
$
|
-
|
||
Issuance
|
3,697
|
|||
Adjustments to estimated fair value
|
15
|
|||
Balance at December 31, 2014
|
3,712
|
|||
Issuance
|
1,491
|
|||
Adjustments to estimated fair value
|
39
|
|||
Warrant liability reclassified to equity
|
(526
|
)
|
||
Balance at December 31, 2015
|
$
|
4,716
|
Contingent Consideration
|
||||
Balance at December 31, 2013
|
$
|
7,080
|
||
Level 3 liabilities acquired
|
5,912
|
|||
Level 3 liabilities settled
|
(2,488
|
)
|
||
Adjustments to liabilities included in earnings
|
179
|
|||
Expenses allocated to profit sharing agreement
|
(211
|
)
|
||
Balance at December 31, 2014
|
10,472
|
|||
Level 3 liabilities acquired
|
1,353
|
|||
Level 3 liabilities settled
|
(3,338
|
)
|
||
Adjustments to liabilities included in earnings
|
(446
|
)
|
||
Expenses allocated to profit sharing agreement
|
(528
|
)
|
||
Adjustment to purchase price allocation | (75 | ) | ||
Balance at December 31, 2015
|
$
|
7,438
|
Balance at December 31, 2013
|
17,226,146
|
|||
Granted
|
21,802,793
|
|||
Expired / cancelled
|
(1,057,309
|
)
|
||
Exercised
|
(2,750,000
|
)
|
||
Balance at December 31, 2014
|
35,221,630
|
|||
Granted
|
12,595,237
|
|||
Expired / cancelled
|
(5,335,821
|
)
|
||
Exercised
|
(806,250
|
)
|
||
Balance at December 31, 2015
|
41,674,796
|
Number of
Shares
|
Weighted
Average
Exercise Price
|
Aggregate
Intrinsic
Value
(in thousands)
|
||||||||||
Outstanding December 31, 2013
|
17,572,500
|
$
|
0.22
|
$
|
478
|
|||||||
Issued
|
11,517,250
|
0.22
|
||||||||||
Canceled/expired
|
(161,000
|
)
|
0.19
|
|||||||||
Exercised
|
(10,250
|
)
|
0.23
|
-
|
||||||||
Outstanding December 31, 2014
|
28,918,500
|
0.21
|
786
|
|||||||||
Issued
|
1,124,250
|
0.31
|
||||||||||
Canceled / expired
|
(6,151,475
|
)
|
0.22
|
|||||||||
Exercised
|
(369,675
|
)
|
0.21
|
-
|
||||||||
Outstanding December 31, 2015
|
23,521,600
|
$
|
0.22
|
$
|
2,044
|
|||||||
Exercisable December 31, 2015
|
18,469,600
|
$
|
0.22
|
$
|
1,463
|
Weighted
|
Weighted
|
Weighted
|
||||||||||||
Average
|
Average
|
Average
|
||||||||||||
Exercise Price
|
Options
|
Exercise Price
|
Remaining Life
|
|||||||||||
Outstanding:
|
||||||||||||||
$
|
0.16 - $0.21
|
7,755,650
|
$
|
0.19
|
7.81
|
|||||||||
$
|
0.21 - $0.23
|
11,849,250
|
$
|
0.22
|
6.29
|
|||||||||
$
|
0.23 - $0.35
|
3,701,950
|
$
|
0.26
|
2.98
|
|||||||||
$
|
0.35 - $0.40
|
214,750
|
$
|
0.38
|
2.44
|
|||||||||
Exercisable:
|
||||||||||||||
$
|
0.16 - $0.21
|
2,703,650
|
$
|
0.18
|
6.45
|
|||||||||
$
|
0.21 - $0.23
|
11,849,250
|
$
|
0.22
|
6.29
|
|||||||||
$
|
0.23 - $0.33
|
3,701,950
|
$
|
0.26
|
2.98
|
|||||||||
$
|
0.23 - $0.33
|
214,750
|
$
|
0.38
|
2.44
|
Years ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Cost of revenues
|
$
|
17
|
$
|
14
|
||||
Distributor compensation
|
158
|
195
|
||||||
Sales and marketing
|
28
|
21
|
||||||
General and administrative
|
252
|
304
|
||||||
$
|
455
|
$
|
534
|
Years ended December 31,
|
|||||
2015
|
2014
|
||||
Dividend yield
|
-
|
-
|
|||
Stock price volatility
|
66% - 77
|
%
|
75% - 98%
|
||
Risk-free interest rate
|
0.56% - 1.06
|
%
|
0.33% - 2.12%
|
||
Expected life of options
|
1.5 - 5.0 years
|
3.0 - 7.0 years
|
2016
|
$
|
1,199
|
||
2017
|
973
|
|||
2018
|
723
|
|||
2019
|
371
|
|||
2020
|
345
|
|||
Thereafter
|
834
|
|||
Total
|
$
|
4,445
|
December 31,
|
||||||||
2015
|
2014
|
|||||||
Current
|
||||||||
Federal
|
$
|
66
|
$
|
84
|
||||
State
|
(161
|
)
|
111
|
|||||
Foreign
|
76
|
98
|
||||||
Total current
|
(19
|
)
|
293
|
|||||
Deferred
|
||||||||
Federal
|
$
|
1,307
|
$
|
(4,106
|
)
|
|||
State
|
96
|
(558
|
)
|
|||||
Foreign
|
-
|
-
|
||||||
Total deferred
|
1,403
|
(4,664
|
)
|
|||||
Total
|
$
|
1,384
|
$
|
(4,371
|
)
|
December 31,
|
||||||||
2015
|
2014
|
|||||||
Federal statutory rate
|
$
|
(113
|
)
|
$
|
350
|
|||
Adjustments for tax effects of:
|
||||||||
Foreign rate differential
|
26
|
(30
|
)
|
|||||
State taxes, net
|
(241
|
)
|
(267
|
)
|
||||
Other nondeductible items
|
1,162
|
222
|
||||||
Rate change
|
91
|
(21
|
)
|
|||||
Deferred tax asset adjustment
|
101
|
(412
|
)
|
|||||
Change in valuation allowance
|
161
|
(4,213
|
)
|
|||||
Undistributed foreign earnings
|
197
|
-
|
||||||
$
|
1,384
|
$
|
(4,371
|
)
|
December 31,
|
||||||||
2015
|
2014
|
|||||||
Deferred tax assets:
|
||||||||
Amortizable assets
|
$
|
1,146
|
$
|
887
|
||||
Inventory
|
608
|
493
|
||||||
Accruals and reserves
|
174
|
499
|
||||||
Stock options
|
217
|
167
|
||||||
Net operating loss carry-forward
|
2,387
|
3,112
|
||||||
Credit carry-forward
|
581
|
731
|
||||||
Total Deferred Tax Asset
|
5,113
|
5,889
|
||||||
Deferred tax liabilities:
|
||||||||
Prepaids
|
(71
|
)
|
(190
|
)
|
||||
Other
|
(521
|
)
|
(397
|
)
|
||||
Depreciable assets
|
(270
|
)
|
195
|
|||||
(862
|
)
|
(392
|
)
|
|||||
Net deferred tax asset
|
4,250
|
5,497
|
||||||
Less valuation allowance
|
(1,718
|
)
|
(1,556
|
)
|
||||
Net deferred tax liabilities
|
$
|
2,532
|
$
|
3,941
|
Years ended
|
||||||||
December 31,
|
||||||||
2015
|
2014
|
|||||||
Revenues
|
||||||||
Direct selling
|
$
|
138,927
|
$
|
116,365
|
||||
Commercial coffee
|
17,670
|
17,678
|
||||||
Total revenues
|
$
|
156,597
|
$
|
134,043
|
||||
Gross profit
|
||||||||
Direct selling
|
$
|
93,613
|
$
|
76,530
|
||||
Commercial coffee
|
(644
|
)
|
(205
|
)
|
||||
Total gross margin
|
$
|
92,969
|
$
|
76,325
|
||||
Net (loss) income
|
||||||||
Direct selling
|
$
|
3,144
|
$
|
5,274
|
||||
Commercial coffee
|
(4,850
|
)
|
95
|
|||||
Total net (loss) income
|
$
|
(1,706
|
)
|
$
|
5,369
|
|||
Capital expenditures
|
||||||||
Direct selling
|
$
|
1,396
|
$
|
1,140
|
||||
Commercial coffee
|
2,223
|
5,263
|
||||||
Total capital expenditures
|
$
|
3,619
|
$
|
6,403
|
December 31,
|
||||||||
2015
|
2014
|
|||||||
Total assets
|
||||||||
Direct selling
|
$
|
38,363
|
$
|
36,149
|
||||
Commercial coffee
|
24,422
|
19,583
|
||||||
Total assets
|
$
|
62,785
|
$
|
55,732
|
|
Years ended
|
|||||||
December 31,
|
||||||||
2015
|
2014
|
|||||||
Revenues
|
||||||||
United States
|
$
|
145,259
|
$
|
125,638
|
||||
International
|
11,338
|
8,405
|
||||||
Total revenues
|
$
|
156,597
|
$
|
134,043
|
Name
|
Age
|
Director Since
|
Position
|
||||
Stephan Wallach
|
49
|
2011*
|
Chairman and Chief Executive Officer
|
||||
David Briskie
|
55
|
2011
|
President, Chief Financial Officer and Director
|
||||
Michelle Wallach
|
45
|
2011*
|
Chief Operating Officer and Director
|
||||
Richard Renton
|
60
|
2012
|
Director
|
||||
William Thompson
|
55
|
2013
|
Director
|
*
|
Since 1996, Stephen Wallach and Michelle Wallach have been directors of AL Global, Corporation the private company that merged with and into Javalution Coffee Company, our predecessors in 2011.
|
Board Members
|
Audit
Committee
|
Compensation
Committee
|
Investment
Committee
|
||||||
Stephan Wallach
|
-
|
Chairman
|
Member
|
||||||
David Briskie
|
-
|
Member
|
Chairman
|
||||||
Michelle Wallach
|
-
|
-
|
-
|
||||||
Richard Renton
|
-
|
-
|
-
|
||||||
William Thompson
|
Member
|
-
|
-
|
Year
|
Salary
($)
|
Bonus
($)
|
Options
Awarded(4)
($)
|
All Other
Compensation(2)($)
|
Total
($)
|
||||||||||||||||
Stephan Wallach (1)
|
2015
|
271,519
|
89,000
|
-
|
-
|
360,519
|
|||||||||||||||
Chief Executive Officer
|
2014
|
184,000
|
52,589
|
-
|
-
|
236,589
|
|||||||||||||||
William Andreoli (1) (2) (3) (4)
|
2015
|
187,000
|
-
|
-
|
1,334,162
|
1,521,162
|
|||||||||||||||
Former President
|
2014
|
170,000
|
-
|
882,500
|
920,790
|
1,973,290
|
|||||||||||||||
David Briskie (1) (4)
|
2015
|
271,519
|
89,000
|
-
|
-
|
360,519
|
|||||||||||||||
President and Chief Financial Officer
|
2014
|
216,308
|
52,589
|
282,400
|
-
|
551,297
|
|||||||||||||||
Michelle Wallach (1)
|
2015
|
200,070
|
57,500
|
-
|
-
|
257,570
|
|||||||||||||||
Chief Operating Officer
|
2014
|
168,720
|
52,589
|
-
|
-
|
221,309
|
(1)
|
Mr. Stephan Wallach, Mr. David Briskie, and Ms. Michelle Wallach have direct and or indirect (beneficially) distributor positions in our Company that pay income based on the performance of those distributor positions in addition to their base salaries, and the people and or companies supporting those positions based upon the contractual agreements that each and every distributor enter into upon engaging in the network marketing business. The contractual terms of these positions are the same as those of all the other individuals that become distributors in our Company. There are no special circumstances for these officers/directors. Mr. Stephan Wallach and Ms. Michelle Wallach received or beneficially received $312,410 and $312,853 in 2015 and 2014, respectively related to their distributor positions, which are not included above. Mr. Andreoli received or beneficially received $166,223 and $180,821 in 2015 and 2014, respectively, related to his distributor positions, which are not included above. Mr. Briskie beneficially received $28,010 and $20,714 in 2015 and 2014, respectively, related to his spouse’s distributor position, which is not included above.
|
(2)
|
Mr. Andreoli was appointed to serve as our President from October 26, 2011 in connection with the acquisition of FDI and resigned as our President on October 28, 2015. The Other Compensation includes payments of $1,334,162 and $920,790 to Mr. Andreoli in 2015 and 2014, respectively in accordance with the terms of our FDI acquisition agreement.
|
(3)
|
We paid rent in the amount of $187,000 and $204,000 in 2015 and 2014, respectively, to FDI Realty LLC, a company controlled by Mr. Andreoli.
|
(4)
|
We use a Black-Scholes option-pricing model (Black-Scholes model) to estimate the fair value of the stock option grant. For a discussion of the assumptions used in computing this valuation, see Note 8 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
|
Name
|
Grant Date
|
Number of Securities
Underlying
Unexercised Options
Exercisable
|
Number of Securities
Underlying
Unexercised Options
Unexercisable
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
||||||
Stephan Wallach
|
5/31/2012
|
2,500,000
|
-
|
$
|
0.22
|
5/31/2022
|
|||||
William Andreoli
|
5/31/2012
|
400,000
|
-
|
$
|
0.22
|
2/28/2016
|
|||||
10/31/2013
|
100,000
|
-
|
$
|
0.18
|
2/28/2016
|
||||||
7/23/2014
|
750,000
|
-
|
$
|
0.23
|
2/28/2016
|
||||||
David Briskie
|
5/31/2012
|
5,000,000
|
-
|
$
|
0.22
|
5/31/2022
|
|||||
10/31/2013
|
400,000
|
600,000
|
$
|
0.18
|
10/31/2023
|
||||||
10/30/2014
|
400,000
|
1,600,000
|
$
|
0.19
|
10/30/2024
|
||||||
Michelle Wallach
|
5/31/2012
|
2,500,000
|
-
|
$
|
0.22
|
5/31/2022
|
Name
|
Fees Earned or
Paid in Cash ($)
|
Option
Awards ($)(1)
|
Other
Compensation ($)
|
Total ($)
|
||||||||||||
Richard Renton
|
-
|
2,740
|
-
|
2,740
|
||||||||||||
William Thompson
|
-
|
2,740
|
-
|
2,740
|
(1)
|
The amounts in the “Option Awards” column reflect the dollar amounts recognized as compensation expense for the financial statement reporting purposes for stock options for the fiscal year ended December 31, 2015 in accordance with FASB ASC Topic 718. The fair value of the options was determined using the Black-Scholes model. For a discussion of the assumptions used in computing this valuation, see Note 8 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
|
Name
|
Aggregate
Number of
Option Awards
|
|||
Richard Renton
|
150,000
|
|||
William Thompson
|
150,000
|
Plan category
|
Number of
securities issued
under equity
compensation plan
|
Weighted-average
exercise price of
outstanding options
|
Number of securities remaining available for
future issuance under equity compensation plans
|
||||||
Equity compensation plans approved by security holders
|
-
|
$
|
-
|
-
|
|||||
Equity compensation plans not approved by security holders
|
23,521,600
|
$
|
0.22
|
16,111,725
|
Name of Beneficial Owner
|
Number of Shares Beneficially Owned
|
Percentage
Ownership
|
||||||
Executive Officers & Directors (1)
|
||||||||
Stephan Wallach, Chairman and Chief Executive Officer
|
282,556,250
|
(2)
|
72.0
|
%
|
||||
William Andreoli, Former President
|
2,057,500
|
(3)
|
*
|
|||||
David Briskie, President, Chief Financial Officer and Director
|
16,209,155
|
(4)
|
4.1
|
%
|
||||
Michelle Wallach, Chief Operating Officer and Director
|
282,500,000
|
(2)
|
72.0
|
%
|
||||
Richard Renton, Director
|
205,000
|
(5)
|
*
|
|||||
William Thompson, Director
|
80,000
|
(6)
|
*
|
|||||
All Executive Officers & Directors, as a group (6 persons)
|
303,607,905
|
77.3
|
%
|
|||||
Stockholders owning 5% or more
|
||||||||
Carl Grover
|
43,001,690
|
(7)
|
9.9
|
%
|
(1)
|
Unless otherwise set forth below, the mailing address of Executive Officers, Directors and 5% or greater holders is c/o the Company, 2400 Boswell Road, Chula Vista, California 91914.
|
(2)
|
Mr. Stephan Wallach, our Chief Executive Officer, owns 280,000,000 shares of common stock through joint ownership with his wife, Michelle Wallach, with whom he shares voting and dispositive control. Mr. Wallach also owns 56,250 shares and options to purchase 2,500,000 shares of common stock which are exercisable within 60 days of the Evaluation Date and are included in the number of shares beneficially owned by him and Ms. Wallach also owns options to purchase 2,500,000 shares of common stock which are exercisable within 60 days of the Evaluation Date and are included in the number of shares beneficially owned by her.
|
(3)
|
Mr. William Andreoli, our former President, owns 807,500 shares of common stock and also owns options to purchase 1,250,000 shares of common stock exercisable through February 28, 2016 and are included in the number of shares beneficially owned by him.
|
(4)
|
Mr. David Briskie, our President and Chief Financial Officer, owns 3,408,588 shares of common stock, and beneficially owns 2,000,567 shares of common stock owned by Brisk Investments, LP, 5,000,000 shares of common stock owned by Brisk Management, LLC. Mr. Briskie also owns options to purchase 5,800,000 shares of common stocks that are exercisable within 60 days of the Evaluation Date and are included in the number of shares beneficially owned by him.
|
(5)
|
Mr. Renton owns 125,000 shares of common stock through joint ownership with his wife, Roxanna Renton, with whom he shares voting and dispositive control. Mr. Renton also owns 80,000 options to purchase common stock which are exercisable within 60 days of the Evaluation Date and are included in the number of shares beneficially owned by him.
|
(6)
|
Mr. Thompson owns 80,000 options to purchase common stock which are exercisable within 60 days of the Evaluation Date and are included in the number of shares beneficially owned by him.
|
(7)
|
Mr. Grover is the sole beneficial owner of 43,001,690 shares of common stock. Mr. Grover owns a September 2014 Note in the principal amount of $4,000,000 convertible into 11,428,571 shares of Common Stock and a September 2014 Warrant exercisable for 15,652,174 shares of Common Stock at an exercise price of $0.23 per share. Mr. Grover also owns a November 2015 Note in the principal amount of $7,000,000 convertible into 20,000,000 shares of Common Stock and a November 2015 Warrant exercisable for 9,333,333 shares of Common Stock. He also owns 5,171,240 shares of common stock that includes 1,500,000 shares of common stock issued as part of the January 2015 Note Purchase Agreement and 3,671,240 shares of common stock held prior to our 2014 and 2015 private placements and warrants exercisable for 5,142,857 shares of common stock acquired prior to our 2014 and 2015 private placements. Mr. Grover has a contractual agreement with us that limits his exercise of warrants and conversion of notes such that his beneficial ownership of our equity securities to no more than 9.99% of the voting power of the Company at any one time and therefore his beneficial ownership does not include the shares of Common Stock issuable upon conversion of notes or exercise or warrants owned by Mr. Grover if such conversion or exercise would cause his beneficial ownership to exceed 9.99% of our outstanding shares of Common Stock. Mr. Grover’s address is 1010 S. Ocean Blvd., Apt 1017, Pompano Beach, FL 33062.
