10-Q

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-38116

YOUNGEVITY INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	90-0890517
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2400 Boswell Road, Chula Vista, CA	91914
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (619) 934-3980

Not applicable

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	YGYI	The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]  No [   ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes [X]  No [   ]

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

Large accelerated filer	[   ]	Accelerated filer	[   ]
Non-accelerated filer	[X]	Smaller reporting company	[X]
		Emerging growth company	[   ]

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

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

As of August 12, 2019, the issuer had 30,081,040 shares of its Common Stock, par value $0.001 per share, issued and outstanding.

YOUNGEVITY INTERNATIONAL, INC.

TABLE OF CONTENTS

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) & December 31, 2018	1
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2019 and 2018 (unaudited)	3
	Condensed Consolidated Statements of Stockholders' Equity – Three and six months ended June 30, 2019 and 2018 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	53
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	55
Item 6.	Exhibits	55
Signatures		56

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

Youngevity International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

	As of
	June 30, 2019	December 31, 2018
ASSETS	(Unaudited)
Current Assets
Cash and cash equivalents	$2,088	$2,879
Accounts receivable, trade	36,863	4,028
Income tax receivable	231	74
Inventory	24,797	21,776
Advances (Note 1)	-	5,000
Notes receivable (Note 1)	5,097	-
Prepaid expenses and other current assets	5,686	5,263
Total current assets	74,762	39,020
Property and equipment, net	21,249	15,105
Operating lease right-of-use assets	5,481	-
Deferred tax assets	75	148
Intangible assets, net	23,332	15,377
Goodwill	10,676	6,323
Other assets – notes receivable	949	-
Total assets	$136,524	$75,973
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable	$34,061	$8,478
Accrued distributor compensation	3,740	3,289
Accrued expenses	9,259	6,582
Deferred revenues	2,260	2,312
Line of credit	2,002	2,256
Other current liabilities	983	1,912
Operating lease liabilities, current portion	772	-
Finance lease liabilities, current portion	1,103	1,168
Notes payable, current portion	159	141
Convertible notes payable, current portion	716	647
Warrant derivative liability	4,969	9,216
Contingent acquisition debt, current portion	695	795
Total current liabilities	60,719	36,796
Operating lease liabilities, net of current portion	4,708	-
Finance lease liabilities, net of current portion	778	1,107
Notes payable, net of current portion	10,525	7,629
Convertible notes payable, net of current portion	2,358	-
Contingent acquisition debt, net of current portion	6,898	7,466
Total liabilities	85,986	52,998
Commitments and contingencies (Note 1)
Stockholders’ Equity
Preferred Stock, $0.001 par value: 5,000,000 shares authorized
Convertible Preferred Stock, Series A – 161,135 shares issued and outstanding at June 30, 2019 and December 31, 2018	-	-
Convertible Preferred Stock, Series B – 129,437 shares issued and outstanding at June 30, 2019 and December 31, 2018; $1.254 million liquidation preference as of June 30, 2019.	-	-
Common Stock, $0.001 par value: 50,000,000 shares authorized; 29,316,445 and 25,760,708 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	29	26
Additional paid-in capital	246,584	206,757
Accumulated deficit	(196,070)	(183,763)
Accumulated other comprehensive loss	(5)	(45)
Total stockholders’ equity	50,538	22,975
Total Liabilities and Stockholders’ Equity	$136,524	$75,973

See accompanying notes to condensed consolidated financial statements. 

-1-

Youngevity International, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Revenues	$53,687	$44,255	$109,987	$87,249
Cost of revenues	27,765	18,873	57,216	36,855
Gross profit	25,922	25,382	52,771	50,394
Operating expenses
Distributor compensation	14,497	16,487	29,387	32,065
Sales and marketing	2,786	3,076	6,805	6,575
General and administrative	8,251	5,166	28,132	11,077
Total operating expenses	25,534	24,729	64,324	49,717
Operating income (loss)	388	653	(11,553)	677
Interest expense, net	(1,062)	(1,549)	(2,569)	(3,261)
Change in fair value of warrant derivative liability	401	192	1,887	904
Extinguishment loss on debt	-	-	-	(1,082)
Total other expense	(661)	(1,357)	(682)	(3,439)
Loss before income taxes	(273)	(704)	(12,235)	(2,762)
Income tax (benefit) provision	(226)	(90)	72	160
Net loss	(47)	(614)	(12,307)	(2,922)
Preferred stock dividends	(28)	(42)	(42)	(45)
Net loss attributable to common stockholders	$(75)	$(656)	$(12,349)	$(2,967)
Net loss per share, basic	$(0.00)	$(0.03)	$(0.44)	$(0.14)
Net loss per share, diluted (Note 2)	$(0.02)	$(0.03)	$(0.48)	$(0.14)
Weighted average shares outstanding, basic	29,133,150	21,506,833	28,359,660	20,630,383
Weighted average shares outstanding, diluted	29,357,347	21,506,833	28,700,295	20,630,383

 See accompanying notes to condensed consolidated financial statements.

-2-

Youngevity International, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Net loss	$(47)	$(614)	$(12,307)	$(2,922)
Foreign currency translation	(62)	28	40	229
Total other comprehensive income (loss)	(62)	28	40	229
Comprehensive loss	$(109)	$(586)	$(12,267)	$(2,693)

See accompanying notes to condensed consolidated financial statements.

-3-

 

 Youngevity International, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In thousands, except shares)

	Three Months Ended June 30, 2019
	Series A Preferred Stock		Series B Preferred Stock		Common Stock		Additional Paid-in	Accumulated Other Comprehensive	Accumulated	Total Stockholders'
	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Loss	Deficit	Equity
Balance at March 31, 2019	161,135	$-	129,437	$-	28,890,671	$29	$243,555	$57	$(196,023)	$47,618
Net loss	-	-	-	-	-	-	-	-	(47)	(47)
Foreign currency translation adjustment	-	-	-	-	-	-	-	(62)	-	(62)
Issuance of common stock from exercise of stock options and warrants, net	-	-	-	-	64,524	-	293	-	-	293
Issuance of common stock for services	-	-	-	-	100,000	-	571	-	-	571
Issuance of common stock in private offering, net of issuance costs	-	-	-	-	250,000	-	1,375	-	-	1,375
Issuance of common stock for convertible note financing, net of issuance costs	-	-	-	-	11,250	-	135	-	-	135
Warrant issued upon vesting for services	-	-	-	-	-	-	270	-	-	270
Dividends on preferred stock	-	-	-	-	-	-	(28)	-	-	(28)
Stock based compensation expense	-	-	-	-	-	-	413	-	-	413
Balance at June 30, 2019	161,135	$-	129,437	$-	29,316,445	$29	$246,584	$(5)	$(196,070)	$50,538

-4-

	Six Months Ended June 30, 2019
	Series A Preferred Stock		Series B Preferred Stock		Common Stock		Additional Paid-in	Accumulated Other Comprehensive	Accumulated	Total Stockholders'
	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Loss	Deficit	Equity
Balance at December 31, 2018	161,135	$-	129,437	$-	25,760,708	$26	$206,757	$(45)	$(183,763)	$22,975
Net loss	-	-	-	-	-	-	-	-	(12,307)	(12,307)
Foreign currency translation adjustment	-	-	-	-	-	-	-	40	-	40
Issuance of common stock from at-the-market offering and exercise of stock options and warrants, net	-	-	-	-	374,160	1	1,747	-	-	1,748
Issuance of common stock for services	-	-	-	-	175,000	-	988	-	-	988
Issuance of common stock in private offering, net of issuance costs	-	-	-	-	505,000	-	3,125	-	-	3,125
Issuance of common stock for acquisition of Khrysos	-	-	-	-	1,794,972	1	12,649	-	-	12,650
Issuance of common stock for debt financing, net of issuance costs	-	-	-	-	40,000	-	350	-	-	350
Issuance of common stock for true-up shares	-	-	-	-	44,599	-	281	-	-	281
Issuance of common stock for convertible note financing, net of issuance costs	-	-	-	-	72,250	-	428	-	-	428
Issuance of common stock related to purchase of land - H&H	-	-	-	-	153,846	-	1,200	-	-	1,200
Issuance of common stock related to purchase of trademark - H&H	-	-	-	-	100,000	-	750	-	-	750
Issuance of common stock related to advance for working capital (note receivable) net of settlement of debt	-	-	-	-	295,910	1	2,308	-	-	2,309
Release of warrant liability upon exercise of warrants	-	-	-	-	-	-	866	-	-	866
Release of warrant liability upon reclassification of liability to equity	-	-	-	-	-	-	1,494	-	-	1,494
Warrant issued upon vesting for services	-	-	-	-	-	-	1,926	-	-	1,926
Dividends on preferred stock	-	-	-	-	-	-	(42)	-	-	(42)
Stock based compensation expense	-	-	-	-	-	-	11,757	-	-	11,757
Balance at June 30, 2019	161,135	$-	129,437	$-	29,316,445	$29	$246,584	$(5)	$(196,070)	$50,538

-5-

Youngevity International, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In thousands, except shares)

	Three Months Ended June 30, 2018
	Series A Preferred Stock		Series B Preferred Stock		Common Stock		Additional Paid-in	Accumulated Other Comprehensive	Accumulated	Total Stockholders'
	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Loss	Deficit	Equity
Balance at March 31, 2018	161,135	-	381,173	-	21,305,755	21	181,501	(80)	(166,001)	15,441
Net loss	-	-	-	-	-	-	-	-	(614)	(614)
Foreign currency translation adjustment	-	-	-	-	-	-	-	28	-	28
Issuance of common stock for services	-	-	-	-	125,000	-	518	-	-	518
Issuance of common stock for conversion of Series B preferred stock	-	-	(52,632)	-	105,264	1	-	-	-	1
Warrant modification	-	-	-	-	-	-	283	-	-	283
Dividends on preferred stock	-	-	-	-	-	-	(42)	-	-	(42)
Stock based compensation expense	-	-	-	-	-	-	215	-	-	215
Balance at June 30, 2018	161,135	$-	328,541	$-	21,536,019	$22	$182,475	$(52)	$(166,615)	$15,830

	Six Months Ended June 30, 2018
	Series A Preferred Stock		Series B Preferred Stock		Common Stock		Additional Paid-in	Accumulated Other Comprehensive	Accumulated	Total Stockholders'
	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Loss	Deficit	Equity
Balance at December 31, 2017	161,135	-	-	-	19,723,285	20	171,405	(281)	(163,693)	7,451
Net loss	-	-	-	-	-	-	-	-	(2,922)	(2,922)
Foreign currency translation adjustment	-	-	-	-	-	-	-	229	-	229
Issuance of Series B preferred stock, net of issuance cost	-	-	381,173	-	-	-	3,289	-	-	3,289
Issuance of common stock pursuant to the exercise of stock options and warrants	-	-	-	-	437	-	2	-	-	2
Issuance of common stock for services	-	-	-	-	130,000	-	545	-	-	545
Issuance of common stock for conversion of Series B preferred stock	-	-	(52,632)	-	105,264	1	-	-	-	1
Issuance of common stock for conversion of Notes – 2017 Notes	-	-	-	-	1,577,033	1	6,544	-	-	6,545
Warrant modification	-	-	-	-	-	-	283	-	-	283
Dividends on preferred stock	-	-	-	-	-	-	(45)	-	-	(45)
Stock based compensation expense	-	-	-	-	-	-	452	-	-	452
Balance at June 30, 2018	161,135	$-	328,541	$-	21,536,019	$22	$182,475	$(52)	$(166,615)	$15,830

-6-

Youngevity International, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

 (In thousands)

	Six Months Ended June 30,
	2019	2018
Cash Flows from Operating Activities:
Net loss	$(12,307)	$(2,922)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,333	2,594
Stock-based compensation expense	11,757	452
Amortization of debt discounts and issuance costs	534	844
Equity issuance costs for services	2,541	98
Change in fair value of warrant derivative liability	(1,887)	(904)
Change in fair value of contingent acquisition debt	(433)	(1,459)
Extinguishment loss on debt	-	1,082
Change in inventory reserve	159	(700)
Stock issuance for true-up shares	281	-
Deferred taxes	73	137
Changes in operating assets and liabilities, net of effect from business combinations:
Accounts receivable	(32,526)	(2,440)
Inventory	(1,916)	(94)
Prepaid expenses and other current assets	(844)	(585)
Accounts payable	25,254	(1,135)
Accrued distributor compensation	451	(14)
Deferred revenues	(52)	1,502
Accrued expenses and other liabilities	1,358	1,958
Income taxes receivable	(157)	(90)
Net Cash Used in Operating Activities	(5,381)	(1,676)
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired	(425)	(50)
Purchases of property and equipment	(3,269)	(160)
Net Cash Used in Investing Activities	(3,694)	(210)
Cash Flows from Financing Activities:
Proceeds from issuance of promissory notes, net of offering costs	5,125	-
Proceeds from issuance of Series B convertible preferred stock, net of offering costs	-	3,289
Proceeds from private placement of common stock, net of offering costs	2,684	-
Proceeds from at-the-market-offering and exercise of stock options and warrants, net	1,748	3
Payments net of repayment on line of credit	(254)	(894)
Payments of notes payable	(68)	(94)
Payments of contingent acquisition debt	(235)	(78)
Payments of finance leases	(734)	(542)
Payments of dividends	(22)	-
Net Cash Provided by Financing Activities	8,244	1,684
Foreign Currency Effect on Cash	40	229
Net (decrease) increase in cash and cash equivalents	(791)	27
Cash and Cash Equivalents, Beginning of Period	2,879	673
Cash and Cash Equivalents, End of Period	$2,088	$700
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest	$1,858	$2,427
Income taxes	$148	$30
Supplemental Disclosures of Noncash Investing and Financing Activities
Purchases of property and equipment funded by finance leases	$42	$680
Purchases of property and equipment funded by mortgage agreements	$450	$-
Fair value of stock issued for services (Note 10)	$988	$545
Fair value of stock issued for property and equipment (land)	$1,200	$-
Fair value of stock issued for purchase of intangibles (tradename)	$750	$-
Fair value of stock issued for note receivable, net of debt settlement	$2,309	$-
Change in warrant derivative liability to equity classification, warrant modification	$-	$284
Dividends declared but not paid at the end of period (Note 10)	$25	$39
Acquisitions of net assets in exchange for contingent debt, net of purchase price adjustments	$-	$1,877
Conversion of 2017 Notes to Common Stock	$-	$7,254

 

-7-

Youngevity International, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Basis of Presentation and Description of Business

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations.

Youngevity International, Inc. (the “Company”) consolidates all wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The statements presented as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 are unaudited. In the opinion of management, these financial statements reflect all normal recurring and other adjustments necessary for a fair presentation, and to make the financial statements not misleading. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2018, filed with the SEC on April 15, 2019. The results for interim periods are not necessarily indicative of the results for the entire year.

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.  During the year ended December 31, 2018 the Company operated 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. During the first quarter of 2019, the Company through the acquisition of the assets of Khrysos Global, Inc. added a third business segment to its operations, the commercial hemp segment. The Company's three segments are listed below:

● Domestic direct selling network is operated through the following (i) domestic subsidiaries: AL Global Corporation, 2400 Boswell LLC, MK Collaborative LLC, and Youngevity Global LLC and (ii) foreign subsidiaries: Youngevity Australia Pty. Ltd., Youngevity NZ, Ltd., Youngevity Mexico S.A. de CV, Youngevity Israel, Ltd., Youngevity Russia, LLC, Youngevity Colombia S.A.S, Youngevity International Singapore Pte. Ltd., Mialisia Canada, Inc. and Legacy for Life Limited (Hong Kong). The Company also operates through the BellaVita Group LLC, with operations in Taiwan, Hong Kong, Singapore, Indonesia, Malaysia and Japan. The Company also operates subsidiary branches of Youngevity Global LLC in the Philippines and Taiwan. 

● Commercial coffee business is operated through CLR Roasters LLC (“CLR”) and its wholly owned subsidiary, Siles Plantation Family Group S.A. (“Siles”).

● Commercial hemp business is operated through the Company’s wholly owned subsidiary, Khrysos Industries, Inc., a Delaware corporation. Khrysos Industries, Inc. acquired the assets of Khrysos Global Inc. a Florida corporation in February 2019 and the wholly-owned subsidiaries of Khrysos Global Inc., INXL Laboratories, Inc., a Florida corporation and INX Holdings, Inc., a Florida corporation.

Segment Information

The Company has three reportable segments: direct selling, commercial coffee, and commercial hemp. 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 three reportable segments is based upon the guidance set forth in Accounting Standards Codification (“ASC”) Topic 280, “Segment Reporting.”  During the three months ended June 30, 2019, the Company derived approximately 59.8% of its revenue from its direct selling segment and approximately 39.7% of its revenue from its commercial coffee segment and 0.5% from the commercial hemp segment. During the three months ended June 30, 2018, the Company had two reportable segments and derived approximately 83% of its revenue from its direct selling segment and approximately 17% of its revenue from its commercial coffee segment.

During the six months ended June 30, 2019, the Company derived approximately 59.6% of its revenue from its direct selling segment and approximately 40.1% of its revenue from its commercial coffee segment and 0.3% from the commercial hemp segment. During the six months ended June 30, 2018, the Company had two reportable segments and derived approximately 83% of its revenue from its direct selling segment and approximately 17% of its revenue from its commercial coffee segment.

 

-8-

Liquidity and Going Concern

The accompanying condensed consolidated financial statements have been prepared and presented on a basis assuming the Company will continue as a going concern. The Company has sustained significant net losses during the six months ended June 30, 2019 and 2018 of approximately $12,307,000 and $2,922,000, respectively. Net cash used in operating activities was approximately $5,381,000 and $1,676,000 for the six months ended June 30, 2019 and 2018, respectively. The Company does not currently believe that its existing cash resources are sufficient to meet the Company’s anticipated needs over the next twelve months from the date hereof. Based on its current cash levels and its current rate of cash requirements, the Company will need to raise additional capital and/or will need to further reduce its expenses from current levels. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The Company anticipates that revenues will grow, and it intends to make necessary cost reductions related to international operations that are not performing well and reduce non-essential expenses.

The Company is also considering multiple other fund-raising alternatives. 

On March 18, 2019, the Company entered into a two-year Secured Promissory Note (the “Note” or “Notes”) with two (2) accredited investors that had a substantial pre-existing relationship with the Company pursuant to which the Company raised cash proceeds of $2,000,000. (See Note 6, below)

Between February 2019 and May 2019, the Company closed four tranches of its current 2019 January Private Placement debt offering, pursuant to which the Company offered for sale up to $10,000,000 in principal amount of notes (the “2019 PIPE Notes”), with each investor receiving 2,000 shares of common stock for each $100,000 invested. The Company received aggregate gross proceeds of $2,890,000 and issued the 2019 PIPE Notes in the aggregate principal amount of $2,890,000. (See Note 7, below)

On February 6, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with one accredited investor that had a substantial pre-existing relationship with the Company pursuant to which the Company sold 250,000 shares of the Company’s common stock, par value $0.001 per share, at an offering price of $7.00 per share. Pursuant to the Purchase Agreement, the Company also issued to the investor a three-year warrant to purchase 250,000 shares of common stock at an exercise price of $7.00. The proceeds to the Company were $1,750,000. Consulting fees for arranging the Purchase Agreement include the issuance of 5,000 shares of restricted shares of the Company’s common stock, par value $0.001 per share, and a 3-year warrant priced at $10.00 per share convertible into 100,000 shares of the Company’s common stock upon exercise. No cash commissions were paid.

On January 7, 2019, the Company entered into an At-the-Market Offering Agreement (the “ATM Agreement”) with The Benchmark Company, LLC (“Benchmark”), as sales agent, pursuant to which the Company may sell from time to time, at its option, shares of its common stock, par value $0.001 per share, through Benchmark, as sales agent (the “Sales Agent”), for the sale of up to $60,000,000 of shares of the Company’s common stock. The Company is not obligated to make any sales of common stock under the ATM Agreement and the Company cannot provide any assurances that it will issue any shares pursuant to the ATM Agreement. The Company will pay the Sales Agent 3.0% commission of the gross sales proceeds. In February 2019, the Company sold a total of 1,000 shares of common stock under the ATM Agreement for an aggregate purchase price of $6.6118 pursuant to the ATM Agreement. The Company did not use the ATM Agreement during the three months ended June 30, 2019.

-9-

Depending on market conditions, there can be no assurance that additional capital will be available when needed or that, if available, it will be obtained on terms favorable to the Company or to its stockholders.

Failure to raise additional funds from the issuance of equity securities and failure to implement cost reductions could adversely affect the Company’s ability to operate as a going concern. The financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires the Company 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 the Company’s stock-based compensation plan, fair value of assets and liabilities acquired in business combinations, finance 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.

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Related Party Transactions

Richard Renton

Richard Renton is a member of the Board of Directors and owns and operates WVNP, Inc., a supplier of certain inventory items sold by the Company.  The Company made purchases of approximately $103,000 and $63,000 from WVNP Inc., for the three months ended June 30, 2019 and 2018, respectively, and $111,000 and $117,000 for the six months ended June 30, 2019 and 2018, respectively.

Carl Grover

Carl Grover is the sole beneficial owner of in excess of five percent (5%) of the Company’s outstanding common shares. On December 13, 2018, CLR, entered into a Credit Agreement with Mr. Grover (the “Credit Agreement”) pursuant to which CLR borrowed $5,000,000 from Mr. Grover and in exchange issued to him a $5,000,000 credit note (“Credit Note”) secured by its green coffee inventory under a Security Agreement, dated December 13, 2018 (the “Security Agreement”), with Mr. Grover and CLR’s subsidiary, Siles Family Plantation Group S.A. (“Siles”), as guarantor, and Siles executed a separate Guaranty Agreement (“Guaranty”). The Company issued to Mr. Grover a four-year warrant to purchase 250,000 shares of its common stock, exercisable at $6.82 per share, and a four-year warrant to purchase 250,000 shares of the Company’s common stock, exercisable at $7.82 per share, pursuant to a Warrant Purchase Agreement, dated December 13, 2018, with Mr. Grover. (See Note 6 below.)

On July 31, 2019, Mr. Grover acquired 600,242 shares of the Company's common stock, $0.001 par value, upon the partial exercise at $4.60 per share of a July 31, 2014 warrant to purchase 782,608 shares of common stock held by him. In connection with such exercise, the Company received $2,761,113 from Mr. Grover, issued to Mr. Grover 50,000 shares of restricted common stock as an inducement fee and agreed to extend the expiration date of the July 31, 2014 warrant held by him to December 15, 2020 with respect to 182,366 shares of common stock remaining for exercise thereunder.

Paul Sallwasser

Mr. Paul Sallwasser is a member of the board directors and prior to joining the Company’s Board of Directors he acquired a note (the “2014 Note”) issued in the Company’s private placement consummated in 2014 (the “2014 Private Placement”) in the principal amount of $75,000 convertible into 10,714 shares of common stock and a warrant (the “2014 Warrant”) issued, in the 2014 Private Placement, exercisable for 14,673 shares of common stock. Prior to joining the Company’s Board of Directors, Mr. Sallwasser acquired in the 2017 Private Placement a 2017 Note in the principal amount of approximately $38,000 convertible into 8,177 shares of common stock and a warrant (the “2017 Warrant”) issued, in the 2017 Private Placement, exercisable for 5,719 shares of common stock. Mr. Sallwasser also acquired in the 2017 Private Placement in exchange for the “2015 Note” that he acquired in the Company’s private placement consummated in 2015 (the “2015 Private Placement”), a 2017 Note in the principal amount of $5,000 convertible into 1,087 shares of common stock and a 2017 Warrant exercisable for 543 shares of common stock. On March 30, 2018, the Company completed its Series B Offering, and in accordance with the terms of the 2017 Notes, Mr. Sallwasser’s 2017 Notes converted to 9,264 shares of the Company’s common stock.

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2400 Boswell LLC

In March 2013, the Company acquired 2400 Boswell for approximately $4,600,000. 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 the Company’s Chief Executive Officer and consisted of approximately $248,000 in cash, approximately $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 with an initial interest rate of 5.75%. The interest rate is the prime rate plus 2.5%. The current interest rate as of June 30, 2019 was 8.0%. The lender will adjust the interest rate on the first calendar day of each change period or calendar quarter. The Company and its Chief Executive Officer are both co-guarantors of the mortgage. As of June 30, 2019, the balance on the long-term mortgage is approximately $3,180,000 and the balance on the promissory note is zero.

Other Relationship Transactions

Hernandez, Hernandez, Export Y Company and H&H Coffee Group Export Corp.

The Company’s commercial coffee segment, CLR, is associated with Hernandez, Hernandez, Export Y Company (“H&H”), a Nicaragua company, through sourcing arrangements to procure Nicaraguan grown green coffee beans. In March 2014, as part of the Siles acquisition, CLR engaged the owners of H&H as employees to manage Siles. H&H is a sourcing agent acting on behalf of CLR for purchases of coffee from the producers. In consideration for H&H's sourcing of green coffee, CLR and H&H share in the green coffee profit from operations. H&H made purchases for CLR of approximately $12,641,000 and $3,339,000 for the three months ended June 30, 2019 and 2018, respectively and $30,161,000 and $7,073,000 for the six months ended June 30, 2019 and 2018, respectively.

In addition, CLR sold approximately $14,915,000 and $859,000 for the three months ended June 30, 2019 and 2018, respectively, and $34,941,000 and $3,302,000 for the six months ended June 30, 2019 and 2018, respectively, of green coffee beans to H&H Coffee Group Export Corp., (“H&H Export”) a Florida based company which is affiliated with H&H.

As of June 30, 2019 and December 31, 2018, CLR's accounts payable for vendor related purchases by H&H Export were approximately $24,959,000 and $1,633,000, respectively. As of June 30, 2019 and December 31, 2018, CLR's accounts receivable for customer related revenue by H&H Export were approximately $32,056,000 and $673,000, respectively.  Also, see the section below “Other.”

In May 2017, the Company entered a settlement agreement with Alain Piedra Hernandez, one of the owners of H&H and the operating manager of Siles, who was issued a non-qualified stock option for the purchase of 75,000 shares of the Company’s common stock at a price of $2.00 with an expiration date of three years, in lieu of an obligation due from the Company to H&H as it relates to a Sourcing and Supply Agreement with H&H. During the period ended September 30, 2017 the Company replaced the non-qualified stock option and issued a warrant agreement with the same terms. There was no financial impact related to the cancellation of the option and the issuance of the warrant. As of June 30, 2019, the warrant remains outstanding.

In December 2018, CLR advanced $5,000,000 to H&H Export to provide services in support of a 5-year contract for the sale and processing of 41 million pounds of green coffee beans on an annual basis. The services include providing hedging and financing opportunities to producers and delivering harvested coffee to the Company’s mills.  On March 31, 2019, this advance was converted to a $5,000,000 loan agreement as a note receivable and bears interest at 9% per annum and is due and payable by H&H Export at the end of each year’s harvest season, but no later than October 31 for any harvest year. The loan is secured by H&H Export’s hedging account with INTL FC Stone, trade receivables, green coffee inventory in the possession of H&H Export and all green coffee contracts. As of June 30, 2019, the $5,097,000 note receivable remains outstanding which includes accrued interest.

Mill Construction Agreement

On January 15, 2019, CLR entered into the CLR Siles Mill Construction Agreement (the “Mill Construction Agreement”) with H&H and H&H Export, Alain Piedra Hernandez (“Hernandez”) and Marisol Del Carmen Siles Orozco (“Orozco”), together with H&H, H&H Export, Hernandez and Orozco, collectively referred to as the Nicaraguan Partner, pursuant to which the Nicaraguan Partner agreed to transfer a 45 acre tract of land in Matagalpa, Nicaragua (the “Property”) to be owned 50% by the Nicaraguan Partner and 50% by CLR. In consideration for the land acquisition the Company issued to H&H Export, 153,846 shares of common stock. In addition, the Nicaraguan Partner and CLR agreed to contribute $4,700,000 each toward the construction of a processing plant, office, and storage facilities (“Mill”) on the property for processing coffee in Nicaragua. As of June 30, 2019, the Company paid $3,350,000 towards construction of a mill, which is included in construction in process within property and equipment, net on the Company's condensed consolidated balance sheet.

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Amendment to Operating and Profit-Sharing Agreement

On January 15, 2019, CLR entered into an amendment to the March 2014 operating and profit-sharing agreement with the owners of H&H. CLR previously engaged Hernandez and Orozco, the owners of H&H as employees to manage Siles. In addition, CLR and H&H, Hernandez and Orozco have agreed to restructure their profit-sharing agreement in regard to profits from green coffee sales and processing that increases CLR’s profit participation by an additional 25%. Under the new terms of the agreement with respect to profit generated from green coffee sales and processing from La Pita, a leased mill, or the new mill, now will provide for a split of profits of 75% to CLR and 25% to the Nicaraguan Partner, after certain conditions are met. The Company issued 295,910 shares of the Company’s common stock to H&H Export to pay for certain working capital, construction and other payables. In addition, H&H Export has sold to CLR its espresso brand Café Cachita in consideration of the issuance of 100,000 shares of the Company’s common stock. Hernandez and Orozco are employees of CLR. The shares of common stock issued were valued at $7.50 per share.

Revenue Recognition

The Company recognizes revenue from product sales when the following five steps are completed: i) Identify the contract with the customer; ii) Identify the performance obligations in the contract; iii) Determine the transaction price; iv) Allocate the transaction price to the performance obligations in the contract; and v) Recognize revenue when (or as) each performance obligation is satisfied (see Note 3, below).

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

The transaction price for all sales is based on the price reflected in the individual customer's contract or purchase order. Variable consideration has not been identified as a significant component of the transaction price for any of our transactions.

Independent distributors receive compensation which is recognized as Distributor Compensation in the Company’s consolidated statements of operations. Due to the short-term nature of the contract with the customers, the Company accrues all distributor compensation expense in the month earned and pays the compensation the following month.

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 Company’s distributors are required to pay a one-time enrollment fee and receive a welcome kit specific to that country or region that consists of forms, policy and procedures, selling aids, access to the Company’s distributor website and a genealogy position with no down line distributors.

The Company has determined that most contracts will be completed in less than one year. For those transactions where all performance obligations will be satisfied within one year or less, the Company is applying the practical expedient outlined in ASC 606-10-32-18. This practical expedient allows the Company not to adjust promised consideration for the effects of a significant financing component if the Company expects at contract inception the period between when the Company transfers the promised good or service to a customer and when the customer pays for that good or service will be one year or less. For those transactions that are expected to be completed after one year, the Company has assessed that there are no significant financing components because any difference between the promised consideration and the cash selling price of the good or service is for reasons other than the provision of financing.

Deferred Revenues and Costs

As of June 30, 2019 and December 31, 2018, the balance in deferred revenues was approximately $2,260,000 and $2,312,000, respectively. Deferred revenue related to the Company’s direct selling segment is attributable to the Heritage Makers product line and also for future Company convention and distributor events.

Deferred revenues related to Heritage Makers were approximately $2,065,000 and $2,153,000, as of June 30, 2019, and December 31, 2018, respectively. The deferred revenue represents Heritage Maker’s 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.

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Deferred costs relate to Heritage Makers prepaid commissions that are recognized in expense at the time the related revenue is recognized. As of June 30, 2019 and 2018, the balance in deferred costs was approximately $295,000 and $455,000, respectively, and is included in prepaid expenses and current assets.

Deferred revenues related to pre-enrollment in upcoming conventions and distributor events of approximately $173,000 and $159,000 as of June 30, 2019 and December 31, 2018, respectively, relate primarily to the Company’s 2019 and 2018 events. The Company does not recognize this revenue until the conventions or distributor events occur.

Plantation Costs

The Company’s commercial coffee segment includes the results of Siles, which is a 500-acre coffee plantation and a dry-processing facility located on 26 acres 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 GAAP, plantation maintenance and harvesting costs for commercially producing coffee farms are charged against earnings when sold. Deferred harvest costs accumulate and are capitalized 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 costs are then recognized as the inventory value. Deferred costs associated with the harvest as of June 30, 2019 and December 31, 2018 are approximately $150,000 and $400,000, respectively, and are included in prepaid expenses and other current assets on the Company’s balance sheets.

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.

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.

Income taxes for the interim periods are computed using the effective tax rates estimated to be applicable for the full fiscal year, as adjusted for any discrete taxable events that occur during the period.

The Company files income tax returns in the United States (“U.S.”) on a federal basis and in many U.S. state and foreign jurisdictions. Certain tax years remain open to examination by the major taxing jurisdictions to which the Company is subject.

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Commitments and Contingencies

Litigation

The Company is from time to time, the subject of claims and suits arising out of matters related to the Company’s business. The Company is party to litigation at the present time and may become party to litigation in the future. In general, litigation claims can be expensive, and time consuming to bring or defend against and could result in settlements or damages that could significantly affect financial results. It is not possible to predict the final resolution of the current litigation to which the Company is party to, and the impact of certain of these matters on the Company’s business, results of operations, and financial condition could be material. Regardless of the outcome, litigation has adversely impacted the Company’s business because of defense costs, diversion of management resources and other factors.

Other 

Vendor Concentration

The Company purchases its inventory from multiple third-party suppliers at competitive prices. For the three months ended June 30, 2019, the Company’s commercial coffee segment made purchases from one vendor, H&H Export, that individually comprised more than 10% of total purchases and in aggregate approximated 90% of total purchases. For the six months ended June 30, 2019, the Company’s commercial coffee segment made purchases from one vendor, H&H Export, that individually comprised more than 10% of total purchases and in aggregate approximated 92% of total purchases.

The Company purchases its inventory from multiple third-party suppliers at competitive prices. For the three months ended June 30, 2018, the Company’s commercial coffee segment made purchases from three vendors, H&H Export, Rothfos Corporation and Sixto Packaging that individually comprised more than 10% of total purchases and in aggregate approximated 64% of total purchases. For the six months ended June 30, 2018, the Company’s commercial coffee segment made purchases from two vendors, H&H Export and Rothfos Corporation, that individually comprised more than 10% of total purchases and in aggregate approximated 86% of total purchases.

For the three months ended June 30, 2019, the Company’s direct selling segment made purchases from two vendors, Global Health Labs, Inc. and Michael Schaeffer, LLC., that individually comprised more than 10% of total purchases and in aggregate approximated 46% of total purchases. For the six months ended June 30, 2019, the Company’s direct selling segment made purchases from two vendors, Global Health Labs, Inc. and Michael Schaeffer, LLC., that individually comprised more than 10% of total purchases and in aggregate approximated 41% of total purchases.

For the three months ended June 30, 2018, the Company’s direct selling segment made purchases from three vendors, Global Health Labs, Inc., Purity Supplements and Nutritional Engineering, that individually comprised more than 10% of total purchases and in aggregate approximated 58% of total purchases. For the six months ended June 30, 2018, the Company’s direct selling segment made purchases from two vendors, Global Health Labs, Inc. and Purity Supplements, that individually comprised more than 10% of total purchases and in aggregate approximated 45% of total purchases.

For the three months ended June 30, 2019, the Company’s hemp segment made purchases from three vendors, Lab1st, Bio Processing Corp., and ADM Labs, that individually comprised more than 10% of total purchases and in aggregate approximated 63% of total purchases. For the six months ended June 30, 2019, the Company’s hemp segment made purchases from two vendors, Lab1st and Bio Processing Corp., that individually comprised more than 10% of total purchases and in aggregate approximated 41% of total purchases.

Customer Concentration

For the three months ended June 30, 2019, the Company’s commercial coffee segment had two customers, H&H Export and Rothfos Corporation that individually comprised more than 10% of revenue and in aggregate approximated 84% of total revenue. For the six months ended June 30, 2019, the Company’s commercial coffee segment had one customer, H&H Export that individually comprised more than 10% of revenue and in aggregate approximated 79% of total revenue.

For the three months ended June 30, 2018, the Company’s commercial coffee segment had two customers, H&H Export and Rothfos Corporation that individually comprised more than 10% of revenue and in aggregate approximated 62% of total revenue. For the six months ended June 30, 2018, the Company’s commercial coffee segment had two customers, H&H Export and Rothfos Corporation that individually comprised more than 10% of revenue and in aggregate approximated 62% of total revenue.

For the three months ended June 30, 2019, the Company’s hemp segment had three customers, Xtraction Services, Air Spec and David Shin that individually comprised more than 10% of revenue and in aggregate approximated 50% of total revenue. For the six months ended June 30, 2019, the Company’s hemp segment had three customers, Xtraction Services, Air Spec and David Shin that individually comprised more than 10% of revenue and in aggregate approximated 54% of total revenue.

The direct selling segment did not have any customers during the three and six months ended June 30, 2019 that comprised more than 10% of revenue.

The Company has purchase obligations related to minimum future purchase commitments for green coffee to be used in the Company’s commercial coffee segment. 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 June 30, 2019, have minimum future purchase commitments of approximately $5,680,000, which are to be delivered in 2019. 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.

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Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Subtopic 350-40 clarifies the accounting for implementation costs of a hosting arrangement that is a service contract and aligns that accounting, regardless of whether the arrangement conveys a license to the hosted software. The amendments in this update are effective for reporting periods beginning after December 15, 2019, with early adoption permitted. The Company does not expect this new guidance to have a material impact on its condensed consolidated financial statements. 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. Topic 820 removes or modifies certain current disclosures and adds additional disclosures. The changes are meant to provide more relevant information regarding valuation techniques and inputs used to arrive at measures of fair value, uncertainty in the fair value measurements, and how changes in fair value measurements impact an entity's performance and cash flows. Certain disclosures in Topic 820 will need to be applied on a retrospective basis and others on a prospective basis. Topic 820 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. The Company expects to adopt the provisions of this guidance on January 1, 2020 and is currently evaluating the impact that Topic 820 will have on its related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the test for goodwill impairment by removing Step 2 from the goodwill impairment test. Companies will now perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value not to exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in this update are effective for goodwill impairment tests in fiscal years beginning after December 15, 2019 for public companies, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. The Company does not expect this new guidance to have a material impact on its condensed consolidated financial statements.

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Recently Adopted Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based Payment Accounting. The intention of ASU 2018-07 is to expand the scope of Topic 718 to include share-based payment transactions in exchange for goods and services from nonemployees. These share-based payments will now be measured at grant-date fair value of the equity instrument issued. Upon adoption, only liability-classified awards that have not been settled and equity-classified awards for which a measurement date has not been established should be remeasured through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Topic 718 is effective for fiscal years beginning after December 15, 2018 and is applied retrospectively. The Company adopted the provisions of this guidance on January 1, 2019 and the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, Topic 220. The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (H.R.1) (the Act). Consequently, the amendments eliminate the stranded tax effects resulting from the Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this Update also require certain disclosures about stranded tax effects. Topic 220 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company adopted the provisions of this guidance on January 1, 2019 and the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Topic 260 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted classified as liabilities. A company will recognize the value of a down round feature only when it is triggered, and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, such as warrants, an entity will treat the value of the effect of the down round, when triggered, as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in Topic 260 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company adopted Topic 260, Topic 480 and Topic 815 effective January 1, 2019 and determined that it’s 2018 warrants were to no longer be classified as a derivative, as a result of the adoption and subsequent change in classification of the 2018 warrants, the company reclassed approximately $1,494,000 of warrant derivative liability to equity.

In February 2016, FASB established Topic 842, Leases, by issuing ASU No. 2016-02, Leases (Topic 842) which required lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; ASU No. 2018-20, Narrow-Scope Improvements for Lessors; and ASU 2019-01, Codification Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The amendments were adopted by the Company on January 1, 2019. A modified retrospective transition approach is required, applying the standard to all leases existing at the date of initial application. The Company elects to use its effective date as its date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direction costs. In addition, the Company elected the practical expedient to use hindsight when determining lease terms.  The practicable expedient pertaining to land easement is not applicable to the Company. The Company continues to assess all of the effects of adoption, with the most significant effect relating to the recognition of new ROU assets and lease liabilities on the Company’s balance sheet for real estate operating leases.  The Company adopted the provisions of this guidance on January 1, 2019 and accordingly recognized additional operating liabilities of approximately $5,509,000 with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

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Following the expiration of the Company’s Emerging Growth Company filing status (“EGC”) on December 31, 2018 the Company adopted the following accounting pronouncements effective January 1, 2018.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), to supersede nearly all existing revenue recognition guidance under GAAP. Topic 606 also requires new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations. The Company adopted the provision of this guidance using the modified retrospective approach. The Company has performed an assessment of its revenue contracts as well as worked with industry participants on matters of interpretation and application and has not identified any material changes to the timing or amount of its revenue recognition under Topic 606. The Company’s accounting policies did not change materially as a result of applying the principles of revenue recognition from Topic 606 and are largely consistent with existing guidance and current practices applied by the Company. (See Note 3, below.)

Note 2. Basic and Diluted Net Loss Per Share

Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss 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 stock options, restricted stock, warrants, convertible preferred stock and common stock associated with the Company's convertible notes based on the average stock price for each period using the treasury stock method. Potentially dilutive shares are excluded from the computation of diluted net loss per share when their effect is anti-dilutive. In periods where a net loss is presented, all potentially dilutive securities are anti-dilutive and are excluded from the computation of diluted net loss per share.

Potentially dilutive securities for the three and six months ended June 30, 2019 were 12,731,372. Potentially dilutive securities were 6,560,761 for the three and six months ended June 30, 2018.

The calculation of diluted loss per share requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the warrants and the presumed exercise of such securities are dilutive to loss per share for the period, an adjustment to net loss used in the calculation is required to remove the change in fair value of the warrants, net of tax from the numerator for the period. Likewise, an adjustment to the denominator is required to reflect the related dilutive shares, if any, under the treasury stock method. During the three and six months ended June 30, 2019, the Company recorded net of tax gain of $357,000 and $1,478,000, on the valuation of the Warrant Derivative Liability which has a dilutive impact on loss per share, respectively.

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	Three Months Ended June 30, (unaudited)		Six Months Ended June 30, (unaudited)
	2019	2018	2019	2018
Loss per Share – Basic
Numerator for basic loss per share	$(75,000)	$(656,000)	$(12,349,000)	$(2,967,000)
Denominator for basic loss per share	29,133,150	21,506,833	28,359,660	20,630,383
Loss per common share - basic	$(0.00)	$(0.03)	$(0.44)	$(0.14)
Loss per Share - Diluted
Numerator for basic loss per share	$(75,000)	$(656,000)	$(12,349,000)	$(2,967,000)
Adjust: Fair value of dilutive warrants outstanding	(357,000)	-	(1,478,000)	-
Numerator for dilutive loss per share	$(432,000)	$(656,000)	$(13,827,000)	$(2,967,000)
Denominator for basic loss per share	29,133,150	21,506,833	28,359,660	20,630,383
Adjust: Incremental shares underlying “in the money” warrants outstanding	224,197	-	340,635	-
Denominator for dilutive loss per share	29,357,347	21,506,833	28,700,295	20,630,383
Loss per common share - diluted	$(0.02)	$(0.03)	$(0.48)	$(0.14)

Note 3.  Balance Sheet Account Detail

Inventory and Cost of Revenues

Inventory is stated at the lower of cost or net realizable value, net of a valuation allowance. 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):

	As of
	June 30, 2019	December 31, 2018
	(unaudited)
Finished goods	$12,602	$11,300
Raw materials	14,622	12,744
Total inventory	27,224	24,044
Reserve for excess and obsolete	(2,427)	(2,268)
Inventory, net	$24,797	$21,776

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. 

Leases

Generally, the Company leases certain office space, warehouses, distribution centers, manufacturing centers, and equipment. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.

In general, the Company’s leases include one or more options to renew, with renewal terms that generally vary from one to ten years. The exercise of lease renewal options is generally at the Company’s sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

-19-

Leases with an initial term of twelve months or less are not recorded on the Company’s condensed consolidated balance sheets, and the Company does not separate nonlease components from lease components. The Company’s lease assets and liabilities recognized within its condensed consolidated balance sheets were as follows (in thousands):

Leases	Classification	June 30, 2019
		(unaudited)
Assets
Operating lease right-of-use assets	Operating Lease Right-of-Use Assets	$5,481
Finance lease right-of-use assets	Property, plant and equipment, net at cost, net of Accumulated Depreciation (1)	1,283
Total leased assets		$6,764
Liabilities
Current
Operating	Other Current Liabilities	$772
Finance	Current Portion of Long-term Debt	1,103
Noncurrent
Operating	Non-current Operating Lease Liabilities	4,708
Finance	Long-term Debt, net of current portion	778
Total lease liabilities		$7,361

(1) Finance lease assets are recorded net of accumulated amortization of approximately $525,000 as of June 30, 2019.

Lease cost is recognized on a straight-line basis over the lease term (in thousands):

		Three Months Ended		Six Months Ended
Lease Cost	Classification	June 30, 2019 (unaudited)	June 30, 2018 (unaudited)	June 30, 2019 (unaudited)	June 30, 2018 (unaudited)
Operating lease cost	SG&A Expenses	$271	$-	$542	$-
Finance lease cost
Amortization of leased assets	Depreciation and Amortization	94	-	190	-
Interest on lease liabilities	Net Interest Expense	34	-	71	-
Net lease cost		$399	$-	$803	$-

-20-

As of June 30, 2019, annual scheduled lease payments were as follows (unaudited) (in thousands):

	Operating Leases	Finance Leases
2019	$1,055	$1,213
2020	764	699
2021	657	95
2022	391	15
2023	628	9
Thereafter	3,490	8
Total lease payments	6,985	2,039
Less imputed interest	1,505	158
Present value of lease liabilities	$5,480	$1,881

Finance lease right-of-use assets are amortized over their estimated useful life, as the Company does believe that it is reasonably certain that options which transfer ownership will be exercised. In general, for the majority of the Company’s material leases, the renewal options are not included in the calculation of its right-of-use assets and lease liabilities, as the Company does not believe that it is reasonably certain that these renewal options will be exercised. Periodically, the Company assesses its leases to determine whether it is reasonably certain that these options and any renewal options could be reasonably expected to be exercised.

The majority of the Company’s leases are for real estate and equipment. In general, the individual lease contracts do not provide information about the rate implicit in the lease. Because the Company is not able to determine the rate implicit in its leases, it instead generally uses its incremental borrowing rate to determine the present value of lease liabilities. In determining its incremental borrowing rate, the Company reviewed the terms of its leases, its senior secured credit facility, swap rates, and other factors. The weighted-average remaining lease term and weighted-average discount rate used to calculate the present value of lease liabilities are as follows:

Lease Term and Discount Rate	June 30, 2019 (unaudited)
Weighted-average remaining lease term (years)
Operating leases	5.6
Finance leases	1.98
Weighted-average discount rate
Operating leases	5.5%
Finance leases	9.0%

Revenue Recognition

Direct Selling

Direct distribution sales are made through the Company’s network (direct selling segment), which is a web-based global network of customers and distributors. The Company’s independent sales force markets a variety of products to an array of customers, through friend-to-friend marketing and social networking. The Company considers itself to be an e-commerce company whereby personal interaction is provided to customers by its independent sales network. Sales generated from direct distribution includes; health and wellness, beauty product and skin care, scrap booking and story booking items, packaged food products and other service-based products.

Revenue is recognized when the Company satisfies its performance obligations under the contract. The Company recognizes revenue by transferring the promised products to the customer, with revenue recognized at shipping point, the point in time the customer obtains control of the products. The majority of the Company’s contracts have a single performance obligation and are short term in nature. Sales taxes in domestic and foreign jurisdictions are collected from customers and remitted to governmental authorities, all at the local level, and are accounted for on a net basis and therefore are excluded from revenues.

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Commercial Coffee - Coffee Roaster

The Company engages in the commercial sale of roasted coffee through its subsidiary CLR, which is sold under a variety of private labels through major national sales outlets and to customers including cruise lines and office coffee service operators, and under its own Café La Rica brand, Josie’s Java House Brand, Javalution brands and Café Cachita as well as through its distributor network within the direct selling segment.

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. At this point the customer has a present obligation to pay, takes physical possession of the product, takes legal title to the product, bears the risks and rewards of ownership, and as such, revenue will be recognized at this point in time. Sales taxes in domestic and foreign jurisdictions are collected from customers and remitted to governmental authorities, all at the local level, and are accounted for on a net basis and therefore are excluded from revenues.

Commercial Coffee - Green Coffee

The commercial coffee segment includes the sale of green coffee beans, which are sourced from the Nicaraguan rainforest.

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. At this point the customer has a present obligation to pay, takes physical possession of the product, takes legal title to the product, bears the risks and rewards of ownership, and as such, revenue will be recognized at this point in time. Sales taxes in domestic and foreign jurisdictions are collected from customers and remitted to governmental authorities, all at the local level, and are accounted for on a net basis and therefore are excluded from revenues.

Commercial Hemp

The commercial hemp segment provides end to end extraction and processing via the Company’s proprietary systems that allow for the conversion of hemp feed stock into hemp oil and hemp extracts.  The primary focus of the segment is to generate revenue through sales of extraction services and end to end processing services for the conversion of Hemp and Hemp oil into sellable ingredients.  Additionally, the Company offers various rental, sales, and service programs of the Company’s extraction and processing systems.

Segment Revenue

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. At this point the customer has a present obligation to pay, takes physical possession of the product, takes legal title to the product, bears the risks and rewards of ownership, and as such, revenue will be recognized at this point in time. Sales taxes in domestic and foreign jurisdictions are collected from customers and remitted to governmental authorities, all at the local level, and are accounted for on a net basis and therefore are excluded from revenues.

The Company operates in three primary segments: the direct selling segment where products are offered through a global distribution network of preferred customers and distributors, the commercial coffee segment where products are sold directly to businesses and the Hemp segment.

The following table summarizes revenue disaggregated by segment (in thousands):

	Three Months Ended June 30, (unaudited)		Six Months Ended June 30, (unaudited)
	2019	2018	2019	2018
Direct Selling Segment	$32,124	$36,846	$65,544	$72,157
Commercial Coffee - coffee roaster	3,289	2,882	6,069	9,512
Commercial Coffee - green coffee	18,000	4,527	38,033	5,580
Commercial Hemp	274	-	341	-
Total revenue	$53,687	$44,255	$109,987	$87,249

-22-

Contract Balances  

Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records contract assets when performance obligations are satisfied prior to invoicing.

Contract liabilities are reflected as deferred revenues in current liabilities on the Company’s condensed consolidated balance sheets and include deferred revenue and customer deposits. Contract liabilities relate to payments invoiced or received in advance of completion of performance obligations and are recognized as revenue upon the fulfillment of performance obligations. Contract liabilities are classified as short-term as all performance obligations are expected to be satisfied within the next 12 months.

As of June 30, 2019 and December 31, 2018, the balance in deferred revenues was approximately $2,260,000 and $2,312,000, respectively. The Company records deferred revenue related to its direct selling segment which is primarily attributable to the Heritage Makers product line and represents Heritage Maker’s obligation for points purchased by customers that have not yet been redeemed for product. In addition, deferred revenues include future Company convention and distributor events.

Deferred revenue related to the commercial coffee segment represents deposits on customer orders that have not yet been completed and shipped. Revenue is recognized when the title and risk of loss is passed to the customer under the terms of the shipping arrangement FOB shipping point. (See Note 1, above.)

Of the deferred revenue from the year ended December 31, 2018, the Company recognized revenue of approximately $341,000 and $732,000 from the Heritage Makers product line during the three and six months ended June 30. 2019, respectively. There was no other deferred revenue recognized in direct selling segment for the six months ended June 30, 2019.

There were no deferred revenues recognized with the commercial coffees segment and the commercial hemp for the six months ended June 30, 2019.

Note 4. Acquisitions and 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 Company’s 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 Company’s 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.

-23-

During the six months ended June 30, 2019, the Company entered into one acquisition, which is detailed below. The acquisition was conducted in an effort to expand the Company’s operations into the field of commercial hemp business.

2019 Acquisitions

Khrysos Global, Inc.

On February 12, 2019, the Company and Khrysos Industries, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“KII”) entered into an Asset and Equity Purchase Agreement (the “AEPA”) with, Khrysos Global, Inc., a Florida corporation (“Seller”), Leigh Dundore (“LD”), and Dwayne Dundore (the “Representing Party”) for KII to acquire substantially all the assets of Seller and all the outstanding equity of INXL Laboratories, Inc., a Florida corporation (“INXL”) and INX Holdings, Inc., a Florida corporation (“INXH”). The business of the Seller, INXL and INXH collectively acquired by us provide end to end extraction and processing via the company’s proprietary systems that allow for the conversion of hemp feed stock into hemp oil and hemp extracts.  Additionally, KII offers various rental, sales, and service programs of KII’s extraction and processing systems.

The consideration payable for the assets of the Seller and the equity of INXL and INXH is an aggregate of $16,000,000, to be paid as set forth under the terms of the AEPA and allocated between the Seller and LD in such manner as they determine at their discretion.

At closing, Seller, LD and the Representing Party received an aggregate of 1,794,972 shares of the Company’s common stock which have a value of $14,000,000 for the purposes of the AEPA or $12,649,000 fair value for the acquisition valuation and $500,000 in cash. Thereafter, we agree to pay the Seller, LD and the Representing Party an aggregate of: $500,000 in cash thirty (30) days following the date of closing; $250,000 in cash ninety (90) days following the date of closing; $250,000 in cash one hundred and eighty (180) days following the date of closing; $250,000 in cash two hundred and seventy (270) days following the date of closing; and $250,000 in cash one (1) year following the date of closing.

In addition, the Company agreed to issue to Representing Party, subject to the approval of the holders of at least a majority of the issued and outstanding shares of the Company’s common stock and the approval of The Nasdaq Stock Market (collectively, the “Contingent Consideration Warrants”) consisting of six (6) six-year warrants, to purchase 500,000 shares of common stock each, for an aggregate of 3,000,000 shares of common stock at an exercise price of $10 per share exercisable upon reaching certain levels of cumulative revenue or cumulative net income before taxes by the business during the any of the years ending December 31, 2019, 2020, 2021, 2022, 2023 or 2024.

The AEPA contains customary representations, warranties and covenants of the Company, KII, the Seller, LD and the Representing Party. Subject to certain customary limitations, the Seller, LD and the Representing Party have agreed to indemnify the Company and KII against certain losses related to, among other things, breaches of the Seller’s, LD’s and the Representing Party’s representations and warranties, certain specified liabilities and the failure to perform covenants or obligations under the AEPA.

On February 28, 2019, KII purchased a 45-acre tract of land in Groveland, Florida, upon which KII intends to build a R&D facility, greenhouse and allocate a portion for farming.

The Company has estimated fair value (in thousands) at the date of acquisition of the acquired tangible and intangible assets and liabilities as follows (unaudited):

Present value of cash consideration	$1,894
Estimated fair value of common stock issued	12,649
Aggregate purchase price	$14,543

The following table summarizes the estimated preliminary fair values of the assets acquired and liabilities assumed in February 2019 (in thousands):
Current assets	$211
Inventory	1,264
Property, plant and equipment	2,260
Trademarks and trade name	1,876
Customer-related intangible	5,629
Non-compete intangible	956
Goodwill	4,353
Current liabilities	(1,913)
Notes payable	(518)
Net assets acquired	$14,118

-24-

The preliminary estimated fair value of intangible assets acquired in the amount of $8,461,000 was determined through the use of a third-party valuation firm using various income and cost approach methodologies. Specifically, the intangibles identified in the acquisition were trademarks and trade name, customer-related intangible and non-compete agreement. The trademarks and trade name, customer-related intangible and non-compete are being amortized over their estimated useful life of 8 years, 7 years and 6 years, respectively. The straight-line method is being used and is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.

Goodwill of $4,353,000 was recognized as the excess 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 Contingent Consideration Warrants discussed above are subject to vesting based upon the achievement of various sales milestones and only if the sellers do not terminate their services.  As such, the warrants were considered equity-based compensation for future services and not considered contingent consideration in the calculation of the purchase price.

The costs related to the acquisition are included in legal and accounting fees and were expensed as incurred.

Revenues included in the consolidated statement of operations for the three and six months ended June 30, 2019 were approximately $274,000 and $341,000, respectively.

Note 5. Intangible Assets and Goodwill

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):

	June 30, 2019 (unaudited)			December 31, 2018
	Cost	Accumulated Amortization	Net	Cost	Accumulated Amortization	Net
Distributor organizations	$14,559	$10,010	$4,549	$14,559	$9,575	$4,984
Trademarks and trade names	9,963	2,209	7,754	7,337	1,781	5,556
Customer relationships	16,028	6,068	9,960	10,398	5,723	4,675
Internally developed software	720	607	113	720	558	162
Non-compete agreement	956	-	956	-	-	-
Intangible assets	$42,226	$18,894	$23,332	$33,014	$17,637	$15,377

-25-

Amortization expense related to intangible assets was approximately $586,000 and $857,000 for the three months ended June 30, 2019 and 2018, respectively. Amortization expense related to intangible assets was approximately $1,256,000 and $1,692,000 for the six months ended June 30, 2019 and 2018, respectively.

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. As of June 30, 2019 and December 31, 2018, approximately $1,649,000 in trademarks from business combinations have been identified as having indefinite lives.

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 Company’s 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 Company’s 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 Company’s reportable segments. As such, the Company analyzes its goodwill balances separately for the commercial coffee reporting unit, the direct selling reporting unit and the commercial hemp reporting unit. The goodwill balance as of June 30, 2019 and December 31, 2018 is approximately $10,676,000 and $6,323,000, respectively. There were no triggering events indicating impairment of goodwill or intangible assets during the six months ended June 30, 2019 and 2018.

Goodwill consists of the following (in thousands):

	June 30, 2019 (unaudited)	December 31, 2018
Goodwill, commercial coffee	$3,314	$3,314
Goodwill, direct selling	3,009	3,009
Goodwill, commercial hemp	4,353	-
Total goodwill	$10,676	$6,323

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Note 6.  Notes Payable and Other Debt

Short-term Debt

On July 18, 2018, the Company entered into lending agreements (the “Lending Agreements”) with three (3) separate entities and received loans in the total amount of $1,907,000, net of loan fees to be paid back over an eight-month period on a monthly basis. Payments are comprised of principal and accrued interest with an effective interest rate between 15% and 20%. The Company’s outstanding balance related to the Lending Agreements was approximately $504,000 as of December 31, 2018 and was included in other current liabilities on the Company’s balance sheet as of December 31, 2018. In March 2019 the loans were paid in full.

Notes Payable

Promissory Notes

On March 18, 2019, the Company entered into a two-year Secured Promissory Note (the “8% Note” or “Notes”) with two (2) accredited investors that had a substantial pre-existing relationship with the Company pursuant to which the Company raised cash proceeds of $2,000,000. The Company also issued 20,000 shares of the Company’s common stock par value $0.001 for each $1,000,000 invested and a five-year warrant to purchase 20,000 shares of the Company’s common stock at a price per share of $6.00. The 8% Notes pay interest at a rate of eight percent (8%) per annum and interest is paid quarterly in arrears with all principal and unpaid interest due at maturity on March 18, 2021.

The Company recorded debt discounts of approximately $139,000 related to the fair value of warrants issued in the transaction and $212,000 of transaction issuance costs to be amortized to interest expense over the life of the Notes. As of June 30, 2019, the remaining balance of the debt discounts is approximately $309,000. The Company recorded approximately $42,000 amortization of the debt discounts during the six months ended June 30, 2019 and is recorded as interest expense.

Credit Note

On December 13, 2018, the Company’s wholly owned subsidiary, CLR, entered into a Credit Agreement with Mr. Carl Grover pursuant to which CLR borrowed $5,000,000 from Mr. Grover and in exchange issued to him a $5,000,000 Credit Note (the “Credit Note”) secured by its green coffee inventory under a Security Agreement, dated December 13, 2018, with Mr. Grover and CLR’s subsidiary, Siles. 

The Credit Note accrues interest at eight percent (8%) per annum. All principal and accrued interest under the Credit Note is due and payable on December 12, 2020. The Credit Note contains customary events of default including the Company or Siles failure to pay its obligations, commencing bankruptcy or liquidation proceedings, and breach of representations and warranties. Upon the occurrence of an event of default, the unpaid balance of the principal amount of the Credit Note together with all accrued but unpaid interest thereon, may become, or may be declared to be, due and payable by Mr. Grover and shall bear interest from the due date until such amounts are paid at the rate of ten percent (10%) per annum. In connection with the Credit Agreement, the Company issued to Mr. Grover a four-year warrant to purchase 250,000 shares of its common stock, exercisable at $6.82 per share (“Warrant 1”), and a four-year warrant to purchase 250,000 shares of its common stock, exercisable at $7.82 per share (“Warrant 2”).

Also in connection with the Credit Note, the Company also entered into an advisory agreement with a third party not affiliated with Mr. Grover, pursuant to which the Company agreed to pay to the advisor a 3% fee on the transaction with Mr. Grover and issued to the advisor (or it’s designees) a four-year warrant to purchase 50,000 shares of the Company’s common stock, exercisable at $6.33 per share.

All fees, warrants and costs paid to Mr. Grover and the advisor and all direct costs incurred by the Company are recognized as a debt discount to the funded Credit Note and are amortized to interest expense using the effective interest method over the term of the Credit Note. The Company recognized an initial debt discount of approximately $1,469,000 related to the initial fair value of warrants issued in the transaction and $175,000 of transaction issuance costs. As of June 30, 2019, the remaining unamortized debt discount is approximately $1,293,000. The Company recognized approximately $321,000 amortization of the debt discount during the six months ended June 30, 2019 which was included in interest expense in the Condensed Consolidated Statements of Operations.

2400 Boswell Mortgage

In March 2013, the Company acquired 2400 Boswell for approximately $4,600,000. 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 with interest at 5.0%.  Additionally, the Company assumed a long-term mortgage of $3,625,000, payable over 25 years with an initial interest rate of 5.75%. The interest rate is the prime rate plus 2.5%. As of June 30, 2019, the interest rate was 8.0%. The lender will adjust the interest rate on the first calendar day of each change period. The Company and its Chief Executive Officer are both co-guarantors of the mortgage. As of June 30, 2019, the balance on the long-term mortgage is approximately $3,180,000 and the balance on the promissory note is zero. 

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M2C Purchase Agreement

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. As of June 30, 2019 and December 31, 2018, the carrying value of the liability was approximately $1,049,000 and $1,071,000, respectively. The interest associated with the note for the three and six months ended June 30, 2019 and 2018 was minimal.

Khrysos Mortgage Notes

In conjunction with the Company’s acquisition of Khrysos, the Company assumed an interest only mortgage in the amount of $350,000, due in September 2021, and bears an interest rate of 8.0%. In addition, the Company assumed a mortgage of approximately $177,000, due in June 2023, and bears an interest rate of 7.0% per annum. As of June 30, 2019, the remaining aggregate mortgage balance is approximately $526,000.

In February 2019, Khrysos purchased a 45-acre tract of land in Groveland, Florida, for $750,000, upon which Khrysos intends to build a R&D facility, greenhouse and allocate a portion for farming. Khrysos paid approximately $303,000 as a down payment and assumed a mortgage of $450,000. The entire balance is due in February 2024 and bears interest at 6.0% per annum. As of June 30, 2019, the remaining mortgage balance is approximately $446,000.

Khrysos Acquisition Liability Payable

In conjunction with the Company’s acquisition of Khrysos, the Company agreed to pay the sellers in cash $2,000,000 towards the AEPA with an initial payment of $500,000 which was paid at closing in February 2019. Thereafter, the sellers are to receive an aggregate of: $500,000 in cash thirty (30) days following the date of closing; $250,000 in cash ninety (90) days following the date of closing; $250,000 in cash one hundred and eighty (180) days following the Date of closing; $250,000 in cash two hundred and seventy (270) days following the date of closing; and $250,000 in cash one (1) year following the date of closing. As of June 30, 2019, the Company’s remaining liability of $1,500,000 is outstanding and is recorded on the balance sheet in accrued expenses. (See Note 4, above.)

Other Notes

The Company’s other notes relate to loans for commercial vans at CLR in the amount of $85,000 as of June 30, 2019 which mature at various dates through 2023.

Line of Credit - Loan and Security Agreement

On November 16, 2017, CLR entered into a Loan and Security Agreement (“Agreement”) with Crestmark Bank (“Crestmark”) providing for a line of credit related to accounts receivables resulting from sales of certain products that includes borrowings to be advanced against acceptable eligible inventory related to CLR. Effective December 29, 2017, CLR entered into a First Amendment to the Agreement, to include an increase in the maximum overall borrowing to $6,250,000. The loan amount may not exceed an amount which is the lesser of (a) $6,250,000 or (b) the sum of up (i) to 85% of the value of the eligible accounts; plus, (ii) the lesser of $1,000,000 or 50% of eligible inventory or 50% of (i) above, plus (iii) the lesser of $250,000 or eligible inventory or 75% of certain specific inventory identified within the Agreement.

The Agreement contains certain financial and nonfinancial covenants with which the Company must comply to maintain its borrowing availability and avoid penalties. As of June 30, 2019, the Company is in compliance with all financial and nonfinancial covenants.

The outstanding principal balance of the Agreement will bear interest based upon a year of 360 days with interest being charged for each day the principal amount is outstanding including the date of actual payment. The interest rate is a rate equal to the prime rate plus 2.50% with a floor of 6.75%. As of June 30, 2019, the interest rate was 7.5%. In addition, other fees are incurred for the maintenance of the loan in accordance with the Agreement. Other fees may be incurred in the event the minimum loan balance of $2,000,000 is not maintained. The Agreement is effective until November 16, 2020.

The Company and the Company’s CEO, Stephan Wallach, have entered into a Corporate Guaranty and Personal Guaranty, respectively, with Crestmark guaranteeing payments in the event that the Company’s commercial coffee segment CLR were to default. In addition, the Company’s President and Chief Financial Officer, David Briskie, personally entered into a Guaranty of Validity representing the Company’s financial statements so long as the indebtedness is owing to Crestmark, maintaining certain covenants and guarantees.

The Company’s outstanding line of credit liability related to the Agreement was approximately $2,002,000 as of June 30, 2019 and $2,256,000 as of December 31, 2018.

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.

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The Company’s contingent acquisition debt as of June 30, 2019 and December 31, 2018 is $7,593,000 and $8,261,000, respectively, and is attributable to debt associated with the Company’s direct selling segment. (See Note 9 below.)

Note 7. Convertible Notes Payable

Total convertible notes payable as of June 30, 2019 and December 31, 2018, net of debt discount outstanding consisted of the amount set forth in the following table (in thousands):

	June 30, 2019 (unaudited)	December 31, 2018
8% Convertible Notes due July and August 2019 (2014 Notes), principal	$750	$750
Debt discounts	(34)	(103)
Carrying value of 2014 Notes	716	647
6% Convertible Notes due February and March 2021 (2019 PIPE Notes), principal	2,890	-
Debt discounts	(532)	-
Carrying value of 2019 PIPE Notes	2,358	-
Total carrying value of convertible notes payable	$3,074	$647

July 2014 Private Placement

Between July 31, 2014 and September 10, 2014 the Company entered into Note Purchase Agreements (the “2014 Note” or “2014 Notes”) related to its 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 note in the aggregate principal amount of $4,750,000 that are convertible into 678,568 shares of our common stock, at a conversion price of $7.00 per share, and warrants to purchase 929,346 shares of common stock at an exercise price of $4.60 per share. The 2014 Notes bear interest at a rate of eight percent (8%) per annum and interest is paid quarterly in arrears with all principal and unpaid interest due between July and September 2019.

The Company has the right to prepay the 2014 Notes at any time after the one-year anniversary date of the issuance of the 2014 Notes at a rate equal to 110% of the then outstanding principal balance and any unpaid accrued interest. The 2014 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. Additionally, Stephan Wallach, the Company’s Chief Executive Officer, has also personally guaranteed the repayment of the 2014 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 1.5 million shares of the common stock that he owns so long as his personal guaranty is in effect.

On October 23, 2018, the Company entered into an agreement with Carl Grover to exchange (the “Debt Exchange”), subject to stockholder approval which was received on December 6, 2018, all amounts owed under the 2014 Note held by him in the principal amount of $4,000,000 which matures on July 30, 2019, for 747,664 shares of the Company’s common stock, at a conversion price of $5.35 per share and a four-year warrant to purchase 631,579 shares of common stock at an exercise price of $4.75 per share. Upon the closing the Company issued Ascendant Alternative Strategies, LLC, a FINRA broker dealer (or its designees), which acted as the Company’s advisor in connection with a Debt Exchange transaction, 30,000 shares of common stock in accordance with an advisory agreement and four-year warrants to purchase 80,000 shares of common stock at an exercise price of $5.35 per share and four-year warrants to purchase 70,000 shares of common stock at an exercise price of $4.75 per share.

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The Company considered the guidance of ASC 470-20, Debt: Debt with Conversion and Other Options and ASC 470-60, Debt: Debt Troubled Debt Restructuring by Debtors and concluded that the 2014 Note held by Mr. Grover should be recognized as a debt modification for an induced conversion of convertible debt under the guidance of ASC 470-20. The Company recognized all remaining unamortized discounts of approximately $679,000 immediately subsequent to October 23, 2018 as interest expense, and the fair value of the warrants and additional shares issued as discussed above were recorded as a loss on the Debt Exchange in the amount of $4,706,000 during the year ended December 31, 2018 with the corresponding entry recorded to equity.

In 2014, the Company initially recorded debt discounts of $4,750,000 related to the beneficial conversion feature and related detachable warrants. The beneficial conversion feature discount and the detachable warrants discount are amortized to interest expense over the life of the Notes. The unamortized debt discounts recognized with the Debt Exchange was approximately $679,000. As of June 30, 2019 and December 31, 2018 the remaining balance of the debt discounts is approximately $31,000 and $94,000, respectively. The Company recorded approximately $63,000 and $238,000 amortization of the debt discounts during the six months ended June 30, 2019 and 2018, and is recorded as interest expense.

With respect to the 2014 Private Placement, the Company paid approximately $490,000 in expenses including placement agent fees. The issuance costs are amortized to interest expense over the term of the 2014 Notes. The unamortized issuance costs recognized with the Debt Exchange was approximately $63,000. As of June 30, 2019 and December 31, 2018 the remaining balance of the issuance costs is approximately $3,000 and $10,000, respectively. The Company recorded approximately $6,000 and $25,000 of the debt discounts amortization during the six months ended June 30, 2019 and 2018, respectively, and is recorded as interest expense.

As of June 30, 2019 and December 31, 2018 the principal amount of $750,000 remains outstanding.

Unamortized debt discounts and issuance costs are included with convertible notes payable, net of debt discount on the condensed consolidated balance sheets.

January 2019 Private Placement

Between February 15, 2019 and May 23, 2019, the Company closed four tranches of its 2019 January Private Placement debt offering, pursuant to which the Company offered for sale up to $10,000,000 in principal amount $10,000,000 of notes (the “2019 PIPE Notes”), with each investor receiving 2,000 shares of common stock for each $100,000 invested. The Company entered into subscription agreements with thirty (30) accredited investors that had a substantial pre-existing relationship with the Company pursuant to which the Company received aggregate gross proceeds of $2,890,000 and issued 2019 PIPE Notes in the aggregate principal amount of $2,890,000 and an aggregate of 57,800 shares of common stock. The placement agent received 14,450 shares of common stock for the closed tranches and can receive up to 50,000 shares of common stock in the offering. Each 2019 PIPE Note matures 24 months after issuance, bears interest at a rate of six percent (6%) per annum, and the outstanding principal is convertible into shares of common stock at any time after the 180th day anniversary of the issuance of the 2019 PIPE Notes, at a conversion price of $10 per share (subject to adjustment for stock splits, stock dividends and reclassification of the common stock).

Upon issuance of the 2019 PIPE Notes, the Company recognized debt discounts of approximately $634,000, resulting from the allocated portion of offering proceeds to the separable common stock issuance. The debt discount is being amortized to interest expense over the term of the 2019 PIPE Notes. During the six months ended June 30, 2019 the Company recorded approximately $101,000 of amortization related to the debt discounts. 

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Note 8. Derivative Liability

The Company recognizes and measures warrants in accordance with ASC Topic 815, Derivatives and Hedging. The accounting guidance sets forth a two-step model to be applied in determining whether a financial instrument is indexed to an entity’s own stock, which would qualify such financial instruments for a scope exception. This scope exception specifies that a contract that would otherwise meet the definition of a derivative financial instrument would not be considered as such if the contract is both (i) indexed to the entity’s own stock and (ii) classified in the stockholders’ equity section of the entity’s balance sheet. The Company determined that certain warrants and embedded conversion features issued in the Company’s private placements are ineligible for equity classification due to anti-dilution provisions set forth therein.