|
December 31,
2015
|
December 31,
2014
|
|||||||
Audit Fees and Expenses (1)
|
$
|
300,000
|
$
|
254,000
|
||||
Audit Related Fees (2)
|
8,000
|
9,000
|
||||||
All Other Fees
|
-
|
-
|
||||||
$
|
308,000
|
$
|
263,000
|
(1)
|
Audit fees and expenses were for professional services rendered for the audit and reviews of the consolidated financial statements of the Company, professional services rendered for issuance of consents and assistance with review of documents filed with the SEC.
|
(2)
|
The audit related fees were for professional services rendered for additional filing for registration statements and forms with the SEC.
|
(a)(1)
|
The Consolidated Financial Statements of Youngevity International, Inc. and Report of Independent Registered Public Accounting Firm are included in Item 8 of this Annual Report.
|
(2)
|
Schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
|
(3)
|
The following exhibits are filed as part of this Annual Report pursuant to Item 601 of Regulation S-K:
|
Exhibit No.
|
Title of Document
|
||
3.1
|
Certificate of Incorporation Dated July 15, 2011(1)
|
||
3.2
|
Bylaws(1)
|
||
4.1
|
Specimen Common Stock certificate (1)
|
||
4.2
|
Warrant for Common Stock issued to David Briskie(1)
|
||
4.3
|
Stock Option issued to Stephan Wallach(1)
|
||
4.4
|
Stock Option issued to Michelle Wallach(1)
|
||
4.5
|
Stock Option issued to David Briskie(1)
|
||
4.6
|
Stock Option issued to William Andreoli(1)
|
||
4.7
|
Stock Option issued to Richard Renton(1)
|
||
4.8
|
Stock Option issued to John Rochon(1)
|
||
4.9
|
Form of Purchase Note Agreement(3)
|
||
4.10
|
Form of Secured Convertible Notes(3)
|
||
4.11
|
Form of Series A Warrants(3)
|
||
4.12
|
Form of Registration Rights Agreement(3)
|
||
4.13
|
Form of Note Purchase Agreement(4)
|
||
4.14
|
Form of Secured Note(4)
|
||
4.15
|
Form of Purchase Note Agreement(6)
|
||
4.16
|
Form of Secured Note(6)
|
||
4.17
|
Form of Warrant(6)
|
||
5.1
|
Legal Opinion of Gracin & Marlow, LLP (7)
|
||
10.1
|
Purchase Agreement with M2C Global, Inc. dated March 9, 2007(1)
|
||
10.2
|
First Amendment to Purchase Agreement with M2C Global, Inc. dated September 7, 2008(1)
|
||
10.3
|
Asset Purchase Agreement with MLM Holdings, Inc. dated June 10, 2010(1)
|
||
10.4
|
Agreement of Purchase and Sale with Price Plus, Inc. dated September 21, 2010(1)
|
||
10.5
|
Amended and Restated Agreement and Plan of Reorganization Javalution Coffee Company, YGY Merge, Inc. dated July 11, 2011(1)
|
||
10.6
|
Asset Purchase Agreement with R-Garden Inc. dated July 1, 2011(1)
|
||
10.7
|
Re-Purchase Agreement with R-Garden dated September 12, 2012(1)
|
||
10.8
|
Agreement and Plan of Reorganization with Javalution dated July 18, 2011(1)
|
||
10.9
|
Asset Purchase Agreement with Adaptogenix, LLC dated August 22, 2011(1)
|
||
10.10
|
Amended Asset Purchase Agreement with Adaptogenix, LLC dated January 27, 2012(1)
|
||
10.11
|
Asset Purchase Agreement with Prosperity Group, Inc. dated October 10, 2011(1)
|
||
10.12
|
Amended and Restated Equity Purchase Agreement with Financial Destination, Inc., FDI Management Co, Inc., FDI Realty, LLC, and MoneyTRAX, LLC dated October 25, 2011(1)
|
||
10.13
|
Exclusive License/Marketing Agreement with GLIE, LLC dba True2Life dated March 20, 2012(1)
|
||
10.14
|
Bill of Sale with Livinity, Inc. dated July 10, 2012(1)
|
||
10.15
|
Consulting Agreement with Livinity, Inc. dated July 10, 2012(1)
|
||
10.16
|
Employment Agreement with William Andreoli dated October 25, 2011(1)
|
||
10.17
|
Promissory Note with 2400 Boswell LLC dated July 15, 2012(1)
|
||
10.18
|
Promissory Note with William Andreoli dated July 1, 2012(1)
|
||
10.19
|
2012 Stock Option Plan(1)
|
10.20
|
Form of Stock Option(1)
|
|
10.21
|
Lease with 2400 Boswell LLC dated May 1, 2001(1)
|
|
10.22
|
Lease with FDI Realty LLC dated July 29, 2008(1)
|
|
10.23
|
First Amendment to Lease with FDI Realty LLC dated October 25, 2011(1)
|
|
10.24
|
Lease with Perc Enterprises dated February 6, 2008(1)
|
|
10.25
|
Lease with Perc Enterprises dated September 25, 2012(1)
|
|
10.26
|
Factoring Agreement with Crestmark Bank dated February 12, 2010(1)
|
|
10.27
|
First Amendment to Factoring Agreement with Crestmark Bank dated April 6, 2011(1)
|
|
10.28
|
Second Amendment to Factoring Agreement with Crestmark Bank dated February 1, 2013(1)
|
|
10.29
|
Lease with Perc Enterprises dated March 19, 2013(1)
|
|
10.30
|
Purchase Agreement with Ma Lan Wallach dated March 15, 2013(1)
|
|
10.31
|
Promissory Note with Plaza Bank dated March 14, 2013(1)
|
|
10.32
|
Form of Security Agreement(3)
|
|
10.33
|
Guaranty Agreement made by Stephan Wallach(3)
|
|
10.34
|
Form of Security Agreement(4)
|
|
10.35
|
Guaranty Agreement made by Stephan Wallach(4)
|
|
10.36
|
Credit Agreement with Wells Fargo Bank, National Association dated October 10, 2014(5)
|
|
21.1
|
Subsidiaries of Youngevity International, Inc. *
|
|
23.1
|
Consent of Independent Registered Public Accounting Firm *
|
|
23.2
|
Consent of Gracin & Marlow, LLP(7)
|
|
31.1
|
Certification of Stephan Wallach, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) *
|
|
31.2
|
Certification of David Briskie, Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) *
|
|
32.1
|
Certification of Stephan Wallach, Chief Executive Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 *
|
|
32.2
|
Certification David Briskie, Chief Financial Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 *
|
|
101.INS
|
XBRL Instance Document **
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document **
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document **
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document **
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document **
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document **
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101.INS
|
XBRL Instance Document
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
*
|
Filed herewith
|
(1)
|
Incorporated by reference to the Company’s Form 10-12G, File No. 000-54900, filed with the Securities and Exchange Commission on February 12, 2013
|
(2)
|
Incorporated by reference to the Company’s Form 10-K, File No. 000-54900, filed with the Securities and Exchange Commission on March 27, 2014
|
(3)
|
Incorporated by reference to the Company’s 8-K, File No. 000-54900, filed with the Securities and Exchange Commission on August 5, 2014
|
(4)
|
Incorporated by reference to the Company’s 8-K, File No. 000-54900, filed with the Securities and Exchange Commission on January 7, 2015
|
(5)
|
Incorporated by reference to the Company’s Form 10-K, File No. 000-54900, filed with the Securities and Exchange Commission on March 30, 2015
|
(6)
|
Incorporated by reference to the Company’s 8-K, File No. 000-54900, filed with the Securities and Exchange Commission on October 16, 2015
|
(7)
|
Previously filed with the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 29, 2015
|
YOUNGEVITY INTERNATIONAL, INC.
|
||
March 29, 2016
|
By:
|
/s/ Stephan Wallach
|
Stephan Wallach,
|
||
Chief Executive Officer
|
||
(Principal Executive Officer)
|
Signature
|
Title
|
Date
|
/s/ Stephan Wallach
|
Chief Executive Officer and Director (Principal Executive Officer)
|
March 29, 2016
|
Stephan Wallach
|
||
/s/ David Briskie
|
Chief Financial Officer and Director (Principal Financial and Accounting Officer)
|
March 29, 2016
|
David Briskie
|
/s/ Michelle Wallach
|
Chief Operating Officer and Director
|
March 29, 2016
|
Michelle Wallach
|
/s/ William Thompson
|
Director
|
March 29, 2016
|
William Thompson
|
/s/ Richard Renton
|
Director
|
March 29, 2016
|
Richard Renton
|
Subsidiary Name(*)
|
Names Under Which
Subsidiary Does Business(**)
|
State or Jurisdiction of
Incorporation or Organization
|
AL Global Corporation
|
Youngevity® Essential Life Sciences and DrinkACT
|
California
|
CLR Roasters, LLC
|
Florida
|
|
Siles Plantation Family Group S.A.
|
Nicaragua
|
|
Financial Destinations, Inc.
|
New Hampshire
|
|
FDI Management, Inc.
|
New Hampshire
|
|
MoneyTrax, LLC
|
Nevada
|
|
Youngevity NZ, Ltd.
|
New Zealand
|
|
Youngevity Australia Pty. Ltd.
|
Australia
|
|
2400 Boswell, LLC
|
California
|
|
MK Collaborative, LLC
|
Delaware
|
|
Youngevity Global, LLC
|
Delaware
|
|
Youngevity Mexico S.A. de CV
|
Mexico
|
|
Youngevity Israel, Ltd.
|
Israel
|
|
Youngevity Russia, LLC
|
Russia
|
|
Youngevity Colombia, S.A.S.
|
Colombia
|
|
Youngevity Singapore PTE LTD
|
Singapore
|
|
Mialisia Canada, Inc.
|
Canada
|
I, Stephan Wallach, certify that:
|
1.
|
I have reviewed this annual report on Form 10-K of Youngevity International, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated: March 29, 2016
|
/s/ Stephan Wallach
|
Stephan Wallach,
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
I, David Briskie, certify that:
|
1.
|
I have reviewed this annual report on Form 10-K of Youngevity International, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated: March 29, 2016
|
/s/ David Briskie
|
David Briskie,
|
|
Chief Financial Officer
|
|
(Principal Financial and Accounting Officer)
|
Dated: March 29, 2016
|
/s/ Stephan Wallach
|
Stephan Wallach,
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
Dated: March 29, 2016
|
/s/ David Briskie
|
David Briskie,
|
|
Chief Financial Officer
|
|
(Principal Financial and Accounting Officer)
|
Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Mar. 18, 2016 |
Jun. 30, 2015 |
|
Document And Entity Information | |||
Entity Registrant Name | Youngevity International, Inc. | ||
Entity Central Index Key | 0001569329 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2015 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Common Stock, Shares Outstanding | 392,606,265 | ||
Entity Public Float | $ 38,229,702 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2015 |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Equity: | ||
Convertible Preferred Stock, par value | $ 0.001 | $ 0.001 |
Convertible Preferred Stock, shares authorized | 100,000,000 | 100,000,000 |
Convertible Preferred Stock, shares issued | 161,135 | 161,135 |
Convertible Preferred Stock, shares outstanding | 161,135 | 161,135 |
Common Stock, par value | $ 0.001 | $ 0.001 |
Common Stock, shares authorized | 600,000,000 | 600,000,000 |
Common Stock, shares issued | 392,583,015 | 390,301,312 |
Common Stock, shares outstanding | 392,583,015 | 390,301,312 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Consolidated Statements Of Comprehensive Income | ||
Net income | $ (1,706) | $ 5,369 |
Foreign currency translation | (51) | (110) |
Total other comprehensive income | (51) | (110) |
Comprehensive income | $ (1,757) | $ 5,259 |
Basis of Presentation and Description of Business |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Basis of Presentation and Description of Business | Nature of Business
Youngevity International, Inc. (the Company), founded in 1996, develops and distributes health and nutrition related products through its global independent direct selling network, also known as multi-level marketing, and sells coffee products to commercial customers. The Company operates in two business segments, its direct selling segment where products are offered through a global distribution network of preferred customers and distributors and its commercial coffee segment where products are sold directly to businesses. In the following text, the terms we, our, and us may refer, as the context requires, to the Company or collectively to the Company and its subsidiaries.
The Company operates through the following domestic wholly-owned subsidiaries: AL Global Corporation, which operates our direct selling networks, CLR Roasters, LLC (CLR), our commercial coffee business, Financial Destination, Inc., FDI Management, Inc., and MoneyTrax LLC (collectively referred to as FDI), 2400 Boswell LLC, MK Collaborative LLC, Youngevity Global LLC and the wholly-owned foreign subsidiaries Youngevity Australia Pty. Ltd. and Youngevity NZ, Ltd., Siles Plantation Family Group S.A. located in Nicaragua, Youngevity Mexico S.A. de CV, Youngevity Israel, Ltd., Youngevity Russia, LLC, Youngevity Colombia S.A.S and Youngevity International Singapore Pte. Ltd.
Summary of Significant Accounting Policies
A summary of the Companys significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:
Basis of Presentation
The Company consolidates all majority owned subsidiaries, investments in entities in which we have controlling influence and variable interest entities where we have been determined to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain reclassifications have been made to conform to the current year presentation. These reclassifications had no effect on reported results of operations or stockholders equity.
Segment Information
The Company has two reporting segments: direct selling and commercial coffee. The direct selling segment develops and distributes health and wellness products through its global independent direct selling network also known as multi-level marketing. The commercial coffee segment is a coffee roasting and distribution company specializing in gourmet coffee. The determination that the Company has two reportable segments is based upon the guidance set forth in Accounting Standards Codification (ASC) Topic 280, Segment Reporting. During the twelve months ended December 31, 2015, we derived approximately 89% of our revenue from our direct sales segment and approximately 11% of our revenue from our commercial coffee sales segment. Approximately 87% of our revenue was from our direct sales segment and approximately 13% of our revenue was from our commercial coffee sales segment in 2014.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense for each reporting period. Estimates are used in accounting for, among other things, allowances for doubtful accounts, deferred taxes, and related valuation allowances, fair value of derivative liabilities, uncertain tax positions, loss contingencies, fair value of options granted under our stock based compensation plan, fair value of assets and liabilities acquired in business combinations, capital leases, asset impairments, estimates of future cash flows used to evaluate impairments, useful lives of property, equipment and intangible assets, value of contingent acquisition debt, inventory obsolescence, and sales returns.
Actual results may differ from previously estimated amounts and such differences may be material to the consolidated financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected prospectively in the period they occur.
Cash and Cash Equivalents
The Company considers only its monetary liquid assets with original maturities of three months or less as cash and cash equivalents.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency.
The Company reviews the terms of convertible debt and equity instruments it issues to determine whether there are derivative instruments, including an embedded conversion option that is required to be bifurcated and accounted for separately as a derivative financial instrument. In circumstances where a host instrument contains more than one embedded derivative instrument, including a conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. Also, in connection with the sale of convertible debt and equity instruments, the Company may issue freestanding warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.
Derivative instruments are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds allocated to the convertible host instruments are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.
The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method.
Accounts Receivable
Accounts receivable are recorded net of an allowance for doubtful accounts. Accounts receivable are considered delinquent when the due date on the invoice has passed. The Company records its allowance for doubtful accounts based upon its assessment of various factors including past experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers ability to pay. Accounts receivable are written off against the allowance for doubtful accounts when all collection efforts by the Company have been unsuccessful. Certain accounts receivable are financed as part of a factoring agreement. There was no allowance for doubtful accounts recorded as of December 31, 2015 or 2014.
Inventory and Cost of Revenues
Inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. The Company records an inventory reserve for estimated excess and obsolete inventory based upon historical turnover, market conditions and assumptions about future demand for its products. When applicable, expiration dates of certain inventory items with a definite life are taken into consideration.
Inventories consist of the following (in thousands):
A summary of the reserve for obsolete and excess inventory is as follows (in thousands):
Cost of revenues includes the cost of inventory, shipping and handling costs, royalties associated with certain products, transaction banking costs, warehouse labor costs and depreciation on certain assets.
Deferred Financing Costs
As of December 31, 2015 and 2014, deferred financing costs consisted of approximately $1,094,000 and $449,000, respectively, associated with our 2015 and 2014 Private Placement transactions, and is included with prepaid expenses and other current assets on the Company's balance sheets. Deferred financing costs related to our offerings are amortized over the life of the notes and are amortized as issuance costs to interest expense.
Warrant Issuance Costs
As of December 31, 2015, warrant issuance costs associated with our November 2015 Private Placement include the fair value of the warrants issues of approximately $384,000, and is included with prepaid expenses and other current assets on the Company's balance sheets. The warrant issuance costs related to this offering are being amortized over the life of the convertible notes and are amortized as issuance costs to interest expense. There were no warrant issuance costs in 2014.
Plantation Costs
The Companys commercial coffee segment CLR includes the results of the Siles Plantation Family Group (Siles), which is a 450 acre coffee plantation and a dry-processing facility located on 26 acres both located in Matagalpa, Nicaragua. Siles is a wholly-owned subsidiary of CLR, and the results of CLR include the depreciation and amortization of capitalized costs, development and maintenance and harvesting costs of Siles. In accordance with US generally accepted accounting principles (GAAP), plantation maintenance and harvesting costs for commercially producing coffee farms are charged against earnings when sold. Deferred harvest costs accumulate throughout the year, and are expensed over the remainder of the year as the coffee is sold. The difference between actual harvest costs incurred and the amount of harvest costs recognized as expense is recorded as either an increase or decrease in deferred harvest costs, which is reported as an asset and included with prepaid expenses and other current assets in the condensed consolidated balance sheets. Once the harvest is complete, the harvest cost is then recognized as the inventory value.
In April 2015, the Company completed the 2015 coffee harvest in Nicaragua and approximately $723,000 of deferred harvest costs were reclassified as inventory during the quarter ended June 30, 2015. The remaining inventory as of December 31, 2015 is $192,000.
Costs associated with the 2016 harvest as of December 31, 2015 total approximately $350,000 and are included in prepaid expenses and other current assets as deferred harvest costs on the Companys consolidated balance sheet.
Property and Equipment
Property and equipment are recorded at historical cost. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to operations over the estimated useful lives of the related assets. The straight-line method of depreciation and amortization is followed for financial statement purposes. Leasehold improvements are amortized over the shorter of the life of the respective lease or the useful life of the improvements. Estimated service lives range from 3 to 39 years. When such assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in operations in the period of disposal. The cost of normal maintenance and repairs is charged to expense as incurred. Significant expenditures that increase the useful life of an asset are capitalized and depreciated over the estimated useful life of the asset.