Derivative liabilities are recorded at their estimated fair value (see Note 9, below) at the issuance date and are revalued at each subsequent reporting date. The Company will continue to revalue the derivative liability on each subsequent balance sheet date until the securities to which the derivative liabilities relate to are exercised or expire.

Various factors are considered in the pricing models the Company uses to value the derivative liabilities, including its current stock price, the remaining life, the volatility of its 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 liability. As such, the Company expects future changes in the fair values to continue and may vary significantly from period to period. The warrant and embedded liability and revaluations have not had a cash impact on working capital, liquidity or business operations.

Warrants

Effective January 1, 2019, the Company adopted ASU No. 2017-11 (see above, Recently Adopted Accounting Pronouncements).The new guidance requires companies to exclude any down round feature when determining whether a freestanding equity-linked financial instrument (or embedded conversion option) is considered indexed to the entity’s own stock when applying the classification guidance in ASC 815-40. Upon adoption of the new guidance, existing equity-linked financial instruments (or embedded conversion options) with down round features must be reassessed as liability classification may no longer be required. As a result, the Company determined in regard to its 2018 warrants the appropriate treatment of these warrants that were initially classified as derivative liabilities should now be classified as equity instruments.

The Company determined that the liability associated with the 2018 warrants should be remeasured and adjusted to fair value on the date of the change in classification with the offset to be recorded through earnings and then the fair value of the warrants should be reclassified to equity. The Company recorded the change in the fair value of the 2018 warrants as of the date of change in classification on March 11, 2019 to earnings. The fair value of the 2018 warrants as of the date of change in classification, in the amount of $1,494,000 was reclassified from warrant derivative liability to additional paid in capital as a result of the change in classification of the warrants.

Increases or decreases in the fair value of the derivative liability are included as a component of total other expense in the accompanying condensed consolidated statements of operations for the respective period. The changes to the derivative liability for warrants resulted in a decrease of $401,000 and a decrease of $192,000 for the three months ended June 30, 2019 and 2018, respectively. The changes to the derivative liability for warrants resulted in a decrease of $1,887,000 and a decrease of $904,000 for the six months ended June 30, 2019 and 2018, respectively.

The estimated fair value of the outstanding warrant liabilities is $4,969,000 and $9,216,000 as of June 30, 2019 and December 31, 2018, respectively. 

The estimated fair value of the warrants was computed as of June 30, 2019 and December 31, 2018 using the Monte Carlo option pricing model with the following assumptions:

	June 30, 2019 (unaudited)	December 31, 2018
Stock price volatility	100.4%-106.8%	83.78%-136.76%
Risk-free interest rates	1.87%-2.18%	2.465%-2.577%
Annual dividend yield	0%	0%
Expected life	0.08-1.29 years	0.58-2.76

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In addition, management assessed the probabilities of future financing assumptions in the valuation models.

Note 9.   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 Company’s 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 Company’s 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.

The following table details the fair value measurement within the fair value hierarchy of the Company’s financial instruments, which includes the Level 3 liabilities (in thousands):

	Fair Value at June 30, 2019 (unaudited)
	Total	Level 1	Level 2	Level 3
Liabilities:
Contingent acquisition debt, current portion	$695	$-	$-	$695
Contingent acquisition debt, less current portion	6,898	-	-	6,898
Warrant derivative liability	4,969	-	-	4,969
Total liabilities	$12,562	$-	$-	$12,562

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	Fair Value at December 31, 2018
	Total	Level 1	Level 2	Level 3
Liabilities:
Contingent acquisition debt, current portion	$795	$-	$-	$795
Contingent acquisition debt, less current portion	7,466	-	-	7,466
Warrant derivative liability	9,216	-	-	9,216
Total liabilities	$17,477	$-	$-	$17,477

The following table reflects the activity for the Company’s warrant derivative liability associated with the Company’s 2017, 2015 and 2014 Private Placements measured at fair value using Level 3 inputs (in thousands):

	Warrant Derivative Liability
Balance at December 31, 2018	$9,216
Issuance	-
Adjustments to estimated fair value	(1,887)
Adjustments related to warrant exercises	(866)
Adjustments related to the reclassification of warrants to equity	(1,494)
Balance at June 30, 2019 (unaudited)	$4,969

The following table reflects the activity for the Company’s contingent acquisition liabilities measured at fair value using Level 3 inputs (in thousands):

	Contingent Consideration
Balance at December 31, 2018	$8,261
Liabilities acquired	-
Liabilities settled	(235)
Adjustments to liabilities included in earnings	(433)
Adjustment to purchase price	-
Balance at June 30, 2019 (unaudited)	$7,593

The fair value of the contingent acquisition liabilities is 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 Company’s most recent internal operational budgets and long-range strategic plans. 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 three and six months ended June 30, 2018, the net adjustment tothe fair value of the contingent acquisition debt was a decrease of $1,246,000 and $1,459,000, respectively. During the three and six months ended June 30, 2019, the net adjustment to the fair value of the contingent acquisition debt was a decrease of $433,000 and is included in the Company’s statements of operations in general and administrative expense.

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Note 10.  Stockholders’ Equity

The Company’s Certificate of Incorporation, as amended, authorizes the issuance of two classes of stock to be designated; “Common Stock” and “Preferred Stock”.

The total number of shares of stock which the Company has authority to issue is 50,000,000 shares of common stock, par value $0.001 per share and 5,000,000 shares of preferred stock, par value $0.001 per share, of which 161,135 shares have been designated as Series A convertible preferred stock, par value $0.001 per share (“Series A Convertible Preferred”), 1,052,631 has been designated as Series B convertible preferred stock (“Series B Convertible Preferred”), and 700,000 has been designated as Series C convertible preferred stock (“Series C Convertible Preferred”).

Common Stock

As of June 30, 2019 and December 31, 2018 there were 29,316,445 and 25,760,708 shares of common stock outstanding, respectively. The holders of the common stock are entitled to one vote for each share held at all meetings of stockholders (and written actions in lieu of meetings).  

Stock Offering

On February 7, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with one accredited investor that had a substantial pre-existing relationship with the Company pursuant to which the Company sold 250,000 shares of common stock, par value $0.001 per share, at an offering price of $7.00 per share. Pursuant to the Purchase Agreement, the Company also issued to the investor a three-year warrant to purchase 250,000 shares of common stock at an exercise price of $7.00. The proceeds were $1,750,000. Consulting fees to the Placement Agent for arranging the Purchase Agreement include the issuance of 5,000 shares of restricted shares of the Company’s common stock, par value $0.001 per share, and 100,000 three-year warrants expiring in February 2022 priced at $10.00. The Company used the Black-Scholes option-pricing model to estimate the fair value of the warrants issued to the selling agent to be $324,000 at the time of issuance as direct issuance costs and recorded in equity. No cash commissions were paid.

On June 17, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with one accredited investor that had a substantial pre-existing relationship with the Company pursuant to which the Company sold 250,000 shares of common stock, par value $0.001 per share, at an offering price of $5.50 per share. The proceeds were $1,375,000. The Company did not pay consulting fees in this transaction.

Between February 15, 2019 and May 23, 2019, the Company closed its fourth tranche of its 2019 January Private Placement debt offering, pursuant to which the Company offered for up to a maximum of $10,000,000 in principal amount of notes (the “2019 PIPE Notes”), with each investor receiving in addition to a 2019 PIPE Notes, 2,000 shares of common stock for each $100,000 invested. The Company entered into subscription agreements with thirty (30) accredited investors that had a substantial pre-existing relationship with the Company pursuant to which the Company received aggregate gross proceeds of $2,890,000 and issued 2019 PIPE Notes in the aggregate principal amount of $2,890,000 and an aggregate of 57,800 shares of common stock. The placement agent received 14,450 shares of common stock for the closed tranches and can receive up to 50,000 shares of common stock in the offering. Each 2019 PIPE Note matures 24 months after issuance, bears interest at a rate of six percent (6%) per annum, and the outstanding principal is convertible into shares of common stock at any time after the 180th day anniversary of the issuance of the 2019 PIPE Note, at a conversion price of $10 per share (subject to adjustment for stock splits, stock dividends and reclassification of the common stock).

On March 18, 2019, the Company issued 8% Notes to two accredited investors that the Company had a substantial pre-existing relationship with and from whom the Company raised cash proceeds in the aggregate of $2,000,000. In addition to the 8% Notes, the Company issued 20,000 shares of common stock par value $0.001 for each $1,000,000 invested as well as for each $1,000,000 invested five-year warrants to purchase 20,000 shares of common stock at a price per share of $6.00. The 8% Notes pay interest at a rate of eight percent (8%) per annum and interest is paid quarterly in arrears with all principal and unpaid interest due at maturity on March 18, 2021. The Company issued an aggregate of 40,000 shares of common stock and warrants to purchase an aggregate of 40,000 shares of common stock with the 8% Notes in the principal amount of $2,000,000.

Issuance of additional common shares and repricing of warrants related to 2018 Private Placement

On March 13, 2019, the Company determined that three of the investors of the Company’s August 2018 Private Placement became eligible to receive additional shares of the Company’s common stock as it was referred to in their respective Purchase Agreement as True-up Shares. Total number of additional shares issued to those three investors was 44,599 shares of the Company’s common stock, par value $0.001. In addition, the exercise price of the warrants issued at their respective closings is reset pursuant to the terms of the warrants to exercise prices ranging from $4.06 to $4.44 from the exercise price at issuance of $4.75.

Convertible Preferred Stock

Series A Convertible Preferred Stock

The Company has 161,135 shares of Series A Convertible Preferred Stock outstanding as of June 30, 2019, and December 31, 2018 and accrued dividends of approximately $143,000 and $137,000, respectively. The holders of the Series A Convertible 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. Each share of Series A Convertible Preferred is convertible into common stock at a conversion rate of 0.10. The holders of Series A Convertible 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 Convertible Preferred have no voting rights, except as required by law.  

Series B Convertible Preferred Stock

On March 30, 2018, the Company completed the Series B Offering, pursuant to which the Company sold 381,173 shares of Series B Convertible Preferred Stock at an offering price of $9.50 per share and received gross proceeds in aggregate of approximately $3,621,000. The net proceeds to the Company from the Series B Offering were approximately $3,289,000 after deducting commissions, closing and issuance costs. Each share of Series B Convertible Preferred Stock is initially convertible at any time, in whole or in part, at the option of the holders, at an initial conversion price of $4.75 per share, into two (2) shares of common stock and automatically converts into two (2) shares of common stock on its two-year anniversary of issuance. Holders of the Series B Convertible Preferred Stock have no voting rights, except as required by law.

The Company has 129,437 shares of Series B Convertible Preferred Stock outstanding as of June 30, 2019 and December 31, 2018. The holders of the Series B Convertible Preferred Stock are entitled to receive cumulative dividends on the Series B Convertible Preferred Stock from the date of original issue at a rate of 5.0% per annum payable quarterly in arrears on or about the last day of March, June, September and December of each year, beginning June 30, 2018. As of June 30, 2019 and December 31, 2018 accrued dividends were approximately $24,000 and $11,000, respectively.

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Series C Preferred Stock

Between August 17, 2018 and October 4, 2018, the Company closed three tranches of its Series C Offering, pursuant to which the Company sold 697,363 shares of Series C Convertible Preferred Stock at an offering price of $9.50 per share and agreed to issue two-year warrants (the “Preferred Warrants”) to purchase up to 1,394,726 shares of the Company’s common stock at an exercise price of $4.75 per share to Series C Preferred holders that voluntarily convert their shares of Series C Preferred Stock to the Company’s common stock within two-years from the issuance date. Each share of Series C Convertible Preferred Stock was initially convertible at any time, in whole or in part, at the option of the holders, at an initial conversion price of $4.75 per share, into two (2) shares of common stock and was automatically convertible into two (2) shares of common stock on its two-year anniversary of issuance.

The Company issued the placement agent in connection with the Series C Offering 116,867 warrants as compensation, exercisable at $4.75 per share and expire in December 2020. The Company determined that the warrants should be classified as equity instruments and used Black-Scholes to estimate the fair value of the warrants issued to the placement agent of $458,000 as of the issuance date December 19, 2018.

The Company received aggregate gross proceeds totaling approximately $6,625,000. The net proceeds to the Company from the Series C Offering were approximately $6,236,000 after deducting commissions, closing and issuance costs.

Upon liquidation, dissolution or winding up of the Company, each holder of Series C Preferred Stock was entitled to receive a distribution, to be paid in an amount equal to $9.50 for each and every share of Series C Preferred Stock held by the holders of Series C Preferred Stock, plus all accrued and unpaid dividends in preference to any distribution or payments made or any asset distributed to the holders of common stock, the Series A Preferred Stock, the Series B Preferred Stock or any other class or series of stock ranking junior to the Series C Preferred Stock.

The shares of Series C Convertible Preferred Stock issued in the Series C Offering were sold pursuant to the Company’s Registration Statement, which was declared effective with the SEC on December 10, 2018.

Pursuant to the Certificate of Designation, the Company agreed to pay cumulative dividends on the Series C Convertible Preferred Stock from the date of original issue at a rate of 6.0% per annum payable quarterly in arrears on or about the last day of March, June, September and December of each year, beginning September 30, 2018. In 2018 a total of approximately $51,000 of dividends was paid to the holders of the Series C Convertible Preferred Stock. The Series C Convertible Preferred Stock ranked senior to the Company’s outstanding Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and the common stock with respect to dividend rights and rights upon liquidation, dissolution or winding up. Holders of the Series C Convertible Preferred Stock had no voting rights.

The contingent obligation to issue warrants is considered an outstanding equity-linked financial instrument and was therefore recognized as equity classified warrants, initially measured at relative fair value of approximately $3,727,000, resulting in an initial discount to the carrying value of the Series C Preferred Stock.

Due to the reduction of allocated proceeds to the contingently issuable common stock warrants and Series C Preferred Stock, the effective conversion price of the Series C Preferred Stock was less than the Company’s common stock price on each commitment date, resulting in an aggregate beneficial conversion feature of approximately $3,276,000, which reduced the carrying value of the Series C Preferred Stock. Since the conversion option of the Series C Preferred Stock was immediately exercisable, the beneficial conversion feature was immediately accreted as a deemed dividend, resulting in an increase in the carrying value of the C Preferred Stock of approximately $3,276,000.

The Series C Preferred Stock was automatically redeemable at a price equal to its original purchase price plus all accrued but unpaid dividends in the event the average of the daily volume weighted average price of the Company’s common stock for the 30 days preceding the two-year anniversary date of issuance is less than $6.00 per share.  As redemption was outside of the Company’s control, the Series C Preferred Stock was classified in temporary equity at issuance. All of the Series C Preferred shares were converted to common stock during 2018 and the Company has issued 1,394,726 warrants. As of June 30, 2019 and December 31, 2018, no shares of Series C Convertible Preferred Stock remain outstanding.

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Advisory Agreements

The Company records the fair value of common stock and warrants issued in conjunction with investor relations advisory service agreements based on the closing stock price of the Company’s common stock on the measurement date. The fair value of the stock issued is recorded through equity and prepaid advisory fees and amortized over the life of the service agreement.

ProActive CapitalResources Group, LLC

On September 1, 2015, the Company entered into an agreement with ProActive CapitalResources Group, LLC (“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 5,000 shares of restricted common stock to be issued upon successfully meeting certain criteria in accordance with the agreement. Subsequent to the September 1, 2015 initial agreement, the agreement was extended through August 2018 under six-month incremental service agreements under the same terms with the monthly cash payments of $6,000 per month and 5,000 shares of restricted common stock for every six (6) months of service performed.

The stock issuance expense associated with the amortization of advisory fees is recorded as stock issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations for the six months ended June 30, 2018 is approximately $13,000. The Company did not further extend this agreement subsequent to August 2018.

Ignition Capital, LLC

On April 1, 2018, the Company entered into an agreement with Ignition Capital, LLC (“Ignition”), pursuant to which Ignition agreed to provide investor relations services for a period of twenty-one (21) months in exchange for 50,000 shares of restricted common stock which were issued in advance of the service period. The fair value of the shares issued is recorded as prepaid advisory fees and is included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets and is amortized on a pro-rata basis over the term of the agreement. During the three months ended June 30, 2019 and 2018 the Company recorded expense of approximately $30,000 and $30,000, respectively. During the six months ended June 30, 2019 and 2018, the Company recorded expense of approximately $60,000 and $30,000, respectively, in connection with amortization of the stock issuance. The stock issuance expense associated with the amortization of advisory fees is recorded as equity issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations.

Greentree Financial Group, Inc.

On March 27, 2018, the Company entered into an agreement with Greentree Financial Group, Inc. (“Greentree”), pursuant to which Greentree agreed to provide investor relations services for a period of twenty-one (21) months in exchange for 75,000 shares of restricted common stock which were issued in advance of the service period. The fair value of the shares issued is approximately $311,000 and is recorded as prepaid advisory fees and is included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets and is amortized on a pro-rata basis over the term of the agreement. During the three months ended June 30, 2019 and 2018 the Company recorded expense of approximately $45,000 and $44,000, respectively. During the six months ended June 30, 2019 and 2018, the Company recorded expense of approximately $89,000 and $44,000, respectively in connection with amortization of the stock issuance. The stock issuance expense associated with the amortization of advisory fees is recorded as equity issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations.

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Capital Market Solutions, LLC.

On July 1, 2018, the Company entered into an agreement with Capital Market Solutions, LLC. (“Capital Market”), pursuant to which Capital Market agreed to provide investor relations services for a period of 18 months in exchange for 100,000 shares of restricted common stock which were issued in advance of the service period. In addition, the Company agreed to pay in cash a base fee of $300,000, payable as follows; $50,000 paid in August 2018, and the remaining balance shall be paid monthly in the amount of $25,000 through January 1, 2019. Subsequent to the initial agreement, the Company extended the term for an additional 24 months through December 31, 2021 and agreed to issue Capital Market an additional 100,000 shares of restricted common stock which were issued in advance of the service period and $125,000 of additional fees.

On January 9, 2019, the Company executed the second amendment to the agreement with Capital Market, pursuant to which, the aggregate base fee increased to $525,000, and the Company issued an additional 75,000 of restricted common stock. In addition, the Company issued to Capital Market a four-year warrant to purchase 925,000 shares of the Company’s common stock at $6.00 per share vesting 50% at issuance on January 9, 2019 and 25% on January 9, 2020 and 25% on January 9, 2021. The fair value of the vested portion of the warrant was approximately $1,927,000 and was recorded as equity on the Company’s balance sheet as of June 30, 2019. During the three and six months ended June 30, 2019, the Company recorded expense of approximately $270,000 and $1,927,000, respectively, in connection with amortization of equity issuance expense related to the vesting of the warrant. The equity issuance expense associated with the amortization of advisory fees is recorded as equity issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations.

The fair value of the common stock shares issued is recorded as prepaid advisory fees and is included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets and is amortized on a pro-rata basis over the term of the agreement. During the three and six months ended June 30, 2019, the Company recorded expense of approximately $129,000 and $257,000, respectively, in connection with amortization of the stock issuance expense. The stock issuance expense associated with the amortization of advisory fees is recorded as equity issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations.

During the three and six months ended June 30, 2019, the Company recorded expense of approximately $50,000 in connection with the base fee. The cash fee paid for advisory services is recorded as equity issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations.

I-Bankers Securities Incorporated

On April 5, 2019, the Company entered into an agreement with I-Bankers Securities Incorporated (“I-Bankers”), pursuant to which I-Bankers agreed to provide financial advisory services for a period of 12 months in exchange for 100,000 shares of restricted common stock which were issued in advance of the service period. In addition, the Company agreed to pay in cash a base fee for debt arrangements and equity offerings in conjunction with any transactions I-Bankers closes with the Company in accordance with the agreement. During the three and six months ended June 30, 2019, the Company recorded expense of approximately $143,000, in connection with amortization of the stock issuance expense. The stock issuance expense associated with the amortization of advisory fees is recorded as equity issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations.

Warrants

As of June 30, 2019, warrants to purchase 6,903,874 shares of the Company's common stock at prices ranging from $2.00 to $10.00 were outstanding. As of June 30, 2019, 6,556,999 warrants are exercisable and expire at various dates through March 2024 and have a weighted average remaining term of approximately 2.23 years and are included in the table below as of June 30, 2019.

The Company uses a combination of option-pricing models to estimate the fair value of the warrants including the Monte Carlo, Lattice and Black-Scholes.

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A summary of the warrant activity for the six months ended June 30, 2019 is presented in the following table:

	Number of Warrants
Balance at December 31, 2018	5,876,980
Issued	1,315,000
Expired / cancelled	-
Exercised	(288,106)
Balance at June 30, 2019, outstanding	6,903,874
Balance at June 30, 2019, exercisable	6,556,999

Stock Options

On May 16, 2012, the Company established the 2012 Stock Option Plan (“Plan”) authorizing the granting of options for up to 9,000,000 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 allows for the grant of: (a) incentive stock options; (b) nonqualified stock options; (c) stock appreciation rights; (d) restricted stock; and (e) other stock-based and cash-based awards to eligible individuals qualifying under Section 422 of the Internal Revenue Code, in any combination (collectively, “Options”). At June 30, 2019, the Company had 3,732,820 shares of common stock available for issuance under the Plan. 

A summary of the Plan stock option activity for the six months ended June 30, 2019 is presented in the following table: 

	Number of Shares	Weighted Average Exercise Price	Weighted Average Remaining Contract Life (years)	Aggregate Intrinsic Value (in thousands)
Outstanding December 31, 2018	2,394,379	$4.45	6.94	$3,049
Issued	2,540,062	6.66
Canceled / expired	(133,085)	4.75
Exercised	(85,054)	4.36		-
Outstanding June 30, 2019	4,716,302	$5.63	8.13	$2,907
Exercisable June 30, 2019	3,719,801	$5.96	8.03	$1,642

The weighted-average fair value per share of the granted options for the six months ended June 30, 2019 was approximately $4.26.

Stock-based compensation expense included in the condensed consolidated statements of operations was $393,000 and $123,000 for the three months ended June 30, 2019 and 2018, respectively, and $11,642,000 and $245,000 for the six months ended June 30, 2019 and 2018, respectively.

As of June 30, 2019, there was approximately $1,543,000 of total unrecognized compensation expense related to unvested stock options granted under the Plan. The expense is expected to be recognized over a weighted-average period of 1.44 years.

The Company uses the Black-Scholes to estimate the fair value of stock options. 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 Company’s 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. 

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Restricted Stock Units

On August 9, 2017, the Company issued restricted stock units for an aggregate of 500,000 shares of common stock, to its employees and consultants. These shares of common stock will be issued upon vesting of the restricted stock unit (“RSU’s”). Full vesting occurs on the sixth-year anniversary of the grant date, with 10% vesting on the third-year, 15% on the fourth-year, 50% on the fifth-year and 25% on the sixth-year anniversary of the vesting commencement date. As of June 30, 2019, none of the RSU’s have vested. There were no grants during the six months ended June 30, 2019 and 2018.

The Company adopted ASU 2018-07 on January 1, 2019 and the stock-based compensation expense for non-employee grants is based on the closing price of our common stock of $5.72 on December 31, 2018, which was the last business day before we adopted ASU 2018-07. See Note 1 above, Recently Adopted Accounting Pronouncements for further discussion of the Company’s adoption of ASU 2018-07.

The fair value of each RSU’s issued to employees is based on the closing stock price on the grant date of $4.53 and is recognized as stock-based compensation expense over the vesting term of the award.

	Number of Shares
Balance at December 31, 2018	475,000
Issued	-
Canceled	(50,000)
Balance at June 30, 2019	425,000

Stock-based compensation expense related to the RSU’s included in the condensed consolidated statements of operations was $20,000 and $92,000 for the three months ended June 30, 2019 and 2018, respectively, and $115,000 and $207,000 for the six months ended June 30, 2019 and 2018, respectively.

As of June 30, 2019, total unrecognized stock-based compensation expense related to restricted stock units to employees and consultants was approximately $1,383,000, which will be recognized over a weighted average period of 4.11 years.

Note 11.  Segment and Geographical Information

The Company is a leading multi-channel lifestyle company offering a hybrid of the direct selling business model that also offers e-commerce and the power of social selling. Assembling a virtual main street of products and services under one corporate entity, Youngevity offers products from top selling retail categories: health/nutrition, home/family, food/beverage (including coffee), spa/beauty, apparel/jewelry, as well as innovative services. The Company operates in three segments: the direct selling segment where products are offered through a global distribution network of preferred customers and distributors, the commercial coffee segment where roasted and green coffee bean products are sold directly to businesses, and commercial hemp segment provides end to end extraction and processing via the Company’s proprietary systems that allow for the conversion of hemp feed stock into hemp oil and hemp extracts.  The primary focus of the segment will be to generate revenue through sales of extraction services and end to end processing services for the conversion of Hemp and Hemp oil into sellable ingredients.  Additionally, the Company offers various rental, sales, and service programs of the company’s extraction and processing systems.

The Company’s segments reflect the manner in which the business is managed and how the Company allocates resources and assesses performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company’s 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.

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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):

	Three months ended		Six months ended
	June 30,		June 30,
	2019	2018	2019	2018
Revenues
Direct selling	$32,124	$36,846	$65,544	$72,157
Commercial coffee	21,289	7,409	44,102	15,092
Commercial hemp	274	-	341	-
Total revenues	$53,687	$44,255	$109,987	$87,249
Gross profit
Direct selling	$22,240	$25,087	$44,995	$49,822
Commercial coffee	3,731	295	7,798	572
Commercial hemp	(49)	-	(22)	-
Total gross profit	$25,922	$25,382	$52,771	$50,394
Operating income (loss)
Direct selling	$(818)	$1,376	$(13,126)	$2,157
Commercial coffee	2,117	(723)	3,001	(1,480)
Commercial hemp	(911)	-	(1,428)	-
Total operating income (loss)	$388	$653	$(11,553)	$677
Net (loss) income
Direct selling	$(1,250)	$723	$(14,627)	$132
Commercial coffee	2,148	(1,337)	3,781	(3,054)
Commercial hemp	(945)	-	(1,461)	-
Total net loss	$(47)	$(614)	$(12,307)	$(2,922)
Capital expenditures
Direct selling	$63	$28	$80	$115
Commercial coffee	843	51	3,415	730
Commercial hemp	99	-	1,482	-
Total capital expenditures	$1,005	$79	$4,977	$845

	As of
	June 30, 2019 (unaudited)	December 31, 2018
Total assets
Direct selling	$40,315	$38,947
Commercial coffee	75,113	37,026
Commercial hemp	21,096	-
Total assets	$136,524	$75,973

Total tangible assets, net located outside the United States were approximately $8.0 million and $6.2 million as of June 30, 2019 and December 31, 2018, respectively.

The Company conducts its operations primarily in the United States. For the three months ended June 30, 2019 and 2018 approximately 10% and 14%, respectively, of the Company’s sales were derived from sales outside the United States. For the six months ended June 30, 2019 and 2018 approximately 10% and 14%, respectively, of the Company’s sales were derived from sales outside the United States.

The following table displays revenues attributable to the geographic location of the customer (in thousands):

	Three months ended		Six months ended
	June 30,		June 30,
	2019	2018	2019	2018
Revenues
United States	$48,105	$37,980	$98,995	$75,373
International	5,582	6,275	10,992	11,876
Total revenues	$53,687	$44,255	$109,987	$87,249

Note 12.  Subsequent Events

None.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements. The words “expects,” “anticipates,” “believes,” “intends,” “plans” and similar expressions identify forward-looking statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. We undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Form 10-Q with the Securities and Exchange Commission. These forward-looking statements are subject to risks and uncertainties, including, without limitation, those risks and uncertainties discussed in Part I, Item 1A, “Risk Factors” and in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2019 and herein as reported under Part II Other Information, Item 1A. Risk Factors. In addition, new risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. Accordingly, our future results may differ materially from historical results or from those discussed or implied by these forward-looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.

In the following text, the terms “we,” “our,” and “us” may refer, as the context requires, to Youngevity International, Inc. or collectively to Youngevity International, Inc. and its subsidiaries.

Overview

We operate in three segments: the direct selling segment where products are offered through a global distribution network of preferred customers and distributors, the commercial coffee segment where products are sold directly to businesses and the commercial hemp segment provides end to end extraction and processing via our proprietary systems that allow for the conversion of hemp feed stock into hemp oil and hemp extracts. During the year ended December 31, 2018, we operated in two business segments, our direct selling segment and our commercial coffee segment. During the first quarter of 2019, we through the acquisition of the assets of Khrysos Global, Inc. added a third business segment to our operations, the commercial hemp. Our three segments are listed below:

●

Domestic direct selling network is operated through the following (i) domestic subsidiaries: AL Global Corporation, 2400 Boswell LLC, MK Collaborative LLC, and Youngevity Global LLC and (ii) foreign subsidiaries: Youngevity Australia Pty. Ltd., Youngevity NZ, Ltd., Youngevity Mexico S.A. de CV, Youngevity Israel, Ltd., Youngevity Russia, LLC, Youngevity Colombia S.A.S, Youngevity International Singapore Pte. Ltd., Mialisia Canada, Inc. and Legacy for Life Limited (Hong Kong). We also operate through the BellaVita Group LLC, with operations in Taiwan, Hong Kong, Singapore, Indonesia, Malaysia and Japan. We also operate subsidiary branches of Youngevity Global LLC in the Philippines and Taiwan.

●

Commercial coffee business is operated through CLR and its wholly owned subsidiary, Siles Plantation Family Group S.A. (“Siles”).

●

Commercial hemp business is operated through our wholly owned subsidiary, Khrysos Industries, Inc., a Delaware corporation. Khrysos Industries, Inc. (“KII”) acquired the assets of Khrysos Global Inc. a Florida corporation in February 2019 and the wholly-owned subsidiaries of Khrysos Global Inc., INXL Laboratories, Inc., a Florida corporation and INX Holdings, Inc., a Florida corporation.

We conduct our operations primarily in the United States. For the three months ended June 30, 2019 and 2018 approximately 10% and 14%, respectively, of our sales were derived from sales outside the United States. For the six months ended June 30, 2019 and 2018 approximately 10% and 14%, respectively, of our sales were derived from sales outside the United States.

Direct Selling Segment

In the direct selling segment, we sell health and wellness products on a global basis and offer a wide range of products through an international direct selling network of independent distributors. Our multiple independent selling forces sell a variety of products through friend-to-friend marketing and social networking.  In the direct selling segment, we sell health and wellness, beauty product and skin care, scrap booking and story booking items, packaged food products and other service-based products on a global basis and more recently our Hemp FX™ hemp-derived cannabinoid product line and offer a wide range of products through an international direct selling network. Our direct sales are made through our network, which is a web-based global network of customers and distributors. Our independent sales force markets a variety of products to an array of customers, through friend-to-friend marketing and social networking. We consider our company to be an e-commerce company whereby personal interaction is provided to customers by our independent sales network. Initially, our focus was solely on the sale of products in the health, beauty and home care market through our marketing network; however, we have since expanded our selling efforts to include a variety of other products in other markets. Our direct selling segment offers more than 5,600 products to support a healthy lifestyle including: 

Nutritional supplements	Gourmet coffee
Weight management	Skincare and cosmetics
Health and wellness	Packaged foods
Lifestyle products (spa, bath, home and garden)	Pet care
Digital products including scrap and memory books	Telecare health services
Apparel and fashion accessories	Business lending

Since 2012 we have expanded our operations through a series of acquisitions of the assets and equity of twenty-four (24) direct selling companies including their product lines and sales forces. We have also substantially expanded our distributor base by merging the assets that we have acquired under our web-based independent distributor network, as well as providing our distributors with additional new products to add to their product offerings.

Commercial Coffee Segment

We own a traditional coffee roasting business, CLR, that sells roasted and unroasted coffee and produces coffee under its own Café La Rica brand, Josie’s Java House brand, Javalution brands and Café Cachita. CLR produces coffee under a variety of private labels through major national sales outlets and major customers including cruise lines and office coffee service operators. In April 2017, CLR reached an agreement with Major League Baseball's Miami Marlins to feature CLR’s Café La Rica Gourmet Espresso coffee as the "Official Cafecito of the Miami Marlins" at Marlins Park in Miami, Florida. The current agreement with the Miami Marlins continues through the 2019 baseball season with an option to renew for the 2020 season. In January 2019, CLR acquired the Café Cachita Brand of espresso and in February we announced the expansion of our recently acquired Café Cachita Brand of espresso into over 500 retail stores throughout Southeastern Grocers.  The new distribution footprint now includes all Winn Dixie, Bi-Lo, Fresco Y Mas, Save Mart and Harvey stores. In June 2019, we announced all-store distribution for CLR’s Javalution™ Hemp Infused Coffee Brand, scheduled to ship in the fourth quarter with the distribution footprint including 400 Winn Dixie stores, 96 Bi-Lo stores, 25 Fresco Y Mas stores, and 50 Harvey stores.

During fiscal 2014 CLR acquired the Siles Plantation Family Group, a coffee plantation and dry-processing facility located in Matagalpa, Nicaragua, an ideal coffee growing region that is historically known for high quality coffee production. The dry-processing facility is approximately 26 acres and the plantation is approximately 500 acres and produces 100 percent Arabica coffee beans that are shade grown, Rainforest Alliance Certified™ and Fair Trade Certified™. CLR is also in the process of expanding its capabilities in Nicaragua by constructing a large processing mill. The plantation, the dry-processing facilities and existing U.S. based coffee roaster facilities allow CLR to control the coffee production process from field to cup.

Commercial Hemp Segment

In the commercial hemp segment, we are engaged in the CBD hemp extraction technology and equipment business. We develop, manufacture and sell equipment and related services to clients which enable them to extract CBD oils from hemp stock. In addition, through INX Laboratories, Inc., a wholly owned subsidiary of KII, we own a laboratory testing facility that provides us with capabilities in regard to formulation, quality control, and testing standards with its CBD products. KII is now producing tinctures, balms, bath bombs, creams, ointments, in various potencies, as well as Javalution™ Hemp Infused Coffee Brand CBD coffee for CLR. KII has also entered into various supply contracts with clients to provide extraction services and end-to-end processing to produce water soluble isolate, distillate, and water-soluble distillate hemp derived products. These supply agreements include a five-year supply contract with revenues forecasted at $60 million through 2024 (based on current market conditions and, among other things, our ability to secure buyers for the produced product and the supplier's ability to supply the biomass for extraction and processing), and a one-year supply agreement expected to generate $19 million in revenues (based on current market conditions). KII also offers clients turnkey manufacturing solutions in extraction services and end-to-end processing systems.

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Recent Events

New Acquisitions During the six months ended June 30, 2019

New Acquisitions - Khrysos Global, Inc.

On February 12, 2019, we and Khrysos Industries, Inc., a Delaware corporation and our wholly owned subsidiary (“KII”) entered into an Asset and Equity Purchase Agreement (the “AEPA”) with, Khrysos Global, Inc., a Florida corporation (“Seller”), Leigh Dundore (“LD”), and Dwayne Dundore (the “Representing Party”) for KII to acquire substantially all the assets of Seller and all the outstanding equity of INXL Laboratories, Inc., a Florida corporation (“INXL”) and INX Holdings, Inc., a Florida corporation (“INXH”). The business of the Seller, INXL and INXH acquired by us provides end to end extraction and processing via the company’s proprietary systems that allow for the conversion of hemp feed stock into hemp oil and hemp extracts. Additionally, the company offers various rental, sales, and service programs of the company’s extraction and processing systems.

The consideration payable for the assets of the Seller and the equity of INXL and INXH is an aggregate of $16,000,000, to be paid as set forth under the terms of the AEPA and allocated between the Seller and LD in such manner as they determine at their discretion.

At closing, Seller, LD and the Representing Party received an aggregate of 1,794,972 shares of our common stock which have a value of $14,000,000 for the purposes of the AEPA or $12.649.000 fair value for the acquisition valuation and $500,000 in cash. Thereafter, we agreed to pay the Seller, LD and the Representing Party an aggregate of: $500,000 in cash thirty (30) days following the date of closing; $250,000 in cash ninety (90) days following the date of closing; $250,000 in cash one hundred and eighty (180) days following the date of closing; $250,000 in cash two hundred and seventy (270) days following the date of closing; and $250,000 in cash one (1) year following the date of closing.