Coffee trees, land improvements and equipment specifically related to the plantations are stated at cost, net of accumulated depreciation. Depreciation of coffee trees and other equipment is reported on a straight-line basis over the estimated useful lives of the assets (25 years for coffee trees, between 5 and 15 years for equipment and land improvements, respectively).
Property and equipment are considered long-lived assets and are evaluated for impairment whenever events or changes in circumstances indicate their net book value may not be recoverable. Management has determined that no impairment of its property and equipment occurred as of December 31, 2015 or 2014.
Property and equipment consist of the following (in thousands):
Depreciation expense totaled approximately $1,242,000 and $753,000 for the years ended December 31, 2015 and 2014, respectively.
Business Combinations
The Company accounts for business combinations under the acquisition method and allocates the total purchase price for acquired businesses to the tangible and identified intangible assets acquired and liabilities assumed, based on their estimated fair values. When a business combination includes the exchange of the Companys common stock, the value of the common stock is determined using the closing market price as of the date such shares were tendered to the selling parties. The fair values assigned to tangible and identified intangible assets acquired and liabilities assumed are based on management or third-party estimates and assumptions that utilize established valuation techniques appropriate for the Companys industry and each acquired business. Goodwill is recorded as the excess, if any, of the aggregate fair value of consideration exchanged for an acquired business over the fair value (measured as of the acquisition date) of total net tangible and identified intangible assets acquired. A liability for contingent consideration, if applicable, is recorded at fair value as of the acquisition date. In determining the fair value of such contingent consideration, management estimates the amount to be paid based on probable outcomes and expectations on financial performance of the related acquired business. The fair value of contingent consideration is reassessed quarterly, with any change in the estimated value charged to operations in the period of the change. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in actual or estimated revenue streams, discount periods, discount rates and probabilities that contingencies will be met.
Intangible Assets
Intangible assets are comprised of distributor organizations, trademarks and tradenames, customer relationships and internally developed software. The Company's acquired intangible assets, which are subject to amortization over their estimated useful lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. An impairment loss is recognized when the carrying amount of an intangible asset exceeds its fair value.
Intangible assets consist of the following (in thousands):
Amortization expense related to intangible assets was approximately $2,112,000 and $1,933,000 for the years ended December 31, 2015 and 2014, respectively.
As of December 31, 2015, future expected amortization expense related to definite lived intangible assets for the next five years is as follows (in thousands):
As of December 31, 2015, the weighted-average remaining amortization period for intangibles assets was approximately 5.29 years.
Trade names, which do not have legal, regulatory, contractual, competitive, economic, or other factors that limit the useful lives are considered indefinite lived assets and are not amortized but are tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Approximately $2,267,000 in trademarks from business combinations have been identified as having indefinite lives. The Company has determined that no impairment occurred for the years ended December 31, 2015 and 2014.
Goodwill
Goodwill is recorded as the excess, if any, of the aggregate fair value of consideration exchanged for an acquired business over the fair value (measured as of the acquisition date) of total net tangible and identified intangible assets acquired. In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 350, Intangibles Goodwill and Other, goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. The Company conducts annual reviews for goodwill and indefinite-lived intangible assets in the fourth quarter or whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable.
The Company first assesses qualitative factors to determine whether it is more likely than not (a likelihood of more than 50%) that goodwill is impaired. After considering the totality of events and circumstances, the Company determines whether it is more likely than not that goodwill is not impaired. If impairment is indicated, then the Company conducts the two-step impairment testing process. The first step compares the Companys fair value to its net book value. If the fair value is less than the net book value, the second step of the test compares the implied fair value of the Companys goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, the Company would recognize an impairment loss equal to that excess amount. The testing is generally performed at the reporting unit level. A reporting unit is the operating segment, or a business one level below that operating segment (referred to as a component) if discrete financial information is prepared and regularly reviewed by management at the component level. The Company has determined that its reporting units for goodwill impairment testing are the Companys reportable segments. As such, the Company analyzed its goodwill balances separately for the commercial coffee reporting unit and the direct selling reporting unit. The goodwill balance as of December 31, 2015 and December 31, 2014 was $6,323,000.
The Company has determined that no impairment of its goodwill occurred for the years ended December 31, 2015 and 2014.
Goodwill activity for the years ended December 31, 2015 and 2014 by reportable segment consists of the following (in thousands):
Revenue Recognition
The Company recognizes revenue from product sales when the following four criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. The Company ships the majority of its direct selling segment products directly to the distributors via UPS or USPS and receives substantially all payments for these sales in the form of credit card transactions. The Company regularly monitors its use of credit card or merchant services to ensure that its financial risk related to credit quality and credit concentrations is actively managed. Revenue is recognized upon passage of title and risk of loss to customers when product is shipped from the fulfillment facility. The Company ships the majority of its coffee segment products via common carrier and invoices its customer for the products. Revenue is recognized when the title and risk of loss is passed to the customer under the terms of the shipping arrangement, typically, FOB shipping point.
The Company also charges fees to become a distributor, and earn a position in the network genealogy, which are recognized as revenue in the period received. Our distributors are required to pay a one-time enrollment fee and receive a welcome kit specific to that country region that consists of forms, policy and procedures, selling aids, and access to our distributor website and a genealogy position with no down line distributors. The Company recognized related revenue of $583,000 and $425,000 for the years ended December 31, 2015 and 2014, respectively.
Sales revenue and a reserve for estimated returns are recorded net of sales tax when product is shipped.
Deferred Revenues and Costs
Deferred revenues relate primarily to the Heritage Makers product line and represent the Companys obligation for points purchased by customers that have not yet been redeemed for product. Cash received for points sold is recorded as deferred revenue. Revenue is recognized when customers redeem the points and the product is shipped. As of December 31, 2015 and 2014, the balance in deferred revenues was approximately $2,580,000 and $5,075,000 respectively, attributable to Heritage Makers was approximately $2,485,000 and $4,918,000 respectively. The remaining balance of approximately $95,000 and $157,000 as of December 31, 2015 and 2014, relates primarily to the Companys 2016 and 2015 conventions, respectively.
Deferred costs relate to Heritage Makers prepaid commissions that are recognized in expense at the time the related revenue is recognized. As of December 31, 2015 and 2014, the balance in deferred costs was approximately $967,000 and $1,695,000, respectively and was included in prepaid expenses and current assets.
Product Return Policy
All products, except food products and commercial coffee products are subject to a full refund within the first 30 days of receipt by the customer, subject to an advance return authorization procedure. Returned product must be in unopened resalable condition. Product returns as a percentage of our net sales have been approximately 1% of our monthly net sales over the last two years. Commercial coffee products are returnable only if defective.
Shipping and Handling
Shipping and handling costs associated with inbound freight and freight to customers, including independent distributors, are included in cost of sales. Shipping and handling fees charged to all customers are included in sales. Shipping expense was approximately $10,394,000 and $9,206,000 for the years ended December 31, 2015 and 2014, respectively.
Distributor Compensation
In the direct selling segment, the Company utilizes a network of independent distributors, each of whom has signed an agreement with the Company, enabling them to purchase products at wholesale prices, market products to customers, enroll new distributors for their down-line and earn compensation on product purchases made by those down-line distributors and customers.
The payments made and stock options issued under the compensation plans are the only form of compensation paid to the distributors. Each product has a point value, which may or may not correlate to the wholesale selling price of a product. A distributor must qualify each month to participate in the compensation plan by making a specified amount of product purchases, achieving specified point levels. Once qualified, the distributor will receive payments based on a percentage of the point value of products sold by the distributors down-line. The payment percentage varies depending on the qualification level of the distributor and the number of levels of down-line distributors. There are also additional incentives paid upon achieving predefined activity and or down-line point value levels. There can be multiple levels of independent distributors earning incentives from the sales efforts of a single distributor. Due to the multi-layer independent sales approach, distributor incentives are a significant component of the Companys cost structure. The Company accrues all distributor compensation expense in the month earned and pays the compensation the following month.
Earnings Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to common stockholders by the sum of the weighted-average number of common shares outstanding during the period and the weighted-average number of dilutive common share equivalents outstanding during the period, using the treasury stock method. Dilutive common share equivalents are comprised of in-the-money stock options, warrants and convertible preferred stock, based on the average stock price for each period using the treasury stock method. Since the company incurred a loss for the year ended December 31, 2015, 17,243,734 common share equivalents were not included in the weighted-average calculations since their effect would have been anti-dilutive. The incremental dilutive common share equivalents were 367,772 for the year ended December 31, 2014.
Foreign Currency Translation
The financial position and results of operations of the Companys foreign subsidiaries are measured using the foreign subsidiarys local currency as the functional currency. Revenues and expenses of such subsidiaries have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of shareholders equity, unless there is a sale or complete liquidation of the underlying foreign investments. Translation gains or losses resulting from transactions in currencies other than the respective entities functional currency are included in the determination of income and are not considered significant to the Company for 2015 and 2014.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net gains and losses affecting stockholders equity that, under generally accepted accounting principles are excluded from net income (loss). For the Company, the only items are the cumulative foreign currency translation and net income (loss).
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, "Income Taxes," under the asset and liability method which includes the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this approach, deferred taxes are recorded for the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial statement and tax basis of assets and liabilities, and are adjusted for changes in tax rates and tax laws when changes are enacted. The effects of future changes in income tax laws or rates are not anticipated.
The Company is subject to income taxes in the United States and certain foreign jurisdictions. The calculation of the Companys tax provision involves the application of complex tax laws and requires significant judgment and estimates. The Company evaluates the realizability of its deferred tax assets for each jurisdiction in which it operates at each reporting date and establishes a valuation allowance when it is more likely than not that all or a portion of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the same character and in the same jurisdiction. The Company considers all available positive and negative evidence in making this assessment, including, but not limited to, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. In circumstances where there is sufficient negative evidence indicating that deferred tax assets are not more likely than not realizable, the Company will establish a valuation allowance.
The Company applies ASC Topic 740 Accounting for Uncertainty in Income Taxes recognized in its financial statements. ASC 740 requires that all tax positions be evaluated using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Differences between tax positions taken in a tax return and amounts recognized in the financial statements are recorded as adjustments to income taxes payable or receivable, or adjustments to deferred taxes, or both. The Company believes that its accruals for uncertain tax positions are adequate for all open audit years based on its assessment of many factors including past experience and interpretation of tax law. To the extent that new information becomes available, which causes the Company to change its judgment about the adequacy of its accruals for uncertain tax positions, such changes will impact income tax expense in the period such determination is made. The Companys policy is to include interest and penalties related to unrecognized income tax benefits as a component of income tax expense.
Stock Based Compensation
The Company accounts for stock based compensation in accordance with ASC Topic 718, Compensation Stock Compensation, which establishes accounting for equity instruments exchanged for employee services. Under such provisions, stock based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense, under the straight-line method, over the vesting period of the equity grant.
The Company accounts for equity instruments issued to non-employees in accordance with authoritative guidance for equity based payments to non-employees. Stock options issued to non-employees are accounted for at their estimated fair value, determined using the Black-Scholes option-pricing model. The fair value of options granted to non-employees is re-measured as they vest, and the resulting increase in value, if any, is recognized as expense during the period the related services are rendered.
Other Income (Expense)
We record interest income, interest expense, and change in derivative liabilities, as well as other non-operating transactions, as other income (expense) on our consolidated statements of operations
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases ASC (Topic 842): which sets out the principles for the recognition, (measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. ASC 842 supersedes the previous leases standard, ASC 840. The standard is effective on January 1, 2019, with early adoption permitted. The Company is in the process of evaluating the impact of this new guidance.
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs to simplify the presentation of debt issuance costs. The amendments in the update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction of the carrying amount of the debt. Recognition and measurement of debt issuance costs were not affected by this amendment. In August 2015, FASB issued ASU 2015-15,"Presentation and Subsequent Measurement of Debt Issuance Costs Associated With Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting" which clarified that the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. The amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015. The Company is in the process of evaluating the impact of this new guidance.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material effect on the Company's consolidated financial statements. Early adoption is permitted.
In August 2014, the FASB issued ASU 2014-15 Preparation of Financial Statements Going Concern (Subtopic 205-40), Disclosures of Uncertainties about an Entitys Ability to Continue as a Going Concern (ASU 2014-05). ASU 2014-05 requires management to assess each annual and interim period if there is substantial doubt about the entitys ability to continue as a going concern; provides principles for considering the mitigating effect of managements plans; requires certain disclosures when substantial doubt is alleviated as a result of managements plans, and requires an express statement and other disclosures when substantial doubt is not alleviated. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter with early application permitted. The Company is evaluating the new guidance to determine the impact on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU is effective for annual periods beginning after December 15, 2016 and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. On July 9, 2015 the FASB approved a one year delay in the effective date with an early adoption up to the original effective date for public companies. The Company is evaluating the potential impact of this adoption on its consolidated financial statements. |
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Acquisitions and Business Combinations | During 2015 and 2014, the Company entered into eight acquisitions, which are detailed below. The acquisitions were conducted in an effort to expand the Companys distributor network, enhance and expand its product portfolio, and diversify its product mix. As such, the major purpose for all of the business combinations was to increase revenue and profitability. The acquisitions were structured as asset purchases which resulted in the recognition of certain intangible assets.
2015 Acquisitions
Paws Group, LLC
On July 1, 2015, the Company acquired certain assets of Paws Group, LLC, (PAWS) a direct-sales company for pet lovers that offers an exclusive pet boutique carrying treats for dogs and cats as well as grooming and bath products. The purchase price consisted of a maximum aggregate purchase price of $150,000. The Company agreed to pay initial cash payment of approximately $61,000, for which the Company received certain inventories, the initial cash payment was applied against and reduce the maximum aggregate purchase price.
The contingent considerations estimated fair value at the date of acquisition was $125,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.
The Company recorded a preliminary fair value of a customer relations intangible asset of $125,000 and is being amortized over its estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.
The revenue impact from the PAWS acquisition, included in the consolidated statement of operations for the year ended December 2015 was approximately $98,000.
The pro-forma effect assuming the business combination with PAWS discussed above had occurred at the beginning of the Companys fiscal year for 2015 are not presented as the information was not available.
Mialisia & Co., LLC
On June 1, 2015, the Company acquired certain assets of Mialisia & Co., LLC, (Mialisia) a direct-sales jewelry company that specializes in interchangeable jewelry. As a result of this business combination, the Companys distributors and customers have access to the unique line of Mialisias patent-pending VersaStyle jewelry and Mialisias distributors and customers will gain access to products offered by the Company. The purchase price consisted of a maximum aggregate purchase price of $1,900,000. The Company agreed to pay an initial cash payment of $118,988, for which the Company received certain inventories, the initial cash payment was applied against and reduce the maximum aggregate purchase price.
The Company has agreed to pay Mialisia a monthly payment equal to seven (7%) of all gross sales revenue generated by the Mialisia distributor organization in accordance with the asset purchase agreement, regardless of products being sold and pay five (5%) royalty on Mialisia product revenue until the earlier of the date that is fifteen (15) years from the closing date or such time as the Company has paid aggregate cash payment equal to $1,781,012. All payments of Mialisia distributor revenue will be applied against and reduce the maximum aggregate purchase price; however if the aggregate gross sales revenue generated by the Mialisia distributor organization, for a twelve (12) months period following the closing date does not equal or exceed $1,900,000 then the maximum aggregate purchase price will be reduced by the difference of the $1,900,000 and the average distributor revenue for a twelve (12) month period: provided, however, that in no event will the maximum aggregate purchase price be reduced below $1,650,000.
The contingent considerations estimated fair value at the date of acquisition was $700,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.
The assets acquired were recorded at estimated fair values as of the date of the acquisition. The fair values of the acquired assets have not been finalized pending further information that may impact the valuation of certain assets or liabilities. The preliminary purchase price allocation for Mialisia is as follows (in thousands):
The preliminary fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.
The Company expects to finalize the valuation within one (1) year from the acquisition date.
The revenue impact from the Mialisia acquisition, included in the consolidated statement of operations for the year ended December 2015 was approximately $754,000.
The pro-forma effect assuming the business combination with Mialisia discussed above had occurred at the beginning of the Companys fiscal year for 2015 are not presented as the information was not available.
JD Premium LLC
On March 4, 2015, the Company acquired certain assets of JD Premium, LLC (JD Premium) a dietary supplement company. As a result of this business combination, the Companys distributors and customers have access to JD Premiums unique line of products and JD Premiums distributors and clients gain access to products offered by the Company. The purchase price consisted of a maximum aggregate purchase price of $500,000. The Company made an initial cash payment of $50,000 for the purchase of certain inventories, which has been applied against and reduce the maximum aggregate purchase price.
The Company has agreed to pay JD Premium a monthly payment equal to seven (7%) of all gross sales revenue generated by the JD Premium distributor organization in accordance with the asset purchase agreement, regardless of products being sold and pay five (5%) royalty on JD Premium product revenue until the earlier of the date that is fifteen (15) years from the closing date or such time as the Company has paid aggregate cash payment equal to $450,000. All payments of JD Premium distributor revenue will be applied against and reduce the maximum aggregate purchase price; however if the aggregate gross sales revenue generated by the JD Premium distributor organization, effective April 4, 2015 for a twenty-four (24) months period does not equal or exceed $500,000 then the maximum aggregate purchase price will be reduced by the difference of the $500,000 and the average annual distributor revenue; provided, however, that in no event will the maximum aggregate purchase price be reduced below $300,000.
The contingent considerations estimated fair value at the date of acquisition was $195,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.
The assets acquired were recorded at estimated fair values as of the date of the acquisition. The fair values of the acquired assets have not been finalized pending further information that may impact the valuation of certain assets or liabilities. The preliminary purchase price allocation for JD Premium is as follows (in thousands):
The preliminary fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.
The Company expects to finalize the valuation within one (1) year from the acquisition date.
The revenue impact from the JD Premium acquisition, included in the consolidated statement of operations for the year ended December 2015 was approximately $102,000.
The pro-forma effect assuming the business combination with JD Premium discussed above had occurred at the beginning of 2015 is not presented as the information would not be significant to a user of the consolidated financial statements.
Sta-Natural, LLC
On February 23, 2015, the Company acquired certain assets and assumed certain liabilities of Sta-Natural, LLC, (Sta-Natural) a dietary supplement company and provider of vitamins, minerals and supplements for families and their pets. As a result of this business combination, the Companys distributors and customers have access to Sta-Naturals unique line of products and Sta-Naturals distributors and clients gain access to products offered by the Company. The purchase price consisted of a maximum aggregate purchase price of $500,000. The Company made an initial cash payment of $25,000 of which the Company also received certain inventories valued at $25,000, the initial cash payment was applied against and reduce the maximum aggregate purchase price.