In addition, we agreed to issue to Representing Party, subject to the approval of the holders of at least a majority of the issued and outstanding shares of our common stock and the approval of The Nasdaq Stock Market (collectively, the “Contingent Consideration Warrants”) consisting of six (6) six-year warrants, to purchase 500,000 shares of common stock each, for an aggregate of 3,000,000 shares of common stock at an exercise price of $10 per share exercisable upon reaching certain levels of cumulative revenue or cumulative net income before taxes by the business during the any of the years ending December 31, 2019, 2020, 2021, 2022, 2023 or 2024.

The AEPA contains customary representations, warranties and covenants of Youngevity, KII, the Seller, LD and the Representing Party. Subject to certain customary limitations, the Seller, LD and the Representing Party have agreed to indemnify us and KII against certain losses related to, among other things, breaches of the Seller’s, LD’s and the Representing Party’s representations and warranties, certain specified liabilities and the failure to perform covenants or obligations under the AEPA.

Related Party Transaction

Carl Grover is the sole beneficial owner of in excess of five percent (5%) of our outstanding common shares. On July 31, 2019, Mr. Grover acquired 600,242 shares of our common stock, $.001 par value, upon the partial exercise at $4.60 per share of a July 31, 2014 warrant to purchase 782,608 shares of common stock held by him. In connection with such exercise, we received $2,761,113 from Mr. Grover, issued to Mr. Grover 50,000 shares of restricted common stock as an inducement fee and agreed to extend the expiration date of the July 31, 2014 warrant held by him to December 15, 2020 with respect to 182,366 shares of common stock remaining for exercise thereunder.

Overview of Significant Events

At-the-Market Equity Offering Program

On January 7, 2019, we entered into an At-the-Market Offering Agreement (the “ATM Agreement”) with The Benchmark Company, LLC (“Benchmark”), as sales agent, pursuant to which we may sell from time to time, at its option, shares of our common stock, par value $0.001 per share, through Benchmark, as sales agent (the “Sales Agent”), for the sale of up to $60,000,000 of shares of our common stock. We are not obligated to make any sales of common stock under the ATM Agreement and we cannot provide any assurances that it will issue any shares pursuant to the ATM Agreement. We will pay the Sales Agent 3.0% commission of the gross sales proceeds. During the six months ended June 30, 2019, the Company sold a total of 1,000 shares of common stock under the ATM Agreement and received $6,612 at a purchase price of $6.6118 per share pursuant to the ATM Agreement.

Cross-Marketing Agreement

On January 10, 2019, we entered into an exclusive cross-marketing agreement with Icelandic Glacial™ an Iceland based spring water drinking water company and is now available for customers to purchase.

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Mill Construction Agreement

On January 15, 2019, CLR entered into the CLR Siles Mill Construction Agreement (the “Mill Construction Agreement”) with H&H and H&H Export, Alain Piedra Hernandez (“Hernandez”) and Marisol Del Carmen Siles Orozco (“Orozco”), together with H&H, H&H Export, Hernandez and Orozco, collectively referred to as the Nicaraguan Partner, pursuant to which the Nicaraguan Partner agreed to transfer a 45 acre tract of land in Matagalpa, Nicaragua (the “Property”) to be owned 50% by the Nicaraguan Partner and 50% by CLR. In consideration for the land acquisition the Company issued to H&H Export, 153,846 shares of common stock. In addition, the Nicaraguan Partner and CLR agreed to contribute $4,700,000 each toward construction of a processing plant, office, and storage facilities (“Mill”) on the property for processing coffee in Nicaragua. As of June 30, 2019, the Company had made deposits of $3,350,000 towards the Mill, which is included in construction in process in property and equipment, net on the Company’s consolidated balance sheet.

Amendment to Operating and Profit-Sharing Agreement

On January 15, 2019, CLR entered into an amendment to the March 2014 operating and profit-sharing agreement with the owners of H&H. CLR engaged Hernandez and Orozco, the owners of H&H as employees to manage Siles. In addition, CLR and H&H, Hernandez and Orozco have agreed to restructure their profit-sharing agreement in regard to profits from green coffee sales and processing that increases the CLR’s profit participation by an additional 25%. Under the new terms of the agreement with respect to profit generated from green coffee sales and processing from La Pita, a leased mill, or the new mill, now will provide for a split of profits of 75% to CLR and 25% to the Nicaraguan Partner, after certain conditions are met. We issued 295,910 shares of our common stock to H&H Export to pay for certain working capital, construction and other payables. In addition, H&H Export has sold to CLR its espresso brand Café Cachita in consideration of the issuance of 100,000 shares of our common stock. Hernandez and Orozco are employees of CLR. The shares of common stock issued were valued at $7.50 per share.

Stock Offering

On February 6, 2019, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with one accredited investor that had a substantial pre-existing relationship with us pursuant to which we sold 250,000 shares of our common stock, par value $0.001 per share, at an offering price of $7.00 per share. Pursuant to the Purchase Agreement, we also issued to the investor a three-year warrant to purchase 250,000 shares of common stock at an exercise price of $7.00. The proceeds to us were $1,750,000. Consulting fees for arranging the Purchase Agreement include the issuance of 5,000 shares of restricted shares of our common stock, par value $0.001 per share, and 100,000 3-year warrants priced at $10.00. No cash commissions were paid.

On June 17, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with one accredited investor that had a substantial pre-existing relationship with the Company pursuant to which the Company sold 250,000 shares of common stock, par value $0.001 per share, at an offering price of $5.50 per share. The proceeds were $1,375,000. The Company did not pay consulting fees in this transaction.

Convertible Notes

Between February 15, 2019 and May 23, 2019, we closed four tranches of our 2019 January Private Placement debt offering, pursuant to which we offered for up to a maximum of $10,000,000 in principal amount of notes (the “2019 PIPE Notes”), with each investor receiving 2,000 shares of common stock for each $100,000 invested. We entered into subscription agreements with thirty (30) accredited investors that had a substantial pre-existing relationship with us pursuant to which we received aggregate gross proceeds of $2,890,000 and issued 2019 PIPE Notes in the aggregate principal amount of $2,890,000 and an aggregate of 57,800 shares of common stock. The placement agent received 14,450 shares of common stock for the closed tranches and can receive up to 50,000 shares of common stock in the offering. Each 2019 PIPE Note matures 24 months after issuance, bears interest at a rate of six percent (6%) per annum, and the outstanding principal is convertible into shares of common stock at any time after the 180th day anniversary of the issuance of the 2019 PIPE Notes, at a conversion price of $10 per share (subject to adjustment for stock splits, stock dividends and reclassification of the common stock).

Promissory Notes

On March 18, 2019, we entered into a two-year Secured Promissory Note (the “8% Note or Notes”) with two accredited investors that we had a substantial pre-existing relationship with and from whom we raised cash proceeds in the aggregate of $2,000,000. In consideration of the 8% Notes, we issued 20,000 shares of our common stock par value $0.001 for each $1,000,000 invested as well as for each $1,000,000 invested five-year warrants to purchase 20,000 shares of our common stock at a price per share of $6.00. The 8% Notes pay interest at a rate of eight percent (8%) per annum and interest is paid quarterly in arrears with all principal and unpaid interest due at maturity on March 18, 2021.

Results of Operations

Three months ended June 30, 2019 compared to three months ended June 30, 2018

Revenues

For the three months ended June 30, 2019, our revenues increased 21.3% to $53,687,000 as compared to $44,255,000 for the three months ended June 30, 2018. During the three months ended June 30, 2019, we derived approximately 59.8% of our revenue from our direct selling sales and approximately 39.7% of our revenue from our commercial coffee sales and approximately 0.5% from our hemp segment. For the three months ended June 30, 2019, direct selling segment revenues decreased by $4,722,000 or 12.8% to $32,124,000 as compared to $36,846,000 for the three months ended June 30, 2018. This decrease was attributable to a decrease in the number of ordering distributors and customer, partially offset by an increase in average order amount per distributor and customer. For the three months ended June 30, 2019, commercial coffee segment revenues increased by $13,880,000 or 187.3% to $21,289,000 as compared to $7,409,000 for the three months ended June 30, 2018. This increase was primarily attributed to increased revenues from our new green coffee contract that CLR recently signed for approximately $250 million over 5 years. Our new commercial hemp segment recorded $274,000 in revenues from sales made by KII.

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The following table summarizes our revenue in thousands by segment:

	Three Months Ended June 30,		Percentage
Segment Revenues	2019	2018	Change
Direct selling	$32,124	$36,846	(12.8)%
As a % of Revenue	59.8%	83%	(23.2)%
Commercial coffee	21,289	7,409	187.3%
As a % of Revenue	39.7%	17%	22.7%
Commercial hemp	274	-	100%
As a % of Revenue	0.5%	-	100%
Total Revenues	$53,687	$44,255	21.3%

Cost of Revenues

For the three months ended June 30, 2019, overall cost of revenues increased approximately 47.1% to $27,765,000 as compared to $18,873,000 for the three months ended June 30, 2018. The direct selling segment cost of revenues decreased 15.9% to approximately $9,884,000 when compared to $11,759,000 for the same period last year, primarily due to the decrease in revenues. The commercial coffee segment cost of revenues increased 146.8% to $17,558,000 when compared to $7,114,000 for the same period last year. This was primarily attributable to the increase in revenues related to the green coffee business discussed above. The commercial hemp segment cost of revenues was $323,000.

Cost of revenues includes the cost of inventory including green coffee, shipping and handling costs incurred in connection with shipments to customers, direct labor and benefits costs, royalties associated with certain products, transaction merchant fees and depreciation on certain assets.

Gross Profit (Loss)

For the three months ended June 30, 2019, gross profit increased approximately 2.1% to $25,922,000 as compared to $25,382,000 for the three months ended June 30, 2018. Overall gross profit as a percentage of revenues decreased to 48.3%, compared to 57.4% in the same period last year, primarily due to the increased revenues in the lower margin commercial coffee segment.

Gross profit in the direct selling segment decreased by 11.3% to $22,240,000 from $25,087,000 in the same period last year primarily as a result of the decrease in revenues discussed above. Gross profit as a percentage of revenues in the direct selling segment increased by approximately 1.1% to 69.2% for the three months ended June 30, 2019, compared to 68.1% in the same period last year.

Gross profit in the commercial coffee segment increased to $3,731,000 compared to $295,000 in the same period last year. The increase in gross profit in the commercial coffee segment was primarily due to the increase in revenues from our new green coffee contract discussed above. Gross profit as a percentage of revenues in the commercial coffee segment increased to 17.5% for the three months ended June 30, 2019, compared to 4.0% in the same period last year.

Gross margin in the commercial hemp segment was a loss of $49,000 related to the February 15, 2019 acquisition of Khrysos.

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Below is a table of gross profit (loss) by segment (in thousands) and gross profit as a percentage of segment revenues:

	Three Months Ended June 30,		Percentage
Segment Gross Profit (Loss)	2019	2018	Change
Direct selling	$22,240	$25,087	(11.3)%
Gross Profit % of Revenues	69.2%	68.1%	(1.1)%
Commercial coffee	3,731	295	1,164.7%
Gross Profit % of Revenues	17.5%	4.0%	13.5%
Commercial hemp	(49)	-	100%
Gross Profit % of Revenues	(17.9)%	0%	100%
Total	$25,922	$25,382	2.1%
Gross Profit % of Revenues	48.3%	57.4%	(9.1)%

Operating Expenses

For the three months ended June 30, 2019, our operating expenses increased 3.3% to $25,534,000 as compared to $24,729,000 for the three months ended June 30, 2018.

For the three months ended June 30, 2019, the distributor compensation paid to our independent distributors in the direct selling segment decreased 12.1% to $14,497,000 from $16,487,000 for the three months ended June 30, 2018. This decrease was primarily attributable to the decrease in revenues. Distributor compensation as a percentage of direct selling revenues increased to 45.1% for the three months ended June 30, 2019 as compared to 44.7% for the three months ended June 30, 2018.

For the three months ended June 30, 2019, total sales and marketing expense decreased 9.4% to $2,786,000 from $3,076,000 for the three months ended June 30, 2018.

In the direct selling segment, sales and marketing expense decreased by 12.6% to $2,490,000 in the current quarter from $2,849,000 for the same period last year. In the commercial coffee segment, sales and marketing expense increased by $39,000 to $266,000 in the current quarter compared to the same period last year, primarily due to increased advertising costs and compensation expense. Sales and marketing expense were $30,000 in the commercial hemp segment.

For the three months ended June 30, 2019, total general and administrative expense increased 59.7% to $8,251,000 from $5,166,000 for the three months ended June 30, 2018.

In the direct selling segment, general and administrative expense increased by 38.8% to $6,071,000 in the current quarter from $4,375,000 for the same period last year. This increase was primarily due to an increase in accounting, computer expense and non-cash equity-based compensation expense. In addition, the contingent liability revaluation adjustment in the current quarter was a reduction in expense of $433,000 compared to a reduction in expense of $1,246,000 for the same period last year. In the commercial coffee segment, general and administrative costs increased by $557,000 or 70.4% to $1,348,000 in the current quarter compared to $791,000 in the same period last year. This was primarily due to an increase in wages, warehouse storage costs and profit-sharing expense of $193,000, compared to a profit-sharing benefit of $249,000 in the same period last year. General and administrative expense was $832,000 in the commercial hemp segment, mostly related to wages, supplies and general office costs.

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Operating Income

For the three months ended June 30, 2019, the Company reported an operating income of $388,000 as compared to an operating income of $653,000 for the three months ended June 30, 2018.  

Total Other Expense

For the three months ended June 30, 2019, total other expense decreased by $696,000 to $661,000 as compared to other expense of $1,357,000 for the three months ended June 30, 2018. Total other expense includes net interest expense, the change in the fair value of derivative liabilities and extinguishment loss on debt.

Net interest expense decreased by $487,000 for the three months ended June 30, 2019 to $1,062,000, compared to $1,549,000 for the three months ended June 30, 2018.

Change in fair value of derivative liabilities increased by $209,000 for the three months ended June 30, 2019 to $401,000 in other income compared to $192,000 for the three months ended June 30, 2018. 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 Company’s derivative liabilities. As such, we expect future changes in the fair value of the warrants and may vary significantly from period to period (see Notes 8 & 9, to the condensed consolidated financial statements).

Income Taxes 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the effective date of the change. We have determined through consideration of all positive and negative evidences that the deferred tax assets are not more likely than not to be realized. A valuation allowance remains on the U.S., state and foreign tax attributes that are likely to expire before realization. We have approximately $146,000 in AMT refundable credits, and we expect that $73,000 will be refunded in 2019. As such, we do not have a valuation allowance relating to the refundable AMT credit carryforward. We have recognized an income tax benefit of $226,000 which is our estimated federal, state and foreign income tax expense for the three months ended June 30, 2019. The difference between the effective tax rate and the federal statutory rate of 21% is due to the permanent differences, change in valuation allowance, state taxes (net of federal benefit), and foreign tax rate differential.

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Net Loss

For the three months ended June 30, 2019, we reported a net loss of $47,000 as compared to net loss of $614,000 for the three months ended June 30, 2018. The primary reason for the decrease in net loss when compared to the prior period was due to the decrease in total other expense of $696,000 and the increase in income tax benefit of $136,000, offset by the decrease in operating income of $265,000.

Six months ended June 30, 2019 compared to six months ended June 30, 2018

Revenues

For the six months ended June 30, 2019, our revenues increased 26.1% to $109,987,000 as compared to $87,249,000 for the six months ended June 30, 2018. During the six months ended June 30, 2019, we derived approximately 59.6% of our revenue from our direct selling sales and approximately 40.1% of our revenue from our commercial coffee sales and approximately 0.3% from our hemp segment. For the six months ended June 30, 2019, direct selling segment revenues decreased by $6,613,000 or 9.2% to $65,544,000 as compared to $72,157,000 for the six months ended June 30, 2018. This decrease was attributed to a decrease of $7,034,000 in revenues from existing business, partially offset by revenues from new acquisitions of $421,000. The decrease in existing business was primarily due to a decline in the number of ordering distributors and customers, partially offset by an increase in average order amount per distributor and customer. For the six months ended June 30, 2019, commercial coffee segment revenues increased by $29,010,000 or 192.2% to $44,102,000 as compared to $15,092,000 for the six months ended June 30, 2018. This increase was primarily attributed to increased revenues from our new green coffee contract that CLR recently signed for approximately $250 million over 5 years. Our new commercial hemp segment recorded $341,000 in revenues from sales made by KII.

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The following table summarizes our revenue in thousands by segment:

	Six Months Ended June 30,		Percentage
Segment Revenues	2019	2018	Change
Direct selling	$65,544	$72,157	(9.2)%
As a % of Revenue	59.6%	83%	(23.4)%
Commercial coffee	44,102	15,092	192.2%
As a % of Revenue	40.1%	17%	23.1%
Commercial hemp	341	-	100%
As a % of Revenue	0.3%	-	100%
Total Revenues	$109,987	$87,249	26.1%

Cost of Revenues

For the six months ended June 30, 2019, overall cost of revenues increased approximately 55.2% to $57,216,000 as compared to $36,855,000 for the six months ended June 30, 2018. The direct selling segment cost of revenues decreased 8.0% to $20,550,000 when compared to $22,335,000 for the same period last year, primarily due to the decrease in revenues discussed above. The commercial coffee segment cost of revenues increased 150% to $36,303,000 when compared to $14,520,000 for the same period last year. This was primarily attributable to the increase in revenues related to the green coffee business discussed above. The commercial hemp segment cost of revenues was $363,000.

Cost of revenues includes the cost of inventory including green coffee, shipping and handling costs incurred in connection with shipments to customers, direct labor and benefits costs, royalties associated with certain products, transaction merchant fees and depreciation on certain assets.

Gross Profit

For the six months ended June 30, 2019, gross profit increased approximately 4.7% to $52,771,000 as compared to $50,394,000 for the six months ended June 30, 2018. Overall gross profit as a percentage of revenues decreased to 48.0%, compared to 57.8% in the same period last year, primarily due to the increased revenues in the lower margin commercial coffee segment.

Gross profit in the direct selling segment decreased by 9.7% to $44,995,000 from $49,822,000 in the prior period primarily as a result of the decrease in revenues discussed above. Gross profit as a percentage of revenues in the direct selling segment decreased by approximately 0.4% to 68.6% for the six months ended June 30, 2019, compared to 69% in the same period last year.

Gross profit in the commercial coffee segment increased to $7,798,000 compared to $572,000 in the prior period. The increase in gross profit in the commercial coffee segment was primarily due to the increase in revenues from our new green coffee contract discussed above. Gross profit as a percentage of revenues in the commercial coffee segment increased to 17.7% for the six months ended June 30, 2019, compared to 3.8% in the same period last year.

Gross margin in the commercial hemp segment was a loss of $22,000 related to the February 15, 2019 acquisition of Khrysos.

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Below is a table of gross profit (loss) by segment (in thousands) and gross profit as a percentage of segment revenues:

	Six Months Ended June 30,		Percentage
Segment Gross Profit	2019	2018	Change
Direct selling	$44,995	$49,822	(9.7)%
Gross Profit % of Revenues	68.6%	69%	(0.4)%
Commercial coffee	7,798	572	1,263.3%
Gross Profit % of Revenues	17.7%	3.8%	13.9%
Commercial hemp	(22)	-	100%
Gross Profit % of Revenues	(6.5)%	0%	100%
Total	$52,771	$50,394	4.7%
Gross Profit % of Revenues	48%	57.8%	(9.8)%

Operating Expenses

For the six months ended June 30, 2019, our operating expenses increased 29.4% to $64,324,000 as compared to $49,717,000 for the six months ended June 30, 2018. This increase included an increase of $12,892,000 in non-cash equity-based compensation expense related to stock options issued in the first quarter of the current year. Excluding the increase in equity-based compensation expense, the increase in our operating expense would have been 3.4%.

For the six months ended June 30, 2019, the distributor compensation paid to our independent distributors in the direct selling segment decreased 8.4% to $29,387,000 from $32,065,000 for the six months ended June 30, 2018. This decrease was primarily attributable to the decrease in revenues. Distributor compensation as a percentage of direct selling revenues increased to 44.8% for the six months ended June 30, 2019 as compared to 44.4% for the six months ended June 30, 2018.

For the six months ended June 30, 2019, total sales and marketing expense increased 3.5% to $6,805,000 from $6,575,000 for the six months ended June 30, 2018. This increase included an increase of $471,000 in equity-based compensation expense in the first quarter of the current year. Excluding the increase in equity-based compensation expense, sales and marketing expense would have decreased by 3.7%.

In the direct selling segment, sales and marketing expense increased by 1.0% to $6,204,000 for the six months ended June 30, 2019, compared to $6,141,000 for the same period last year. This increase included an increase of $471,000 in equity-based compensation expense. Excluding the increase in equity-based compensation expense, sales and marketing expense would have decreased by 6.6%. In the commercial coffee segment, sales and marketing costs increased by $123,000 to $557,000 in the current year compared to the same period last year, primarily due to increased advertising costs and compensation expense. Sales and marketing expense was $44,000 in the commercial hemp segment for the six months ended June 30, 2019.

For the six months ended June 30, 2019, total general and administrative expense increased 154.0% to $28,132,000 from $11,077,000 for the six months ended June 30, 2018. This increase included an increase of $12,421,000 in equity-based compensation expense in the first quarter of the current year. Excluding the increase in equity-based compensation expense, the increase in general and administration expense would have been 41.8%.

In the direct selling segment, general and administrative expense increased by 138.2% to $22,530,000 in the current year from $9,460,000 for the same period last year. This increase included an increase of $10,995,000 in equity-based compensation expense in the first quarter of the current year. Excluding the increase in equity-based compensation expense, general and administrative expense would have increased by 21.9%. This increase was primarily due to an increase in accounting and computer consulting fees. In addition, the contingent liability revaluation adjustment in the current period resulted in a reduction in expense of $433,000 compared to a reduction in expense of $1,459,000 for the same period last year. In the commercial coffee segment, general and administrative costs increased by $2,623,000 or 162.2% to $4,240,000 in the current year compared to $1,617,000 in the same period last year. This increase included an increase of $1,425,000 in equity-based compensation expense. Excluding the increase in stock-based compensation expense, general and administration expense in the commercial coffee segment would have increased by 74.1%. This was primarily due to an increase in wages, incentives, warehouse storage costs and profit-sharing expense of $436,000, compared to a profit-sharing benefit of $472,000 in the same period last year. General and administrative expense was $1,362,000 in the commercial hemp segment, and was mostly related to wages, supplies and general office costs.

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Operating Income (Loss)

For the six months ended June 30, 2019, the Company reported an operating loss of $11,553,000 as compared to an operating income of $677,000 for the six months ended June 30, 2018. This was primarily due to the increase of $12,966,000 in non-cash equity-based compensation expense discussed above. Excluding the increase in equity-based compensation expense, the Company would have reported an operating income of $1,413,000 for the six months ended June 30, 2019.  

Total Other Expense

For the six months ended June 30, 2019, total other expense decreased by $2,757,000 to $682,000 as compared to other expense of $3,439,000 for the six months ended June 30, 2018. Total other expense includes net interest expense, the change in the fair value of derivative liabilities and extinguishment loss on debt.

Net interest expense decreased by $692,000 for the six months ended June 30, 2019 to $2,569,000, compared to $3,261,000 for the six months ended June 30, 2018.

Change in fair value of derivative liabilities increased by $983,000 for the six months ended June 30, 2019 to $1,887,000 in other income compared to $904,000 for the six months ended June 30, 2018. 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 Company’s derivative liabilities. As such, we expect future changes in the fair value of the warrants and may vary significantly from period to period (see Notes 8 & 9, to the condensed consolidated financial statements).

We recorded a non-cash extinguishment loss on debt of $1,082,000 for the six months ended June 30, 2018 as a result of the triggering of the automatic conversion of the 2017 Notes associated with our July 2017 Private Placement to common stock. This loss represented the difference between the carrying value of the 2017 Notes and embedded conversion feature and the fair value of the shares that were issued. The fair value of the shares issued were based on the stock price on the date of the conversion. There was no loss on debt extinguishment for the six months ended June 30, 2019.

Income Taxes 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the effective date of the change. We have determined through consideration of all positive and negative evidences that the deferred tax assets are not more likely than not to be realized. A valuation allowance remains on the U.S., state and foreign tax attributes that are likely to expire before realization. We have approximately $146,000 in AMT refundable credits, and we expect that $73,000 will be refunded in 2019. As such, we do not have a valuation allowance relating to the refundable AMT credit carryforward. We have recognized an income tax expense of $72,000 which is our estimated federal, state and foreign income tax expense for the six months ended June 30, 2019. The difference between the effective tax rate and the federal statutory rate of 21% is due to the permanent differences, change in valuation allowance, state taxes (net of federal benefit), and foreign tax rate differential.

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Net Loss

For the six months ended June 30, 2019, the Company reported an increase in net loss of $9,385,000 to a net loss of $12,307,000 as compared to net loss of $2,922,000 for the six months ended June 30, 2018. The primary reason for the increase in net loss when compared to the prior period was due to the increase in operating loss of $12,230,000, offset by the decrease in other expense of $2,757,000 and decrease in income tax expense of $88,000. The primary reason for the increase in operating loss was the increase of $12,966,000 in non-cash equity-based compensation expense.

Adjusted EBITDA

EBITDA (earnings before interest, income taxes, depreciation and amortization) as adjusted to remove the effect of equity-based compensation expense and the non-cash loss on extinguishment of debt and the change in the fair value of the derivatives or "Adjusted EBITDA," increased to $2,604,000 for the three months ended June 30, 2019 compared to $2,203,000 in 2018 and increased to $5,011,000 for the six months ended June 30, 2019 compared to $3,723,000 in 2018.

Management believes that Adjusted EBITDA, when viewed with our results under GAAP and the accompanying reconciliations, 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.

Adjusted EBITDA is a non-GAAP financial measure. We calculate adjusted EBITDA by taking net income, and adding back the expenses related to interest, income taxes, depreciation, amortization, equity-based compensation expense and the change in the fair value of the warrant derivative, 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.

A reconciliation of our adjusted EBITDA to net loss for the three and six months ended June 30, 2019 and 2018 is included in the table below (in thousands):

	Three months ended		Six months ended
	June 30, (unaudited)		June 30, (unaudited)
	2019	2018	2019	2018
Net loss	$(47)	$(614)	$(12,307)	$(2,922)
Add/Subtract:
Interest, net	1,062	1,549	2,569	3,261
Income taxes (benefit) provision	(226)	(90)	72	160
Depreciation	602	470	1,077	902
Amortization	586	865	1,256	1,692
EBITDA	1,977	2,180	(7,333)	3,093
Add/Subtract:
Equity-based compensation	1,028	215	14,231	452
Loss on extinguishment of debt	-	-	-	1,082
Change in the fair value of warrant derivative	(401)	(192)	(1,887)	(904)
Adjusted EBITDA	$2,604	$2,203	$5,011	$3,723

Liquidity and Capital Resources

Sources of Liquidity  

At June 30, 2019 we had cash and cash equivalents of approximately $2,088,000 as compared to cash and cash equivalents of $2,879,000 as of December 31, 2018.

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Cash Flows

Cash used in operating activities. Net cash used in operating activities for the six months ended June 30, 2019 was $5,381,000 as compared to net cash used in operating activities of $1,676,000 for the six months ended June 30, 2018. Net cash used in operating activities consisted of a net loss of $12,307,000, $8,432,000 in changes in operating assets and liabilities, offset by net non-cash operating expenses of $15,358,000.

Net non-cash operating expenses included $2,333,000 in depreciation and amortization, $11,757,000 in stock-based compensation expense, $2,541,000 in stock and warrant issuance costs, $534,000 in amortization of debt discounts, $281,000 in stock issuance cost related to true-up shares, $159,000 in increase in inventory reserves and $73,000 in deferred taxes, offset by $1,887,000 related to the change in fair value of warrant derivative liability and $433,000 related to the change in fair value of contingent liability.

Changes in operating assets and liabilities were attributable to decreases in working capital, primarily related to changes in accounts receivable of $32,526,000, inventory of $1,916,000, prepaid expenses and other current assets of $844,000, income taxes receivable of $157,000 and deferred revenues of $52,000. Increases in working capital primarily related to changes in accounts payable of $25,254,000, increases in accrued expenses and other liabilities of $1,358,000 and accrued distributor compensation of $451,000.

Cash used in investing activities. Net cash used in investing activities for the six months ended June 30, 2019 was $3,694,000 as compared to net cash used in investing activities of $210,000 for the six months ended June 30, 2018. Net cash used in investing activities included $2,150,000 in payments made towards the construction of a large mill in Nicaragua, $500,000 in cash paid related to the acquisition of Khrysos, offset by cash acquired of $75,000 and $288,000 for the purchase of land for Khrysos. The remaining expenditures consisted of primarily leasehold improvements and other purchases of property and equipment.

Cash provided by financing activities. Net cash provided by financing activities was $8,244,000 for the six months ended June 30, 2019 as compared to net cash provided by financing activities of $1,684,000 for the six months ended June 30, 2018.

Net cash provided by financing activities consisted of net proceeds of $7,809,000 from issuance of equity and convertible notes, $1,742,000 from the exercise of stock options and warrants and $6,000 from at the market issuance of shares, offset by net payments on line of credit of $254,000, $68,000 in payments to reduce notes payable, $235,000 in payments related to contingent acquisition debt, $734,000 in payments related to capital lease financing obligations and $22,000 in dividends paid.

Future Liquidity Needs

The accompanying condensed consolidated financial statements have been prepared and presented on a basis assuming we will continue as a going concern. Net cash used in operating activities was $5,381,000 for the six months ended June 30, 2019 compared to net cash used in operating activities of $1,676,000 for the six months ended June 30, 2018. We do not currently believe that our existing cash resources are sufficient to meet our anticipated needs over the next twelve months from the date hereof. Based on our current cash levels and our current rate of cash requirements, we will need to raise additional capital and will need to further reduce our expenses from current levels. These factors raise substantial doubt about our ability to continue as a going concern.

During the six months ended June 30, 2019, our operations did not generate sufficient cash to meet our operating needs and we supplemented the revenue generated from operations with cash proceeds of debt and equity offerings. We raised additional capital through equity and convertible notes offerings during the current period. We also entered into an At-the-Market Offering Agreement (the “ATM Agreement”) with The Benchmark Company, LLC (“Benchmark”), as sales agent, pursuant to which we may sell from time to time, at its option, shares of its common stock, par value $0.001 per share, through Benchmark, as sales agent (the “Sales Agent”), for the sale of up to $60,000,000 of shares of our common stock. However, despite such actions, we do not believe that our existing cash resources are sufficient to meet our anticipated needs over the next twelve months from the date hereof. We are also considering additional alternatives, including, but not limited to equity financings and debt financings. Depending on market conditions, we cannot be sure that additional capital will be available when needed or that, if available, it will be obtained on terms favorable to us or to our stockholders.

We anticipate our bottom line, excluding non-cash expenses, will continue to improve and we intend to make additional cost reductions in non-essential expenses.

Failure to raise additional funds from the issuance of equity securities and failure to implement cost reductions could adversely affect our ability to operate as a going concern. There can be no assurance that any cost reductions, implemented will correct our going concern issue. The financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.

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Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements as of June 30, 2019.

Contractual Obligations

There were no material changes from those disclosed in our most recent annual report.

Critical Accounting Policies

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2018.

Recent Accounting Pronouncements

Recent accounting pronouncements are disclosed in Note 1 to the accompanying condensed consolidated financial statements of this Quarterly Report on Form 10-Q.   

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

As a Smaller Reporting Company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 3 of Part I.

ITEM 4. Controls and Procedures

(a)   Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of June 30, 2019, the end of the quarterly fiscal period covered by this quarterly report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that there was a material weakness in the Company’s internal control over financial reporting that was identified during the fourth quarter of 2018 for the commercial coffee segment relating to not having proper processes and controls in place to require sufficient documentation of significant agreements and arrangements in accounting for significant transactions with respect to certain operations in Nicaragua. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this report and upon that discovery, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, although we have made improvements, our disclosure controls and procedures were still not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  

(b)   Changes in Internal Control Over Financial Reporting

There were no significant changes in our internal controls over financial reporting that occurred during our second quarter of fiscal year 2019. We are in the process of updating our current policies and implementing procedures and controls over the documentation of significant agreements and arrangements. We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate any potentially material weaknesses expeditiously.

-53-

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are from time to time, the subject of claims and suits arising out of matters related to our business. We are a party to litigation at the present time and may become party to litigation in the future. In general, litigation claims can be expensive, and time consuming to bring or defend against and could result in settlements or damages that could significantly affect financial results. It is not possible to predict the final resolution of the current litigation to which we are party to, and the impact of certain of these matters on our business, results of operations, and financial condition could be material. Regardless of the outcome, litigation has adversely impacted our business because of defense costs, diversion of management resources and other factors.

ITEM 1A. RISK FACTORS

Any investment in our common stock involves a high degree of risk. Investors should carefully consider the risks described in our Annual Report on Form 10-K as filed with the SEC on April 15, 2019, and all of the information contained in our public filings before deciding whether to purchase our common stock. The following information and updates should be read in conjunction with the information disclosed in Part 1, Item 1A, “Risk Factors,” contained in our Annual Report on Form 10-K as filed with the SEC on April 15, 2019. Except as set forth below, there have been no material revisions to the “Risk Factors” as set forth in our Annual Report on Form 10-K as filed with the SEC on April 15, 2019.

There is substantial risk about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

The accompanying condensed consolidated financial statements as of June 30, 2019 have been prepared and presented on a basis assuming we will continue as a going concern. The Company has sustained significant net losses during the six months ended June 30, 2019 of $12,307,000. Net cash used in operating activities was $5,381,000 for the six months ended June 30, 2019 compared to net cash used in operating activities of $1,676,000 for the six months ended June 30, 2018. The Company does not currently believe that its existing cash resources are sufficient to meet the Company’s anticipated needs over the next twelve months from the date hereof. Based on our current cash levels as of June 30, 2019, our current rate of cash requirements, we will need to raise additional capital and we will need to significantly reduce our expenses from current levels to be able to continue as a going concern. There can be no assurance that we can raise capital upon favorable terms, if at all, or that we can significantly reduce our expenses.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

All sales of our common stock that were not registered under the Securities Act have been previously disclosed in our filings with the Securities and Exchange Commission except for the sales of unregistered securities set forth below during the three months ended June 30, 2019;

On June 17, 2019, we entered into a Securities Purchase Agreement with one accredited investor that had a substantial pre-existing relationship with us to which we sold 250,000 shares of common stock, par value $0.001 per share, at an offering price of $5.50 per share. The proceeds were $1,375,000. We issued the securities in reliance on the exemption from registration provided for under Section 4(a)(2) of the Securities Act. We relied on this exemption from registration for private placements based in part on the representations made the investors with respect to their status as accredited investors, as such term is defined in Rule 501(a) of the Securities Act.

On May 2, 2019 and May 23, 2019 we closed our third and fourth tranches of our 2019 January Private Placement debt offering pursuant to which we entered into subscription agreements with six (6) additional credited investors that had a substantial pre-existing relationship with us pursuant to which we received aggregate gross proceeds of $450,000 and we issued to such investors notes in the aggregate principal amount of $450,000 and an aggregate of 9,000 shares of common stock. The placement agent received 2,250 shares of common stock in aggregate for the third and fourth tranches. Each note matures 24 months after issuance, bears interest at a rate of six percent (6%) per annum. We issued the securities in reliance on the exemption from registration provided for under Section 4(a)(2) of the Securities Act. We relied on this exemption from registration for private placements based in part on the representations made the investors with respect to their status as accredited investors, as such term is defined in Rule 501(a) of the Securities Act.

On April 5, 2019, we entered into an agreement with I-Bankers, pursuant to which I-Bankers agreed to provide financial advisory services for a period of 12 months in exchange for 100,000 shares of restricted common stock which were issued in advance of the service period. In addition, we agreed to pay in cash a base fee for debt arrangements and equity offerings in conjunction with any transactions I-Bankers closes with us in accordance with the agreement.