The Company has agreed to pay Sta-Natural a monthly payment equal to eight (8%) of all gross sales revenue generated by the Sta-Natural distributor organization in accordance with the asset purchase agreement, regardless of products being sold and pay five (5%) royalty on Sta-Natural product revenue until the earlier of the date that is fifteen (15) years from the closing date or such time as the Company has paid aggregate cash payment equal to $450,000. All payments of Sta-Natural distributor revenue will be applied against and reduce the maximum aggregate purchase price; however if the aggregate gross sales revenue generated by the Sta-Natural distributor organization, for a twelve (12) months period following the closing date does not equal or exceed $500,000 then the maximum aggregate purchase price will be reduced by the difference of the $500,000 and the average distributor revenue for a twelve (12) month period: provided, however, that in no event will the maximum aggregate purchase price be reduced below $300,000.
The contingent considerations estimated fair value at the date of acquisition was $285,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.
The final purchase price allocation for Sta-Natural is as follows (in thousands):
The fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.
The revenue impact from the Sta-Natural acquisition, included in the consolidated statement of operations for the year ended December 2015 was approximately $691,000.
The pro-forma effect assuming the business combination with Sta-Natural discussed above had occurred at the beginning of the current period is not presented as the information was not available.
2014 Acquisitions
Restart Your Life, LLC
On October 1, 2014, the Company acquired certain assets and assumed certain liabilities of Restart Your Life, LLC, (Restart Your Life) a dietary supplement company and provider of immune system support products and therapeutic skin lotions. As a result of this business combination, the Companys distributors and customers will have access to Restart Your Lifes unique line of products and Restart Your Lifes distributors and clients will gain access to products offered by the Company. The purchase price consisted of a maximum aggregate purchase price of $1,492,000, of which the Company has agreed to assume liabilities of approximately $250,000. The Company has agreed to pay Restart Your Life a monthly payment equal to ten (10%) of all gross sales revenue generated by the Restart Your Life distributor organization, regardless of products being sold and pay five (5%) royalty on Restart Your Life product revenue until the earlier of the date that is ten (10) years from the closing date or such time as the Company has paid aggregate cash payment equal to $1,242,000. All payments of Restart Your Life distributor revenue will be applied against and reduce the maximum aggregate purchase price; however if the aggregate gross sales revenue generated by the Restart Your Life distributor organization, for a thirteen (13) months period following the closing date does not equal or exceed $1,492,000 then the maximum aggregate purchase price will be reduced by the difference of the $1,492,000 and the thirteen months revenue; provided that in no event will the maximum aggregate purchase price be reduced below $892,441.
The contingent considerations estimated fair value at the date of acquisition was $650,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.
The Company finalized the purchase accounting in 2015 and determined that the initial purchase price should be increased from $650,000 by approximately $75,000.
The final purchase price allocation for Restart Your Life (in thousands) is as follows:
The fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of (10) ten years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.
The revenue impact from the Restart Your Life acquisition, included in the consolidated statements of operations for the years ended December 2015 and 2014 was approximately $1,505,000 and $413,000, respectively.
The pro-forma effect assuming the business combination with Restart Your Life discussed above had occurred at the beginning of the Companys fiscal year for 2014 are not presented as the information was not available.
Good Herbs, Inc.
On April 28, 2014, the Company acquired certain assets and assumed certain liabilities of Good Herbs, Inc., (Good Herbs) a traditional natural herbal supplements company, whose primary sales channel has been targeted toward certified natural health professionals. As a result of this business combination, the Companys distributors and customers have access to Good Herbs unique line of products and Good Herbs distributors and clients gained access to products offered by the Company. The purchase price consisted of a maximum purchase price of $1,900,000 of which approximately $120,000 was related to assumed liabilities. The Company has agreed to pay Good Herbs a monthly payment equal to five (5%) of all gross sales revenue generated by the Good Herbs distributor organization, regardless of products being sold within the Good Herbs distributor organization; provided, however, for the first six (6) months effective May 12, 2014 Good Herbs is to receive a minimum guaranteed payment of $20,000 per month which is to be applied to the maximum purchase price. In addition, the Company agreed to pay Good Herbs five percent (5%) of Good Herbs product sales generated outside the Good Herbs distributor organization. Payments are to be made monthly until the earlier of the date that is ten (10) years from the closing or until such time the Company has paid aggregate cash payments equal to $1,780,000; however if the aggregate gross sales revenue generated by the Good Herbs distributor organization, regardless of the products being sold, received by the Company for the fifteen (15) months period following the Closing Date does not equal or exceed $1,900,000 then the maximum aggregate purchase price will be reduced by the difference between $1,900,000 and the fifteen month revenue; provided that in no event will the maximum aggregate purchase price be reduced below $1,000,000. The contingent considerations preliminary fair value at the date of acquisition was $800,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.
The assets acquired and liabilities assumed were recorded at estimated fair values as of the date of the acquisition.
During the fourth quarter ended December 31, 2014 the purchase accounting was finalized and the Company determined that the initial purchase price should be reduced from $800,000, by approximately $270,000. The final purchase price allocation for Good Herbs (in thousands) is as follows:
The fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of (10) ten years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.
The revenue impact from the Good Herbs acquisition, included in the consolidated statements of operations for the years ended December 2015 and 2014 was approximately $1,410,000 and $333,000, respectively.
The pro-forma effect assuming the business combination with Good Herbs discussed above had occurred at the beginning of the Companys fiscal year for 2014 are not presented as the information was not available.
Beyond Organic, LLC
On May 1, 2014, the Company acquired certain assets and assumed certain liabilities of Beyond Organic, LLC, (Beyond Organic) a vertically integrated organic food and beverage company. The purchase price consisted of a maximum purchase price of $6,200,000 of which approximately $200,000 was related to assumed liabilities. The Company has agreed to pay Beyond Organic a monthly payment equal to ten (10%) of all gross sales revenue generated by the Beyond Organic distributor organization, regardless of products being sold within the Beyond Organic distributor organization; provided, however, for the first ten (10) months effective May 12, 2014 Beyond Organic is to receive a minimum guaranteed payment of $92,500 per month which is to be applied to the maximum purchase price. In addition, the Company agreed to pay Beyond Organic five percent (5%) of Beyond Organic product sales generated outside the Beyond Organic distributor organization. Payments are to be made monthly until the earlier of the date that is seven (7) years from the closing or until such time the Company has paid aggregate cash payments equal to $6,000,000. The contingent considerations estimated fair value at the date of acquisition was $3,100,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.
The assets acquired and liabilities assumed were recorded at their estimated fair values as of the date of the acquisition. The purchase price allocation for Beyond Organic (in thousands) is as follows:
The fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of (10) ten years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.
Goodwill of $300,000 was recognized as the excess of the purchase price over the acquisition-date fair value of net assets acquired. Goodwill is estimated to represent the synergistic values expected to be realized from the combination of the two businesses. The goodwill is expected to be deductible for tax purposes.
The revenue impact from the Beyond Organic acquisition, included in the consolidated statements of operations for the years ended December 2015 and 2014 was approximately $5,760,000 and $3,129,000, respectively.
The pro-forma effect assuming the business combination with Beyond Organic discussed above had occurred at the beginning of the Companys fiscal year for 2014 are not presented as the information was not available.
Siles Plantation Family Group S.A. (Sociedad Anonima)
On May 13, 2014, the Company, through its wholly-owned subsidiary CLR Roasters, LLC (CLR), acquired the stock in the Siles Plantation Family Group S.A., a Nicaraguan entity. The results of Siles are included in the consolidated financial statements of the Company from the date of acquisition. The transaction is being accounted for as a business combination.
The Siles Plantation Family Group S.A. is operated and managed by a husband and wife team who are also employees of Siles. The husband and wife team are Marisol Del Carmen Siles Orozco (Orozco) and Alain Piedra Hernandez (Hernandez) both Nicaraguan nationals and U.S. citizens. Orozco and Hernandez independently own and operate a coffee export company and maintain an export license; Hernandez, Hernandez Export Y Company (H&H). CLR has been associated with H&H through sourcing arrangements to procure Nicaraguan coffee.
Concurrent with the acquisition of Siles, Siles acquired the assets of a dry-processing plant La Pita, a coffee plantation El Paraiso and has paid a deposit to purchase a second coffee plantation El Paraisito as follows:
1) La Pita, a dry-processing plant sitting on approximately 26 acres of land is located in Matagalpa, Nicaragua. The property includes buildings, structures, machinery and equipment, and furnishings and fixtures. The total purchase price was $1,904,840, of which CLR paid $1,050,000 and H&H paid $854,840. The purchase price allocation for La Pita (in thousands) is as follows:
2) El Paraiso, a coffee plantation located in Matagalpa, Nicaragua, consisting of approximately 450 acres of land. The total purchase price was $1,400,000 of which CLR paid $1,050,000 and H&H paid $350,000. The purchase price allocation for El Paraiso (in thousands) is as follows:
3) Additionally, Siles has the desire to purchase El Paraisito, an approximate 450 acre plantation located adjacent to El Paraiso. The Company is currently in the process of completing final settlement of the purchase agreement. CLR and H&H has a deposit towards this purchase of $284,000 of which CLR paid $200,000 and H&H paid $84,000 and is recorded in prepaid expenses and other current assets on the Companys consolidated balance sheets for the years ended December 31, 2015 and 2014.
In connection with the acquisition of Siles (La Pita and El Paraiso), the Company recognized a contingent liability of approximately $1,632,000 which is payable to H&H after certain working capital conditions are met and after CLRs cash contributions for the acquisitions are fully paid.
As an inducement to harvest the plantations and operate the dry-processing plant profitably, CLR and H&H entered into an Operating and Profit Sharing Agreement (Agreement). In accordance with the Agreement, H&H shares equally (50%) in all profits and losses generated by Siles, and profits from any subsequent sale of the plantation, after profits are first distributed to CLR equal to the amount of CLRs cash contributions for the acquisitions, then after profits are distributed to H&H in an amount equal to their cash contributions, and after certain other conditions are met. During the years ended December 31, 2015 and 2014 the Company recorded expenses allocated to the profit sharing Agreement of $528,000 and $211,000, respectively.
As of December 31, 2015 and 2014 the balance of contingent acquisition debt payable to H&H after the reduction of $528,000 and $211,000 from the allocation of 50% losses recognized in 2015 and 2014 is $894,000 and $1,421,000, respectively.
Revenue from the Siles Plantation includes service fees related to dry-processing and sales of plantation coffee were approximately $942,000 and $115,000 and is included in the consolidated statements of operations for the years ended December 31, 2015 and 2014, respectively.
Siles Family Plantation is a newly formed entity in 2014 and does not have historical financial statements related to 2014; therefore pro-forma disclosures have not been presented for 2014.
Financial Destination, Inc., FDI Management, Inc., and MoneyTrax, LLC (collectively referred to as FDI)
During the Companys third quarter ended September 30, 2014, the Company entered into an amendment agreement related to our FDI business acquisition that was consummated in a prior year, which reduces the maximum amount that will be paid to the seller. This resulted in a reduction in the estimated fair value of the related contingent acquisition debt. |
Arrangements with Variable Interest Entities and Related Party Transactions |
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Arrangements with Variable Interest Entities and Related Party Transactions | The Company consolidates all variable interest entities in which it holds a variable interest and is the primary beneficiary of the entity. Generally, a variable interest entity (VIE) is a legal entity with one or more of the following characteristics: (a) the total at risk equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties; (b) as a group the holders of the equity investment at risk lack any one of the following characteristics: (i) the power, through voting or similar rights, to direct the activities of the entity that most significantly impact its economic performance, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) some equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is required to consolidate the VIE and is the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and (b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
In determining whether it is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE's economic performance and which party has the power to direct such activities; the amount and characteristics of Company's interests and other involvements in the VIE; the obligation or likelihood for the Company or other investors to provide financial support to the VIE; and the similarity with and significance to the business activities of Company and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of these VIEs and general market conditions.
FDI Realty, LLC
FDI Realty is the owner and lessor of the building we previously occupied by the Company for its sales and marketing office in Windham, NH. In December 2015 the Company relocated our operations from the Windham office, to our corporate headquarters in Chula Vista, California. A former officer of the Company is the single member of FDI Realty. The Company is a co-guarantor of FDI Realtys mortgages on the building. The Company determined that the fair value of the guarantees is not significant and therefore did not record a related liability. The first mortgage is due on August 13, 2018 and the second mortgage is due on August 13, 2028. The Companys maximum exposure to loss as a result of its involvement with the unconsolidated VIE is approximately $1,900,000 and $1,986,000 as of December 31, 2015 and 2014, respectively. The Company may be subject to additional losses to the extent of any financial support that it voluntarily provides in the future.
At December 31, 2015, the Company held a variable interest in FDI Realty, for which the Company is not deemed to be the primary beneficiary. The Company has concluded, based on its qualitative consideration of the lease agreement, and the role of the single member of FDI Realty, that the single member is the primary beneficiary of FDI Realty. In making these determinations, the Company considered that the single member conducts and manages the business of FDI Realty, is authorized to borrow funds on behalf of FDI Realty, is the sole person authorized and responsible for conducting the business of FDI Realty, and is obligated to fund the obligations of FDI Realty. As a result of this determination, the financial position and results of operations of FDI Realty have not been included in the consolidated financial statements of the Company.
AL Corporation Holding Pte. Ltd. and DrinkAct Southeast Asia, Inc.
The Company concluded that it held variable interests in AL Corporation Holding Pte. Ltd. (DrinkACT Singapore) and DrinkACT Southeast Asia, Inc. (DrinkACT Philippines), entities established during the year ended December 31, 2011. The VIEs served to exclusively market and distribute the Companys product. Although the Company did not have any legal ownership of the businesses themselves, it did exert a level of control over the activities undertaken by each business and bore the risk of loss and the benefit of profits. The Company determined that it was the primary beneficiary in the relationship and, therefore, the results of operations and non-controlling interests were included in the consolidated financial statements.
As a result of the Companys ultimate inability to control the processes and procedures of the two entities in accordance with the Companys objectives, management ended its relationship with DrinkACT Singapore during the fourth quarter of 2012 and ended its relationship with DrinkACT Philippines during the fourth quarter of 2013. The Company failed to write-down the associated remaining non-controlling interest amounts in the appropriate periods. Due to the immateriality of these amounts a restatement of the respective period financial statements is not appropriate. There are no other assets or liabilities associated with either entity.
At December 31, 2014 the Company recorded the net effect of the remaining amount from the non-controlling interest of the two entities as approximately $62,000 accumulated net income related to DrinkACT Singapore carried over from 2012 and a deficit of approximately $265,000 related to the DrinkACT Philippines carried over from 2013. The net effect of approximately $203,000 has been reported in the Companys consolidated financial statements in general and administrative expenses.
The following table summarizes the amounts included in the consolidated financial statements related to the operations of DrinkACT Singapore and DrinkACT Philippines (in thousands):
Related Party Transactions
A member of the Board of Directors owns and operates Northwest Nutraceuticals, Inc., a supplier of certain inventory items. The Company made purchases of approximately $93,000 and $72,000 from this supplier for the years ended December 31, 2015 and 2014, respectively.
Our coffee segment CLR is associated with H&H through sourcing arrangements to procure Nicaraguan green coffee and in March 2014 as part of the Siles acquisition, CLR engaged H&H as employees to manage Siles. The Company made purchases of approximately $10,499,000 and $11,766,000 from this supplier for the years ended December 31, 2015 and 2014, respectively. See Note 2 above.
Mr. Carl Grover the beneficial owner of in excess of five percent (5%) of our outstanding common shares is the sole beneficial owner of 43,001,690 shares of our common stock. Mr. Grover owns a September 2014 Note in the principal amount of $4,000,000 convertible into 11,428,571 shares of common stock convertible at $0.35 per share, and a September 2014 Warrant exercisable for 15,652,174 shares of common stock at an exercise price of $0.23 per share. Mr. Grover also owns a November 2015 Note in the principal amount of $7,000,000 convertible into 20,000,000 shares of common stock convertible at $0.35 per share, and a November 2015 Warrant exercisable for 9,333,333 shares of common stock at an exercise price of $0.45 per share. He also owns 5,171,240 shares of common stock that includes 1,500,000 shares of common stock issued as part of the January 2015 Note Purchase Agreement and 3,671,240 shares of common stock held prior to our 2014 and 2015 private placements and warrants exercisable for 5,142,857 shares of common stock acquired prior to our 2014 and 2015 private placements.
On March 15, 2013, the Company acquired 2400 Boswell LLC (2400 Boswell) for approximately $4.6 million. 2400 Boswell is the owner and lessor of the building occupied by the Company for its corporate office and warehouse in Chula Vista, California. The purchase was from an immediate family member of our Chief Executive Officer and consisted of approximately $248,000 in cash, $334,000 of debt forgiveness and accrued interest, and a promissory note of approximately $393,000, payable in equal payments over 5 years and bears interest at 5.0%. Additionally, the Company assumed a long-term mortgage of $3,625,000, payable over 25 years and has an initial interest rate of 5.75%. The interest rate is the prime rate plus 2.5%. The lender will adjust the interest rate on the first calendar day of each change period. As of December 31, 2015 the balance on the long-term mortgage is approximately $3,431,000 and the balance on the promissory note is approximately $189,000. The Company and our Chief Executive Officer are both are co-guarantors of the mortgage. |
Notes Payable and Other Debt |
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Notes Payable and Other Debt |
Note 4. Notes Payable and Other Debt
On March 15, 2013, the Company acquired 2400 Boswell for approximately $4.6 million. 2400 Boswell is the owner and lessor of the building occupied by the Company for its corporate office and warehouse in Chula Vista, California. The purchase was from an immediate family member of our Chief Executive Officer and consisted of approximately $248,000 in cash, $334,000 of debt forgiveness and accrued interest, and a promissory note of approximately $393,000, payable in equal payments over 5 years and bears interest at 5.0%. Additionally, the Company assumed a long-term mortgage of $3,625,000, payable over 25 years and has an initial interest rate of 5.75%. The interest rate is the prime rate plus 2.5%. The lender will adjust the interest rate on the first calendar day of each change period. As of December 31, 2015 the balance on the long-term mortgage is approximately $3,431,000 and the balance on the promissory note is approximately $189,000. The Company and our Chief Executive Officer are both co-guarantors of the mortgage.
In March 2007, the Company entered into an agreement to purchase certain assets of M2C Global, Inc., a Nevada corporation, for $4,500,000. The agreement required payments totaling $500,000 in three installments during 2007, followed by monthly payments in the amount of 10% of the sales related to the acquired assets until the entire note balance is paid. The Company has imputed interest at the rate of 7% per annum. As of December 31, 2015 and 2014, the carrying value of the liability was approximately $1,204,000 and $1,258,000, respectively. Imputed interest recorded on the note was approximately $29,000 and $63,000 for the years ended December 31, 2015 and 2014, respectively.
In November 2015, the Company completed a private placement and entered into Note Purchase Agreements with three (3) accredited investors pursuant to which we sold senior secured convertible notes in the aggregate principal amount of $7,187,500, that are convertible into shares of Common Stock. The Notes are due in October 2018 if the option to convert has not been exercised (see Note 5, below).