On January 9, 2019, we executed the second amendment to the July 1, 2018 agreement with Capital Market Solutions, LLC. (“Capital Market”), pursuant to which Capital Market agreed to provide investor relations services. Subsequent to the initial agreement, we extended the July 1, 2018 agreement for an additional 24 months through December 31, 2021. In accordance with the second amendment we issued an additional 75,000 of restricted common stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

-54-

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following exhibits are filed as part of this Report:

EXHIBIT INDEX

Exhibit No.	Exhibit
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

-55-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	YOUNGEVITY INTERNATIONAL INC.
	(Registrant)
Date: August 13, 2019	/s/ Stephan Wallach
	Stephan Wallach
	Chief Executive Officer
	(Principal Executive Officer)
Date: August 13, 2019	/s/ David Briskie
	David Briskie
	Chief Financial Officer
	(Principal Financial Officer)

-56-

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Stephan Wallach, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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.

Stephan Wallach,

Chief Executive Officer

(Principal Executive Officer)

August 13, 2019

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, David Briskie, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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.

David Briskie,

Chief Financial Officer

(Principal Financial Officer)

 August 13, 2019

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of YOUNGEVITY INTERNATIONAL, INC. (the "Company") on Form 10-Q for the period ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephan Wallach, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Report.

Stephan Wallach,

Chief Executive Officer

(Principal Executive Officer)

August 13, 2019

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of YOUNGEVITY INTERNATIONAL, INC. (the "Company") on Form 10-Q for the period ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David Briskie, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Report.

David Briskie,

Chief Financial Officer

(Principal Financial Officer)

August 13, 2019

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 08, 2019
Document And Entity Information
Entity Registrant Name	Youngevity International, Inc.
Entity Central Index Key	0001569329
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity's Reporting Status Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding		30,081,040
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2019
Entity Interactive Data Current	Yes
Entity Incorporation State Country Code	DE
Title of 12b security	Common Stock
Trading Symbol	YGYI
Security Exchange Name	NASDAQ
Entity File Number	001-38116

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Current Assets
Cash and cash equivalents	$ 2,088	$ 2,879
Accounts receivable, trade	36,863	4,028
Income tax receivable	231	74
Inventory	24,797	21,776
Advances (Note 1)	0	5,000
Notes receivable (Note 1)	5,097	0
Prepaid expenses and other current assets	5,686	5,263
Total current assets	74,762	39,020
Property and equipment, net	21,249	15,105
Operating lease right-of-use assets	5,481	0
Deferred tax assets	75	148
Intangible assets, net	23,332	15,377
Goodwill	10,676	6,323
Other assets - notes receivable	949	0
Total assets	136,524	75,973
Current Liabilities
Accounts payable	34,061	8,478
Accrued distributor compensation	3,740	3,289
Accrued expenses	9,259	6,582
Deferred revenues	2,260	2,312
Line of credit	2,002	2,256
Other current liabilities	983	1,912
Operating lease liabilities, current portion	772	0
Finance lease liabilities, current portion	1,103	1,168
Notes payable, current portion	159	141
Convertible notes payable, current portion	716	647
Warrant derivative liability	4,969	9,216
Contingent acquisition debt, current portion	695	795
Total current liabilities	60,719	36,796
Operating lease liabilities, net of current portion	4,708	0
Finance lease liabilities, net of current portion	778	1,107
Notes payable, net of current portion	10,525	7,629
Convertible notes payable, net of debt discount	2,358	0
Contingent acquisition debt, net of current portion	6,898	7,466
Total liabilities	85,986	52,998
Commitments and contingencies (Note 1)
Stockholders' Equity
Common Stock, $0.001 par value: 50,000,000 shares authorized; 29,316,445 and 25,760,708 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	29	26
Additional paid-in capital	246,584	206,757
Accumulated deficit	(196,070)	(183,763)
Accumulated other comprehensive loss	(5)	(45)
Total stockholders' equity	50,538	22,975
Total Liabilities and Stockholders' Equity	136,524	75,973
Series A Preferred Stock [Member]
Stockholders' Equity
Preferred Stock, $0.001 par value: 5,000,000 shares authorized	0	0
Series B Preferred Stock [Member]
Stockholders' Equity
Preferred Stock, $0.001 par value: 5,000,000 shares authorized	$ 0	$ 0

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Equity:
Convertible Preferred Stock, par value	$ 0.001	$ 0.001
Convertible Preferred Stock, shares authorized	5,000,000	5,000,000
Common Stock, par value	$ 0.001	$ 0.001
Common Stock, shares authorized	50,000,000	50,000,000
Common Stock, shares issued	29,316,445	25,760,708
Common Stock, shares outstanding	29,316,445	25,760,708
Series A Preferred Stock [Member]
Equity:
Convertible Preferred Stock, shares issued	161,135	161,135
Convertible Preferred Stock, shares outstanding	161,135	161,135
Series B Preferred Stock [Member]
Equity:
Convertible Preferred Stock, shares issued	129,437	129,437
Convertible Preferred Stock, shares outstanding	129,437	129,437
Convertible Preferred Stock, liquidation preference	$ 1,254

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Statement [Abstract]
Revenues	$ 53,687	$ 44,255	$ 109,987	$ 87,249
Cost of revenues	27,765	18,873	57,216	36,855
Gross profit	25,922	25,382	52,771	50,394
Operating expenses
Distributor compensation	14,497	16,487	29,387	32,065
Sales and marketing	2,786	3,076	6,805	6,575
General and administrative	8,251	5,166	28,132	11,077
Total operating expenses	25,534	24,729	64,324	49,717
Operating income (loss)	388	653	(11,553)	677
Interest expense, net	(1,062)	(1,549)	(2,569)	(3,261)
Change in fair value of warrant derivative liability	401	192	1,887	904
Extinguishment loss on debt	0	0	0	(1,082)
Total other expense	(661)	(1,357)	(682)	(3,439)
Loss before income taxes	(273)	(704)	(12,235)	(2,762)
Income tax (benefit) provision	(226)	(90)	72	160
Net loss	(47)	(614)	(12,307)	(2,922)
Preferred stock dividends	(28)	(42)	(42)	(45)
Net loss available to common stockholders	$ (75)	$ (656)	$ (12,349)	$ (2,967)
Net loss per share, basic	$ (0.00)	$ (0.03)	$ (.44)	$ (0.14)
Net loss per share, diluted	$ (.02)	$ (0.03)	$ (.48)	$ (0.14)
Weighted average shares outstanding, basic	29,133,150	21,506,833	28,359,660	20,630,383
Weighted average shares outstanding, diluted	29,357,347	21,506,833	28,700,295	20,630,383

XML

Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Statement of Comprehensive Income [Abstract]
Net loss	$ (47)	$ (614)	$ (12,307)	$ (2,922)
Foreign currency translation	(62)	28	40	229
Total other comprehensive loss	(62)	28	40	229
Comprehensive loss	$ (109)	$ (586)	$ (12,267)	$ (2,693)

XML

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Series A Preferred Stock	Series B Preferred Stock	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Loss	Accumulated Deficit	Total
Beginning Balance, Shares at Dec. 31, 2017	161,135	0	19,723,285
Beginning Balance, Amount at Dec. 31, 2017	$ 0	$ 0	$ 20	$ 171,405	$ (281)	$ (163,693)	$ 7,451
Net loss						(2,922)	(2,922)
Foreign currency translation adjustment					229		229
Issuance of Series B preferred stock, net of issuance cost, shares		381,173
Issuance of Series B preferred stock, net of issuance cost, amount				3,289			3,289
Issuance of common stock pursuant to the exercise of stock options, shares			437
Issuance of common stock pursuant to the exercise of stock options, amount				2			2
Issuance of common stock for services, shares			130,000
Issuance of common stock for services, amount				545			545
Issuance of common stock for conversion of Notes - 2017 Notes, shares			1,577,033
Issuance of common stock for conversion of Notes - 2017 Notes, amount			$ 1	6,544			6,545
Issuance of common stock for conversion of Series B preferred stock, shares		(52,632)	105,264
Issuance of common stock for conversion of Series B preferred stock			$ 1				1
Warrant modification				283			283
Dividends on preferred stock				(45)			(45)
Stock based compensation expense				452			452
Ending Balance, Shares at Jun. 30, 2018	161,135	328,541	21,536,019
Ending Balance, Amount at Jun. 30, 2018	$ 0	$ 0	$ 22	182,475	(52)	(166,615)	15,830
Beginning Balance, Shares at Mar. 31, 2018	161,135	381,173	21,305,755
Beginning Balance, Amount at Mar. 31, 2018	$ 0	$ 0	$ 21	181,501	(80)	(166,001)	15,441
Net loss						(614)	(614)
Foreign currency translation adjustment					28		28
Issuance of common stock for services, shares			125,000
Issuance of common stock for services, amount				518			518
Issuance of common stock for conversion of Series B preferred stock, shares		(52,632)	105,264
Issuance of common stock for conversion of Series B preferred stock			$ 1				1
Warrant modification				283			283
Dividends on preferred stock				(42)			(42)
Stock based compensation expense				215			215
Ending Balance, Shares at Jun. 30, 2018	161,135	328,541	21,536,019
Ending Balance, Amount at Jun. 30, 2018	$ 0	$ 0	$ 22	182,475	(52)	(166,615)	15,830
Beginning Balance, Shares at Dec. 31, 2018	161,135	129,437	25,760,708
Beginning Balance, Amount at Dec. 31, 2018	$ 0	$ 0	$ 26	206,757	(45)	(183,763)	22,975
Net loss						(12,307)	(12,307)
Foreign currency translation adjustment					40		40
Issuance of common stock from at-the-market offering and exercise of stock options and warrants, net, shares			374,160
Issuance of common stock from at-the-market offering and exercise of stock options and warrants, net			$ 1	1,747			1,748
Issuance of common stock for services, shares			175,000
Issuance of common stock for services, amount				988			988
Issuance of common stock in private offering, net of issuance costs, shares			505,000
Issuance of common stock in private offering, net of issuance costs				3,125			3,125
Issuance of common stock for acquisition of Khrysos, shares			1,794,972
Issuance of common stock for acquisition of Khrysos			$ 1	12,649			12,650
Issuance of common stock for debt financing, shares			40,000
Issuance of common stock for debt financing				350			350
Issuance of common stock for true up shares, shares			44,599
Issuance of common stock for true up shares				281			281
Issuance of common stock for convertible note financing, net of issuance costs, shares			72,250
Issuance of common stock for convertible note financing, net of issuance costs				428			428
Issuance of common stock related to purchase of land H&H, shares			153,846
Issuance of common stock related to purchase of land H&H				1,200			1,200
Issuance of common stock related to purchase of trademark H&H, shares			100,000
Issuance of common stock related to purchase of trademark H&H				750			750
Issuance of common stock related to advance for working capital (note receivable) net of settlement of debt, shares			295,910
Issuance of common stock related to advance for working capital (note receivable) net of settlement of debt			$ 1	2,308			2,309
Release of warrant liability upon exercise of warrants				866			866
Release of warrant liability upon reclassification of liability to equity				1,494			1,494
Warrant issued upon vesting for services				1,926			1,926
Dividends on preferred stock				(42)			(42)
Stock based compensation expense				11,757			11,757
Ending Balance, Shares at Jun. 30, 2019	161,135	129,437	29,316,445
Ending Balance, Amount at Jun. 30, 2019	$ 0	$ 0	$ 29	246,584	(5)	(196,070)	50,538
Beginning Balance, Shares at Mar. 31, 2019	161,135	129,437	28,890,671
Beginning Balance, Amount at Mar. 31, 2019	$ 0	$ 0	$ 29	243,555	57	(196,023)	47,618
Net loss						(47)	(47)
Foreign currency translation adjustment					(62)		(62)
Issuance of common stock pursuant to the exercise of stock options, shares			64,524
Issuance of common stock pursuant to the exercise of stock options, amount				293			293
Issuance of common stock for services, shares			100,000
Issuance of common stock for services, amount				571			571
Issuance of common stock in private offering, net of issuance costs, shares			250,000
Issuance of common stock in private offering, net of issuance costs				1,375			1,375
Issuance of common stock for convertible note financing, net of issuance costs, shares			11,250
Issuance of common stock for convertible note financing, net of issuance costs				135			135
Warrant issued upon vesting for services				270			270
Dividends on preferred stock				(28)			(28)
Stock based compensation expense				413			413
Ending Balance, Shares at Jun. 30, 2019	161,135	129,437	29,316,445
Ending Balance, Amount at Jun. 30, 2019	$ 0	$ 0	$ 29	$ 246,584	$ (5)	$ (196,070)	$ 50,538

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash Flows from Operating Activities:
Net loss	$ (12,307)	$ (2,922)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,333	2,594
Stock-based compensation expense	11,757	452
Amortization of debt discounts and issuance costs	534	844
Equity issuance for services	2,541	98
Change in fair value of warrant derivative liability	(1,887)	(904)
Change in fair value of contingent acquisition debt	(433)	(1,459)
Extinguishment loss on debt	0	1,082
Changes in inventory reserve	159	(700)
Stock issuance for true-up shares	281	0
Deferred taxes	73	137
Changes in operating assets and liabilities, net of effect from business combinations:
Accounts receivable	(32,526)	(2,440)
Inventory	(1,916)	(94)
Prepaid expenses and other current assets	(844)	(585)
Accounts payable	25,254	(1,135)
Accrued distributor compensation	451	(14)
Deferred revenues	(52)	1,502
Accrued expenses and other liabilities	1,358	1,958
Income taxes receivable	(157)	(90)
Net Cash Used In Operating Activities	(5,381)	(1,676)
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired	(425)	(50)
Purchases of property and equipment	(3,269)	(160)
Net Cash Used in Investing Activities	(3,694)	(210)
Cash Flows from Financing Activities:
Proceeds from issuance of promissory notes, net of offering costs	5,125	0
Proceeds from issuance of Series B convertible preferred stock, net of offering costs	0	3,289
Proceeds from private placement stock offering, net of offering costs	2,684	0
Proceeds from at-the-market-offering and exercise of stock options and warrants, net	1,748	3
Payments net of repayment on line of credit	(254)	(894)
Payments of notes payable	(68)	(94)
Payments of contingent acquisition debt	(235)	(78)
Payments of capital leases	(734)	(542)
Payments of dividends	(22)	0
Net Cash Provided by Financing Activities	8,244	1,684
Foreign Currency Effect on Cash	40	229
Net (decrease) increase in cash and cash equivalents	(791)	27
Cash and Cash Equivalents, Beginning of Period	2,879	673
Cash and Cash Equivalents, End of Period	2,088	700
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for: Interest	1,858	2,427
Cash paid during the period for: Income taxes	148	30
Supplemental Disclosures of Noncash Investing and Financing Activities
Purchases of property and equipment funded by finance leases	42	680
Purchases of property and equipment funded by mortgage agreements	450	0
Fair value of stock issued for services (Note 10)	988	545
Fair value of stock issued for property and equipment (land)	1,200	0
Fair value of stock issued for purchase of intangibles (tradename)	750	0
Fair of stock issued for note receivable, net of debt settlement	2,309	0
Change in warrant derivative liability to equity classification, warrant modification	0	284
Dividends declared but not paid at the end of period (Note 10)	25	39
Acquisitions of net assets in exchange for contingent acquisition debt, net of purchase price adjustments (see Note 4)	0	1,877
Conversion of 2017 Notes to Common Stock	$ 0	$ 7,254

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Basis of Presentation and Description of Business

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Description of Business

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations.

Youngevity International, Inc. (the “Company”) consolidates all wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The statements presented as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 are unaudited. In the opinion of management, these financial statements reflect all normal recurring and other adjustments necessary for a fair presentation, and to make the financial statements not misleading. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2018, filed with the SEC on April 15, 2019. The results for interim periods are not necessarily indicative of the results for the entire year.

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.  During the year ended December 31, 2018 the Company operated 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. During the first quarter of 2019, the Company through the acquisition of the assets of Khrysos Global, Inc. added a third business segment to its operations, the commercial hemp segment. The Company's three segments are listed below:

● Domestic direct selling network is operated through the following (i) domestic subsidiaries: AL Global Corporation, 2400 Boswell LLC, MK Collaborative LLC, and Youngevity Global LLC and (ii) foreign subsidiaries: Youngevity Australia Pty. Ltd., Youngevity NZ, Ltd., Youngevity Mexico S.A. de CV, Youngevity Israel, Ltd., Youngevity Russia, LLC, Youngevity Colombia S.A.S, Youngevity International Singapore Pte. Ltd., Mialisia Canada, Inc. and Legacy for Life Limited (Hong Kong). The Company also operates through the BellaVita Group LLC, with operations in Taiwan, Hong Kong, Singapore, Indonesia, Malaysia and Japan. The Company also operates subsidiary branches of Youngevity Global LLC in the Philippines and Taiwan.  

● Commercial coffee business is operated through CLR Roasters LLC (“CLR”) and its wholly owned subsidiary, Siles Plantation Family Group S.A. (“Siles”).

● Commercial hemp business is operated through the Company’s wholly owned subsidiary, Khrysos Industries, Inc., a Delaware corporation. Khrysos Industries, Inc. acquired the assets of Khrysos Global Inc. a Florida corporation in February 2019 and the wholly-owned subsidiaries of Khrysos Global Inc., INXL Laboratories, Inc., a Florida corporation and INX Holdings, Inc., a Florida corporation.

Segment Information

The Company has three reportable segments: direct selling, commercial coffee, and commercial hemp. 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 three reportable segments is based upon the guidance set forth in Accounting Standards Codification (“ASC”) Topic 280, “Segment Reporting.”  During the three months ended June 30, 2019, the Company derived approximately 59.8% of its revenue from its direct selling segment and approximately 39.7% of its revenue from its commercial coffee segment and 0.5% from the commercial hemp segment. During the three months ended June 30, 2018, the Company had two reportable segments and derived approximately 83% of its revenue from its direct selling segment and approximately 17% of its revenue from its commercial coffee segment.

During the six months ended June 30, 2019, the Company derived approximately 59.6% of its revenue from its direct selling segment and approximately 40.1% of its revenue from its commercial coffee segment and 0.3% from the commercial hemp segment. During the six months ended June 30, 2018, the Company had two reportable segments and derived approximately 83% of its revenue from its direct selling segment and approximately 17% of its revenue from its commercial coffee segment.

Liquidity and Going Concern

The accompanying condensed consolidated financial statements have been prepared and presented on a basis assuming the Company will continue as a going concern. The Company has sustained significant net losses during the six months ended June 30, 2019 and 2018 of approximately $12,307,000 and $2,922,000, respectively. Net cash used in operating activities was approximately $5,381,000 and $1,676,000 for the six months ended June 30, 2019 and 2018, respectively. The Company does not currently believe that its existing cash resources are sufficient to meet the Company’s anticipated needs over the next twelve months from the date hereof. Based on its current cash levels and its current rate of cash requirements, the Company will need to raise additional capital and/or will need to further reduce its expenses from current levels. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The Company anticipates that revenues will grow, and it intends to make necessary cost reductions related to international operations that are not performing well and reduce non-essential expenses.

The Company is also considering multiple other fund-raising alternatives. 

On March 18, 2019, the Company entered into a two-year Secured Promissory Note (the “Note” or “Notes”) with two (2) accredited investors that had a substantial pre-existing relationship with the Company pursuant to which the Company raised cash proceeds of $2,000,000. (See Note 6, below)

Between February 2019 and May 2019, the Company closed four tranches of its current 2019 January Private Placement debt offering, pursuant to which the Company offered for sale up to $10,000,000 in principal amount of notes (the “2019 PIPE Notes”), with each investor receiving 2,000 shares of common stock for each $100,000 invested. The Company received aggregate gross proceeds of $2,890,000 and issued the 2019 PIPE Notes in the aggregate principal amount of $2,890,000. (See Note 7, below)

On February 6, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with one accredited investor that had a substantial pre-existing relationship with the Company pursuant to which the Company sold 250,000 shares of the Company’s common stock, par value $0.001 per share, at an offering price of $7.00 per share. Pursuant to the Purchase Agreement, the Company also issued to the investor a three-year warrant to purchase 250,000 shares of common stock at an exercise price of $7.00. The proceeds to the Company were $1,750,000. Consulting fees for arranging the Purchase Agreement include the issuance of 5,000 shares of restricted shares of the Company’s common stock, par value $0.001 per share, and a 3-year warrant priced at $10.00 per share convertible into 100,000 shares of the Company’s common stock upon exercise. No cash commissions were paid.

On January 7, 2019, the Company entered into an At-the-Market Offering Agreement (the “ATM Agreement”) with The Benchmark Company, LLC (“Benchmark”), as sales agent, pursuant to which the Company may sell from time to time, at its option, shares of its common stock, par value $0.001 per share, through Benchmark, as sales agent (the “Sales Agent”), for the sale of up to $60,000,000 of shares of the Company’s common stock. The Company is not obligated to make any sales of common stock under the ATM Agreement and the Company cannot provide any assurances that it will issue any shares pursuant to the ATM Agreement. The Company will pay the Sales Agent 3.0% commission of the gross sales proceeds. In February 2019, the Company sold a total of 1,000 shares of common stock under the ATM Agreement for an aggregate purchase price of $6.6118 pursuant to the ATM Agreement. The Company did not use the ATM Agreement during the three months ended June 30, 2019.

Depending on market conditions, there can be no assurance that additional capital will be available when needed or that, if available, it will be obtained on terms favorable to the Company or to its stockholders.

Failure to raise additional funds from the issuance of equity securities and failure to implement cost reductions could adversely affect the Company’s ability to operate as a going concern. The financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires the Company 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 the Company’s stock-based compensation plan, fair value of assets and liabilities acquired in business combinations, finance 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.

Related Party Transactions

Richard Renton

Richard Renton is a member of the Board of Directors and owns and operates WVNP, Inc., a supplier of certain inventory items sold by the Company.  The Company made purchases of approximately $103,000 and $63,000 from WVNP Inc., for the three months ended June 30, 2019 and 2018, respectively, and $111,000 and $117,000 for the six months ended June 30, 2019 and 2018, respectively.

Carl Grover

Carl Grover is the sole beneficial owner of in excess of five percent (5%) of the Company’s outstanding common shares. On December 13, 2018, CLR, entered into a Credit Agreement with Mr. Grover (the “Credit Agreement”) pursuant to which CLR borrowed $5,000,000 from Mr. Grover and in exchange issued to him a $5,000,000 credit note (“Credit Note”) secured by its green coffee inventory under a Security Agreement, dated December 13, 2018 (the “Security Agreement”), with Mr. Grover and CLR’s subsidiary, Siles Family Plantation Group S.A. (“Siles”), as guarantor, and Siles executed a separate Guaranty Agreement (“Guaranty”). The Company issued to Mr. Grover a four-year warrant to purchase 250,000 shares of its common stock, exercisable at $6.82 per share, and a four-year warrant to purchase 250,000 shares of the Company’s common stock, exercisable at $7.82 per share, pursuant to a Warrant Purchase Agreement, dated December 13, 2018, with Mr. Grover. (See Note 6 below.)

On July 31, 2019, Mr. Grover acquired 600,242 shares of the Company’s common stock, $.001 par value, upon the partial exercise at $4.60 per share of a July 31, 2014 warrant to purchase 782,608 shares of common stock held by him. In connection with such exercise, the Company received $2,761,113 from Mr. Grover, issued to Mr. Grover 50,000 shares of restricted common stock as an inducement fee and agreed to extend the expiration date of the July 31, 2014 warrant held by him to December 15, 2020 with respect to 182,366 shares of common stock remaining for exercise thereunder.

Paul Sallwasser

Mr. Paul Sallwasser is a member of the board directors and prior to joining the Company’s Board of Directors he acquired a note (the “2014 Note”) issued in the Company’s private placement consummated in 2014 (the “2014 Private Placement”) in the principal amount of $75,000 convertible into 10,714 shares of common stock and a warrant (the “2014 Warrant”) issued, in the 2014 Private Placement, exercisable for 14,673 shares of common stock. Prior to joining the Company’s Board of Directors, Mr. Sallwasser acquired in the 2017 Private Placement a 2017 Note in the principal amount of approximately $38,000 convertible into 8,177 shares of common stock and a warrant (the “2017 Warrant”) issued, in the 2017 Private Placement, exercisable for 5,719 shares of common stock. Mr. Sallwasser also acquired in the 2017 Private Placement in exchange for the “2015 Note” that he acquired in the Company’s private placement consummated in 2015 (the “2015 Private Placement”), a 2017 Note in the principal amount of $5,000 convertible into 1,087 shares of common stock and a 2017 Warrant exercisable for 543 shares of common stock. On March 30, 2018, the Company completed its Series B Offering, and in accordance with the terms of the 2017 Notes, Mr. Sallwasser’s 2017 Notes converted to 9,264 shares of the Company’s common stock.

2400 Boswell LLC

In March 2013, the Company acquired 2400 Boswell for approximately $4,600,000. 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 the Company’s Chief Executive Officer and consisted of approximately $248,000 in cash, approximately $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 with an initial interest rate of 5.75%. The interest rate is the prime rate plus 2.5%. The current interest rate as of June 30, 2019 was 8.0%. The lender will adjust the interest rate on the first calendar day of each change period or calendar quarter. The Company and its Chief Executive Officer are both co-guarantors of the mortgage. As of June 30, 2019, the balance on the long-term mortgage is approximately $3,180,000 and the balance on the promissory note is zero.

Other Relationship Transactions

Hernandez, Hernandez, Export Y Company and H&H Coffee Group Export Corp.

The Company’s commercial coffee segment, CLR, is associated with Hernandez, Hernandez, Export Y Company (“H&H”), a Nicaragua company, through sourcing arrangements to procure Nicaraguan grown green coffee beans. In March 2014, as part of the Siles acquisition, CLR engaged the owners of H&H as employees to manage Siles. H&H is a sourcing agent acting on behalf of CLR for purchases of coffee from the producers. In consideration for H&H's sourcing of green coffee, CLR and H&H share in the green coffee profit from operations. H&H made purchases for CLR of approximately $12,641,000 and $3,339,000 for the three months ended June 30, 2019 and 2018, respectively and $30,161,000 and $7,073,000 for the six months ended June 30, 2019 and 2018, respectively.

In addition, CLR sold approximately $14,915,000 and $859,000 for the three months ended June 30, 2019 and 2018, respectively, and $34,941,000 and $3,302,000 for the six months ended June 30, 2019 and 2018, respectively, of green coffee beans to H&H Coffee Group Export Corp., (“H&H Export”) a Florida based company which is affiliated with H&H.

As of June 30, 2019 and December 31, 2018, CLR’s accounts payable for vendor related purchases by H&H Export were approximately $24,959,000 and $1,633,000, respectively. As of June 30, 2019 and December 31, 2018, CLR’s accounts receivable for customer related revenue by H&H Export were approximately $32,056,000 and $673,000, respectively. Also, see the section below “Other.”

In May 2017, the Company entered a settlement agreement with Alain Piedra Hernandez, one of the owners of H&H and the operating manager of Siles, who was issued a non-qualified stock option for the purchase of 75,000 shares of the Company’s common stock at a price of $2.00 with an expiration date of three years, in lieu of an obligation due from the Company to H&H as it relates to a Sourcing and Supply Agreement with H&H. During the period ended September 30, 2017 the Company replaced the non-qualified stock option and issued a warrant agreement with the same terms. There was no financial impact related to the cancellation of the option and the issuance of the warrant. As of June 30, 2019, the warrant remains outstanding.

In December 2018, CLR advanced $5,000,000 to H&H Export to provide services in support of a 5-year contract for the sale and processing of 41 million pounds of green coffee beans on an annual basis. The services include providing hedging and financing opportunities to producers and delivering harvested coffee to the Company’s mills.  On March 31, 2019, this advance was converted to a $5,000,000 loan agreement as a note receivable and bears interest at 9% per annum and is due and payable by H&H Export at the end of each year’s harvest season, but no later than October 31 for any harvest year. The loan is secured by H&H Export’s hedging account with INTL FC Stone, trade receivables, green coffee inventory in the possession of H&H Export and all green coffee contracts. As of June 30, 2019, the $5,097,000 note receivable remains outstanding which includes accrued interest.

Mill Construction Agreement

On January 15, 2019, CLR entered into the CLR Siles Mill Construction Agreement (the “Mill Construction Agreement”) with H&H and H&H Export, Alain Piedra Hernandez (“Hernandez”) and Marisol Del Carmen Siles Orozco (“Orozco”), together with H&H, H&H Export, Hernandez and Orozco, collectively referred to as the Nicaraguan Partner, pursuant to which the Nicaraguan Partner agreed to transfer a 45 acre tract of land in Matagalpa, Nicaragua (the “Property”) to be owned 50% by the Nicaraguan Partner and 50% by CLR. In consideration for the land acquisition the Company issued to H&H Export, 153,846 shares of common stock. In addition, the Nicaraguan Partner and CLR agreed to contribute $4,700,000 each toward the construction of a processing plant, office, and storage facilities (“Mill”) on the property for processing coffee in Nicaragua. As of June 30, 2019, the Company paid $3,350,000 towards construction of a mill, which is included in construction in process within property and equipment, net on the Company's condensed consolidated balance sheet.

Amendment to Operating and Profit-Sharing Agreement

On January 15, 2019, CLR entered into an amendment to the March 2014 operating and profit-sharing agreement with the owners of H&H. CLR previously engaged Hernandez and Orozco, the owners of H&H as employees to manage Siles. In addition, CLR and H&H, Hernandez and Orozco have agreed to restructure their profit-sharing agreement in regard to profits from green coffee sales and processing that increases CLR’s profit participation by an additional 25%. Under the new terms of the agreement with respect to profit generated from green coffee sales and processing from La Pita, a leased mill, or the new mill, now will provide for a split of profits of 75% to CLR and 25% to the Nicaraguan Partner, after certain conditions are met. The Company issued 295,910 shares of the Company’s common stock to H&H Export to pay for certain working capital, construction and other payables. In addition, H&H Export has sold to CLR its espresso brand Café Cachita in consideration of the issuance of 100,000 shares of the Company’s common stock. Hernandez and Orozco are employees of CLR. The shares of common stock issued were valued at $7.50 per share.

Revenue Recognition

The Company recognizes revenue from product sales when the following five steps are completed: i) Identify the contract with the customer; ii) Identify the performance obligations in the contract; iii) Determine the transaction price; iv) Allocate the transaction price to the performance obligations in the contract; and v) Recognize revenue when (or as) each performance obligation is satisfied (see Note 3, below).

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

The transaction price for all sales is based on the price reflected in the individual customer's contract or purchase order. Variable consideration has not been identified as a significant component of the transaction price for any of our transactions.

Independent distributors receive compensation which is recognized as Distributor Compensation in the Company’s consolidated statements of operations. Due to the short-term nature of the contract with the customers, the Company accrues all distributor compensation expense in the month earned and pays the compensation the following month.

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 Company’s distributors are required to pay a one-time enrollment fee and receive a welcome kit specific to that country or region that consists of forms, policy and procedures, selling aids, access to the Company’s distributor website and a genealogy position with no down line distributors.

The Company has determined that most contracts will be completed in less than one year. For those transactions where all performance obligations will be satisfied within one year or less, the Company is applying the practical expedient outlined in ASC 606-10-32-18. This practical expedient allows the Company not to adjust promised consideration for the effects of a significant financing component if the Company expects at contract inception the period between when the Company transfers the promised good or service to a customer and when the customer pays for that good or service will be one year or less. For those transactions that are expected to be completed after one year, the Company has assessed that there are no significant financing components because any difference between the promised consideration and the cash selling price of the good or service is for reasons other than the provision of financing.

Deferred Revenues and Costs

As of June 30, 2019 and December 31, 2018, the balance in deferred revenues was approximately $2,260,000 and $2,312,000, respectively. Deferred revenue related to the Company’s direct selling segment is attributable to the Heritage Makers product line and also for future Company convention and distributor events.

Deferred revenues related to Heritage Makers were approximately $2,065,000 and $2,153,000, as of June 30, 2019, and December 31, 2018, respectively. The deferred revenue represents Heritage Maker’s 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.

Deferred costs relate to Heritage Makers prepaid commissions that are recognized in expense at the time the related revenue is recognized. As of June 30, 2019 and 2018, the balance in deferred costs was approximately $295,000 and $455,000, respectively, and is included in prepaid expenses and current assets.

Deferred revenues related to pre-enrollment in upcoming conventions and distributor events of approximately $173,000 and $159,000 as of June 30, 2019 and December 31, 2018, respectively, relate primarily to the Company’s 2019 and 2018 events. The Company does not recognize this revenue until the conventions or distributor events occur.

Plantation Costs

The Company’s commercial coffee segment includes the results of Siles, which is a 500-acre coffee plantation and a dry-processing facility located on 26 acres 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 GAAP, plantation maintenance and harvesting costs for commercially producing coffee farms are charged against earnings when sold. Deferred harvest costs accumulate and are capitalized 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 costs are then recognized as the inventory value. Deferred costs associated with the harvest as of June 30, 2019 and December 31, 2018 are approximately $150,000 and $400,000, respectively, and are included in prepaid expenses and other current assets on the Company’s balance sheets.

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.

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.

Income taxes for the interim periods are computed using the effective tax rates estimated to be applicable for the full fiscal year, as adjusted for any discrete taxable events that occur during the period.

The Company files income tax returns in the United States (“U.S.”) on a federal basis and in many U.S. state and foreign jurisdictions. Certain tax years remain open to examination by the major taxing jurisdictions to which the Company is subject.

Commitments and Contingencies

Litigation

The Company is from time to time, the subject of claims and suits arising out of matters related to the Company’s business. The Company is party to litigation at the present time and may become party to litigation in the future. In general, litigation claims can be expensive, and time consuming to bring or defend against and could result in settlements or damages that could significantly affect financial results. It is not possible to predict the final resolution of the current litigation to which the Company is party to, and the impact of certain of these matters on the Company’s business, results of operations, and financial condition could be material. Regardless of the outcome, litigation has adversely impacted the Company’s business because of defense costs, diversion of management resources and other factors.

Other 

Vendor Concentration

The Company purchases its inventory from multiple third-party suppliers at competitive prices. For the three months ended June 30, 2019, the Company’s commercial coffee segment made purchases from one vendor, H&H Export, that individually comprised more than 10% of total purchases and in aggregate approximated 90% of total purchases. For the six months ended June 30, 2019, the Company’s commercial coffee segment made purchases from one vendor, H&H Export, that individually comprised more than 10% of total purchases and in aggregate approximated 92% of total purchases.

The Company purchases its inventory from multiple third-party suppliers at competitive prices. For the three months ended June 30, 2018, the Company’s commercial coffee segment made purchases from three vendors, H&H Export, Rothfos Corporation and Sixto Packaging that individually comprised more than 10% of total purchases and in aggregate approximated 64% of total purchases. For the six months ended June 30, 2018, the Company’s commercial coffee segment made purchases from two vendors, H&H Export and Rothfos Corporation, that individually comprised more than 10% of total purchases and in aggregate approximated 86% of total purchases.

For the three months ended June 30, 2019, the Company’s direct selling segment made purchases from two vendors, Global Health Labs, Inc. and Michael Schaeffer, LLC., that individually comprised more than 10% of total purchases and in aggregate approximated 46% of total purchases. For the six months ended June 30, 2019, the Company’s direct selling segment made purchases from two vendors, Global Health Labs, Inc. and Michael Schaeffer, LLC., that individually comprised more than 10% of total purchases and in aggregate approximated 41% of total purchases.

For the three months ended June 30, 2018, the Company’s direct selling segment made purchases from three vendors, Global Health Labs, Inc., Purity Supplements and Nutritional Engineering, that individually comprised more than 10% of total purchases and in aggregate approximated 58% of total purchases. For the six months ended June 30, 2018, the Company’s direct selling segment made purchases from two vendors, Global Health Labs, Inc. and Purity Supplements, that individually comprised more than 10% of total purchases and in aggregate approximated 45% of total purchases.

For the three months ended June 30, 2019, the Company’s hemp segment made purchases from three vendors, Lab1st, Bio Processing Corp., and ADM Labs, that individually comprised more than 10% of total purchases and in aggregate approximated 63% of total purchases. For the six months ended June 30, 2019, the Company’s hemp segment made purchases from two vendors, Lab1st and Bio Processing Corp., that individually comprised more than 10% of total purchases and in aggregate approximated 41% of total purchases.