In January 2015, the Company completed a private placement and entered into Note Purchase Agreements with three (3) accredited investors pursuant to which we sold units consisting of one (1) year senior secured notes in the aggregate principal amount of $5,250,000. One holder of a January 2015 Note in the principal amount of $5,000,000 was prepaid on October 26, 2015 through a cash payment from us to the investor of $1,000,000, and the remaining $4,000,000 owed was applied to the investors purchase of a $4,000,000 November 2015 Note in the November 2015 Offering and a November 2015 Warrant exercisable to purchase 5,333,333 shares of Common Stock. The remaining balance of the January 2015 Notes as of December 31, 2015 was $250,000 and was paid in January 2016 (see Note 5, below.)
During the third quarter of the year ended December 31, 2014, the Company completed a private placement and entered into Note Purchase Agreements with seven (7) accredited investors pursuant to which we sold units consisting of five (5) year senior secured convertible Notes in the aggregate principal amount of $4,750,000, that are convertible into shares of our common stock. The Notes are due in September 2019 if the option to convert has not been exercised (see Note 5, below.)
The Company has two other notes payable in the total amount of $29,000 as of December 31, 2015 which expire in 2018 and 2019.
The following summarizes the maturities of notes payable (in thousands):
Capital Lease
The Company leases certain manufacturing and phone equipment under non-cancelable capital leases. The total outstanding balance under the capital leases as of December 31, 2015 excluding interest was approximately $405,000, of which $111,000 will be paid in 2016 and the remaining balance of $294,000 will be paid through 2020.
Depreciation expense related to the capitalized lease obligations was approximately $27,000 and $40,000 for the years ended December 31, 2015 and 2014, respectively.
Factoring Agreement
The Company has a factoring agreement (Factoring Agreement) with Crestmark Bank (Crestmark) related to the Companys accounts receivable resulting from sales of certain products within its commercial coffee segment. Under the terms of the Factoring Agreement, the Company effectively sold those identified accounts receivable to Crestmark with non-credit related recourse. The Company continues to be responsible for the servicing and administration of the receivables. During November 2015, the Company extended its Factoring Agreement though February 1, 2017. There were no other modifications to the terms under the Factoring Agreement.
The Factoring Agreement provides for the Company to receive advances against the purchase price of its receivables at the rate of 85% of the aggregate purchase price of the receivable outstanding at any time less: receivables that are in dispute, receivables that are not credit approved within the terms of the Factoring Agreement, and any fees or estimated fees related to the Factoring Agreement. Interest is accrued on all outstanding advances at the greater of 5.25% per annum or the Prime Rate (as identified by the Wall Street Journal) plus an applicable margin. The margin is based on the magnitude of the total outstanding advances and ranges from 2.50% to 5.00%. In addition to the interest accrued on the outstanding balance, Crestmark charges a factoring commission for each invoice factored, which is calculated as the greater of $5.00 or 0.875% to 1.00% of the gross invoice amount and is recorded as interest expense. The minimum factoring commission payable to the bank is $90,000 during each consecutive 12-month period. Fees and interest paid pursuant to this agreement were approximately $155,000 and $135,000 for the years ended December 31, 2015 and 2014, respectively, which were recorded as interest expense.
The Company accounts for the sale of receivables under the Factoring Agreement as secured borrowings with a pledge of the subject receivables as well as all bank deposits as collateral, in accordance with the authoritative guidance for accounting for transfers and servicing of financial assets and extinguishments of liabilities. The caption Accounts receivable, due from factoring company on the accompanying consolidated balance sheets in the amount of approximately $556,000 and $827,000 as of December 31, 2015 and December 31, 2014, respectively, reflects the related collateralized accounts.
The Company's outstanding liability related to the Factoring Agreement was approximately $457,000 and $538,000 as of December 31, 2015 and December 31, 2014, respectively, and is included in other current liabilities on the consolidated balance sheets.
Contingent Acquisition Debt
The Company has contingent acquisition debt associated with its business combinations. The Company accounts for business combinations under the acquisition method and allocates the total purchase price for acquired businesses to the tangible and identified intangible assets acquired and liabilities assumed, based on their estimated fair values as of the acquisition date. A liability for contingent consideration, if applicable, is recorded at fair value as of the acquisition date and, evaluated each period for changes in the fair value and adjusted as appropriate (see Note 7 below.) The Companys contingent acquisition debt as of December 31, 2015 is $7,438,000 and is primarily attributable to debt associated with the Companys direct selling segment which is $6,544,000 and $894,000 is debt associated with the Companys coffee segment.
Line of Credit
On October 10, 2014, the Company entered into a revolving line of credit agreement (Line of Credit), with Wells Fargo Bank National Association (Bank), the Companys principal banking partner. The Line of Credit provided the Company with a $2.5 million revolving credit line. The outstanding principal balance of the Line of Credit bear interest at a fluctuating rate per annum determined by the Bank to be two and three-quarter percent (2.75%) above Daily One Month LIBOR as in effect from time to time. The bank charged an unused commitment fee equal to five tenths percent (.5%) per annum on the daily unused amount of the Line of Credit and was payable quarterly. The Company did not draw against this credit facility. The agreement expired in October 2015 and was not renewed. |
Debt |
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Debt | January 2015 Private Placement
On January 29, 2015, the Company completed its January 2015 Private Placement and entered into Note Purchase Agreements (the Note or Notes) with three accredited investors. The Company raised aggregate gross proceeds of $5,250,000 in the offering and sold aggregate units consisting of the Notes in the aggregate principal amount of $5,250,000 and 1,575,000 shares of our common stock, par value $0.001 per share.
The Notes bear interest at a rate of eight percent (8%) per annum to be paid quarterly in arrears starting March 31, 2015, with all principal and unpaid interest due at maturity on January 5, 2016 and January 28, 2016 in accordance with the respective Notes. The Company has the right to prepay the Notes at any time at a rate equal to 100% of the then outstanding principal balance and accrued interest. The Notes rank pari passu to all other notes of the Company other than certain outstanding senior debt. The Companys wholly-owned subsidiary, CLR, has provided collateral to secure the repayment of the Notes and has pledged the Nicaragua green coffee beans acquired with the proceeds, that are to be sold under the terms of our contracts with our customers, Sourcing and Supply Agreements, the contract rights under the letter of intent and all proceeds of the foregoing (which lien is junior to CLRs line of credit and equipment lease but senior to all of its other obligations), all subject to the terms and conditions of a security agreement among the Company, CLR and the investors. Additionally, Stephan Wallach, the Companys Chief Executive Officer, has also personally guaranteed the repayment of the Notes, subject to the terms of a Guaranty Agreement executed by him with the investors. With respect to the aggregate offering, the Company used one placement agent and paid a placement fee of $157,500, in addition to the payment of certain legal expenses of the placement agent, and the Company issued to the placement agent an aggregate of 875,000 shares of common stock, par value $0.001 per share.
One holder of a January 2015 Note in the principal amount of $5,000,000 was prepaid on October 26, 2015 through a cash payment from us to the investor of $1,000,000 and the remaining $4,000,000 owed was applied to the investors purchase of a $4,000,000 November 2015 Note and warrant exercisable to purchase 5,333,333 shares of Common Stock. The remaining balance of $250,000 from the January 2015 Notes was outstanding as of December 31, 2015, and paid in January 2016.
The Company recorded a non-cash extinguishment loss on debt of $1,198,000 in the current year as a result of the repayment of $5,000,000 from the January 2015 Note to one of the investors from the January 2015 Private Placement through issuance of a new November 2015 Note Payable. This loss represents the difference between the reacquisition value of the new debt to the holder of the note and the carrying amount of the holders extinguished debt. (See November 2015 Private Placement below.)
Issuance costs related to the Notes and the common stock were approximately $170,000 and $587,000 in cash and non-cash costs, respectively, which were recorded as deferred financing costs and were amortized over the term of the Notes. As of December 31, 2015 the deferred financing costs is fully amortized and was recorded as interest expense.
The net proceeds were used primarily for the purchase of green coffee to accelerate the growth of the coffee segment green coffee business.
Convertible Notes Payable
November 2015 Private Placement
Between October 13, 2015 and November 25, 2015 the Company entered into Note Purchase Agreements (the Note or Notes) by way of completing a private placement offering (November 2015 Private Placement) with three (3) accredited investors to which the Company raised cash proceeds of $3,187,500 in the offering and converted $4,000,000 of debt from the January 2015 Private Placement to this offering and sold aggregate units consisting of three (3) year senior secured convertible Notes in the aggregate principal amount of $7,187,500, convertible into 20,535,714 shares of common stock, par value $0.001 per share, at a conversion price of $0.35 per share, subject to adjustment as provided therein; and five (5) year Warrants exercisable to purchase 9,583,333 shares of the Companys common stock at a price per share of $0.45. As of December 31, 2015 the principal amount of $7,187,500 remains outstanding.
The Notes bear interest at a rate of eight percent (8%) per annum to be paid quarterly in arrears starting December 31, 2015, with all principal and unpaid interest due at maturity on October 12, 2018. The Company has the right to prepay the Notes at any time after the one year anniversary date of the issuance of the Notes at a rate equal to 110% of the then outstanding principal balance and accrued interest. The Notes rank senior to all debt of the Company other than certain debt owed to Crestmark Bank, the investors in the Company's prior private placements, a mortgage on property, and any refinancings thereof. The amounts owed under this Note are secured by a Deed of Trust as of October 13, 2015 executed by the Companys affiliate 2400 Boswell LLC, a California limited liability company, and encumbering the Companys headquarters at 2400 Boswell Rd., Chula Vista, CA 91914 (the Deed of Trust.)
Stephan Wallach, the Companys Chief Executive Officer, has also personally guaranteed the repayment of the Notes, subject to the terms of a Guaranty executed by him with the investors. In addition, Mr. Wallach has agreed not to sell, transfer or pledge the 30 million shares of the common stock that are currently pledged as collateral to a previous financing so long as his personal guaranty is in effect.
With respect to the aggregate offering, the Company used one placement agent and paid a placement fee of approximately $719,000, in addition the payment of certain legal expenses and other issuance costs were approximately $67,000, which were recorded as deferred financing costs and are included under prepaid expenses and other current assets on the consolidated balance sheets and are being amortized over the term of the Notes. As of December 31, 2015 the remaining balance in deferred financing costs is approximately $742,000. The quarterly amortization of the deferred financing costs is approximately $66,000 and is recorded as interest expense.
The Company analyzed the nature of the warrants that were issued in the transaction and determined when the exercise price of the warrants is protected against down-round financing throughout the term of the warrant agreement, the warrants require derivative liability classification in accordance with authoritative guidance ASC Topic 815, Derivatives and Hedging. The Company determined that the warrants issued to the investors represent a derivative liability. The estimated fair value of the warrants issued in connection with the Notes totaled $1,491,000 at issuance, and has been recorded as a derivative liability with a corresponding debt discount and an extinguishment loss on debt. The debt discount will be amortized over the term of the Convertible Notes to interest expense, whereas the Company recognized the extinguishment loss on debt with the initial valuation. We revalue the derivative liability on each balance sheet date until the securities to which the derivatives liabilities relate are exercised or expire, in accordance with the Convertible Notes (see Note 7, below.)
The Company recorded the discount for the beneficial conversion feature of $15,000. The beneficial conversion feature was recorded to equity and the debt discount associated with the beneficial conversion feature will be amortized to interest expense over the life of the Notes.
The Company recorded approximately $17,000 of interest expense for the amortization of the debt discounts related to the November 2015 Notes during the year ended December 31, 2015.
The Company also issued the placement agent five (5) year warrants exercisable for an aggregate amount of 958,333 shares of common stock, par value $0.001 per share at an exercise price of $0.45 per share and three (3) year warrants exercisable in the aggregate amount of 2,053,571 shares of common stock, par value $0.001per share at an exercise price of $0.35 per share, subject to adjustment as provided therein. The estimated fair value of the warrants issued to the placement agent in connection with the Notes totaled approximately $384,000. These warrants were not protected against down-round financing and accordingly, were classified as equity issuance and with a corresponding deferred issuance costs that will be amortized over the term of the Note to interest expense.
July 2014 Private Placement Between July 31, 2014 and September 10, 2014, the Company, entered into Note Purchase Agreements (the "Note" or "Notes") by way of completing a private placement offering (2014 Private Placement) with seven accredited investors pursuant to which the Company raised aggregate gross proceeds of $4,750,000 and sold units consisting of five (5) year senior secured convertible Notes in the aggregate principal amount of $4,750,000, that are convertible into 13,571,429 shares of our common stock, at a conversion price of $0.35 per share, and warrants to purchase 18,586,956 shares of common stock at an exercise price of $0.23 per share, subject to adjustment as provided therein. As of December 31, 2015 the principal amount of $4,750,000 remains outstanding.
The outstanding convertible notes payable (Convertible Notes) of the Company are secured by certain pledged Company assets, bear interest at a rate of eight percent (8%) per annum and paid quarterly in arrears with all principal and unpaid interest due between July and September 2019. The Company has the right to prepay the Notes at any time after the one year anniversary date of the issuance of the Notes at a rate equal to 110% of the then outstanding principal balance and any unpaid accrued interest. The notes are secured by Company pledged assets and rank senior to all debt of the Company other than certain senior debt that has been previously identified as senior to the convertible notes debt. Additionally, Stephan Wallach, the Companys Chief Executive Officer, has also personally guaranteed the repayment of the Notes, subject to the terms of a Guaranty Agreement executed by him with the investors. In addition, Mr. Wallach has agreed not to sell, transfer or pledge 30 million shares of the Common Stock that he owns so long as his personal guaranty is in effect.
The net proceeds were used primarily for the purchase of green coffee to accelerate the growth of the coffee segment green coffee business.
In connection with the issuance of these Convertible Notes, the Company issued warrants that require derivative liability classification in accordance with authoritative guidance ASC Topic 815, Derivatives and Hedging. The estimated fair value of the warrants issued in connection with the Convertible Notes totaled $3,697,000 at issuance, and has been recorded as a derivative liability with a corresponding debt discount that will be amortized over the term of the Convertible Notes to interest expense. We revalue the derivative liability on each balance sheet date until the securities to which the derivatives liabilities relate are exercised or expire, in accordance with the Convertible Notes (see Note 7, below.)
Additionally, upon issuance of the Convertible Notes, the Company recorded the discount for the beneficial conversion feature of $1,053,000. The debt discount associated with the beneficial conversion feature is amortized to interest expense over the life of the Convertible Notes. The Company recorded approximately $950,000 and $396,000 of interest expense for the amortization of the debt discounts during the years ended December 31, 2015 and 2014, respectively.
Paid in cash issuance costs related to the Convertible Notes were approximately $490,000 and were recorded as deferred financing costs and are included in prepaid expenses and other current assets on the consolidated balance sheets and are being amortized over the term of the Convertible Notes. As of December 31, 2015 and December 31, 2014 the remaining balance in deferred financing costs is approximately $351,000 and $449,000, respectively. The quarterly amortization of the deferred financing costs is approximately $25,000 and is recorded as interest expense.
The following table summarizes information relative to the convertible note(s) outstanding:
Registration Rights Agreements
The Company entered into a registration rights agreements (Registration Rights Agreement) with the investors in the November 2015 and July 2014 Private Placements. Under the terms of the Registration Rights Agreement, the Company agreed to file a registration statement covering the resale of the common stock underlying the units and the common stock that is issuable on exercise of the warrants within 90 days from the final closing date of the Private Placements (the Filing Deadline).
The Company has agreed to use reasonable efforts to maintain the effectiveness of the registration statement through the one year anniversary of the date the registration statement is declared effective by the Securities and Exchange Commission (the SEC), or until Rule 144 of the 1933 Act is available to investors in the Private Placements with respect to all of their shares, whichever is earlier. If the Company does not meet the Filing Deadline or Effectiveness Deadline, as defined in the Registration Rights Agreement, the Company will be liable for monetary penalties equal to one percent (1.0%) of each investors investment at the end of every 30 day period following such Filing Deadline or Effectiveness Deadline failure until such failure is cured.
The payment amount shall be prorated for partial 30 day periods. The maximum aggregate amount of payments to be made by the Company as the result of such shall be an amount equal to ten (10%) of each investors investment amount. Notwithstanding the foregoing, no payments shall be owed with respect to any period during which all of the investors registrable securities may be sold by such investor under Rule 144 or pursuant to another exemption from registration.
November 2015 Private Placement: The Company filed a registration statement on December 29, 2015 and an amended registration statement on February 9, 2016 that was declared effective by the SEC on February 12, 2016.
July 2014 Private Placement: The Company filed a registration statement on October 3, 2014 and an amended statement on October 17, 2014 and it was declared effective by the SEC on November 4, 2014. |
Derivative Liability |
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Derivative Liability |
In October and November of 2015, the Company issued 9,583,333 three-year warrants in connection with Convertible Notes associated with our November 2015 Private Placement. The exercise price of the warrants is protected against down-round financing throughout the term of the warrant. Pursuant to ASC Topic 815, the fair value of the warrants of approximately $1,491,000 was recorded as a derivative liability on the issuance dates. The estimated fair values of the warrants were computed at issuance using a Monte Carlo option pricing models, with the following assumptions: stock price volatility 70%, risk-free rate 1.66%, annual dividend yield 0% and expected life 5.0 years.
In July and August of 2014, the Company issued 21,802,793 five-year warrants in connection with Convertible Notes associated with our July 2014 Private Placement. The exercise price of the warrants is protected against down-round financing throughout the term of the warrant. Pursuant to ASC Topic 815, the fair value of the warrants of approximately $3,697,000 was recorded as a derivative liability on the issuance dates. The estimated fair values of the warrants were computed at issuance using a Monte Carlo option pricing models, with the following assumptions: stock price volatility 90%, risk-free rates 1.58%-1.79%, annual dividend yield 0% and expected life 5.0 years.
During the fourth quarter of fiscal 2015 the Company entered into amendment agreements with certain warrant holders from the July 2014 Private Placement, which removed the down-round pricing protection provision, resulting in 3,215,837 of these warrants being reclassified from liability instruments to equity instruments. The Company also recognized a reduction in the warrant liability based on the fair value as of the modification date for the warrants that were amended, with a corresponding increase in additional paid-in capital.
The Company revalued the warrants as of the end of each reporting period, and the estimated fair value of the outstanding warrant liabilities was $4,716,000 and $3,712,000 as of December 31, 2015 and December 31, 2014, respectively.
Increases or decreases in fair value of the derivative liability are included as a component of other income (expense) in the accompanying consolidated statements of operations for the respective period. The changes to the derivative liability for warrants were approximately $39,000 and $15,000 for the years ended December 31, 2015 and 2014, respectively.
Various factors are considered in the pricing models we use to value the warrants, including our current stock price, the remaining life of the warrants, the volatility of our stock price, and the risk free interest rate. Future changes in these factors may have a significant impact on the computed fair value of the warrant liability. As such, we expect future changes in the fair value of the warrants to continue and may vary significantly from year to year. The warrant liability and revaluations have not had a cash impact on our working capital, liquidity or business operations.
Warrants classified as derivative liabilities are recorded at their estimated fair value (see Note 7, below) at the issuance date and are revalued at each subsequent reporting date. We will continue to revalue the derivative liability on each subsequent balance sheet date until the securities to which the derivative liabilities relate are exercised or expire.
The estimated fair value of the warrants were computed as of December 31, 2015 and as of December 31, 2014 using Black-Scholes and Monte Carlo option pricing models, using the following assumptions:
In addition, Management assessed the probabilities of future financing assumptions in the valuation models. |
Fair Value of Financial Instruments |
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Fair Value of Financial Instruments | Fair value measurements are performed in accordance with the guidance provided by ASC Topic 820, Fair Value Measurements and Disclosures. ASC Topic 820 defines fair value as the price that would be received from selling an asset, or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied.
ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities recorded at fair value in the financial statements are categorized based upon the hierarchy of levels of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 Unobservable inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability.
The carrying amounts of the Companys financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, capital lease obligations and deferred revenue approximate their fair values based on their short-term nature. The carrying amount of the Companys long term notes payable approximates its fair value based on interest rates available to the Company for similar debt instruments and similar remaining maturities.
The estimated fair value of the contingent consideration related to the Company's business combinations is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument.
In connection with the 2015 and 2014 Private Placements, we issued warrants to purchase shares of our common stock which are accounted for as derivative liabilities (see Note 6 above.) The estimated fair value of the warrants is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument.
We used Level 3 inputs for the valuation methodology of the derivative liabilities. Our derivative liabilities are adjusted to reflect estimated fair value at each period end, with any decrease or increase in the estimated fair value being recorded in other income or expense accordingly, as adjustments to the fair value of the derivative liabilities.
The following table details the fair value measurement within the three levels of the value hierarchy of the Companys financial instruments, which includes the Level 3 liabilities (in thousands):
The following table reflects the activity for the Companys warrant derivative liability associated with our 2015 and 2014 Private Placements convertible notes payable measured at fair value using Level 3 inputs (in thousands):
The following table reflects the activity for the Companys contingent acquisition liabilities measured at fair value using Level 3 inputs (in thousands):
The fair value of the contingent acquisition liabilities are evaluated each reporting period using projected revenues, discount rates, and projected timing of revenues. Projected contingent payment amounts are discounted back to the current period using a discount rate. Projected revenues are based on the Companys most recent internal operational budgets and long-range strategic plans. In some cases, there is no maximum amount of contingent consideration that can be earned by the sellers. Increases in projected revenues will result in higher fair value measurements. Increases in discount rates and the time to payment will result in lower fair value measurements. Increases (decreases) in any of those inputs in isolation may result in a significantly lower (higher) fair value measurement. During the years ended December 31, 2015 and 2014, the net adjustment to the fair value of the contingent acquisition debt was a decrease of $446,000 and an increase of $179,000, respectively.
The weighted-average of the discount rates used was 17.6% and 15.4% as of December 31, 2015 and 2014, respectively. The projected year of payment ranges from 2016 to 2030. |
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Stockholders' Equity | The Companys Articles of Incorporation, as amended, authorize the issuance of two classes of stock to be designated Common Stock and Preferred Stock.
Convertible Preferred Stock
The Company had 161,135 shares of Series A Convertible Preferred Stock ("Series A Preferred") outstanding as of December 31, 2015 and December 31, 2014, and accrued dividends of approximately $98,000 and $86,000, respectively. The holders of the Series A Preferred Stock are entitled to receive a cumulative dividend at a rate of 8.0% per year, payable annually either in cash or shares of the Company's Common Stock at the Company's election. Shares of Common Stock paid as accrued dividends are valued at $0.50 per share. Each share of Series A Preferred is convertible into two shares of the Company's Common Stock. The holders of Series A Preferred are entitled to receive payments upon liquidation, dissolution or winding up of the Company before any amount is paid to the holders of Common Stock. The holders of Series A Preferred shall have no voting rights, except as required by law.
During 2014, there were 50,000 shares of Series A Preferred outstanding and accrued dividends of approximately $25,000 converted into 300,164 shares of common stock.
Common Stock
The Company had 392,583,015 common shares outstanding as of December 31, 2015. The holders of Common Stock are entitled to one vote per share on matters brought before the shareholders.
Warrant Modification Agreements
In December 2015, the Company modified the terms of certain investor warrants that were classified as derivative liabilities by removing the down-round pricing protection provision in the event of a dilutive issuance, resulting in 3,215,837 of these warrants being reclassified from a liability instrument to equity instruments, removing the warrant liability and reclassifying it to additional paid in capital. The Company revalued the warrants as of the date of modification and reduced the derivate liability by approximately $526,000. The warrants were revalued as of December 31, 2015 using the Black-Scholes valuation method and using a risk-free rate of 1.5%, stock price of $0.30, exercise prices ranging from $0.23 to $0.35, expected life of 3.6 to 3.7 years and stock price volatility of 70.0%.
In July 2015, the Company entered into agreements which extended the life of 2,418,750 warrants by two years after certain conditions were met. The Company recorded a warrant modification expense, as a result of the extension of the expiration dates of approximately $253,000, which is included in general and administrative expense in the Companys consolidated statements of operations. The expense was calculated using the Black-Scholes valuation method and using a risk-free rate of 0.67%, stock price of $0.31, exercise prices ranging from $0.30 to $0.40, expected life of 2.0 years and stock price volatility of 67.8%.
The warrants are exercisable into the Companys common stock.
There were no warrant modification expense adjustments during 2014.
Repurchase of Common Stock
On December 11, 2012, the Company authorized a share repurchase program to repurchase up to 15 million of the Company's issued and outstanding common shares from time to time on the open market or via private transactions through block trades. Under this program, for the year ended December 31, 2015, the Company repurchased a total of 1,344,222 shares at a weighted-average cost of $0.31. A total of 3,806,172 shares have been repurchased to-date at a weighted-average cost of $0.26. The remaining number of shares authorized for repurchase under the plan as of December 31, 2015 is 11,193,828.
Warrants to Purchase Preferred Stock and Common Stock
As of December 31, 2015, warrants to purchase 41,674,796 shares of the Company's common stock at prices ranging from $0.10 to $0.50 were outstanding. All warrants are exercisable as of December 31, 2015 and expire at various dates through December 2020 and have a weighted average remaining term of approximately 3.47 years and are included in the table below as of December 31, 2015.
During the fourth quarter of fiscal year ended December 31, 2015, the Company issued warrants through a Private Placement, to purchase 10,541,666 and 2,053,571 shares of its common stock, exercisable at $0.45 and $0.35 per share, respectively, and expire in October 2020 and October 2018, respectively. (See Note 5, above.)
During the third quarter of fiscal year ended December 31, 2014, the Company issued warrants through a Private Placement, to purchase 20,445,650 and 1,357,143 shares of its common stock, exercisable at $0.23 and $0.35 per share, respectively and expire in August 2019. (See Note 5, above.)
The following table summarizes warrant activity for the following periods:
Advisory agreements
PCG Advisory Group. On September 1, 2015, the Company entered into an agreement with PCG Advisory Group (PCG), pursuant to which PCG agreed to provide investor relations services for six (6) months in exchange for fees paid in cash of $6,000 per month and 100,000 shares of restricted common stock issued in accordance with the agreement. In connection with this agreement, the Company has accrued for the estimated per share value of issuance at $0.32 per share, the price of Companys common stock at September 1, 2015 for a total of $32,000 due to PCG. The fair values of the shares was recorded as prepaid advisory fees and are included in prepaid expenses and other current assets on the Companys balance sheet and will be amortized on a pro-rate basis over the term of the contract.
During the year ended December 31, 2015, we recorded expense of approximately $20,000, in connection with amortization of the stock issuance. As of December 31, 2015, the total remaining balance of the prepaid investor relation services is approximately $12,000.
Shares Issued in Private Placement
On January 29, 2015, we completed our January 2015 Private Placement pursuant to which we entered into Notes Payable Agreements (see Note 5, above) and issued 2,450,000 shares of our common stock. The shares of common stock issued under the January 2015 Private Placement were offered and issued without registration under the Securities Act of 1933, as amended, (the 1933 Act). The securities may not be sold, transferred or assigned in the absence of an effective registration statement for the securities under the 1933 Act, or an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transaction, that registration in required under the 1933 Act or unless sold pursuant to Rule 144 under the 1933 Act. Stock Options
On May 16, 2012, the Company established the 2012 Stock Option Plan (Plan) authorizing the granting of options for up to 40,000,000 shares of Common Stock. The purpose of the Plan is to promote the long-term growth and profitability of the Company by (i) providing key people and consultants with incentives to improve stockholder value and to contribute to the growth and financial success of the Company and (ii) enabling the Company to attract, retain and reward the best available persons for positions of substantial responsibility. The Plan permits the granting of stock options, including non-qualified stock options and incentive stock options qualifying under Section 422 of the Code, in any combination (collectively, Options). At December 31, 2015, the Company had 16,111,725 shares of Common Stock available for issuance under the Plan.
A summary of the Plan Options for the year ended December 31, 2015 is presented in the following table:
The weighted-average fair value per share of the granted options for the years ended December 31, 2015 and 2014 was approximately $0.15.
The following table sets forth the exercise price range, number of shares, weighted-average exercise price and remaining contractual lives at December 31, 2015:
Total stock based compensation expense included in the consolidated statements of operations was charged as follows in thousands:
As of December 31, 2015, there was approximately $668,000 of total unrecognized compensation expense related to unvested share-based compensation arrangements granted under the Plan. The expense is expected to be recognized over a weighted-average period of 3.54 years.
The Company uses the Black-Scholes option-pricing model (Black-Scholes model) to estimate the fair value of stock option grants. The use of a valuation model requires the Company to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on the historical volatility of the Companys stock price over the expected term of the option. The expected life is based on the contractual life of the option and expected employee exercise and post-vesting employment termination behavior. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of the grant. The following were the factors used in the Black Scholes model to calculate the compensation cost:
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Commitments and Contingencies |
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Commitments and Contingencies | Credit Risk
The Company maintains cash balances at various financial institutions primarily located in San Diego, California. Accounts at the U.S. institutions are secured, up to certain limits, by the Federal Deposit Insurance Corporation. At times, balances may exceed federally insured limits. The Company has not experienced any losses in such accounts. Management believes that the Company is not exposed to any significant credit risk with respect to its cash and cash equivalent balances.
Litigation
The Company is, from time to time, the subject of claims and suits arising out of matters occurring during the normal course of operations. In the opinion of management, no pending claims or suits would materially affect the financial position or the results of the operations of the Company.
Leases
We lease our domestic and certain foreign facilities and other equipment under non-cancelable capital and operating lease agreements, which expire at various dates through 2023. In addition to the minimum future lease commitments presented below, the leases generally require that we pay property taxes, insurance, maintenance and repair costs, such expenses are not included in the operating lease amounts.
At December 31, 2015, future minimum lease commitments are as follows (in thousands):
Rent expense was $1,043,000 and $840,000 for the years ended December 31, 2015 and 2014, respectively.
In connection with our acquisition of FDI, we assumed mortgage guarantee obligations made by FDI on the building housing our New Hampshire office. The balance of the mortgages is approximately $1,900,000 as of December 31, 2015 (see Note 3, above).
The Company purchases its inventory from multiple third-party suppliers at competitive prices. The Company made purchases from three vendors, which individually comprised more than 10% of total purchases and in aggregate approximated 61% and 60% of total purchases for the years ended December 31, 2015 and 2014, respectively.
The Company has purchase obligations related to minimum future purchase commitments for green coffee to be used in the Companys commercial coffee segment for roasting. Each individual contract requires the Company to purchase and take delivery of certain quantities at agreed upon prices and delivery dates. The contracts as of December 31, 2015, have minimum future purchase commitments of approximately $1,327,000, which are to be delivered in 2016. The contracts contain provisions whereby any delays in taking delivery of the purchased product will result in additional charges related to the extended warehousing of the coffee product. The fees can average approximately $0.01 per pound for every month of delay, to-date the Company has not incurred such fees. |
Income Taxes |
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Income Taxes | The income tax provision contains the following components (in thousands):
Income (loss) before income taxes relating to non-U.S. operations were $(62,000) and $418,000 in the years ended December 31, 2015 and 2014, respectively.
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income (loss) as a result of the following differences:
Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
The Company has determined through consideration of all positive and negative evidence that the US federal deferred tax assets are more likely than not to be realized. The Company does not have a valuation allowance in the US Federal tax jurisdiction. A valuation allowance remains on certain state and foreign tax attributes that are likely to expire before realization. The change in valuation allowance increased approximately $161,000 for the year ended December 31, 2015 and decreased approximately $4,213,000 for the year ended December 31, 2014.
At December 31, 2015, the Company had approximately $1,962,000 in federal net operating loss carryforwards, which begin to expire in 2027, and approximately $21,972,000 in net operating loss carryforwards from various states. The Company had approximately $1,780,000 in net operating losses in foreign jurisdictions.
Pursuant to Internal Revenue Code ("IRC") Section 382, use of net operating loss and credit carryforwards may be limited if the Company experienced a cumulative change in ownership of greater than 50% in a moving three-year period. Ownership changes could impact the Company's ability to utilize the net operating loss and credit carryforwards remaining at an ownership change date. The Company has not completed a Section 382 study.
The Company has analyzed the impact of repatriating earnings from its foreign subsidiaries and has determined that the impact is immaterial.
The Company received a dividend payment from New Zealand. The Company can no longer assert indefinite reinvestment of earnings from its foreign subsidiaries. Therefore, a deferred tax liability has been recorded. The current effect of the deferred tax liability net of tax deemed paid is approximately $142,000.
The Company has accounted for uncertain tax position related to states. The Company accounts for interest expense and penalties related to income tax issues as income tax expense. Accordingly, interest expense and penalties associated with an uncertain tax position are included in the income tax provision. The total amount of accrued interest and penalties as of December 31, 2015 are approximately $2,000. Income tax expense as of December 31, 2015, included an increase in state income tax expense of approximately $7,000 related to uncertain tax positions.
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment and Geographical Information |
The Company offers a wide variety of products to support a healthy lifestyle including; Nutritional Supplements, Sports and Energy Drinks, Health and Wellness, Weight Loss, Gourmet Coffee, Skincare and Cosmetics, Lifestyle Services, digital products including Scrap books and Memory books, Packaged Foods, Pharmacy Discount Cards, and Clothing and Jewelry line. The Companys business is classified by management into two reportable segments: direct selling and commercial coffee.
The Companys segments reflect the manner in which the business is managed and how the Company allocates resources and assesses performance. The Companys chief operating decision maker is the Chief Executive Officer. The Companys chief operating decision maker evaluates segment performance primarily based on revenue and segment operating income. The principal measures and factors the Company considered in determining the number of reportable segments were revenue, gross margin percentage, sales channel, customer type and competitive risks. In addition, each reporting segment has similar products and customers, similar methods of marketing and distribution and a similar regulatory environment.
The accounting policies of the segments are consistent with those described in the summary of significant accounting policies. Segment revenue excludes intercompany revenue eliminated in the consolidation. The following tables present certain financial information for each segment (in thousands):
Total tangible assets, net located outside the United States are approximately $5.2 million as of December 31, 2015. For the year ended December 31, 2014, total assets, net located outside the United States were approximately $4.2 million.
The Company conducts its operations primarily in the United States. The Company also sells its products in 70 different countries. The following table displays revenues attributable to the geographic location of the customer (in thousands):
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Subsequent Events [Abstract] | |
Subsequent Events | None. |
Basis of Presentation and Description of Business (Policies) |
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Nature of Business | Youngevity International, Inc. (the Company), founded in 1996, develops and distributes health and nutrition related products through its global independent direct selling network, also known as multi-level marketing, and sells coffee products to commercial customers. The Company operates in two business segments, its direct selling segment where products are offered through a global distribution network of preferred customers and distributors and its commercial coffee segment where products are sold directly to businesses. In the following text, the terms we, our, and us may refer, as the context requires, to the Company or collectively to the Company and its subsidiaries.
The Company operates through the following domestic wholly-owned subsidiaries: AL Global Corporation, which operates our direct selling networks, CLR Roasters, LLC (CLR), our commercial coffee business, Financial Destination, Inc., FDI Management, Inc., and MoneyTrax LLC (collectively referred to as FDI), 2400 Boswell LLC, MK Collaborative LLC, Youngevity Global LLC and the wholly-owned foreign subsidiaries Youngevity Australia Pty. Ltd. and Youngevity NZ, Ltd., Siles Plantation Family Group S.A. located in Nicaragua, Youngevity Mexico S.A. de CV, Youngevity Israel, Ltd., Youngevity Russia, LLC, Youngevity Colombia S.A.S and Youngevity International Singapore Pte. Ltd. |
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Basis of Presentation | The Company consolidates all majority owned subsidiaries, investments in entities in which we have controlling influence and variable interest entities where we have been determined to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain reclassifications have been made to conform to the current year presentation. These reclassifications had no effect on reported results of operations or stockholders equity. |
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Segment Information | The Company has two reporting segments: direct selling and commercial coffee. The direct selling segment develops and distributes health and wellness products through its global independent direct selling network also known as multi-level marketing. The commercial coffee segment is a coffee roasting and distribution company specializing in gourmet coffee. The determination that the Company has two reportable segments is based upon the guidance set forth in Accounting Standards Codification (ASC) Topic 280, Segment Reporting. During the twelve months ended December 31, 2015, we derived approximately 89% of our revenue from our direct sales segment and approximately 11% of our revenue from our commercial coffee sales segment. Approximately 87% of our revenue was from our direct sales segment and approximately 13% of our revenue was from our commercial coffee sales segment in 2014. |
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Use of Estimates | The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense for each reporting period. Estimates are used in accounting for, among other things, allowances for doubtful accounts, deferred taxes, and related valuation allowances, fair value of derivative liabilities, uncertain tax positions, loss contingencies, fair value of options granted under our stock based compensation plan, fair value of assets and liabilities acquired in business combinations, capital leases, asset impairments, estimates of future cash flows used to evaluate impairments, useful lives of property, equipment and intangible assets, value of contingent acquisition debt, inventory obsolescence, and sales returns.
Actual results may differ from previously estimated amounts and such differences may be material to the consolidated financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected prospectively in the period they occur. |
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Cash and Cash Equivalents | The Company considers only its monetary liquid assets with original maturities of three months or less as cash and cash equivalents. |
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Derivative Financial Instruments | The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency.
The Company reviews the terms of convertible debt and equity instruments it issues to determine whether there are derivative instruments, including an embedded conversion option that is required to be bifurcated and accounted for separately as a derivative financial instrument. In circumstances where a host instrument contains more than one embedded derivative instrument, including a conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. Also, in connection with the sale of convertible debt and equity instruments, the Company may issue freestanding warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.
Derivative instruments are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds allocated to the convertible host instruments are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.