Customer Concentration

For the three months ended June 30, 2019, the Company’s commercial coffee segment had two customers, H&H Export and Rothfos Corporation that individually comprised more than 10% of revenue and in aggregate approximated 84% of total revenue. For the six months ended June 30, 2019, the Company’s commercial coffee segment had one customer, H&H Export that individually comprised more than 10% of revenue and in aggregate approximated 79% of total revenue.

For the three months ended June 30, 2018, the Company’s commercial coffee segment had two customers, H&H Export and Rothfos Corporation that individually comprised more than 10% of revenue and in aggregate approximated 62% of total revenue. For the six months ended June 30, 2018, the Company’s commercial coffee segment had two customers, H&H Export and Rothfos Corporation that individually comprised more than 10% of revenue and in aggregate approximated 62% of total revenue.

For the three months ended June 30, 2019, the Company’s hemp segment had three customers, Xtraction Services, Air Spec and David Shin that individually comprised more than 10% of revenue and in aggregate approximated 50% of total revenue. For the six months ended June 30, 2019, the Company’s hemp segment had three customers, Xtraction Services, Air Spec and David Shin that individually comprised more than 10% of revenue and in aggregate approximated 54% of total revenue.

The direct selling segment did not have any customers during the three and six months ended June 30, 2019 that comprised more than 10% of revenue.

The Company has purchase obligations related to minimum future purchase commitments for green coffee to be used in the Company’s commercial coffee segment. 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 June 30, 2019, have minimum future purchase commitments of approximately $5,680,000, which are to be delivered in 2019. 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.

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Subtopic 350-40 clarifies the accounting for implementation costs of a hosting arrangement that is a service contract and aligns that accounting, regardless of whether the arrangement conveys a license to the hosted software. The amendments in this update are effective for reporting periods beginning after December 15, 2019, with early adoption permitted. The Company does not expect this new guidance to have a material impact on its condensed consolidated financial statements. 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. Topic 820 removes or modifies certain current disclosures and adds additional disclosures. The changes are meant to provide more relevant information regarding valuation techniques and inputs used to arrive at measures of fair value, uncertainty in the fair value measurements, and how changes in fair value measurements impact an entity's performance and cash flows. Certain disclosures in Topic 820 will need to be applied on a retrospective basis and others on a prospective basis. Topic 820 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. The Company expects to adopt the provisions of this guidance on January 1, 2020 and is currently evaluating the impact that Topic 820 will have on its related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the test for goodwill impairment by removing Step 2 from the goodwill impairment test. Companies will now perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value not to exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in this update are effective for goodwill impairment tests in fiscal years beginning after December 15, 2019 for public companies, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. The Company does not expect this new guidance to have a material impact on its condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based Payment Accounting. The intention of ASU 2018-07 is to expand the scope of Topic 718 to include share-based payment transactions in exchange for goods and services from nonemployees. These share-based payments will now be measured at grant-date fair value of the equity instrument issued. Upon adoption, only liability-classified awards that have not been settled and equity-classified awards for which a measurement date has not been established should be remeasured through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Topic 718 is effective for fiscal years beginning after December 15, 2018 and is applied retrospectively. The Company adopted the provisions of this guidance on January 1, 2019 and the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, Topic 220. The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (H.R.1) (the Act). Consequently, the amendments eliminate the stranded tax effects resulting from the Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this Update also require certain disclosures about stranded tax effects. Topic 220 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company adopted the provisions of this guidance on January 1, 2019 and the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Topic 260 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted classified as liabilities. A company will recognize the value of a down round feature only when it is triggered, and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, such as warrants, an entity will treat the value of the effect of the down round, when triggered, as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in Topic 260 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company adopted Topic 260, Topic 480 and Topic 815 effective January 1, 2019 and determined that it’s 2018 warrants were to no longer be classified as a derivative, as a result of the adoption and subsequent change in classification of the 2018 warrants, the company reclassed approximately $1,494,000 of warrant derivative liability to equity.

In February 2016, FASB established Topic 842, Leases, by issuing ASU No. 2016-02, Leases (Topic 842) which required lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; ASU No. 2018-20, Narrow-Scope Improvements for Lessors; and ASU 2019-01, Codification Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The amendments were adopted by the Company on January 1, 2019. A modified retrospective transition approach is required, applying the standard to all leases existing at the date of initial application. The Company elects to use its effective date as its date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direction costs. In addition, the Company elected the practical expedient to use hindsight when determining lease terms.  The practicable expedient pertaining to land easement is not applicable to the Company. The Company continues to assess all of the effects of adoption, with the most significant effect relating to the recognition of new ROU assets and lease liabilities on the Company’s balance sheet for real estate operating leases.  The Company adopted the provisions of this guidance on January 1, 2019 and accordingly recognized additional operating liabilities of approximately $5,509,000 with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

Following the expiration of the Company’s Emerging Growth Company filing status (“EGC”) on December 31, 2018 the Company adopted the following accounting pronouncements effective January 1, 2018.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), to supersede nearly all existing revenue recognition guidance under GAAP. Topic 606 also requires new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations. The Company adopted the provision of this guidance using the modified retrospective approach. The Company has performed an assessment of its revenue contracts as well as worked with industry participants on matters of interpretation and application and has not identified any material changes to the timing or amount of its revenue recognition under Topic 606. The Company’s accounting policies did not change materially as a result of applying the principles of revenue recognition from Topic 606 and are largely consistent with existing guidance and current practices applied by the Company. (See Note 3, below.)

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Basic and Diluted Net Loss Per Share

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Basic and Diluted Net Loss Per Share

Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss 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 stock options, restricted stock, warrants, convertible preferred stock and common stock associated with the Company's convertible notes based on the average stock price for each period using the treasury stock method. Potentially dilutive shares are excluded from the computation of diluted net loss per share when their effect is anti-dilutive. In periods where a net loss is presented, all potentially dilutive securities are anti-dilutive and are excluded from the computation of diluted net loss per share.

Potentially dilutive securities for the three and six months ended June 30, 2019 were 12,731,372. Potentially dilutive securities were 6,560,761 for the three and six months ended June 30, 2018.

The calculation of diluted loss per share requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the warrants and the presumed exercise of such securities are dilutive to loss per share for the period, an adjustment to net loss used in the calculation is required to remove the change in fair value of the warrants, net of tax from the numerator for the period. Likewise, an adjustment to the denominator is required to reflect the related dilutive shares, if any, under the treasury stock method. During the three and six months ended June 30, 2019, the Company recorded net of tax gain of $357,000 and $1,478,000, on the valuation of the Warrant Derivative Liability which has a dilutive impact on loss per share, respectively.

	Three Months Ended June 30, (unaudited)						Six Months Ended June 30, (unaudited)
	2019			2018			2019			2018
Loss per Share – Basic
Numerator for basic loss per share	$	(75,000	)	$	(656,000	)	$	(12,349,000	)	$	(2,967,000	)
Denominator for basic loss per share		29,133,150			21,506,833			28,359,660			20,630,383
Loss per common share - basic	$	(0.00	)	$	(0.03	)	$	(0.44	)	$	(0.14	)
Loss per Share - Diluted
Numerator for basic loss per share	$	(75,000	)	$	(656,000	)	$	(12,349,000	)	$	(2,967,000	)
Adjust: Fair value of dilutive warrants outstanding		(357,000	)		—			(1,478,000	)		—
Numerator for dilutive loss per share	$	(432,000	)	$	(656,000	)	$	(13,827,000	)	$	(2,967,000	)
Denominator for basic loss per share		29,133,150			21,506,833			28,359,660			20,630,383
Adjust: Incremental shares underlying “in the money” warrants outstanding		224,197			—			340,635			—
Denominator for dilutive loss per share		29,357,347			21,506,833			28,700,295			20,630,383
Loss per common share - diluted	$	(0.02	)	$	(0.03	)	$	(0.48	)	$	(0.14	)

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Balance Sheet Account Details

6 Months Ended

Jun. 30, 2019

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Account Details

Inventory and Cost of Revenues

Inventory is stated at the lower of cost or net realizable value, net of a valuation allowance. 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):

	As of
	June 30, 2019			December 31, 2018
	(unaudited)
Finished goods	$	12,602		$	11,300
Raw materials		14,622			12,744
Total inventory		27,224			24,044
Reserve for excess and obsolete		(2,427	)		(2,268	)
Inventory, net	$	24,797		$	21,776

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. 

Leases

Generally, the Company leases certain office space, warehouses, distribution centers, manufacturing centers, and equipment. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.

In general, the Company’s leases include one or more options to renew, with renewal terms that generally vary from one to ten years. The exercise of lease renewal options is generally at the Company’s sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Leases with an initial term of twelve months or less are not recorded on the Company’s condensed consolidated balance sheets, and the Company does not separate nonlease components from lease components. The Company’s lease assets and liabilities recognized within its condensed consolidated balance sheets were as follows (in thousands):

Leases	Classification	June 30, 2019 (unaudited)
Assets
Operating lease right-of-use assets	Operating Lease Right-of-Use Assets	$	5,481
Finance lease right-of-use assets	Property, plant and equipment, net at cost, net of Accumulated Depreciation (1)		1,283
Total leased assets		$	6,764
Liabilities
Current
Operating	Other Current Liabilities	$	772
Finance	Current Portion of Long-term Debt		1,103
Noncurrent
Operating	Non-current Operating Lease Liabilities		4,708
Finance	Long-term Debt, net of current portion		778
Total lease liabilities		$	7,361

(1) Finance lease assets are recorded net of accumulated amortization of approximately $525,000 as of June 30, 2019.  

Lease cost is recognized on a straight-line basis over the lease term (in thousands):

		Three Months Ended				Six Months Ended
Lease Cost	Classification	June 30, 2019  (unaudited)		June 30, 2018 (unaudited)		June 30, 2019 (unaudited)		June 30, 201 (unaudited)
Operating lease cost	SG&A Expenses	$	271	$	—	$	271	$	—
Finance lease cost
Amortization of leased assets	Depreciation and Amortization		96		—		96		—
Interest on lease liabilities	Net Interest Expense		37		—		37		—
Net lease cost		$	404	$	—	$	404	$	—

As of June 30, 2019, annual scheduled lease payments were as follows (unaudited) (in thousands):

	Operating Leases		Finance Leases
2019	$	1,055	$	1,213
2020		764		699
2021		657		95
2022		391		15
2023		628		9
Thereafter		3,490		8
Total lease payments		6,985		2,039
Less imputed interest		1,505		158
Present value of lease liabilities	$	5,480	$	1,881

Finance lease right-of-use assets are amortized over their estimated useful life, as the Company does believe that it is reasonably certain that options which transfer ownership will be exercised. In general, for the majority of the Company’s material leases, the renewal options are not included in the calculation of its right-of-use assets and lease liabilities, as the Company does not believe that it is reasonably certain that these renewal options will be exercised. Periodically, the Company assesses its leases to determine whether it is reasonably certain that these options and any renewal options could be reasonably expected to be exercised.

The majority of the Company’s leases are for real estate and equipment. In general, the individual lease contracts do not provide information about the rate implicit in the lease. Because the Company is not able to determine the rate implicit in its leases, it instead generally uses its incremental borrowing rate to determine the present value of lease liabilities. In determining its incremental borrowing rate, the Company reviewed the terms of its leases, its senior secured credit facility, swap rates, and other factors. The weighted-average remaining lease term and weighted-average discount rate used to calculate the present value of lease liabilities are as follows:

Lease Term and Discount Rate	June 30, 2019 (unaudited)
Weighted-average remaining lease term (years)
Operating leases		5.6
Finance leases		1.98
Weighted-average discount rate
Operating leases		5.5	%

Revenue Recognition

Direct Selling

Direct distribution sales are made through the Company’s network (direct selling segment), which is a web-based global network of customers and distributors. The Company’s independent sales force markets a variety of products to an array of customers, through friend-to-friend marketing and social networking. The Company considers itself to be an e-commerce company whereby personal interaction is provided to customers by its independent sales network. Sales generated from direct distribution includes; health and wellness, beauty product and skin care, scrap booking and story booking items, packaged food products and other service-based products.

Revenue is recognized when the Company satisfies its performance obligations under the contract. The Company recognizes revenue by transferring the promised products to the customer, with revenue recognized at shipping point, the point in time the customer obtains control of the products. The majority of the Company’s contracts have a single performance obligation and are short term in nature. Sales taxes in domestic and foreign jurisdictions are collected from customers and remitted to governmental authorities, all at the local level, and are accounted for on a net basis and therefore are excluded from revenues.

Commercial Coffee - Coffee Roaster

The Company engages in the commercial sale of roasted coffee through its subsidiary CLR, which is sold under a variety of private labels through major national sales outlets and to customers including cruise lines and office coffee service operators, and under its own Café La Rica brand, Josie’s Java House Brand, Javalution brands and Café Cachita as well as through its distributor network within the direct selling segment.

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. At this point the customer has a present obligation to pay, takes physical possession of the product, takes legal title to the product, bears the risks and rewards of ownership, and as such, revenue will be recognized at this point in time. Sales taxes in domestic and foreign jurisdictions are collected from customers and remitted to governmental authorities, all at the local level, and are accounted for on a net basis and therefore are excluded from revenues.

Commercial Coffee - Green Coffee

The commercial coffee segment includes the sale of green coffee beans, which are sourced from the Nicaraguan rainforest.

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. At this point the customer has a present obligation to pay, takes physical possession of the product, takes legal title to the product, bears the risks and rewards of ownership, and as such, revenue will be recognized at this point in time. Sales taxes in domestic and foreign jurisdictions are collected from customers and remitted to governmental authorities, all at the local level, and are accounted for on a net basis and therefore are excluded from revenues.

Commercial Hemp

The commercial hemp segment provides end to end extraction and processing via the Company’s proprietary systems that allow for the conversion of hemp feed stock into hemp oil and hemp extracts.  The primary focus of the segment is to generate revenue through sales of extraction services and end to end processing services for the conversion of Hemp and Hemp oil into sellable ingredients.  Additionally, the Company offers various rental, sales, and service programs of the Company’s extraction and processing systems.

Segment Revenue

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. At this point the customer has a present obligation to pay, takes physical possession of the product, takes legal title to the product, bears the risks and rewards of ownership, and as such, revenue will be recognized at this point in time. Sales taxes in domestic and foreign jurisdictions are collected from customers and remitted to governmental authorities, all at the local level, and are accounted for on a net basis and therefore are excluded from revenues.

The Company operates in three primary segments: the direct selling segment where products are offered through a global distribution network of preferred customers and distributors, the commercial coffee segment where products are sold directly to businesses and the Hemp segment.

The following table summarizes revenue disaggregated by segment (in thousands):

	Three Months Ended June 30, (unaudited)				Six Months Ended June 30, (unaudited)
	2019		2018		2019		2018
Direct Selling Segment	$	32,124	$	36,846	$	65,544	$	72,157
Commercial Coffee - coffee roaster		3,289		2,882		6,069		9,512
Commercial Coffee - green coffee		18,000		4,527		38,033		5,580
Commercial Hemp		274		-		341		-
Total revenue	$	53,687	$	44,255	$	109,987	$	87,249

Contract Balances  

Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records contract assets when performance obligations are satisfied prior to invoicing.

Contract liabilities are reflected as deferred revenues in current liabilities on the Company’s condensed consolidated balance sheets and include deferred revenue and customer deposits. Contract liabilities relate to payments invoiced or received in advance of completion of performance obligations and are recognized as revenue upon the fulfillment of performance obligations. Contract liabilities are classified as short-term as all performance obligations are expected to be satisfied within the next 12 months.

As of June 30, 2019 and December 31, 2018, the balance in deferred revenues was approximately $2,260,000 and $2,312,000, respectively. The Company records deferred revenue related to its direct selling segment which is primarily attributable to the Heritage Makers product line and represents Heritage Maker’s obligation for points purchased by customers that have not yet been redeemed for product. In addition, deferred revenues include future Company convention and distributor events.

Deferred revenue related to the commercial coffee segment represents deposits on customer orders that have not yet been completed and shipped. Revenue is recognized when the title and risk of loss is passed to the customer under the terms of the shipping arrangement FOB shipping point. (See Note 1, above.)

Of the deferred revenue from the year ended December 31, 2018, the Company recognized revenue of approximately $341,000 and $732,000 from the Heritage Makers product line during the three and six months ended June 30. 2019, respectively. There was no other deferred revenue recognized in direct selling segment for the six months ended June 30, 2019.

There were no deferred revenues recognized with the commercial coffees segment and the commercial hemp for the six months ended June 30, 2019.

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Acquisitions and Business Combinations

6 Months Ended

Jun. 30, 2019

Business Combinations [Abstract]

Acquisitions and 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 Company’s 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 Company’s 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.

During the six months ended June 30, 2019, the Company entered into one acquisition, which is detailed below. The acquisition was conducted in an effort to expand the Company’s operations into the field of commercial hemp business.

2019 Acquisitions

Khrysos Global, Inc.

On February 12, 2019, the Company and Khrysos Industries, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“KII”) entered into an Asset and Equity Purchase Agreement (the “AEPA”) with, Khrysos Global, Inc., a Florida corporation (“Seller”), Leigh Dundore (“LD”), and Dwayne Dundore (the “Representing Party”) for KII to acquire substantially all the assets of Seller and all the outstanding equity of INXL Laboratories, Inc., a Florida corporation (“INXL”) and INX Holdings, Inc., a Florida corporation (“INXH”). The business of the Seller, INXL and INXH collectively acquired by us provide end to end extraction and processing via the company’s proprietary systems that allow for the conversion of hemp feed stock into hemp oil and hemp extracts.  Additionally, KII offers various rental, sales, and service programs of KII’s extraction and processing systems.

The consideration payable for the assets of the Seller and the equity of INXL and INXH is an aggregate of $16,000,000, to be paid as set forth under the terms of the AEPA and allocated between the Seller and LD in such manner as they determine at their discretion.

At closing, Seller, LD and the Representing Party received an aggregate of 1,794,972 shares of the Company’s common stock which have a value of $14,000,000 for the purposes of the AEPA or $12,649,000 fair value for the acquisition valuation and $500,000 in cash. Thereafter, we agree to pay the Seller, LD and the Representing Party an aggregate of: $500,000 in cash thirty (30) days following the date of closing; $250,000 in cash ninety (90) days following the date of closing; $250,000 in cash one hundred and eighty (180) days following the date of closing; $250,000 in cash two hundred and seventy (270) days following the date of closing; and $250,000 in cash one (1) year following the date of closing.

In addition, the Company agreed to issue to Representing Party, subject to the approval of the holders of at least a majority of the issued and outstanding shares of the Company’s common stock and the approval of The Nasdaq Stock Market (collectively, the “Contingent Consideration Warrants”) consisting of six (6) six-year warrants, to purchase 500,000 shares of common stock each, for an aggregate of 3,000,000 shares of common stock at an exercise price of $10 per share exercisable upon reaching certain levels of cumulative revenue or cumulative net income before taxes by the business during the any of the years ending December 31, 2019, 2020, 2021, 2022, 2023 or 2024.

The AEPA contains customary representations, warranties and covenants of the Company, KII, the Seller, LD and the Representing Party. Subject to certain customary limitations, the Seller, LD and the Representing Party have agreed to indemnify the Company and KII against certain losses related to, among other things, breaches of the Seller’s, LD’s and the Representing Party’s representations and warranties, certain specified liabilities and the failure to perform covenants or obligations under the AEPA.

On February 28, 2019, KII purchased a 45-acre tract of land in Groveland, Florida, upon which KII intends to build a R&D facility, greenhouse and allocate a portion for farming.

The Company has estimated fair value (in thousands) at the date of acquisition of the acquired tangible and intangible assets and liabilities as follows (unaudited):

Present value of cash consideration	$	1,894
Estimated fair value of common stock issued		12,649
Aggregate purchase price	$	14,543

The following table summarizes the estimated preliminary fair values of the assets acquired and liabilities assumed in February 2019 (in thousands):
Current assets	$	211
Inventory		1,264
Property, plant and equipment		2,260
Trademarks and trade name		1,876
Customer-related intangible		5,629
Non-compete intangible		956
Goodwill		4,353
Current liabilities		(1,913	)
Notes payable		(518	)
Net assets acquired	$	14,118

The preliminary estimated fair value of intangible assets acquired in the amount of $8,461,000 was determined through the use of a third-party valuation firm using various income and cost approach methodologies. Specifically, the intangibles identified in the acquisition were trademarks and trade name, customer-related intangible and non-compete agreement. The trademarks and trade name, customer-related intangible and non-compete are being amortized over their estimated useful life of 8 years, 7 years and 6 years, respectively. The straight-line method is being used and is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.

Goodwill of $4,353,000 was recognized as the excess 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 Contingent Consideration Warrants discussed above are subject to vesting based upon the achievement of various sales milestones and only if the sellers do not terminate their services.  As such, the warrants were considered equity-based compensation for future services and not considered contingent consideration in the calculation of the purchase price.

The costs related to the acquisition are included in legal and accounting fees and were expensed as incurred.

Revenues included in the consolidated statement of operations for the three and six months ended June 30, 2019 were approximately $274,000 and $341,000, respectively.

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Intangible Assets and Goodwill

6 Months Ended

Jun. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

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):

	June 30, 2019 (unaudited)						December 31, 2018
	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Distributor organizations	$	14,559	$	10,010	$	4,549	$	14,559	$	9,575	$	4,984
Trademarks and trade names		9,963		2,209		7,754		7,337		1,781		5,556
Customer relationships		16,028		6,068		9,960		10,398		5,723		4,675
Internally developed software		720		607		113		720		558		162
Non-compete agreement		956		—		956		—		—		—
Intangible assets	$	42,226	$	18,894	$	23,332	$	33,014	$	17,637	$	15,377

Amortization expense related to intangible assets was approximately $586,000 and $857,000 for the three months ended June 30, 2019 and 2018, respectively. Amortization expense related to intangible assets was approximately $1,256,000 and $1,692,000 for the six months ended June 30, 2019 and 2018, respectively.

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. As of June 30, 2019 and December 31, 2018, approximately $1,649,000 in trademarks from business combinations have been identified as having indefinite lives.

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 Company’s 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 Company’s 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 Company’s reportable segments. As such, the Company analyzes its goodwill balances separately for the commercial coffee reporting unit, the direct selling reporting unit and the commercial hemp reporting unit. The goodwill balance as of June 30, 2019 and December 31, 2018 is approximately $10,676,000 and $6,323,000, respectively. There were no triggering events indicating impairment of goodwill or intangible assets during the six months ended June 30, 2019 and 2018.

Goodwill consists of the following (in thousands):

	June 30, 2019 (unaudited)		December 31, 2018
Goodwill, commercial coffee	$	3,314	$	3,314
Goodwill, direct selling		3,009		3,009
Goodwill, commercial hemp		4,353		-
Total goodwill	$	10,676	$	6,323

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Notes Payable and Other Debt

6 Months Ended

Jun. 30, 2019

Notes Payable [Abstract]

Notes Payable and Other Debt

Short-term Debt

On July 18, 2018, the Company entered into lending agreements (the “Lending Agreements”) with three (3) separate entities and received loans in the total amount of $1,907,000, net of loan fees to be paid back over an eight-month period on a monthly basis. Payments are comprised of principal and accrued interest with an effective interest rate between 15% and 20%. The Company’s outstanding balance related to the Lending Agreements was approximately $504,000 as of December 31, 2018 and was included in other current liabilities on the Company’s balance sheet as of December 31, 2018. In March 2019 the loans were paid in full.

Notes Payable

Promissory Notes

On March 18, 2019, the Company entered into a two-year Secured Promissory Note (the “8% Note” or “Notes”) with two (2) accredited investors that had a substantial pre-existing relationship with the Company pursuant to which the Company raised cash proceeds of $2,000,000. The Company also issued 20,000 shares of the Company’s common stock par value $0.001 for each $1,000,000 invested and a five-year warrant to purchase 20,000 shares of the Company’s common stock at a price per share of $6.00. The 8% Notes pay interest at a rate of eight percent (8%) per annum and interest is paid quarterly in arrears with all principal and unpaid interest due at maturity on March 18, 2021.

The Company recorded debt discounts of approximately $139,000 related to the fair value of warrants issued in the transaction and $212,000 of transaction issuance costs to be amortized to interest expense over the life of the Notes. As of June 30, 2019, the remaining balance of the debt discounts is approximately $309,000. The Company recorded approximately $42,000 amortization of the debt discounts during the six months ended June 30, 2019 and is recorded as interest expense.

Credit Note

On December 13, 2018, the Company’s wholly owned subsidiary, CLR, entered into a Credit Agreement with Mr. Carl Grover pursuant to which CLR borrowed $5,000,000 from Mr. Grover and in exchange issued to him a $5,000,000 Credit Note (the “Credit Note”) secured by its green coffee inventory under a Security Agreement, dated December 13, 2018, with Mr. Grover and CLR’s subsidiary, Siles. 

The Credit Note accrues interest at eight percent (8%) per annum. All principal and accrued interest under the Credit Note is due and payable on December 12, 2020. The Credit Note contains customary events of default including the Company or Siles failure to pay its obligations, commencing bankruptcy or liquidation proceedings, and breach of representations and warranties. Upon the occurrence of an event of default, the unpaid balance of the principal amount of the Credit Note together with all accrued but unpaid interest thereon, may become, or may be declared to be, due and payable by Mr. Grover and shall bear interest from the due date until such amounts are paid at the rate of ten percent (10%) per annum. In connection with the Credit Agreement, the Company issued to Mr. Grover a four-year warrant to purchase 250,000 shares of its common stock, exercisable at $6.82 per share (“Warrant 1”), and a four-year warrant to purchase 250,000 shares of its common stock, exercisable at $7.82 per share (“Warrant 2”).

Also in connection with the Credit Note, the Company also entered into an advisory agreement with a third party not affiliated with Mr. Grover, pursuant to which the Company agreed to pay to the advisor a 3% fee on the transaction with Mr. Grover and issued to the advisor (or it’s designees) a four-year warrant to purchase 50,000 shares of the Company’s common stock, exercisable at $6.33 per share.

All fees, warrants and costs paid to Mr. Grover and the advisor and all direct costs incurred by the Company are recognized as a debt discount to the funded Credit Note and are amortized to interest expense using the effective interest method over the term of the Credit Note. The Company recognized an initial debt discount of approximately $1,469,000 related to the initial fair value of warrants issued in the transaction and $175,000 of transaction issuance costs. As of June 30, 2019, the remaining unamortized debt discount is approximately $1,293,000. The Company recognized approximately $321,000 amortization of the debt discount during the six months ended June 30, 2019 which was included in interest expense in the Condensed Consolidated Statements of Operations.

2400 Boswell Mortgage

In March 2013, the Company acquired 2400 Boswell for approximately $4,600,000. 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 with interest at 5.0%.  Additionally, the Company assumed a long-term mortgage of $3,625,000, payable over 25 years with an initial interest rate of 5.75%. The interest rate is the prime rate plus 2.5%. As of June 30, 2019, the interest rate was 8.0%. The lender will adjust the interest rate on the first calendar day of each change period. The Company and its Chief Executive Officer are both co-guarantors of the mortgage. As of June 30, 2019, the balance on the long-term mortgage is approximately $3,180,000 and the balance on the promissory note is zero. 

M2C Purchase Agreement

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. As of June 30, 2019 and December 31, 2018, the carrying value of the liability was approximately $1,049,000 and $1,071,000, respectively. The interest associated with the note for the three and six months ended June 30, 2019 and 2018 was minimal.

Khrysos Mortgage Notes

In conjunction with the Company’s acquisition of Khrysos, the Company assumed an interest only mortgage in the amount of $350,000, due in September 2021, and bears an interest rate of 8.0%. In addition, the Company assumed a mortgage of approximately $177,000, due in June 2023, and bears an interest rate of 7.0% per annum. As of June 30, 2019, the remaining aggregate mortgage balance is approximately $526,000.

In February 2019, Khrysos purchased a 45-acre tract of land in Groveland, Florida, for $750,000, upon which Khrysos intends to build a R&D facility, greenhouse and allocate a portion for farming. Khrysos paid approximately $303,000 as a down payment and assumed a mortgage of $450,000. The entire balance is due in February 2024 and bears interest at 6.0% per annum. As of June 30, 2019, the remaining mortgage balance is approximately $446,000.

Khrysos Acquisition Liability Payable

In conjunction with the Company’s acquisition of Khrysos, the Company agreed to pay the sellers in cash $2,000,000 towards the AEPA with an initial payment of $500,000 which was paid at closing in February 2019. Thereafter, the sellers are to receive an aggregate of: $500,000 in cash thirty (30) days following the date of closing; $250,000 in cash ninety (90) days following the date of closing; $250,000 in cash one hundred and eighty (180) days following the Date of closing; $250,000 in cash two hundred and seventy (270) days following the date of closing; and $250,000 in cash one (1) year following the date of closing. As of June 30, 2019, the Company’s remaining liability of $1,500,000 is outstanding and is recorded on the balance sheet in accrued expenses. (See Note 4, above.)

Other Notes

The Company’s other notes relate to loans for commercial vans at CLR in the amount of $85,000 as of June 30, 2019 which mature at various dates through 2023.

Line of Credit - Loan and Security Agreement

On November 16, 2017, CLR entered into a Loan and Security Agreement (“Agreement”) with Crestmark Bank (“Crestmark”) providing for a line of credit related to accounts receivables resulting from sales of certain products that includes borrowings to be advanced against acceptable eligible inventory related to CLR. Effective December 29, 2017, CLR entered into a First Amendment to the Agreement, to include an increase in the maximum overall borrowing to $6,250,000. The loan amount may not exceed an amount which is the lesser of (a) $6,250,000 or (b) the sum of up (i) to 85% of the value of the eligible accounts; plus, (ii) the lesser of $1,000,000 or 50% of eligible inventory or 50% of (i) above, plus (iii) the lesser of $250,000 or eligible inventory or 75% of certain specific inventory identified within the Agreement.

The Agreement contains certain financial and nonfinancial covenants with which the Company must comply to maintain its borrowing availability and avoid penalties. As of June 30, 2019, the Company is in compliance with all financial and nonfinancial covenants.

The outstanding principal balance of the Agreement will bear interest based upon a year of 360 days with interest being charged for each day the principal amount is outstanding including the date of actual payment. The interest rate is a rate equal to the prime rate plus 2.50% with a floor of 6.75%. As of June 30, 2019, the interest rate was 7.5%. In addition, other fees are incurred for the maintenance of the loan in accordance with the Agreement. Other fees may be incurred in the event the minimum loan balance of $2,000,000 is not maintained. The Agreement is effective until November 16, 2020.

The Company and the Company’s CEO, Stephan Wallach, have entered into a Corporate Guaranty and Personal Guaranty, respectively, with Crestmark guaranteeing payments in the event that the Company’s commercial coffee segment CLR were to default. In addition, the Company’s President and Chief Financial Officer, David Briskie, personally entered into a Guaranty of Validity representing the Company’s financial statements so long as the indebtedness is owing to Crestmark, maintaining certain covenants and guarantees.

The Company’s outstanding line of credit liability related to the Agreement was approximately $2,002,000 as of June 30, 2019 and $2,256,000 as of December 31, 2018.

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.

The Company’s contingent acquisition debt as of June 30, 2019 and December 31, 2018 is $7,593,000 and $8,261,000, respectively, and is attributable to debt associated with the Company’s direct selling segment. (See Note 9 below.)

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Convertible Notes Payable

6 Months Ended

Jun. 30, 2019

Notes Payable [Abstract]

Convertible Notes Payable

Total convertible notes payable as of June 30, 2019 and December 31, 2018, net of debt discount outstanding consisted of the amount set forth in the following table (in thousands):

	June 30, 2019 (unaudited)			December 31, 2018
8% Convertible Notes due July and August 2019 (2014 Notes), principal	$	750		$	750
Debt discounts		(34	)		(103	)
Carrying value of 2014 Notes		716			647
6% Convertible Notes due February and March 2021 (2019 PIPE Notes), principal		2,890			-
Debt discounts		(532	)		-
Carrying value of 2019 PIPE Notes		2,358			-
Total carrying value of convertible notes payable	$	3,074		$	647

July 2014 Private Placement

Between July 31, 2014 and September 10, 2014 the Company entered into Note Purchase Agreements (the “2014 Note” or “2014 Notes”) related to its 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 note in the aggregate principal amount of $4,750,000 that are convertible into 678,568 shares of our common stock, at a conversion price of $7.00 per share, and warrants to purchase 929,346 shares of common stock at an exercise price of $4.60 per share. The 2014 Notes bear interest at a rate of eight percent (8%) per annum and interest is paid quarterly in arrears with all principal and unpaid interest due between July and September 2019.

The Company has the right to prepay the 2014 Notes at any time after the one-year anniversary date of the issuance of the 2014 Notes at a rate equal to 110% of the then outstanding principal balance and any unpaid accrued interest. The 2014 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. Additionally, Stephan Wallach, the Company’s Chief Executive Officer, has also personally guaranteed the repayment of the 2014 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 1.5 million shares of the common stock that he owns so long as his personal guaranty is in effect.

On October 23, 2018, the Company entered into an agreement with Carl Grover to exchange (the “Debt Exchange”), subject to stockholder approval which was received on December 6, 2018, all amounts owed under the 2014 Note held by him in the principal amount of $4,000,000 which matures on July 30, 2019, for 747,664 shares of the Company’s common stock, at a conversion price of $5.35 per share and a four-year warrant to purchase 631,579 shares of common stock at an exercise price of $4.75 per share. Upon the closing the Company issued Ascendant Alternative Strategies, LLC, a FINRA broker dealer (or its designees), which acted as the Company’s advisor in connection with a Debt Exchange transaction, 30,000 shares of common stock in accordance with an advisory agreement and four-year warrants to purchase 80,000 shares of common stock at an exercise price of $5.35 per share and four-year warrants to purchase 70,000 shares of common stock at an exercise price of $4.75 per share.

The Company considered the guidance of ASC 470-20, Debt: Debt with Conversion and Other Options and ASC 470-60, Debt: Debt Troubled Debt Restructuring by Debtors and concluded that the 2014 Note held by Mr. Grover should be recognized as a debt modification for an induced conversion of convertible debt under the guidance of ASC 470-20. The Company recognized all remaining unamortized discounts of approximately $679,000 immediately subsequent to October 23, 2018 as interest expense, and the fair value of the warrants and additional shares issued as discussed above were recorded as a loss on the Debt Exchange in the amount of $4,706,000 during the year ended December 31, 2018 with the corresponding entry recorded to equity.

In 2014, the Company initially recorded debt discounts of $4,750,000 related to the beneficial conversion feature and related detachable warrants. The beneficial conversion feature discount and the detachable warrants discount are amortized to interest expense over the life of the Notes. The unamortized debt discounts recognized with the Debt Exchange was approximately $679,000. As of June 30, 2019 and December 31, 2018 the remaining balance of the debt discounts is approximately $31,000 and $94,000, respectively. The Company recorded approximately $63,000 and $238,000 amortization of the debt discounts during the six months ended June 30, 2019 and 2018, and is recorded as interest expense.

With respect to the 2014 Private Placement, the Company paid approximately $490,000 in expenses including placement agent fees. The issuance costs are amortized to interest expense over the term of the 2014 Notes. The unamortized issuance costs recognized with the Debt Exchange was approximately $63,000. As of June 30, 2019 and December 31, 2018 the remaining balance of the issuance costs is approximately $3,000 and $10,000, respectively. The Company recorded approximately $6,000 and $25,000 of the debt discounts amortization during the six months ended June 30, 2019 and 2018, respectively, and is recorded as interest expense.

As of June 30, 2019 and December 31, 2018 the principal amount of $750,000 remains outstanding.

Unamortized debt discounts and issuance costs are included with convertible notes payable, net of debt discount on the condensed consolidated balance sheets.

January 2019 Private Placement

Between February 15, 2019 and May 23, 2019, the Company closed four tranches of its 2019 January Private Placement debt offering, pursuant to which the Company offered for sale up to $10,000,000 in principal amount $10,000,000 of notes (the “2019 PIPE Notes”), with each investor receiving 2,000 shares of common stock for each $100,000 invested. The Company entered into subscription agreements with thirty (30) accredited investors that had a substantial pre-existing relationship with the Company pursuant to which the Company received aggregate gross proceeds of $2,890,000 and issued 2019 PIPE Notes in the aggregate principal amount of $2,890,000 and an aggregate of 57,800 shares of common stock. The placement agent received 14,450 shares of common stock for the closed tranches and can receive up to 50,000 shares of common stock in the offering. Each 2019 PIPE Note matures 24 months after issuance, bears interest at a rate of six percent (6%) per annum, and the outstanding principal is convertible into shares of common stock at any time after the 180th day anniversary of the issuance of the 2019 PIPE Notes, at a conversion price of $10 per share (subject to adjustment for stock splits, stock dividends and reclassification of the common stock).

Upon issuance of the 2019 PIPE Notes, the Company recognized debt discounts of approximately $634,000, resulting from the allocated portion of offering proceeds to the separable common stock issuance. The debt discount is being amortized to interest expense over the term of the 2019 PIPE Notes. During the six months ended June 30, 2019 the Company recorded approximately $101,000 of amortization related to the debt discounts. 

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Derivative Liability

6 Months Ended

Jun. 30, 2019

Derivative Liability [Abstract]

Derivative Liability

The Company recognizes and measures warrants in accordance with ASC Topic 815, Derivatives and Hedging. The accounting guidance sets forth a two-step model to be applied in determining whether a financial instrument is indexed to an entity’s own stock, which would qualify such financial instruments for a scope exception. This scope exception specifies that a contract that would otherwise meet the definition of a derivative financial instrument would not be considered as such if the contract is both (i) indexed to the entity’s own stock and (ii) classified in the stockholders’ equity section of the entity’s balance sheet. The Company determined that certain warrants and embedded conversion features issued in the Company’s private placements are ineligible for equity classification due to anti-dilution provisions set forth therein.

Derivative liabilities are recorded at their estimated fair value (see Note 9, below) at the issuance date and are revalued at each subsequent reporting date. The Company will continue to revalue the derivative liability on each subsequent balance sheet date until the securities to which the derivative liabilities relate to exercised or expire.

Various factors are considered in the pricing models the Company uses to value the derivative liabilities, including its current stock price, the remaining life, the volatility of its 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 liability. As such, the Company expects future changes in the fair values to continue and may vary significantly from period to period. The warrant and embedded liability and revaluations have not had a cash impact on working capital, liquidity or business operations.

Warrants

Effective January 1, 2019, the Company adopted ASU No. 2017-11 (see above, Recently Adopted Accounting Pronouncements). The new guidance requires companies to exclude any down round feature when determining whether a freestanding equity-linked financial instrument (or embedded conversion option) is considered indexed to the entity’s own stock when applying the classification guidance in ASC 815-40. Upon adoption of the new guidance, existing equity-linked financial instruments (or embedded conversion options) with down round features must be reassessed as liability classification may no longer be required. As a result, the Company determined in regard to its 2018 warrants the appropriate treatment of these warrants that were initially classified as derivative liabilities should now be classified as equity instruments.

The Company determined that the liability associated with the 2018 warrants should be remeasured and adjusted to fair value on the date of the change in classification with the offset to be recorded through earnings and then the fair value of the warrants should be reclassified to equity. The Company recorded the change in the fair value of the 2018 warrants as of the date of change in classification on March 11, 2019 to earnings. The fair value of the 2018 warrants as of the date of change in classification, in the amount of $1,494,000 was reclassified from warrant derivative liability to additional paid in capital as a result of the change in classification of the warrants.

Increases or decreases in the fair value of the derivative liability are included as a component of total other expense in the accompanying condensed consolidated statements of operations for the respective period. The changes to the derivative liability for warrants resulted in a decrease of $401,000 and a decrease of $192,000 for the three months ended June 30, 2019 and 2018, respectively. The changes to the derivative liability for warrants resulted in a decrease of $1,887,000 and a decrease of $904,000 for the six months ended June 30, 2019 and 2018, respectively.

The estimated fair value of the outstanding warrant liabilities is $4,969,000 and $9,216,000 as of June 30, 2019 and December 31, 2018, respectively. 

The estimated fair value of the warrants was computed as of June 30, 2019 and December 31, 2018 using the Monte Carlo option pricing model with the following assumptions:

	June 30, 2019 (unaudited)	December 31, 2018
Stock price volatility	100.4%-106.8%	83.78%-136.76%
Risk-free interest rates	1.87%-2.18%	2.465%-2.577%
Annual dividend yield	0%	0%
Expected life	0.08-1.29 years	0.58-2.76

In addition, management assessed the probabilities of future financing assumptions in the valuation models.

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

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 Company’s 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 Company’s 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.

The following table details the fair value measurement within the fair value hierarchy of the Company’s financial instruments, which includes the Level 3 liabilities (in thousands):

	Fair Value at June 30, 2019 (unaudited)
	Total		Level 1		Level 2		Level 3
Liabilities:
Contingent acquisition debt, current portion	$	695	$	-	$	-	$	695
Contingent acquisition debt, less current portion		6,898		-		-		6,898
Warrant derivative liability		4,969		-		-		4,969
Total liabilities	$	12,562	$	-	$	-	$	12,562

	Fair Value at December 31, 2018
	Total		Level 1		Level 2		Level 3
Liabilities:
Contingent acquisition debt, current portion	$	795	$	-	$	-	$	795
Contingent acquisition debt, less current portion		7,466		-		-		7,466
Warrant derivative liability		9,216		-		-		9,216
Total liabilities	$	17,477	$	-	$	-	$	17,477

The following table reflects the activity for the Company’s warrant derivative liability associated with the Company’s 2017, 2015 and 2014 Private Placements measured at fair value using Level 3 inputs (in thousands):

	Warrant Derivative Liability
Balance at December 31, 2018	$	9,216
Issuance		-
Adjustments to estimated fair value		(1,887	)
Adjustments related to warrant exercises		(866	)
Adjustments related to the reclassification of warrants to equity		(1,494	)
Balance at June 30, 2019 (unaudited)	$	4,969

The following table reflects the activity for the Company’s contingent acquisition liabilities measured at fair value using Level 3 inputs (in thousands):

	Contingent Consideration
Balance at December 31, 2018	$	8,261
Liabilities acquired		-
Liabilities settled		(235	)
Adjustments to liabilities included in earnings		(433	)
Adjustment to purchase price		-
Balance at June 30, 2019 (unaudited)	$	7,593

The fair value of the contingent acquisition liabilities is 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 Company’s most recent internal operational budgets and long-range strategic plans. 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 three and six months ended June 30, 2018, the net adjustment to the fair value of the contingent acquisition debt was a decrease of $1,246,000 and $1,459,000, respectively. During the three and six months ended June 30, 2019, the net adjustment to the fair value of the contingent acquisition debt was a decrease of $433,000, and is included in the Company’s statements of operations in general and administrative expense.

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Stockholders' Equity

6 Months Ended

Jun. 30, 2019

Stockholders' Equity

Stockholders' Equity

The Company’s Certificate of Incorporation, as amended, authorizes the issuance of two classes of stock to be designated; “Common Stock” and “Preferred Stock”.

The total number of shares of stock which the Company has authority to issue is 50,000,000 shares of common stock, par value $0.001 per share and 5,000,000 shares of preferred stock, par value $0.001 per share, of which 161,135 shares have been designated as Series A convertible preferred stock, par value $0.001 per share (“Series A Convertible Preferred”), 1,052,631 has been designated as Series B convertible preferred stock (“Series B Convertible Preferred”), and 700,000 has been designated as Series C convertible preferred stock (“Series C Convertible Preferred”).

Common Stock

As of June 30, 2019 and December 31, 2018 there were 29,316,445 and 25,760,708 shares of common stock outstanding, respectively. The holders of the common stock are entitled to one vote for each share held at all meetings of stockholders (and written actions in lieu of meetings).  

Stock Offering

On February 7, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with one accredited investor that had a substantial pre-existing relationship with the Company pursuant to which the Company sold 250,000 shares of common stock, par value $0.001 per share, at an offering price of $7.00 per share. Pursuant to the Purchase Agreement, the Company also issued to the investor a three-year warrant to purchase 250,000 shares of common stock at an exercise price of $7.00. The proceeds were $1,750,000. Consulting fees to the Placement Agent for arranging the Purchase Agreement include the issuance of 5,000 shares of restricted shares of the Company’s common stock, par value $0.001 per share, and 100,000 three-year warrants expiring in February 2022 priced at $10.00. The Company used the Black-Scholes option-pricing model to estimate the fair value of the warrants issued to the selling agent to be $324,000 at the time of issuance as direct issuance costs and recorded in equity. No cash commissions were paid.

On June 17, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with one accredited investor that had a substantial pre-existing relationship with the Company pursuant to which the Company sold 250,000 shares of common stock, par value $0.001 per share, at an offering price of $5.50 per share. The proceeds were $1,375,000. The Company did not pay consulting fees in this transaction.

Between February 15, 2019 and May 23, 2019, the Company closed its fourth tranche of its 2019 January Private Placement debt offering, pursuant to which the Company offered for up to a maximum of $10,000,000 in principal amount of notes (the “2019 PIPE Notes”), with each investor receiving in addition to a 2019 PIPE Notes, 2,000 shares of common stock for each $100,000 invested. The Company entered into subscription agreements with thirty (30) accredited investors that had a substantial pre-existing relationship with the Company pursuant to which the Company received aggregate gross proceeds of $2,890,000 and issued 2019 PIPE Notes in the aggregate principal amount of $2,890,000 and an aggregate of 57,800 shares of common stock. The placement agent received 14,450 shares of common stock for the closed tranches and can receive up to 50,000 shares of common stock in the offering. Each 2019 PIPE Note matures 24 months after issuance, bears interest at a rate of six percent (6%) per annum, and the outstanding principal is convertible into shares of common stock at any time after the 180th day anniversary of the issuance of the 2019 PIPE Note, at a conversion price of $10 per share (subject to adjustment for stock splits, stock dividends and reclassification of the common stock).

On March 18, 2019, the Company issued 8% Notes to two accredited investors that the Company had a substantial pre-existing relationship with and from whom the Company raised cash proceeds in the aggregate of $2,000,000. In addition to the 8% Notes, the Company issued 20,000 shares of common stock par value $0.001 for each $1,000,000 invested as well as for each $1,000,000 invested five-year warrants to purchase 20,000 shares of common stock at a price per share of $6.00. The 8% Notes pay interest at a rate of eight percent (8%) per annum and interest is paid quarterly in arrears with all principal and unpaid interest due at maturity on March 18, 2021. The Company issued an aggregate of 40,000 shares of common stock and warrants to purchase an aggregate of 40,000 shares of common stock with the 8% Notes in the principal amount of $2,000,000.

Issuance of additional common shares and repricing of warrants related to 2018 Private Placement

On March 13, 2019, the Company determined that three of the investors of the Company’s August 2018 Private Placement became eligible to receive additional shares of the Company’s common stock as it was referred to in their respective Purchase Agreement as True-up Shares. Total number of additional shares issued to those three investors was 44,599 shares of the Company’s common stock, par value $0.001. In addition, the exercise price of the warrants issued at their respective closings is reset pursuant to the terms of the warrants to exercise prices ranging from $4.06 to $4.44 from the exercise price at issuance of $4.75.

Convertible Preferred Stock

Series A Convertible Preferred Stock

The Company has 161,135 shares of Series A Convertible Preferred Stock outstanding as of June 30, 2019, and December 31, 2018 and accrued dividends of approximately $143,000 and $137,000, respectively. The holders of the Series A Convertible 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. Each share of Series A Convertible Preferred is convertible into common stock at a conversion rate of 0.10. The holders of Series A Convertible 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 Convertible Preferred have no voting rights, except as required by law.  

Series B Convertible Preferred Stock

On March 30, 2018, the Company completed the Series B Offering, pursuant to which the Company sold 381,173 shares of Series B Convertible Preferred Stock at an offering price of $9.50 per share and received gross proceeds in aggregate of approximately $3,621,000. The net proceeds to the Company from the Series B Offering were approximately $3,289,000 after deducting commissions, closing and issuance costs. Each share of Series B Convertible Preferred Stock is initially convertible at any time, in whole or in part, at the option of the holders, at an initial conversion price of $4.75 per share, into two (2) shares of common stock and automatically converts into two (2) shares of common stock on its two-year anniversary of issuance. Holders of the Series B Convertible Preferred Stock have no voting rights, except as required by law.

The Company has 129,437 shares of Series B Convertible Preferred Stock outstanding as of June 30, 2019 and December 31, 2018. The holders of the Series B Convertible Preferred Stock are entitled to receive cumulative dividends on the Series B Convertible Preferred Stock from the date of original issue at a rate of 5.0% per annum payable quarterly in arrears on or about the last day of March, June, September and December of each year, beginning June 30, 2018. As of June 30, 2019 and December 31, 2018 accrued dividends were approximately $24,000 and $11,000, respectively.

Series C Preferred Stock

Between August 17, 2018 and October 4, 2018, the Company closed three tranches of its Series C Offering, pursuant to which the Company sold 697,363 shares of Series C Convertible Preferred Stock at an offering price of $9.50 per share and agreed to issue two-year warrants (the “Preferred Warrants”) to purchase up to 1,394,726 shares of the Company’s common stock at an exercise price of $4.75 per share to Series C Preferred holders that voluntarily convert their shares of Series C Preferred Stock to the Company’s common stock within two-years from the issuance date. Each share of Series C Convertible Preferred Stock was initially convertible at any time, in whole or in part, at the option of the holders, at an initial conversion price of $4.75 per share, into two (2) shares of common stock and was automatically convertible into two (2) shares of common stock on its two-year anniversary of issuance.

The Company issued the placement agent in connection with the Series C Offering 116,867 warrants as compensation, exercisable at $4.75 per share and expire in December 2020. The Company determined that the warrants should be classified as equity instruments and used Black-Scholes to estimate the fair value of the warrants issued to the placement agent of $458,000 as of the issuance date December 19, 2018.

The Company received aggregate gross proceeds totaling approximately $6,625,000. The net proceeds to the Company from the Series C Offering were approximately $6,236,000 after deducting commissions, closing and issuance costs.

Upon liquidation, dissolution or winding up of the Company, each holder of Series C Preferred Stock was entitled to receive a distribution, to be paid in an amount equal to $9.50 for each and every share of Series C Preferred Stock held by the holders of Series C Preferred Stock, plus all accrued and unpaid dividends in preference to any distribution or payments made or any asset distributed to the holders of common stock, the Series A Preferred Stock, the Series B Preferred Stock or any other class or series of stock ranking junior to the Series C Preferred Stock.

The shares of Series C Convertible Preferred Stock issued in the Series C Offering were sold pursuant to the Company’s Registration Statement, which was declared effective with the SEC on December 10, 2018.

Pursuant to the Certificate of Designation, the Company agreed to pay cumulative dividends on the Series C Convertible Preferred Stock from the date of original issue at a rate of 6.0% per annum payable quarterly in arrears on or about the last day of March, June, September and December of each year, beginning September 30, 2018. In 2018 a total of approximately $51,000 of dividends was paid to the holders of the Series C Convertible Preferred Stock. The Series C Convertible Preferred Stock ranked senior to the Company’s outstanding Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and the common stock with respect to dividend rights and rights upon liquidation, dissolution or winding up. Holders of the Series C Convertible Preferred Stock had no voting rights.

The contingent obligation to issue warrants is considered an outstanding equity-linked financial instrument and was therefore recognized as equity classified warrants, initially measured at relative fair value of approximately $3,727,000, resulting in an initial discount to the carrying value of the Series C Preferred Stock.

Due to the reduction of allocated proceeds to the contingently issuable common stock warrants and Series C Preferred Stock, the effective conversion price of the Series C Preferred Stock was less than the Company’s common stock price on each commitment date, resulting in an aggregate beneficial conversion feature of approximately $3,276,000, which reduced the carrying value of the Series C Preferred Stock. Since the conversion option of the Series C Preferred Stock was immediately exercisable, the beneficial conversion feature was immediately accreted as a deemed dividend, resulting in an increase in the carrying value of the C Preferred Stock of approximately $3,276,000.

The Series C Preferred Stock was automatically redeemable at a price equal to its original purchase price plus all accrued but unpaid dividends in the event the average of the daily volume weighted average price of the Company’s common stock for the 30 days preceding the two-year anniversary date of issuance is less than $6.00 per share.  As redemption was outside of the Company’s control, the Series C Preferred Stock was classified in temporary equity at issuance. All of the Series C Preferred shares were converted to common stock during 2018 and the Company has issued 1,394,726 warrants. As of June 30, 2019 and December 31, 2018, no shares of Series C Convertible Preferred Stock remain outstanding.

Advisory Agreements

The Company records the fair value of common stock and warrants issued in conjunction with investor relations advisory service agreements based on the closing stock price of the Company’s common stock on the measurement date. The fair value of the stock issued is recorded through equity and prepaid advisory fees and amortized over the life of the service agreement.

ProActive Capital Resources Group, LLC

On September 1, 2015, the Company entered into an agreement with ProActive Capital Resources Group, LLC (“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 5,000 shares of restricted common stock to be issued upon successfully meeting certain criteria in accordance with the agreement. Subsequent to the September 1, 2015 initial agreement, the agreement was extended through August 2018 under six-month incremental service agreements under the same terms with the monthly cash payments of $6,000 per month and 5,000 shares of restricted common stock for every six (6) months of service performed.

The stock issuance expense associated with the amortization of advisory fees is recorded as stock issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations for the six months ended June 30, 2018 is approximately $13,000. The Company did not further extend this agreement subsequent to August 2018.

Ignition Capital, LLC

On April 1, 2018, the Company entered into an agreement with Ignition Capital, LLC (“Ignition”), pursuant to which Ignition agreed to provide investor relations services for a period of twenty-one (21) months in exchange for 50,000 shares of restricted common stock which were issued in advance of the service period. The fair value of the shares issued is recorded as prepaid advisory fees and is included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets and is amortized on a pro-rata basis over the term of the agreement. During the three months ended June 30, 2019 and 2018 the Company recorded expense of approximately $30,000 and $30,000, respectively. During the six months ended June 30, 2019 and 2018, the Company recorded expense of approximately $60,000 and $30,000, respectively, in connection with amortization of the stock issuance. The stock issuance expense associated with the amortization of advisory fees is recorded as equity issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations.

Greentree Financial Group, Inc.

On March 27, 2018, the Company entered into an agreement with Greentree Financial Group, Inc. (“Greentree”), pursuant to which Greentree agreed to provide investor relations services for a period of twenty-one (21) months in exchange for 75,000 shares of restricted common stock which were issued in advance of the service period. The fair value of the shares issued is approximately $311,000 and is recorded as prepaid advisory fees and is included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets and is amortized on a pro-rata basis over the term of the agreement. During the three months ended June 30, 2019 and 2018 the Company recorded expense of approximately $45,000 and $44,000, respectively. During the six months ended June 30, 2019 and 2018, the Company recorded expense of approximately $89,000 and $44,000, respectively in connection with amortization of the stock issuance. The stock issuance expense associated with the amortization of advisory fees is recorded as equity issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations.

Capital Market Solutions, LLC.

On July 1, 2018, the Company entered into an agreement with Capital Market Solutions, LLC. (“Capital Market”), pursuant to which Capital Market agreed to provide investor relations services for a period of 18 months in exchange for 100,000 shares of restricted common stock which were issued in advance of the service period. In addition, the Company agreed to pay in cash a base fee of $300,000, payable as follows; $50,000 paid in August 2018, and the remaining balance shall be paid monthly in the amount of $25,000 through January 1, 2019. Subsequent to the initial agreement, the Company extended the term for an additional 24 months through December 31, 2021 and agreed to issue Capital Market an additional 100,000 shares of restricted common stock which were issued in advance of the service period and $125,000 of additional fees.

On January 9, 2019, the Company executed the second amendment to the agreement with Capital Market, pursuant to which, the aggregate base fee increased to $525,000, and the Company issued an additional 75,000 of restricted common stock. In addition, the Company issued to Capital Market a four-year warrant to purchase 925,000 shares of the Company’s common stock at $6.00 per share vesting 50% at issuance on January 9, 2019 and 25% on January 9, 2020 and 25% on January 9, 2021. The fair value of the vested portion of the warrant was approximately $1,927,000 and was recorded as equity on the Company’s balance sheet as of June 30, 2019. During the three and six months ended June 30, 2019, the Company recorded expense of approximately $270,000 and $1,927,000, respectively, in connection with amortization of equity issuance expense related to the vesting of the warrant. The equity issuance expense associated with the amortization of advisory fees is recorded as equity issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations.

The fair value of the common stock shares issued is recorded as prepaid advisory fees and is included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets and is amortized on a pro-rata basis over the term of the agreement. During the three and six months ended June 30, 2019, the Company recorded expense of approximately $129,000 and $257,000, respectively, in connection with amortization of the stock issuance expense. The stock issuance expense associated with the amortization of advisory fees is recorded as equity issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations.

During the three and six months ended June 30, 2019, the Company recorded expense of approximately $50,000 in connection with the base fee. The cash fee paid for advisory services is recorded as equity issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations.

I-Bankers Securities Incorporated

On April 5, 2019, the Company entered into an agreement with I-Bankers Securities Incorporated (“I-Bankers”), pursuant to which I-Bankers agreed to provide financial advisory services for a period of 12 months in exchange for 100,000 shares of restricted common stock which were issued in advance of the service period. In addition, the Company agreed to pay in cash a base fee for debt arrangements and equity offerings in conjunction with any transactions I-Bankers closes with the Company in accordance with the agreement. During the three and six months ended June 30, 2019, the Company recorded expense of approximately $143,000, in connection with amortization of the stock issuance expense. The stock issuance expense associated with the amortization of advisory fees is recorded as equity issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations.

Warrants

As of June 30, 2019, warrants to purchase 6,903,874 shares of the Company's common stock at prices ranging from $2.00 to $10.00 were outstanding. As of June 30, 2019, 6,556,999 warrants are exercisable and expire at various dates through March 2024 and have a weighted average remaining term of approximately 2.23 years and are included in the table below as of June 30, 2019.

The Company uses a combination of option-pricing models to estimate the fair value of the warrants including the Monte Carlo, Lattice and Black-Scholes.

A summary of the warrant activity for the six months ended June 30, 2019 is presented in the following table:

	Number of Warrants
Balance at December 31, 2018		5,876,980
Issued		1,315,000
Expired / cancelled		-
Exercised		(288,106	)
Balance at June 30, 2019, outstanding		6,903,874
Balance at June 30, 2019, exercisable		6,556,999

Stock Options

On May 16, 2012, the Company established the 2012 Stock Option Plan (“Plan”) authorizing the granting of options for up to 9,000,000 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 allows for the grant of: (a) incentive stock options; (b) nonqualified stock options; (c) stock appreciation rights; (d) restricted stock; and (e) other stock-based and cash-based awards to eligible individuals qualifying under Section 422 of the Internal Revenue Code, in any combination (collectively, “Options”). At June 30, 2019, the Company had 3,732,820 shares of common stock available for issuance under the Plan. 

A summary of the Plan stock option activity for the six months ended June 30, 2019 is presented in the following table: 

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contract Life (years)		Aggregate Intrinsic Value (in thousands)
Outstanding December 31, 2018		2,394,379		$	4.45		6.94	$	3,049
Issued		2,540,062			6.66
Canceled / expired		(133,085	)		4.75
Exercised		(85,054	)		4.36				-
Outstanding June 30, 2019		4,716,302		$	5.63		8.13	$	2,907
Exercisable June 30, 2019		3,719,801		$	5.96		8.03	$	1,642

The weighted-average fair value per share of the granted options for the six months ended June 30, 2019 was approximately $4.26.

Stock-based compensation expense included in the condensed consolidated statements of operations was $393,000 and $123,000 for the three months ended June 30, 2019 and 2018, respectively, and $11,642,000 and $245,000 for the six months ended June 30, 2019 and 2018, respectively.

As of June 30, 2019, there was approximately $1,543,000 of total unrecognized compensation expense related to unvested stock options granted under the Plan. The expense is expected to be recognized over a weighted-average period of 1.44 years.

The Company uses the Black-Scholes to estimate the fair value of stock options. 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 Company’s 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. 

Restricted Stock Units

On August 9, 2017, the Company issued restricted stock units for an aggregate of 500,000 shares of common stock, to its employees and consultants. These shares of common stock will be issued upon vesting of the restricted stock unit (“RSU’s”). Full vesting occurs on the sixth-year anniversary of the grant date, with 10% vesting on the third-year, 15% on the fourth-year, 50% on the fifth-year and 25% on the sixth-year anniversary of the vesting commencement date. As of June 30, 2019, none of the RSU’s have vested. There were no grants during the six months ended June 30, 2019 and 2018.

The Company adopted ASU 2018-07 on January 1, 2019 and the stock-based compensation expense for non-employee grants is based on the closing price of our common stock of $5.72 on December 31, 2018, which was the last business day before we adopted ASU 2018-07. See Note 1 above, Recently Adopted Accounting Pronouncements for further discussion of the Company’s adoption of ASU 2018-07.

The fair value of each RSU’s issued to employees is based on the closing stock price on the grant date of $4.53 and is recognized as stock-based compensation expense over the vesting term of the award.

	Number of Shares
Balance at December 31, 2018		475,000
Issued		-
Canceled		(50,000	)
Balance at June 30, 2019		425,000

Stock-based compensation expense related to the RSU’s included in the condensed consolidated statements of operations was $20,000 and $92,000 for the three months ended June 30, 2019 and 2018, respectively, and $115,000 and $207,000 for the six months ended June 30, 2019 and 2018, respectively.

As of June 30, 2019, total unrecognized stock-based compensation expense related to restricted stock units to employees and consultants was approximately $1,383,000, which will be recognized over a weighted average period of 4.11 years.

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Segment and Geographical Information

6 Months Ended

Jun. 30, 2019

Segment Reporting [Abstract]

Segment and Geographical Information

The Company is a leading multi-channel lifestyle company offering a hybrid of the direct selling business model that also offers e-commerce and the power of social selling. Assembling a virtual main street of products and services under one corporate entity, Youngevity offers products from top selling retail categories: health/nutrition, home/family, food/beverage (including coffee), spa/beauty, apparel/jewelry, as well as innovative services. The Company operates in three segments: the direct selling segment where products are offered through a global distribution network of preferred customers and distributors, the commercial coffee segment where roasted and green coffee bean products are sold directly to businesses, and commercial hemp segment provides end to end extraction and processing via the Company’s proprietary systems that allow for the conversion of hemp feed stock into hemp oil and hemp extracts.  The primary focus of the segment will be to generate revenue through sales of extraction services and end to end processing services for the conversion of Hemp and Hemp oil into sellable ingredients.  Additionally, the Company offers various rental, sales, and service programs of the company’s extraction and processing systems.

The Company’s segments reflect the manner in which the business is managed and how the Company allocates resources and assesses performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company’s 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.

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):

	Three months ended						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenues
Direct selling	$	32,124		$	36,846		$	65,544		$	72,157
Commercial coffee		21,289			7,409			44,102			15,092
Commercial hemp		274			-			341			-
Total revenues	$	53,687		$	44,255		$	109,987		$	87,249
Gross profit
Direct selling	$	22,240		$	25,087		$	44,995		$	49,822
Commercial coffee		3,731			295			7,798			572
Commercial hemp		(49	)		-			(22	)		-
Total gross profit	$	25,922		$	25,382		$	52,771		$	50,394
Operating income (loss)
Direct selling	$	(818	)	$	1,376		$	(13,126	)	$	2,157
Commercial coffee		2,117			(723	)		3,001			(1,480	)
Commercial hemp		(911	)		-			(1,428	)		-
Total operating income (loss)	$	388		$	653		$	(11,553	)	$	677
Net (loss) income
Direct selling	$	(1,250	)	$	723		$	(14,627	)	$	132
Commercial coffee		2,148			(1,337	)		3,781			(3,054	)
Commercial hemp		(945	)		-			(1,461	)		-
Total net loss	$	(47	)	$	(614	)	$	(12,307	)	$	(2,922	)
Capital expenditures
Direct selling	$	63		$	28		$	80		$	115
Commercial coffee		843			51			3,415			730
Commercial hemp		99			-			1,482			-
Total capital expenditures	$	1,005		$	79		$	4,977		$	845

	As of
	June 30, 2019 (unaudited)		December 31, 2018
Total assets
Direct selling	$	40,315	$	38,947
Commercial coffee		75,113		37,026
Commercial hemp		21,096		-
Total assets	$	136,524	$	75,973

Total tangible assets, net located outside the United States were approximately $8.0 million and $6.2 million as of June 30, 2019 and December 31, 2018, respectively.

The Company conducts its operations primarily in the United States. For the three months ended June 30, 2019 and 2018 approximately 10% and 14%, respectively, of the Company’s sales were derived from sales outside the United States. For the six months ended June 30, 2019 and 2018 approximately 10% and 14%, respectively, of the Company’s sales were derived from sales outside the United States.

The following table displays revenues attributable to the geographic location of the customer (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2019		2018		2019		2018
Revenues
United States	$	48,105	$	37,980	$	98,995	$	75,373
International		5,582		6,275		10,992		11,876
Total revenues	$	53,687	$	44,255	$	109,987	$	87,249

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Subsequent Events

6 Months Ended

Jun. 30, 2019

Subsequent Events [Abstract]

Subsequent Events

None.

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Basis of Presentation and Description of Business (Policies)

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations.

Youngevity International, Inc. (the “Company”) consolidates all wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The statements presented as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 are unaudited. In the opinion of management, these financial statements reflect all normal recurring and other adjustments necessary for a fair presentation, and to make the financial statements not misleading. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2018, filed with the SEC on April 15, 2019. The results for interim periods are not necessarily indicative of the results for the entire year.

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.  During the year ended December 31, 2018 the Company operated 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. During the first quarter of 2019, the Company through the acquisition of the assets of Khrysos Global, Inc. added a third business segment to its operations, the commercial hemp segment. The Company's three segments are listed below:

● Domestic direct selling network is operated through the following (i) domestic subsidiaries: AL Global Corporation, 2400 Boswell LLC, MK Collaborative LLC, and Youngevity Global LLC and (ii) foreign subsidiaries: Youngevity Australia Pty. Ltd., Youngevity NZ, Ltd., Youngevity Mexico S.A. de CV, Youngevity Israel, Ltd., Youngevity Russia, LLC, Youngevity Colombia S.A.S, Youngevity International Singapore Pte. Ltd., Mialisia Canada, Inc. and Legacy for Life Limited (Hong Kong). The Company also operates through the BellaVita Group LLC, with operations in Taiwan, Hong Kong, Singapore, Indonesia, Malaysia and Japan. The Company also operates subsidiary branches of Youngevity Global LLC in the Philippines and Taiwan. Commercial coffee business is operated through CLR Roasters LLC (“CLR”) and its wholly owned subsidiary, Siles Plantation Family Group S.A. (“Siles”).

● Commercial hemp business is operated through the Company’s wholly owned subsidiary, Khrysos Industries, Inc., a Delaware corporation. Khrysos Industries, Inc. acquired the assets of Khrysos Global Inc. a Florida corporation in February 2019 and the wholly-owned subsidiaries of Khrysos Global Inc., INXL Laboratories, Inc., a Florida corporation and INX Holdings, Inc., a Florida corporation.

Segment Information

The Company has three reportable segments: direct selling, commercial coffee, and commercial hemp. 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 three reportable segments is based upon the guidance set forth in Accounting Standards Codification (“ASC”) Topic 280, “Segment Reporting.”  During the three months ended June 30, 2019, the Company derived approximately 59.8% of its revenue from its direct selling segment and approximately 39.7% of its revenue from its commercial coffee segment and 0.5% from the commercial hemp segment. During the three months ended June 30, 2018, the Company had two reportable segments and derived approximately 83% of its revenue from its direct selling segment and approximately 17% of its revenue from its commercial coffee segment.

During the six months ended June 30, 2019, the Company derived approximately 59.6% of its revenue from its direct selling segment and approximately 40.1% of its revenue from its commercial coffee segment and 0.3% from the commercial hemp segment. During the six months ended June 30, 2018, the Company had two reportable segments and derived approximately 83% of its revenue from its direct selling segment and approximately 17% of its revenue from its commercial coffee segment.

Liquidity and Going Concern

The accompanying condensed consolidated financial statements have been prepared and presented on a basis assuming the Company will continue as a going concern. The Company has sustained significant net losses during the six months ended June 30, 2019 and 2018 of approximately $12,307,000 and $2,922,000, respectively. Net cash used in operating activities was approximately $5,381,000 and $1,676,000 for the six months ended June 30, 2019 and 2018, respectively. The Company does not currently believe that its existing cash resources are sufficient to meet the Company’s anticipated needs over the next twelve months from the date hereof. Based on its current cash levels and its current rate of cash requirements, the Company will need to raise additional capital and/or will need to further reduce its expenses from current levels. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The Company anticipates that revenues will grow, and it intends to make necessary cost reductions related to international operations that are not performing well and reduce non-essential expenses.

The Company is also considering multiple other fund-raising alternatives. 

On March 18, 2019, the Company entered into a two-year Secured Promissory Note (the “Note” or “Notes”) with two (2) accredited investors that had a substantial pre-existing relationship with the Company pursuant to which the Company raised cash proceeds of $2,000,000. (See Note 6, below)

Between February 2019 and May 2019, the Company closed four tranches of its current 2019 January Private Placement debt offering, pursuant to which the Company offered for sale up to $10,000,000 in principal amount of notes (the “2019 PIPE Notes”), with each investor receiving 2,000 shares of common stock for each $100,000 invested. The Company received aggregate gross proceeds of $2,890,000 and issued the 2019 PIPE Notes in the aggregate principal amount of $2,890,000. (See Note 7, below)

On February 6, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with one accredited investor that had a substantial pre-existing relationship with the Company pursuant to which the Company sold 250,000 shares of the Company’s common stock, par value $0.001 per share, at an offering price of $7.00 per share. Pursuant to the Purchase Agreement, the Company also issued to the investor a three-year warrant to purchase 250,000 shares of common stock at an exercise price of $7.00. The proceeds to the Company were $1,750,000. Consulting fees for arranging the Purchase Agreement include the issuance of 5,000 shares of restricted shares of the Company’s common stock, par value $0.001 per share, and a 3-year warrant priced at $10.00 per share convertible into 100,000 shares of the Company’s common stock upon exercise. No cash commissions were paid.

On January 7, 2019, the Company entered into an At-the-Market Offering Agreement (the “ATM Agreement”) with The Benchmark Company, LLC (“Benchmark”), as sales agent, pursuant to which the Company may sell from time to time, at its option, shares of its common stock, par value $0.001 per share, through Benchmark, as sales agent (the “Sales Agent”), for the sale of up to $60,000,000 of shares of the Company’s common stock. The Company is not obligated to make any sales of common stock under the ATM Agreement and the Company cannot provide any assurances that it will issue any shares pursuant to the ATM Agreement. The Company will pay the Sales Agent 3.0% commission of the gross sales proceeds. In February 2019, the Company sold a total of 1,000 shares of common stock under the ATM Agreement for an aggregate purchase price of $6.6118 pursuant to the ATM Agreement. The Company did not use the ATM Agreement during the three months ended June 30, 2019.

Depending on market conditions, there can be no assurance that additional capital will be available when needed or that, if available, it will be obtained on terms favorable to the Company or to its stockholders.

Failure to raise additional funds from the issuance of equity securities and failure to implement cost reductions could adversely affect the Company’s ability to operate as a going concern. The financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires the Company 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 the Company’s stock-based compensation plan, fair value of assets and liabilities acquired in business combinations, finance 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.

Related Party Transactions

Richard Renton

Richard Renton is a member of the Board of Directors and owns and operates WVNP, Inc., a supplier of certain inventory items sold by the Company.  The Company made purchases of approximately $103,000 and $63,000 from WVNP Inc., for the three months ended June 30, 2019 and 2018, respectively, and $111,000 and $117,000 for the six months ended June 30, 2019 and 2018, respectively.