The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method. |
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Accounts Receivable | Accounts receivable are recorded net of an allowance for doubtful accounts. Accounts receivable are considered delinquent when the due date on the invoice has passed. The Company records its allowance for doubtful accounts based upon its assessment of various factors including past experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers ability to pay. Accounts receivable are written off against the allowance for doubtful accounts when all collection efforts by the Company have been unsuccessful. Certain accounts receivable are financed as part of a factoring agreement. There was no allowance for doubtful accounts recorded as of December 31, 2015 or 2014. |
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Inventory and Cost of Sales | Inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. The Company records an inventory reserve for estimated excess and obsolete inventory based upon historical turnover, market conditions and assumptions about future demand for its products. When applicable, expiration dates of certain inventory items with a definite life are taken into consideration.
Inventories consist of the following (in thousands):
A summary of the reserve for obsolete and excess inventory is as follows (in thousands):
Cost of revenues includes the cost of inventory, shipping and handling costs, royalties associated with certain products, transaction banking costs, warehouse labor costs and depreciation on certain assets. |
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Deferred Financing Costs | As of December 31, 2015 and 2014, deferred financing costs consisted of approximately $1,094,000 and $449,000, respectively, associated with our 2015 and 2014 Private Placement transactions, and is included with prepaid expenses and other current assets on the Company's balance sheets. Deferred financing costs related to our offerings are amortized over the life of the notes and are amortized as issuance costs to interest expense. |
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Warrant Issuance Costs | As of December 31, 2015, warrant issuance costs associated with our November 2015 Private Placement include the fair value of the warrants issues of approximately $384,000, and is included with prepaid expenses and other current assets on the Company's balance sheets. The warrant issuance costs related to this offering are being amortized over the life of the convertible notes and are amortized as issuance costs to interest expense. There were no warrant issuance costs in 2014. |
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Plantation Costs | The Companys commercial coffee segment CLR includes the results of the Siles Plantation Family Group (Siles), which is a 450 acre coffee plantation and a dry-processing facility located on 26 acres both located in Matagalpa, Nicaragua. Siles is a wholly-owned subsidiary of CLR, and the results of CLR include the depreciation and amortization of capitalized costs, development and maintenance and harvesting costs of Siles. In accordance with US generally accepted accounting principles (GAAP), plantation maintenance and harvesting costs for commercially producing coffee farms are charged against earnings when sold. Deferred harvest costs accumulate throughout the year, and are expensed over the remainder of the year as the coffee is sold. The difference between actual harvest costs incurred and the amount of harvest costs recognized as expense is recorded as either an increase or decrease in deferred harvest costs, which is reported as an asset and included with prepaid expenses and other current assets in the consolidated balance sheets. Once the harvest is complete, the harvest cost is then recognized as the inventory value.
In April 2015, the Company completed the 2015 coffee harvest in Nicaragua and approximately $723,000 of deferred harvest costs were reclassified as inventory during the quarter ended June 30, 2015. The remaining inventory as of December 31, 2015 is $192,000.
Costs associated with the 2016 harvest as of December 31, 2015 total approximately $350,000 and are included in prepaid expenses and other current assets as deferred harvest costs on the Companys consolidated balance sheet. |
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Property and Equipment | Property and equipment are recorded at historical cost. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to operations over the estimated useful lives of the related assets. The straight-line method of depreciation and amortization is followed for financial statement purposes. Leasehold improvements are amortized over the shorter of the life of the respective lease or the useful life of the improvements. Estimated service lives range from 3 to 39 years. When such assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in operations in the period of disposal. The cost of normal maintenance and repairs is charged to expense as incurred. Significant expenditures that increase the useful life of an asset are capitalized and depreciated over the estimated useful life of the asset.
Coffee trees, land improvements and equipment specifically related to the plantations are stated at cost, net of accumulated depreciation. Depreciation of coffee trees and other equipment is reported on a straight-line basis over the estimated useful lives of the assets (25 years for coffee trees, between 5 and 15 years for equipment and land improvements, respectively).
Property and equipment are considered long-lived assets and are evaluated for impairment whenever events or changes in circumstances indicate their net book value may not be recoverable. Management has determined that no impairment of its property and equipment occurred as of December 31, 2015 or 2014.
Property and equipment consist of the following (in thousands):
Depreciation expense totaled approximately $1,242,000 and $753,000 for the years ended December 31, 2015 and 2014, respectively. |
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Business Combinations | The Company accounts for business combinations under the acquisition method and allocates the total purchase price for acquired businesses to the tangible and identified intangible assets acquired and liabilities assumed, based on their estimated fair values. When a business combination includes the exchange of the Companys common stock, the value of the common stock is determined using the closing market price as of the date such shares were tendered to the selling parties. The fair values assigned to tangible and identified intangible assets acquired and liabilities assumed are based on management or third-party estimates and assumptions that utilize established valuation techniques appropriate for the Companys industry and each acquired business. Goodwill is recorded as the excess, if any, of the aggregate fair value of consideration exchanged for an acquired business over the fair value (measured as of the acquisition date) of total net tangible and identified intangible assets acquired. A liability for contingent consideration, if applicable, is recorded at fair value as of the acquisition date. In determining the fair value of such contingent consideration, management estimates the amount to be paid based on probable outcomes and expectations on financial performance of the related acquired business. The fair value of contingent consideration is reassessed quarterly, with any change in the estimated value charged to operations in the period of the change. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in actual or estimated revenue streams, discount periods, discount rates and probabilities that contingencies will be met. |
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Intangible Assets |
Intangible assets are comprised of distributor organizations, trademarks and tradenames, customer relationships and internally developed software. The Company's acquired intangible assets, which are subject to amortization over their estimated useful lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. An impairment loss is recognized when the carrying amount of an intangible asset exceeds its fair value.
Intangible assets consist of the following (in thousands):
Amortization expense related to intangible assets was approximately $2,112,000 and $1,933,000 for the years ended December 31, 2015 and 2014, respectively.
As of December 31, 2015, future expected amortization expense related to definite lived intangible assets for the next five years is as follows (in thousands):
As of December 31, 2015, the weighted-average remaining amortization period for intangibles assets was approximately 5.29 years.
Trade names, which do not have legal, regulatory, contractual, competitive, economic, or other factors that limit the useful lives are considered indefinite lived assets and are not amortized but are tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Approximately $2,267,000 in trademarks from business combinations have been identified as having indefinite lives. The Company has determined that no impairment occurred for the years ended December 31, 2015 and 2014.
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Goodwill | Goodwill is recorded as the excess, if any, of the aggregate fair value of consideration exchanged for an acquired business over the fair value (measured as of the acquisition date) of total net tangible and identified intangible assets acquired. In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 350, Intangibles Goodwill and Other, goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. The Company conducts annual reviews for goodwill and indefinite-lived intangible assets in the fourth quarter or whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable.
The Company first assesses qualitative factors to determine whether it is more likely than not (a likelihood of more than 50%) that goodwill is impaired. After considering the totality of events and circumstances, the Company determines whether it is more likely than not that goodwill is not impaired. If impairment is indicated, then the Company conducts the two-step impairment testing process. The first step compares the Companys fair value to its net book value. If the fair value is less than the net book value, the second step of the test compares the implied fair value of the Companys goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, the Company would recognize an impairment loss equal to that excess amount. The testing is generally performed at the reporting unit level. A reporting unit is the operating segment, or a business one level below that operating segment (referred to as a component) if discrete financial information is prepared and regularly reviewed by management at the component level. The Company has determined that its reporting units for goodwill impairment testing are the Companys reportable segments. As such, the Company analyzed its goodwill balances separately for the commercial coffee reporting unit and the direct selling reporting unit. The goodwill balance as of December 31, 2015 and December 31, 2014 was $6,323,000.
The Company has determined that no impairment of its goodwill occurred for the years ended December 31, 2015 and 2014.
Goodwill activity for the years ended December 31, 2015 and 2014 by reportable segment consists of the following (in thousands):
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Revenue Recognition | The Company recognizes revenue from product sales when the following four criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. The Company ships the majority of its direct selling segment products directly to the distributors via UPS or USPS and receives substantially all payments for these sales in the form of credit card transactions. The Company regularly monitors its use of credit card or merchant services to ensure that its financial risk related to credit quality and credit concentrations is actively managed. Revenue is recognized upon passage of title and risk of loss to customers when product is shipped from the fulfillment facility. The Company ships the majority of its coffee segment products via common carrier and invoices its customer for the products. Revenue is recognized when the title and risk of loss is passed to the customer under the terms of the shipping arrangement, typically, FOB shipping point.
The Company also charges fees to become a distributor, and earn a position in the network genealogy, which are recognized as revenue in the period received. The standard fee to become a distributor is $10.00, for a welcome kit that consists of forms, policy and procedures, selling aids, and access to our distributor website and a genealogy position with no down line distributors. The Company recognized related revenue of $583,000 and $425,000 for the years ended December 31, 2015 and 2014, respectively.
Sales revenue and a reserve for estimated returns are recorded net of sales tax when product is shipped. |
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Deferred Revenues and Costs | Deferred revenues relate primarily to the Heritage Makers product line and represent the Companys obligation for points purchased by customers that have not yet been redeemed for product. Cash received for points sold is recorded as deferred revenue. Revenue is recognized when customers redeem the points and the product is shipped. As of December 31, 2015 and 2014, the balance in deferred revenues was approximately $2,580,000 and $5,075,000 respectively, attributable to Heritage Makers was approximately $2,485,000 and $4,918,000 respectively. The remaining balance of approximately $95,000 and $157,000 as of December 31, 2015 and 2014, relates primarily to the Companys 2016 and 2015 conventions, respectively.
Deferred costs relate to Heritage Makers prepaid commissions that are recognized in expense at the time the related revenue is recognized. As of December 31, 2015 and 2014, the balance in deferred costs was approximately $967,000 and $1,695,000, respectively and was included in prepaid expenses and current assets. |
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Product Return Policy | All products, except food products and commercial coffee products are subject to a full refund within the first 30 days of receipt by the customer, subject to an advance return authorization procedure. Returned product must be in unopened resalable condition. Product returns as a percentage of our net sales have been approximately 1% of our monthly net sales over the last two years. Commercial coffee products are returnable only if defective. |
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Shipping and Handling | Shipping and handling costs associated with inbound freight and freight to customers, including independent distributors, are included in cost of sales. Shipping and handling fees charged to all customers are included in sales. Shipping expense was approximately $10,394,000 and $9,206,000 for the years ended December 31, 2015 and 2014, respectively. |
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Distributor Compensation | In the direct selling segment, the Company utilizes a network of independent distributors, each of whom has signed an agreement with the Company, enabling them to purchase products at wholesale prices, market products to customers, enroll new distributors for their down-line and earn compensation on product purchases made by those down-line distributors and customers.
The payments made and stock options issued under the compensation plans are the only form of compensation paid to the distributors. Each product has a point value, which may or may not correlate to the wholesale selling price of a product. A distributor must qualify each month to participate in the compensation plan by making a specified amount of product purchases, achieving specified point levels. Once qualified, the distributor will receive payments based on a percentage of the point value of products sold by the distributors down-line. The payment percentage varies depending on the qualification level of the distributor and the number of levels of down-line distributors. There are also additional incentives paid upon achieving predefined activity and or down-line point value levels. There can be multiple levels of independent distributors earning incentives from the sales efforts of a single distributor. Due to the multi-layer independent sales approach, distributor incentives are a significant component of the Companys cost structure. The Company accrues all distributor compensation expense in the month earned and pays the compensation the following month. |
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Earnings per share | Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to common stockholders by the sum of the weighted-average number of common shares outstanding during the period and the weighted-average number of dilutive common share equivalents outstanding during the period, using the treasury stock method. Dilutive common share equivalents are comprised of in-the-money stock options, warrants and convertible preferred stock, based on the average stock price for each period using the treasury stock method. Since the company incurred a loss for the year ended December 31, 2015, 17,243,734 common share equivalents were not included in the weighted-average calculations since their effect would have been anti-dilutive. The incremental dilutive common share equivalents were 367,772 for the year ended December 31, 2014. |
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Foreign Currency Translation | The financial position and results of operations of the Companys foreign subsidiaries are measured using the foreign subsidiarys local currency as the functional currency. Revenues and expenses of such subsidiaries have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of shareholders equity, unless there is a sale or complete liquidation of the underlying foreign investments. Translation gains or losses resulting from transactions in currencies other than the respective entities functional currency are included in the determination of income and are not considered significant to the Company for 2015 and 2014. |
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Comprehensive Income (Loss) | Comprehensive income (loss) consists of net gains and losses affecting stockholders equity that, under generally accepted accounting principles are excluded from net income (loss). For the Company, the only items are the cumulative foreign currency translation and net income (loss). |
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Income Taxes | The Company accounts for income taxes in accordance with ASC Topic 740, "Income Taxes," under the asset and liability method which includes the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this approach, deferred taxes are recorded for the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial statement and tax basis of assets and liabilities, and are adjusted for changes in tax rates and tax laws when changes are enacted. The effects of future changes in income tax laws or rates are not anticipated.
The Company is subject to income taxes in the United States and certain foreign jurisdictions. The calculation of the Companys tax provision involves the application of complex tax laws and requires significant judgment and estimates. The Company evaluates the realizability of its deferred tax assets for each jurisdiction in which it operates at each reporting date and establishes a valuation allowance when it is more likely than not that all or a portion of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the same character and in the same jurisdiction. The Company considers all available positive and negative evidence in making this assessment, including, but not limited to, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. In circumstances where there is sufficient negative evidence indicating that deferred tax assets are not more likely than not realizable, the Company will establish a valuation allowance.
The Company applies ASC Topic 740 Accounting for Uncertainty in Income Taxes recognized in its financial statements. ASC 740 requires that all tax positions be evaluated using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Differences between tax positions taken in a tax return and amounts recognized in the financial statements are recorded as adjustments to income taxes payable or receivable, or adjustments to deferred taxes, or both. The Company believes that its accruals for uncertain tax positions are adequate for all open audit years based on its assessment of many factors including past experience and interpretation of tax law. To the extent that new information becomes available, which causes the Company to change its judgment about the adequacy of its accruals for uncertain tax positions, such changes will impact income tax expense in the period such determination is made. The Companys policy is to include interest and penalties related to unrecognized income tax benefits as a component of income tax expense. |
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Stock Based Compensation | The Company accounts for stock based compensation in accordance with ASC Topic 718, Compensation Stock Compensation, which establishes accounting for equity instruments exchanged for employee services. Under such provisions, stock based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense, under the straight-line method, over the vesting period of the equity grant.
The Company accounts for equity instruments issued to non-employees in accordance with authoritative guidance for equity based payments to non-employees. Stock options issued to non-employees are accounted for at their estimated fair value, determined using the Black-Scholes option-pricing model. The fair value of options granted to non-employees is re-measured as they vest, and the resulting increase in value, if any, is recognized as expense during the period the related services are rendered. |
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Other Income (Expense) | We record interest income, interest expense, and change in derivative liabilities, as well as other non-operating transactions, as other income (expense) on our consolidated statements of operations |
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Recently Issued Accounting Pronouncements |
In February 2016, the FASB issued ASU 2016-02, Leases ASC (Topic 842): which sets out the principles for the recognition, (measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. ASC 842 supersedes the previous leases standard, ASC 840. The standard is effective on January 1, 2019, with early adoption permitted. The Company is in the process of evaluating the impact of this new guidance.
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs to simplify the presentation of debt issuance costs. The amendments in the update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction of the carrying amount of the debt. Recognition and measurement of debt issuance costs were not affected by this amendment. In August 2015, FASB issued ASU 2015-15,"Presentation and Subsequent Measurement of Debt Issuance Costs Associated With Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting" which clarified that the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. The amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015. The Company is in the process of evaluating the impact of this new guidance
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material effect on the Company's consolidated financial statements. Early adoption is permitted.
In August 2014, the FASB issued ASU 2014-15 Preparation of Financial Statements Going Concern (Subtopic 205-40), Disclosures of Uncertainties about an Entitys Ability to Continue as a Going Concern (ASU 2014-05). ASU 2014-05 requires management to assess each annual and interim period if there is substantial doubt about the entitys ability to continue as a going concern; provides principles for considering the mitigating effect of managements plans; requires certain disclosures when substantial doubt is alleviated as a result of managements plans, and requires an express statement and other disclosures when substantial doubt is not alleviated. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter with early application permitted. The Company is evaluating the new guidance to determine the impact on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU is effective for annual periods beginning after December 15, 2016 and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. On July 9, 2015 the FASB approved a one year delay in the effective date with an early adoption up to the original effective date for public companies. The Company is evaluating the potential impact of this adoption on its consolidated financial statements. |
Basis of Presentation and Description of Business (Tables) |
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Inventories |
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Reserve for obsolete and excess inventory |
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Property and equipment |
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Intangible Assets |
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Future expected amortization expense |
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Goodwill |
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Acquisitions and Business Combinations (Tables) |
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Mialisia & Co., LLC [Member] | ||||||||||||||||||||||||||||||||||||
Purchase price allocation |
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Sta-Natural, LLC [Member] | ||||||||||||||||||||||||||||||||||||
Purchase price allocation |
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JD Premium LLC [Member] | ||||||||||||||||||||||||||||||||||||
Purchase price allocation |
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Restart Your Life [Member] | ||||||||||||||||||||||||||||||||||||
Purchase price allocation |
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GoodHerbsInc [Member] | ||||||||||||||||||||||||||||||||||||
Purchase price allocation |
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Purchase price allocation |
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Siles | ||||||||||||||||||||||||||||||||||||
Estimate of fair values of assets to be acquired | 1) La Pita, a dry-processing plant sitting on approximately 26 acres of land is located in Matagalpa, Nicaragua. The property includes buildings, structures, machinery and equipment, and furnishings and fixtures. The total purchase price was $1,904,840, of which CLR paid $1,050,000 and H&H paid $854,840. The preliminary purchase price allocation for La Pita (in thousands) is as follows:
2) El Paraiso, a coffee plantation located in Matagalpa, Nicaragua, consisting of approximately 450 acres of land. The total purchase price was $1,400,000 of which CLR paid $1,050,000 and H&H paid $350,000. The purchase price allocation for El Paraiso (in thousands) is as follows:
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Arrangements with Variable Interest Entities and Related Party Transactions (Tables) |
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Arrangements With Variable Interest Entities And Related Party Transactions Tables | |||||||||||||||||||||||||||||||||||||
Variable Interest Entity Operations |
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Notes Payable and Other Debt (Tables) |
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Notes Payable And Other Debt Tables | |||||||||||||||||||||||||||||||||||||||||
Maturities of notes payable |
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Debt (Tables) |
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Convertible Subordinated Debt [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible notes |
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Derivative Liability (Tables) |
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Derivative Liability Tables | ||||||||||||||||||||||||||||||||||||||||||||||
Monte Carlo fair value of warrants |
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Fair Value of Financial Instruments (Tables) |
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Fair Value Of Financial Instruments Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value measurement within the three levels of value hierarchy |
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Fair value of warrant derivative liability |
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Contingent acquisition liabilities measured at fair value |
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Stockholders’ Equity (Tables) |
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Common stock warrant activity |
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Summary of Plan Options |
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Exercise price range, number of shares, weighted-average exercise price and remaining contractual lives |
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Stock based compensation expense |
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Black Scholes compensation cost |
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Commitments and Contingencies (Tables) |
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Future minimum lease commitments |
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Income Taxes (Tables) |
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Income tax provision components |
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Statutory federal income tax rate difference |
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Deferred tax assets and liabilities |
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Segment and Geographical Information (Tables) |
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Segment And Geographical Information Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment information revenue |
The accounting policies of the segments are consistent with those described in the summary of significant accounting policies. Segment revenue excludes intercompany revenue eliminated in the consolidation. The following tables present certain financial information for each segment (in thousands):
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Segment information geographical |
The Company conducts its operations primarily in the United States. The Company also sells its products in 70 different countries. The following table displays revenues attributable to the geographic location of the customer (in thousands):
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Basis of Presentation and Description of Business (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
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Basis Of Presentation And Description Of Business Details | |||
Finished goods | $ 9,893 | $ 7,817 | |
Raw materials | 8,970 | 4,444 | |
Inventory, gross | 18,863 | 12,261 | |
Reserve for excess and obsolete | (886) | (478) | $ (336) |
Inventory, net | $ 17,977 | $ 11,783 |
Basis of Presentation and Description of Business (Details 1) - USD ($) $ in Thousands |
12 Months Ended | |
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Dec. 31, 2015 |
Dec. 31, 2014 |
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Basis Of Presentation And Description Of Business Details 1 | ||
Beginning balance | $ (478) | $ (336) |
Addition to provision | (1,114) | (245) |
Write-Off of obsolete inventory | 706 | 103 |
Ending balance | $ (886) | $ (478) |
Basis of Presentation and Description of Business (Details 2) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
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Basis Of Presentation And Description Of Business Details 2 | ||
Building | $ 3,503 | $ 2,948 |
Leasehold improvements | 2,349 | 1,701 |
Land | 2,544 | 2,544 |
Land improvements | 726 | 255 |
Producing coffee trees | 553 | 553 |
Manufacturing equipment | 4,399 | 3,272 |
Furniture and other equipment | 1,417 | 1,080 |
Computer software | 1,100 | 901 |
Computer equipment | 663 | 378 |
Vehicles | 103 | 103 |
Property and equipment before depreciation | 17,357 | 13,735 |
Accumulated depreciation | (4,658) | (3,416) |
Total property and equipment | $ 12,699 | $ 10,319 |
Basis of Presentation and Description of Business (Details 3) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
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Gross Amount | $ 23,346 | $ 22,036 |
Accumulated Amortization | 9,632 | 7,520 |
Net Amount | 13,714 | 14,516 |
Distributor Organizations [Member] | ||
Gross Amount | 11,173 | 10,475 |
Accumulated Amortization | 6,086 | 5,126 |
Net Amount | 5,087 | 5,349 |
Trademarks and Trade Names [Member] | ||
Gross Amount | 4,666 | 4,441 |
Accumulated Amortization | 537 | 304 |
Net Amount | 4,129 | 4,137 |
Customer Relationships [Member] | ||
Gross Amount | 6,787 | 6,400 |
Accumulated Amortization | 2,751 | 1,932 |
Net Amount | 4,036 | 4,468 |
Software Development [Member] | ||
Gross Amount | 720 | 720 |
Accumulated Amortization | 258 | 158 |
Net Amount | $ 462 | $ 562 |
Basis of Presentation and Description of Business (Details 4) $ in Thousands |
Dec. 31, 2015
USD ($)
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Finite Lived Intangible Assets Future Amortization Expense | |
2016 | $ 2,149 |
2017 | 2,101 |
2018 | 1,746 |
2019 | 1,152 |
20120 | $ 1,063 |
Basis of Presentation and Description of Business (Details 5) - USD ($) $ in Thousands |
12 Months Ended | |
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Dec. 31, 2015 |
Dec. 31, 2014 |
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Balance at Beginning of Period | $ 6,323 | $ 6,323 |
Goodwill recognized | $ 300 | |
Goodwill impaired | ||
Balance at End of Period | $ 6,323 | $ 6,323 |
Direct Selling [Member] | ||
Balance at Beginning of Period | $ 3,009 | 2,709 |
Goodwill recognized | $ 300 | |
Goodwill impaired | ||
Balance at End of Period | $ 3,009 | $ 3,009 |
Commercial Coffee [Member] | ||
Balance at Beginning of Period | $ 3,314 | $ 3,314 |
Goodwill recognized | ||
Goodwill impaired | ||
Balance at End of Period | $ 3,314 | $ 3,314 |
Basis of Presentation and Description of Business (Details Narrative) - USD ($) |
12 Months Ended | |||
---|---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Aug. 13, 2014 |
Dec. 31, 2013 |
|
Deferred financing costs | $ 1,094,000 | $ 449,000 | ||
Fair value of warrants issued | 384,000 | |||
Harvest cost | 350,000 | |||
Depreciation expense | 1,242,000 | 753,000 | ||
Amortization expense related to intangible assets | $ 2,112,000 | 1,933,000 | ||
Weighted average remaining amortization period for intangible assets | 5 years 3 months 14 days | |||
Trademarks from business combinations that have indefinite lives | $ 2,267,000 | |||
Distributor related revenue | 583,000 | 425,000 | ||
Deferred revenues | 2,580,000 | 5,075,000 | ||
Deferred costs | 967,000 | 1,695,000 | ||
Shipping expense | $ 10,394,000 | $ 9,206,000 | ||
Common stock equivalents anti-dilutive | 17,243,734 | 367,772 | ||
Goodwill | $ 6,323,000 | $ 6,323,000 | $ 6,323,000 | |
Heritage Makers [Member] | ||||
Deferred revenues | $ 4,918,000 | $ 2,485,000 | ||
Direct Selling [Member] | ||||
Segment revenue | 89.00% | 87.00% | ||
Goodwill | $ 3,009,000 | $ 3,009,000 | 2,709,000 | |
Commercial Coffee [Member] | ||||
Segment revenue | 11.00% | 13.00% | ||
Goodwill | $ 3,314,000 | $ 3,314,000 | $ 3,314,000 |
Arrangements with Variable Interest Entities and Related Party Transactions (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Revenues | $ 156,597 | $ 134,043 |
Operating loss | $ 5,406 | $ 3,369 |
Variable Interest Entity [Member] | ||
Revenues | ||
Operating loss | $ (203) |
Arrangements with Variable Interest Entities and Related Party Transactions (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Purchases made from Northwest Nutraceuticals, Inc. | $ 93,000 | $ 72,000 |
Purchases made from CLR | 10,499,000 | 11,766,000 |
FDI Realty LLC [Member] | ||
Maximum exposure to loss as a result of involvement with VIE | 1,900,000 | $ 1,986,000 |
DrinkACTSingapore [Member] | ||
Accumulated net income of non-controlling interest | 62,000 | |
DrinkACTPhilippines [Member] | ||
Accumulated net income of non-controlling interest | (265,000) | |
General and administrative expenses, non-controlling interest | $ 203,000 |
Notes Payable and Other Debt (Details) $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Maturities of Notes Payable | |
2016 | $ 456 |
2017 | 167 |
2018 | 7,423 |
2019 | 4,905 |
2020 | 155 |
Thereafter | 3,934 |
Total | $ 17,040 |
Notes Payable and Other Debt (Details Narrative) - USD ($) |
1 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Mar. 15, 2013 |
Mar. 30, 2007 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Convertible notes | $ 11,938,000 | $ 4,750,000 | |||
Land | $ 2,544,000 | 2,544,000 | |||
Contingent acquisition debt | 7,438,000 | ||||
Notes payable | 4,000 | 27,000 | |||
Depreciation expense | 1,242,000 | 753,000 | |||
Interest expense | 135,000 | 150,000 | |||
Accounts receivable, due from factoring company | 556,000 | 827,000 | |||
Line of credit | $ 2,500,000 | ||||
LOC Interest Rate description | The outstanding principal balance of the Line of Credit bear interest at a fluctuating rate per annum determined by the Bank to be two and three-quarter percent (2.75%) above Daily One Month LIBOR as in effect from time to time. |
||||
LOC, amount outstanding | $ 0 | ||||
Direct Selling [Member] | |||||
Contingent acquisition debt | 5,806,000 | ||||
Commercial Coffee [Member] | |||||
Contingent acquisition debt | 1,632,000 | ||||
Capital Lease Obligations [Member] | |||||
Outstanding balance under the capital leases | 294,000 | ||||
Depreciation expense | 27,000 | 40,000 | |||
Notes Payable, Other Payables [Member] | |||||
Notes payable | 29,000 | ||||
Boswell [Member] | |||||
Acquisition price | $ 4,600,000 | ||||
Cash paid | 248,000 | ||||
Debt forgiveness and accrued interest | 334,000 | ||||
Convertible notes | $ 393,000 | 189,000 | |||
Promissory note interest rate | 5.00% | ||||
Mortgage interest rate | 5.75% | ||||
Mortgage balance | $ 3,625,000 | 3,431,000 | |||
M2C Global [Member] | |||||
Acquisition price | $ 4,500,000 | ||||
Cash paid | 500,000 | ||||
Reduction in acquisition related liability | $ (690,000) | ||||
Carrying value of liability | 1,204,000 | 1,258,000 | |||
Imputed interest | $ 29,000 | $ 63,000 |
Debt (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Convertible Subordinated Debt [Abstract] | ||
Convertible notes | $ 11,938,000 | $ 4,750,000 |
Less: detachable warrants discount | (3,991,000) | (3,697,000) |
Less: conversion feature discount | (1,068,000) | (1,053,000) |
Amortization of debt discounts | 1,363,000 | 396,000 |
Convertible notes, net of discounts | $ 8,242,000 | $ 396,000 |
Derivative Liability (Details) - $ / shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Minimum [Member] | ||
Stock Price Volatility | 66.00% | 75.00% |
Risk-free interest rate | 0.56% | 0.33% |
Expected term | 1 year 6 months | 3 years |
Maximum [Member] | ||
Stock Price Volatility | 77.00% | 98.00% |
Risk-free interest rate | 1.06% | 2.12% |
Expected term | 5 years | 7 years |
Warrant [Member] | ||
Stock Price Volatility | 70.00% | 90.00% |
Risk-free interest rate | 1.76% | 1.65% |
Dividend yield | $ 0.00 | $ 0.00 |
Warrant [Member] | Minimum [Member] | ||
Expected term | 3 years 7 months 6 days | 3 years |
Warrant [Member] | Maximum [Member] | ||
Expected term | 4 years 10 months 24 days | 4 years 8 months 24 days |
Derivative Liability (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Derivative Liability Details Narrative | ||
Change in fair value of warrant derivative liability | $ 39,000 | $ 15,000 |
Fair Value of the Outstanding Warrant Liabilities | $ 4,716,000 | $ 3,712,000 |
Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
---|---|---|---|
Liabilities: | |||
Contingent acquisition debt, current | $ 264 | $ 2,765 | |
Contingent acquisition debt, noncurrent | 7,174 | 7,707 | |
Warrant derivative liability | 4,716 | 3,712 | |
Total liabilities | $ 12,154 | $ 14,184 | |
Level 1 [Member] | |||
Liabilities: | |||
Contingent acquisition debt, current | |||
Contingent acquisition debt, noncurrent | |||
Warrant derivative liability | |||
Total liabilities | |||
Level 2 [Member] | |||
Liabilities: | |||
Contingent acquisition debt, current | |||
Contingent acquisition debt, noncurrent | |||
Warrant derivative liability | |||
Total liabilities | |||
Level 3 [Member] | |||
Liabilities: | |||
Contingent acquisition debt, current | $ 264 | $ 2,765 | |
Contingent acquisition debt, noncurrent | 7,174 | 7,707 | |
Warrant derivative liability | 4,716 | 3,712 | |
Total liabilities | $ 12,154 | $ 14,184 |
Fair Value of Financial Instruments (Details 1) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Investments, All Other Investments [Abstract] | ||
Fair value, warrant liability, convertible notes payable | $ 3,712 | |
Issuance | 1,491 | $ 3,697 |
Adjustments to estimated fair value | 39 | 15 |
Warrant liability reclassified to equity | (526) | |
Fair value, warrant liability, convertible notes payable | $ 4,716 | $ 3,712 |
Fair Value of Financial Instruments (Details 2) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Contingent acquisition liabilities | ||
Balance at Beginning of period | $ 10,472 | $ 7,080 |
Level 3 liabilities acquired | 1,353 | 5,912 |
Level 3 liabilities settled | (3,338) | (2,488) |
Adjustments to liabilities included in earnings | (446) | 179 |
Expenses allocated to profit sharing agreement | (528) | (211) |
Adjustment to purchase price allocation | (75) | |
Balance at End of period | $ 7,438 | $ 10,472 |
Fair Value of Financial Instruments (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Fair Value Of Financial Instruments Details Narrative | ||
Increase in fair value of contingent acquisition debt | $ 446,000 | $ 179,000 |
Weighted-average of the discount rates used | 17.60% | 15.40% |
Stockholders’ Equity (Details) - shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Stockholders Equity Details | ||
Balance at beginning of period | 35,221,630 | 17,226,146 |
Granted | 12,595,237 | 21,802,793 |
Expired/cancelled | (5,335,821) | (1,057,309) |
Exercised | (806,250) | (2,750,000) |
Balance at end of period | 41,674,796 | 35,221,630 |
Stockholders’ Equity (Details 1) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Number of Shares | ||
Outstanding | 28,918,500 | 17,572,500 |
Granted | 1,124,250 | 11,517,250 |
Cancelled/expired | (6,151,475) | (161,000) |
Exercised | (369,675) | (10,250) |
Outstanding | 23,521,600 | 28,918,500 |
Exercisable | 18,469,600 | |
Weighted Average Exercise Price | ||
Outstanding | $ 0.21 | $ 0.22 |
Granted | .31 | 0.22 |
Cancelled/expired | .22 | 0.19 |
Exercised | .21 | 0.23 |
Outstanding | .22 | $ 0.21 |
Exercisable | $ .22 | |
Aggregate Intrinsic Value | ||
Outstanding | $ 786 | $ 478 |
Granted | ||
Exercised | ||
Outstanding | $ 2,044 | $ 786 |
Exercisable | $ 1,463 |
Stockholders’ Equity (Details 3) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Stock based compensation expense | $ 709 | $ 534 |
Cost of Revenues [Member] | ||
Stock based compensation expense | 17 | 14 |
Distribution Rights [Member] | ||
Stock based compensation expense | 158 | 195 |
Selling And Marketing Expense [Member] | ||
Stock based compensation expense | 28 | 21 |
General and Administrative Expense [Member] | ||
Stock based compensation expense | $ 506 | $ 304 |
Stockholders’ Equity (Details 4) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Dividend yield | 0.00% | 0.00% |
Minimum [Member] | ||
Stock price volatility | 66.00% | 75.00% |
Risk-free interest rate | 0.56% | 0.33% |
Expected life of options | 1 year 6 months | 3 years |
Maximum [Member] | ||
Stock price volatility | 77.00% | 98.00% |
Risk-free interest rate | 1.06% | 2.12% |
Expected life of options | 5 years | 7 years |
Commitments and Contingencies (Details) $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Operating leases | |
2016 | $ 1,199 |
2017 | 1,010 |
2018 | 760 |
2019 | 371 |
2020 | 345 |
Thereafter | 834 |
Total | $ 4,519 |
Commitments and Contingencies (Detail Narratives) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Commitments And Contingencies Detail Narratives | ||
Rent expense | $ 1,043,000 | $ 840,000 |
Balance on mortgage | 1,900,000 | |
Minimum future purchase commitments | $ 1,327,000 |
Income Taxes (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Taxes Details | ||
Current Federal | $ 66 | $ 84 |
Current State | (161) | 111 |
Current Foreign | 76 | 98 |
Total Current | (19) | 293 |
Deferred Federal | 1,307 | (4,106) |
Deferred State | $ 96 | $ (558) |
Deferred Foreign | ||
Total Deferred | $ 1,403 | $ (4,664) |
Total | $ 1,384 | $ (4,371) |
Income Taxes (Details 1) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Taxes Details 1 | ||
Federal statutory rate | $ (113) | $ 350 |
Foreign rate differential | 26 | (30) |
State taxes, net | (241) | (267) |
Other nondeductible items | 1,162 | 222 |
Rate change | 91 | (21) |
Deferred tax asset adjustment | 101 | (412) |
Change in valuation allowance | 161 | (4,213) |
Undistributed foreign earnings | 197 | |
Total | $ 1,384 | $ (4,371) |
Income Taxes (Details 2) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Deferred tax assets: | ||
Amortizable assets | $ 1,146 | $ 887 |
Inventory | 608 | 493 |
Accruals and reserves | 174 | 499 |
Stock options | 217 | 167 |
Net operating loss carry-forward | 2,387 | 3,112 |
Credit carry-forward | 581 | 731 |
Total Deferred Tax Asset | 5,113 | 5,889 |
Deferred tax liabilities: | ||
Prepaids | (71) | (190) |
Other | (521) | (397) |
Depreciable assets | (270) | 195 |
Gross deferred tax assets | (862) | (392) |
Net deferred tax asset | 4,250 | 5,497 |
Less valuation allowance | (1,718) | (1,556) |
Net deferred tax liabilities | $ 2,532 | $ 3,941 |
Income Taxes (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Taxes Details Narrative | ||
Change in valuation allowance | $ 161,000 | $ (4,213,000) |
Federal net operating loss carryforwards | 1,962,000 | |
Net operating loss carryforwards | 21,972,000 | |
Net operating losses in foreign jurisdictions | 1,780,000 | |
Accrued uncertain tax position interest and penalties | 2,000 | |
Increaes to state income tax expense related to uncertain tax positions | 7,000 | |
Deferred tax liability | $ 142,000 |
Segment and Geographical Information (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Revenues | $ 156,597 | $ 134,043 |
Gross margin | 92,969 | 76,325 |
Net income (loss) | (1,706) | 5,369 |
Capital expenditures | 3,619 | 6,403 |
Direct Selling [Member] | ||
Revenues | 138,927 | 116,365 |
Gross margin | 93,613 | 76,530 |
Net income (loss) | 3,114 | 5,274 |
Capital expenditures | 1,396 | 1,140 |
Commercial Coffee [Member] | ||
Revenues | 17,670 | 17,678 |
Gross margin | (644) | (205) |
Net income (loss) | (4,850) | 95 |
Capital expenditures | $ 2,223 | $ 5,263 |
Segment and Geographical Information (Details 1) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Total assets | $ 62,785 | $ 55,732 |
Direct Selling [Member] | ||
Total assets | 38,363 | 36,149 |
Commercial Coffee [Member] | ||
Total assets | $ 24,422 | $ 19,583 |
Segment and Geographical Information (Details 2) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Total revenues | $ 156,597 | $ 134,043 |
Total Segment [Member] | ||
Total revenues | 156,597 | 134,043 |
United States | ||
Total revenues | 145,259 | 125,638 |
International | ||
Total revenues | $ 11,338 | $ 8,405 |
Segment and Geographical Information (Details Narratives) $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Segment And Geographical Information Details Narratives | |
Tangible assets | $ 4,200,000 |