Carl Grover

Carl Grover is the sole beneficial owner of in excess of five percent (5%) of the Company’s outstanding common shares. On December 13, 2018, CLR, entered into a Credit Agreement with Mr. Grover (the “Credit Agreement”) pursuant to which CLR borrowed $5,000,000 from Mr. Grover and in exchange issued to him a $5,000,000 credit note (“Credit Note”) secured by its green coffee inventory under a Security Agreement, dated December 13, 2018 (the “Security Agreement”), with Mr. Grover and CLR’s subsidiary, Siles Family Plantation Group S.A. (“Siles”), as guarantor, and Siles executed a separate Guaranty Agreement (“Guaranty”). The Company issued to Mr. Grover a four-year warrant to purchase 250,000 shares of its common stock, exercisable at $6.82 per share, and a four-year warrant to purchase 250,000 shares of the Company’s common stock, exercisable at $7.82 per share, pursuant to a Warrant Purchase Agreement, dated December 13, 2018, with Mr. Grover. (See Note 6 below.)

On July 31, 2019, Mr. Grover acquired 600,242 shares of the Company’s common stock, $.001 par value, upon the partial exercise at $4.60 per share of a July 31, 2014 warrant to purchase 782,608 shares of common stock held by him. In connection with such exercise, the Company received $2,761,113 from Mr. Grover, issued to Mr. Grover 50,000 shares of restricted common stock as an inducement fee and agreed to extend the expiration date of the July 31, 2014 warrant held by him to December 15, 2020 with respect to 182,366 shares of common stock remaining for exercise thereunder.

Paul Sallwasser

Mr. Paul Sallwasser is a member of the board directors and prior to joining the Company’s Board of Directors he acquired a note (the “2014 Note”) issued in the Company’s private placement consummated in 2014 (the “2014 Private Placement”) in the principal amount of $75,000 convertible into 10,714 shares of common stock and a warrant (the “2014 Warrant”) issued, in the 2014 Private Placement, exercisable for 14,673 shares of common stock. Prior to joining the Company’s Board of Directors, Mr. Sallwasser acquired in the 2017 Private Placement a 2017 Note in the principal amount of approximately $38,000 convertible into 8,177 shares of common stock and a warrant (the “2017 Warrant”) issued, in the 2017 Private Placement, exercisable for 5,719 shares of common stock. Mr. Sallwasser also acquired in the 2017 Private Placement in exchange for the “2015 Note” that he acquired in the Company’s private placement consummated in 2015 (the “2015 Private Placement”), a 2017 Note in the principal amount of $5,000 convertible into 1,087 shares of common stock and a 2017 Warrant exercisable for 543 shares of common stock. On March 30, 2018, the Company completed its Series B Offering, and in accordance with the terms of the 2017 Notes, Mr. Sallwasser’s 2017 Notes converted to 9,264 shares of the Company’s common stock.

2400 Boswell LLC

In March 2013, the Company acquired 2400 Boswell for approximately $4,600,000. 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 the Company’s Chief Executive Officer and consisted of approximately $248,000 in cash, approximately $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 with an initial interest rate of 5.75%. The interest rate is the prime rate plus 2.5%. The current interest rate as of June 30, 2019 was 8.0%. The lender will adjust the interest rate on the first calendar day of each change period or calendar quarter. The Company and its Chief Executive Officer are both co-guarantors of the mortgage. As of June 30, 2019, the balance on the long-term mortgage is approximately $3,180,000 and the balance on the promissory note is zero.

Other Relationship Transactions

Hernandez, Hernandez, Export Y Company and H&H Coffee Group Export Corp.

The Company’s commercial coffee segment, CLR, is associated with Hernandez, Hernandez, Export Y Company (“H&H”), a Nicaragua company, through sourcing arrangements to procure Nicaraguan grown green coffee beans. In March 2014, as part of the Siles acquisition, CLR engaged the owners of H&H as employees to manage Siles. H&H is a sourcing agent acting on behalf of CLR for purchases of coffee from the producers. In consideration for H&H's sourcing of green coffee, CLR and H&H share in the green coffee profit from operations. H&H made purchases for CLR of approximately $12,641,000 and $3,339,000 for the three months ended June 30, 2019 and 2018, respectively and $30,161,000 and $7,073,000 for the six months ended June 30, 2019 and 2018, respectively.

In addition, CLR sold approximately $14,915,000 and $859,000 for the three months ended June 30, 2019 and 2018, respectively, and $34,941,000 and $3,302,000 for the six months ended June 30, 2019 and 2018, respectively, of green coffee beans to H&H Coffee Group Export Corp., (“H&H Export”) a Florida based company which is affiliated with H&H.

As of June 30, 2019 and December 31, 2018, CLR’s accounts payable for vendor related purchases by H&H Export were approximately $24,959,000 and $1,633,000, respectively. As of June 30, 2019 and December 31, 2018, CLR’s accounts receivable for customer related revenue by H&H Export were approximately $32,056,000 and $673,000, respectively. Also, see the section below “Other.”

In May 2017, the Company entered a settlement agreement with Alain Piedra Hernandez, one of the owners of H&H and the operating manager of Siles, who was issued a non-qualified stock option for the purchase of 75,000 shares of the Company’s common stock at a price of $2.00 with an expiration date of three years, in lieu of an obligation due from the Company to H&H as it relates to a Sourcing and Supply Agreement with H&H. During the period ended September 30, 2017 the Company replaced the non-qualified stock option and issued a warrant agreement with the same terms. There was no financial impact related to the cancellation of the option and the issuance of the warrant. As of June 30, 2019, the warrant remains outstanding.

In December 2018, CLR advanced $5,000,000 to H&H Export to provide services in support of a 5-year contract for the sale and processing of 41 million pounds of green coffee beans on an annual basis. The services include providing hedging and financing opportunities to producers and delivering harvested coffee to the Company’s mills.  On March 31, 2019, this advance was converted to a $5,000,000 loan agreement as a note receivable and bears interest at 9% per annum and is due and payable by H&H Export at the end of each year’s harvest season, but no later than October 31 for any harvest year. The loan is secured by H&H Export’s hedging account with INTL FC Stone, trade receivables, green coffee inventory in the possession of H&H Export and all green coffee contracts. As of June 30, 2019, the $5,097,000 note receivable remains outstanding which includes accrued interest.

Mill Construction Agreement

On January 15, 2019, CLR entered into the CLR Siles Mill Construction Agreement (the “Mill Construction Agreement”) with H&H and H&H Export, Alain Piedra Hernandez (“Hernandez”) and Marisol Del Carmen Siles Orozco (“Orozco”), together with H&H, H&H Export, Hernandez and Orozco, collectively referred to as the Nicaraguan Partner, pursuant to which the Nicaraguan Partner agreed to transfer a 45 acre tract of land in Matagalpa, Nicaragua (the “Property”) to be owned 50% by the Nicaraguan Partner and 50% by CLR. In consideration for the land acquisition the Company issued to H&H Export, 153,846 shares of common stock. In addition, the Nicaraguan Partner and CLR agreed to contribute $4,700,000 each toward the construction of a processing plant, office, and storage facilities (“Mill”) on the property for processing coffee in Nicaragua. As of June 30, 2019, the Company paid $3,350,000 towards construction of a mill, which is included in construction in process within property and equipment, net on the Company's condensed consolidated balance sheet.

Amendment to Operating and Profit-Sharing Agreement

On January 15, 2019, CLR entered into an amendment to the March 2014 operating and profit-sharing agreement with the owners of H&H. CLR previously engaged Hernandez and Orozco, the owners of H&H as employees to manage Siles. In addition, CLR and H&H, Hernandez and Orozco have agreed to restructure their profit-sharing agreement in regard to profits from green coffee sales and processing that increases CLR’s profit participation by an additional 25%. Under the new terms of the agreement with respect to profit generated from green coffee sales and processing from La Pita, a leased mill, or the new mill, now will provide for a split of profits of 75% to CLR and 25% to the Nicaraguan Partner, after certain conditions are met. The Company issued 295,910 shares of the Company’s common stock to H&H Export to pay for certain working capital, construction and other payables. In addition, H&H Export has sold to CLR its espresso brand Café Cachita in consideration of the issuance of 100,000 shares of the Company’s common stock. Hernandez and Orozco are employees of CLR. The shares of common stock issued were valued at $7.50 per share.

Revenue Recognition

The Company recognizes revenue from product sales when the following five steps are completed: i) Identify the contract with the customer; ii) Identify the performance obligations in the contract; iii) Determine the transaction price; iv) Allocate the transaction price to the performance obligations in the contract; and v) Recognize revenue when (or as) each performance obligation is satisfied (see Note 3, below).

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

The transaction price for all sales is based on the price reflected in the individual customer's contract or purchase order. Variable consideration has not been identified as a significant component of the transaction price for any of our transactions.

Independent distributors receive compensation which is recognized as Distributor Compensation in the Company’s consolidated statements of operations. Due to the short-term nature of the contract with the customers, the Company accrues all distributor compensation expense in the month earned and pays the compensation the following month.

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 Company’s distributors are required to pay a one-time enrollment fee and receive a welcome kit specific to that country or region that consists of forms, policy and procedures, selling aids, access to the Company’s distributor website and a genealogy position with no down line distributors.

The Company has determined that most contracts will be completed in less than one year. For those transactions where all performance obligations will be satisfied within one year or less, the Company is applying the practical expedient outlined in ASC 606-10-32-18. This practical expedient allows the Company not to adjust promised consideration for the effects of a significant financing component if the Company expects at contract inception the period between when the Company transfers the promised good or service to a customer and when the customer pays for that good or service will be one year or less. For those transactions that are expected to be completed after one year, the Company has assessed that there are no significant financing components because any difference between the promised consideration and the cash selling price of the good or service is for reasons other than the provision of financing.

Deferred Revenues and Costs

As of June 30, 2019 and December 31, 2018, the balance in deferred revenues was approximately $2,260,000 and $2,312,000, respectively. Deferred revenue related to the Company’s direct selling segment is attributable to the Heritage Makers product line and also for future Company convention and distributor events.

Deferred revenues related to Heritage Makers were approximately $2,065,000 and $2,153,000, as of June 30, 2019, and December 31, 2018, respectively. The deferred revenue represents Heritage Maker’s 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.

Deferred costs relate to Heritage Makers prepaid commissions that are recognized in expense at the time the related revenue is recognized. As of June 30, 2019 and 2018, the balance in deferred costs was approximately $295,000 and $455,000, respectively, and is included in prepaid expenses and current assets.

Deferred revenues related to pre-enrollment in upcoming conventions and distributor events of approximately $173,000 and $159,000 as of June 30, 2019 and December 31, 2018, respectively, relate primarily to the Company’s 2019 and 2018 events. The Company does not recognize this revenue until the conventions or distributor events occur.

Plantation Costs

The Company’s commercial coffee segment includes the results of Siles, which is a 500-acre coffee plantation and a dry-processing facility located on 26 acres 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 GAAP, plantation maintenance and harvesting costs for commercially producing coffee farms are charged against earnings when sold. Deferred harvest costs accumulate and are capitalized 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 costs are then recognized as the inventory value. Deferred costs associated with the harvest as of June 30, 2019 and December 31, 2018 are approximately $150,000 and $400,000, respectively, and are included in prepaid expenses and other current assets on the Company’s balance sheets.

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.

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.

Income taxes for the interim periods are computed using the effective tax rates estimated to be applicable for the full fiscal year, as adjusted for any discrete taxable events that occur during the period.

The Company files income tax returns in the United States (“U.S.”) on a federal basis and in many U.S. state and foreign jurisdictions. Certain tax years remain open to examination by the major taxing jurisdictions to which the Company is subject.

Commitments and Contingencies

Litigation

The Company is from time to time, the subject of claims and suits arising out of matters related to the Company’s business. The Company is party to litigation at the present time and may become party to litigation in the future. In general, litigation claims can be expensive, and time consuming to bring or defend against and could result in settlements or damages that could significantly affect financial results. It is not possible to predict the final resolution of the current litigation to which the Company is party to, and the impact of certain of these matters on the Company’s business, results of operations, and financial condition could be material. Regardless of the outcome, litigation has adversely impacted the Company’s business because of defense costs, diversion of management resources and other factors.

Other (Concentration)

Vendor Concentration

The Company purchases its inventory from multiple third-party suppliers at competitive prices. For the three months ended June 30, 2019, the Company’s commercial coffee segment made purchases from one vendor, H&H Export, that individually comprised more than 10% of total purchases and in aggregate approximated 90% of total purchases. For the six months ended June 30, 2019, the Company’s commercial coffee segment made purchases from one vendor, H&H Export, that individually comprised more than 10% of total purchases and in aggregate approximated 92% of total purchases.

The Company purchases its inventory from multiple third-party suppliers at competitive prices. For the three months ended June 30, 2018, the Company’s commercial coffee segment made purchases from three vendors, H&H Export, Rothfos Corporation and Sixto Packaging that individually comprised more than 10% of total purchases and in aggregate approximated 64% of total purchases. For the six months ended June 30, 2018, the Company’s commercial coffee segment made purchases from two vendors, H&H Export and Rothfos Corporation, that individually comprised more than 10% of total purchases and in aggregate approximated 86% of total purchases.

For the three months ended June 30, 2019, the Company’s direct selling segment made purchases from two vendors, Global Health Labs, Inc. and Michael Schaeffer, LLC., that individually comprised more than 10% of total purchases and in aggregate approximated 46% of total purchases. For the six months ended June 30, 2019, the Company’s direct selling segment made purchases from two vendors, Global Health Labs, Inc. and Michael Schaeffer, LLC., that individually comprised more than 10% of total purchases and in aggregate approximated 41% of total purchases.

For the three months ended June 30, 2018, the Company’s direct selling segment made purchases from three vendors, Global Health Labs, Inc., Purity Supplements and Nutritional Engineering, that individually comprised more than 10% of total purchases and in aggregate approximated 58% of total purchases. For the six months ended June 30, 2018, the Company’s direct selling segment made purchases from two vendors, Global Health Labs, Inc. and Purity Supplements, that individually comprised more than 10% of total purchases and in aggregate approximated 45% of total purchases.

For the three months ended June 30, 2019, the Company’s hemp segment made purchases from three vendors, Lab1st, Bio Processing Corp., and ADM Labs, that individually comprised more than 10% of total purchases and in aggregate approximated 63% of total purchases. For the six months ended June 30, 2019, the Company’s hemp segment made purchases from two vendors, Lab1st and Bio Processing Corp., that individually comprised more than 10% of total purchases and in aggregate approximated 41% of total purchases.

Customer Concentration

For the three months ended June 30, 2019, the Company’s commercial coffee segment had two customers, H&H Export and Rothfos Corporation that individually comprised more than 10% of revenue and in aggregate approximated 84% of total revenue. For the six months ended June 30, 2019, the Company’s commercial coffee segment had one customer, H&H Export that individually comprised more than 10% of revenue and in aggregate approximated 79% of total revenue.

For the three months ended June 30, 2018, the Company’s commercial coffee segment had two customers, H&H Export and Rothfos Corporation that individually comprised more than 10% of revenue and in aggregate approximated 62% of total revenue. For the six months ended June 30, 2018, the Company’s commercial coffee segment had two customers, H&H Export and Rothfos Corporation that individually comprised more than 10% of revenue and in aggregate approximated 62% of total revenue.

For the three months ended June 30, 2019, the Company’s hemp segment had three customers, Xtraction Services, Air Spec and David Shin that individually comprised more than 10% of revenue and in aggregate approximated 50% of total revenue. For the six months ended June 30, 2019, the Company’s hemp segment had three customers, Xtraction Services, Air Spec and David Shin that individually comprised more than 10% of revenue and in aggregate approximated 54% of total revenue.

The direct selling segment did not have any customers during the three and six months ended June 30, 2019 that comprised more than 10% of revenue.

The Company has purchase obligations related to minimum future purchase commitments for green coffee to be used in the Company’s commercial coffee segment. 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 June 30, 2019, have minimum future purchase commitments of approximately $5,680,000, which are to be delivered in 2019. 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.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Subtopic 350-40 clarifies the accounting for implementation costs of a hosting arrangement that is a service contract and aligns that accounting, regardless of whether the arrangement conveys a license to the hosted software. The amendments in this update are effective for reporting periods beginning after December 15, 2019, with early adoption permitted. The Company does not expect this new guidance to have a material impact on its condensed consolidated financial statements. 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. Topic 820 removes or modifies certain current disclosures and adds additional disclosures. The changes are meant to provide more relevant information regarding valuation techniques and inputs used to arrive at measures of fair value, uncertainty in the fair value measurements, and how changes in fair value measurements impact an entity's performance and cash flows. Certain disclosures in Topic 820 will need to be applied on a retrospective basis and others on a prospective basis. Topic 820 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. The Company expects to adopt the provisions of this guidance on January 1, 2020 and is currently evaluating the impact that Topic 820 will have on its related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the test for goodwill impairment by removing Step 2 from the goodwill impairment test. Companies will now perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value not to exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in this update are effective for goodwill impairment tests in fiscal years beginning after December 15, 2019 for public companies, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. The Company does not expect this new guidance to have a material impact on its condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based Payment Accounting. The intention of ASU 2018-07 is to expand the scope of Topic 718 to include share-based payment transactions in exchange for goods and services from nonemployees. These share-based payments will now be measured at grant-date fair value of the equity instrument issued. Upon adoption, only liability-classified awards that have not been settled and equity-classified awards for which a measurement date has not been established should be remeasured through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Topic 718 is effective for fiscal years beginning after December 15, 2018 and is applied retrospectively. The Company adopted the provisions of this guidance on January 1, 2019 and the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, Topic 220. The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (H.R.1) (the Act). Consequently, the amendments eliminate the stranded tax effects resulting from the Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this Update also require certain disclosures about stranded tax effects. Topic 220 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company adopted the provisions of this guidance on January 1, 2019 and the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Topic 260 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted classified as liabilities. A company will recognize the value of a down round feature only when it is triggered, and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, such as warrants, an entity will treat the value of the effect of the down round, when triggered, as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in Topic 260 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company adopted Topic 260, Topic 480 and Topic 815 effective January 1, 2019 and determined that it’s 2018 warrants were to no longer be classified as a derivative, as a result of the adoption and subsequent change in classification of the 2018 warrants, the company reclassed approximately $1,494,000 of warrant derivative liability to equity.

In February 2016, FASB established Topic 842, Leases, by issuing ASU No. 2016-02, Leases (Topic 842) which required lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; ASU No. 2018-20, Narrow-Scope Improvements for Lessors; and ASU 2019-01, Codification Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The amendments were adopted by the Company on January 1, 2019. A modified retrospective transition approach is required, applying the standard to all leases existing at the date of initial application. The Company elects to use its effective date as its date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direction costs. In addition, the Company elected the practical expedient to use hindsight when determining lease terms.  The practicable expedient pertaining to land easement is not applicable to the Company. The Company continues to assess all of the effects of adoption, with the most significant effect relating to the recognition of new ROU assets and lease liabilities on the Company’s balance sheet for real estate operating leases.  The Company adopted the provisions of this guidance on January 1, 2019 and accordingly recognized additional operating liabilities of approximately $5,509,000 with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

Following the expiration of the Company’s Emerging Growth Company filing status (“EGC”) on December 31, 2018 the Company adopted the following accounting pronouncements effective January 1, 2018.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), to supersede nearly all existing revenue recognition guidance under GAAP. Topic 606 also requires new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations. The Company adopted the provision of this guidance using the modified retrospective approach. The Company has performed an assessment of its revenue contracts as well as worked with industry participants on matters of interpretation and application and has not identified any material changes to the timing or amount of its revenue recognition under Topic 606. The Company’s accounting policies did not change materially as a result of applying the principles of revenue recognition from Topic 606 and are largely consistent with existing guidance and current practices applied by the Company. (See Note 3, below.)

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Basic and Diluted Net Loss Per Share (Tables)

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Loss per share

	Three Months Ended June 30, (unaudited)						Six Months Ended June 30, (unaudited)
	2019			2018			2019			2018
Loss per Share – Basic
Numerator for basic loss per share	$	(75,000	)	$	(656,000	)	$	(12,349,000	)	$	(2,967,000	)
Denominator for basic loss per share		29,133,150			21,506,833			28,359,660			20,630,383
Loss per common share - basic	$	(0.00	)	$	(0.03	)	$	(0.44	)	$	(0.14	)
Loss per Share - Diluted
Numerator for basic loss per share	$	(75,000	)	$	(656,000	)	$	(12,349,000	)	$	(2,967,000	)
Adjust: Fair value of dilutive warrants outstanding		(357,000	)		—			(1,478,000	)		—
Numerator for dilutive loss per share	$	(432,000	)	$	(656,000	)	$	(13,827,000	)	$	(2,967,000	)
Denominator for basic loss per share		29,133,150			21,506,833			28,359,660			20,630,383
Adjust: Incremental shares underlying “in the money” warrants outstanding		224,197			—			340,635			—
Denominator for dilutive loss per share		29,357,347			21,506,833			28,700,295			20,630,383
Loss per common share - diluted	$	(0.02	)	$	(0.03	)	$	(0.48	)	$	(0.14	)

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Balance Sheet Account Details (Tables)

6 Months Ended

Jun. 30, 2019

Balance Sheet Related Disclosures [Abstract]

Inventories

	As of
	June 30, 2019			December 31, 2018
	(unaudited)
Finished goods	$	12,602		$	11,300
Raw materials		14,622			12,744
Total inventory		27,224			24,044
Reserve for excess and obsolete		(2,427	)		(2,268	)
Inventory, net	$	24,797		$	21,776

Leases

Leases	Classification	June 30, 2019 (unaudited)
Assets
Operating lease right-of-use assets	Operating Lease Right-of-Use Assets	$	5,481
Finance lease right-of-use assets	Property, plant and equipment, net at cost, net of Accumulated Depreciation (1)		1,283
Total leased assets		$	6,764
Liabilities
Current
Operating	Other Current Liabilities	$	772
Finance	Current Portion of Long-term Debt		1,103
Noncurrent
Operating	Non-current Operating Lease Liabilities		4,708
Finance	Long-term Debt, net of current portion		778
Total lease liabilities		$	7,361

(1) Finance lease assets are recorded net of accumulated amortization of approximately $525,000 as of June 30, 2019 and $522,000 as of March 31, 2019.  

Lease cost

		Three Months Ended				Six Months Ended
Lease Cost	Classification	June 30, 2019 (unaudited)		June 30, 2018  (unaudited)		June 30, 2019  (unaudited)		June 30, 2018 (unaudited)
Operating lease cost	SG&A Expenses	$	271	$	—	$	542	$	—
Finance lease cost
Amortization of leased assets	Depreciation and Amortization		94		—		190		—
Interest on lease liabilities	Net Interest Expense		34		—		7		—
Net lease cost		$	399	$	—	$	803	$	—

Annual scheduled lease payments

	Operating Leases		Finance Leases
2019	$	1,055	$	1,213
2020		764		699
2021		657		95
2022		391		15
2023		628		9
Thereafter		3,490		8
Total lease payments		6,985		2,039
Less imputed interest		1,505		158
Present value of lease liabilities	$	5,480	$	1,881

Weighted-average remaining lease term and weighted-average discount rate

Lease Term and Discount Rate	June 30, 2019   (unaudited)
Weighted-average remaining lease term (years)
Operating leases		5.6
Finance leases		1.98
Weighted-average discount rate
Operating leases		5.5	%
Finance leases		9.0	%

Disaggregation of revenue

	Three Months Ended June 30, (unaudited)				Six Months Ended June 30, (unaudited)
	2019		2018		2019		2018
Direct Selling Segment	$	32,124	$	36,846	$	65,544	$	72,157
Commercial Coffee - coffee roaster		3,289		2,882		6,069		9,512
Commercial Coffee - green coffee		18,000		4,527		38,033		5,580
Commercial Hemp		274		-		341		-
Total revenue	$	53,687	$	44,255	$	109,987	$	87,249

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Acquisitions and Business Combinations (Tables)

6 Months Ended

Jun. 30, 2019

Business Combinations [Abstract]

Assets acquired and liabilities assumed

Present value of cash consideration	$	1,894
Estimated fair value of common stock issued		12,649
Aggregate purchase price	$	14,543

Current assets	$	211
Inventory		1,264
Property, plant and equipment		2,260
Trademarks and trade name		1,876
Customer-related intangible		5,629
Non-compete intangible		956
Goodwill		4,353
Current liabilities		(1,913	)
Notes payable		(518	)
Net assets acquired	$	14,118

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Intangible Assets and Goodwill (Tables)

6 Months Ended

Jun. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible assets

	June 30, 2019 (unaudited)						December 31, 2018
	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Distributor organizations	$	14,559	$	10,010	$	4,549	$	14,559	$	9,575	$	4,984
Trademarks and trade names		9,963		2,209		7,754		7,337		1,781		5,556
Customer relationships		16,028		6,068		9,960		10,398		5,723		4,675
Internally developed software		720		607		113		720		558		162
Non-compete agreement		956		—		956		—		—		—
Intangible assets	$	42,226	$	18,894	$	23,332	$	33,014	$	17,637	$	15,377

Goodwill

	June 30, 2019 (unaudited)		December 31, 2018
Goodwill, commercial coffee	$	3,314	$	3,314
Goodwill, direct selling		3,009		3,009
Goodwill, commercial hemp		4,353		-
Total goodwill	$	10,676	$	6,323

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Convertible Notes Payable (Tables)

6 Months Ended

Jun. 30, 2019

Notes Payable [Abstract]

Convertible note oustanding

	June 30, 2019 (unaudited)			December 31, 2018
8% Convertible Notes due July and August 2019 (2014 Notes), principal	$	750		$	750
Debt discounts		(34	)		(103	)
Carrying value of 2014 Notes		716			647
6% Convertible Notes due February and March 2021 (2019 PIPE Notes), principal		2,890			-
Debt discounts		(532	)		-
Carrying value of 2019 PIPE Notes		2,358			-
Total carrying value of convertible notes payable	$	3,074		$	647

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Derivative Liability (Tables)

6 Months Ended

Jun. 30, 2019

Derivative Liability [Abstract]

Monte Carlo fair value of warrants

	June 30, 2019 (unaudited)	December 31, 2018
Stock price volatility	100.4%-106.8%	83.78%-136.76%
Risk-free interest rates	1.87%-2.18%	2.465%-2.577%
Annual dividend yield	0%	0%
Expected life	0.08-1.29 years	0.58-2.76

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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Fair value measurement within the three levels of value hierarchy

	Fair Value at June 30, 2019 (unaudited)
	Total		Level 1		Level 2		Level 3
Liabilities:
Contingent acquisition debt, current portion	$	695	$	-	$	-	$	695
Contingent acquisition debt, less current portion		6,898		-		-		6,898
Warrant derivative liability		4,969		-		-		4,969
Total liabilities	$	12,562	$	-	$	-	$	12,562

	Fair Value at December 31, 2018
	Total		Level 1		Level 2		Level 3
Liabilities:
Contingent acquisition debt, current portion	$	795	$	-	$	-	$	795
Contingent acquisition debt, less current portion		7,466		-		-		7,466
Warrant derivative liability		9,216		-		-		9,216
Total liabilities	$	17,477	$	-	$	-	$	17,477

Private Placements measured at fair value using Level 3 inputs

	Warrant Derivative Liability
Balance at December 31, 2018	$	9,216
Issuance		-
Adjustments to estimated fair value		(1,887	)
Adjustments related to warrant exercises		(866	)
Adjustments related to the reclassification of warrants to equity		(1,494	)
Balance at June 30, 2019 (unaudited)	$	4,969

	Contingent Consideration
Balance at December 31, 2018	$	8,261
Liabilities acquired		-
Liabilities settled		(235	)
Adjustments to liabilities included in earnings	(433		)
Adjustment to purchase price		-
Balance at June 30, 2019 (unaudited)	$	7,593

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Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2019

Stockholders' Equity

Warrant activity

	Number of Warrants
Balance at December 31, 2018		5,876,980
Issued		1,315,000
Expired / cancelled		-
Exercised		(288,106	)
Balance at June 30, 2019, outstanding		6,903,874
Balance at June 30, 2019, exercisable		6,556,999

Summary of plan options

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contract Life (years)		Aggregate Intrinsic Value (in thousands)
Outstanding December 31, 2018		2,394,379		$	4.45		6.94	$	3,049
Issued		2,540,062			6.66
Canceled / expired		(133,085	)		4.75
Exercised		(85,054	)		4.36				-
Outstanding June 30, 2019		4,716,302		$	5.63		8.13	$	2,907
Exercisable June 30, 2019		3,719,801		$	5.96		8.03	$	1,642

Restricted stock unit activity

	Number of Shares
Balance at December 31, 2018		475,000
Issued		-
Canceled		(50,000	)
Balance at June 30, 2019		425,000

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Segment and Geographical Information (Tables)

6 Months Ended

Jun. 30, 2019

Segment Reporting [Abstract]

Segment information revenue

	Three months ended						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenues
Direct selling	$	32,124		$	36,846		$	65,544		$	72,157
Commercial coffee		21,289			7,409			44,102			15,092
Commercial hemp		274			-			341			-
Total revenues	$	53,687		$	44,255		$	109,987		$	87,249
Gross profit
Direct selling	$	22,240		$	25,087		$	44,995		$	49,822
Commercial coffee		3,731			295			7,798			572
Commercial hemp		(49	)		-			(22	)		-
Total gross profit	$	25,922		$	25,382		$	52,771		$	50,394
Operating income (loss)
Direct selling	$	(818	)	$	1,376		$	(13,126	)	$	2,157
Commercial coffee		2,117			(723	)		3,001			(1,480	)
Commercial hemp		(911	)		-			(1,428	)		-
Total operating income (loss)	$	388		$	653		$	(11,553	)	$	677
Net (loss) income
Direct selling	$	(1,250	)	$	723		$	(14,627	)	$	132
Commercial coffee		2,148			(1,337	)		3,781			(3,054	)
Commercial hemp		(945	)		-			(1,461	)		-
Total net loss	$	(47	)	$	(614	)	$	(12,307	)	$	(2,922	)
Capital expenditures
Direct selling	$	63		$	28		$	80		$	115
Commercial coffee		843			51			3,415			730
Commercial hemp		99			-			1,482			-
Total capital expenditures	$	1,005		$	79		$	4,977		$	845

Segment information assets

	As of
	June 30, 2019 (unaudited)		December 31, 2018
Total assets
Direct selling	$	40,315	$	38,947
Commercial coffee		75,113		37,026
Commercial hemp		21,096		-
Total assets	$	136,524	$	75,973

Segment information geographical

	Three months ended				Six months ended
	June 30,				June 30,
	2019		2018		2019		2018
Revenues
United States	$	48,105	$	37,980	$	98,995	$	75,373
International		5,582		6,275		10,992		11,876
Total revenues	$	53,687	$	44,255	$	109,987	$	87,249

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Basis of Presentation and Description of Business (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Net loss	$ (47)	$ (614)	$ (12,307)	$ (2,922)
Net cash used in operating activities			(5,381)	(1,676)
Purchases from related party	103	$ 63	111	$ 117
Deferred revenues	$ 2,260		$ 2,260		$ 2,312

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Basic and Diluted Net Loss Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Loss per Share - Basic
Numerator for basic loss per share	$ (75)	$ (656)	$ (12,349)	$ (2,967)
Denominator for basic loss per share	29,133,150	21,506,833	28,359,660	20,630,383
Loss per common share - basic	$ (0.00)	$ (0.03)	$ (.44)	$ (0.14)
Loss per Share - Diluted
Numerator for basic loss per share	$ (75)	$ (656)	$ (12,349)	$ (2,967)
Adjust: Fair value of dilutive warrants outstanding	(357)	0	(1,478,000)	0
Numerator for dilutive loss per share	$ (432)	$ (656)	$ (13,827)	$ (2,967)
Denominator for diluted loss per share	129,133,150	21,506,833	28,359,660	20,630,383
Plus: Incremental shares underlying "in the money" warrants outstanding	224,197	0	340,635	0
Denominator for diluted loss per share	29,357,347	21,506,833	28,700,295	20,630,383
Loss per common share - diluted	$ (.02)	$ (0.03)	$ (.48)	$ (0.14)

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Balance Sheet Account Details (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Balance Sheet Related Disclosures [Abstract]
Finished goods	$ 12,602	$ 11,300
Raw materials	14,622	12,744
Total inventory	27,224	24,044
Reserve for excess and obsolete inventory	(2,427)	(2,268)
Total inventory, net	$ 24,797	$ 21,776

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Balance Sheet Account Details (Details 1) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
ASSETS:
Operating lease right-of-use assets	$ 5,481	$ 0
Finance lease right-of-use assets	1,283
Total lease assets	6,764
LIABILITIES:
Operating lease liabilities	772	0
Finance lease liabilities	1,103	1,168
Operating lease liabilities	4,708	0
Finance lease liabilities	778	$ 1,107
Total lease liabilities	$ 7,361

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Balance Sheet Account Details (Details 2) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Balance Sheet Related Disclosures [Abstract]
Operating lease cost	$ 271	$ 0	$ 542	$ 0
Finance lease cost	94	0	190	0
Interest on lease liabilities	34	0	7	0
Net lease cost	$ 399	$ 0	$ 803	$ 0

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Balance Sheet Account Details (Details 3) $ in Thousands	Jun. 30, 2019 USD ($)
Total finance lease liability	$ 7,361
Operating Leases
2019	1,055
2020	764
2021	657
2022	391
2023	628
Thereafter	3,490
Total payments	6,985
Less: imputed interest	1,505
Total finance lease liability	5,480
Finance Leases
2019	1,213
2020	699
2021	95
2022	15
2023	9
Thereafter	8
Total payments	2,039
Less: imputed interest	158
Total finance lease liability	$ 1,881

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Balance Sheet Account Details (Details 4)	Jun. 30, 2019
Balance Sheet Related Disclosures [Abstract]
Weighted-average remaining lease term (years), operating leases	5 years 7 months 6 days
Weighted-average remaining lease term (years), finance leases	1 year 11 months 23 days
Weighted-average discount rate, operating leases	5.50%
Weighted-average discount rate, finance leases	9.00%

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Balance Sheet Account Details (Details 5) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenues	$ 53,687	$ 44,255	$ 109,987	$ 87,249
Direct Selling [Member]
Revenues	32,124	36,846	65,544	72,157
Commercial Coffee - coffee roaster [Member]
Revenues	3,289	2,882	6,069	9,512
Commercial Coffee - green coffee [Member]
Revenues	18,000	4,527	38,033	5,580
Commercial Hemp [Member]
Revenues	$ 274	$ 0	$ 341	$ 0

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Acquisitions and Business Combinations (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($)
Business Combinations [Abstract]
Cash consideration at closing	$ 1,894
Estimated fair value of common stock issued and earn-out	12,649
Total purchase price	14,543
Current assets	211
Inventory	1,264
Property, plant and equipment	2,260
Trademarks and trade name	1,876
Customer-related intangible	5,629
Non-compete intangible	956
Goodwill	4,353
Current liabilities	(1,913)
Notes payable	(518)
Net assets acquired	$ 14,118

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Acquisitions and Business Combinations (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Business Combinations [Abstract]
Fair value at date of acquisition			$ 14,543
Revenue	$ 53,687	$ 44,255	$ 109,987	$ 87,249

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Intangible Assets and Goodwill (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Distributor organizations [Member]
Cost	$ 14,559	$ 14,559
Accumulated amortization	10,010	9,575
Net	4,549	4,984
Trademarks and trade names [Member]
Cost	9,963	720
Accumulated amortization	2,209	558
Net	7,754	162
Customer relationships [Member]
Cost	16,028	10,398
Accumulated amortization	6,068	5,723
Net	9,960	4,675
Internally developed software [Member]
Cost	720	7,337
Accumulated amortization	607	1,781
Net	113	5,556
Non-compete agreement [Member]
Cost	956	0
Accumulated amortization	0	0
Net	956	0
Intangible assets [Member]
Cost	42,226	33,014
Accumulated amortization	18,894	17,637
Net	$ 23,332	$ 15,377

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Intangible Assets and Goodwill (Details 1) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Goodwill	$ 10,676	$ 6,323
Commercial Coffee [Member]
Goodwill	3,314	3,314
Direct Selling [Member]
Goodwill	3,009	3,009
Commercial Hemp [Member]
Goodwill	$ 4,353	$ 0

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Intangible Assets and Goodwill (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense	$ 586	$ 857	$ 1,256	$ 1,692
Trademarks	1,649		1,649		$ 1,649
Goodwill balance	$ 10,676		$ 10,676		$ 6,323

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Convertible Notes Payable (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Total convertible notes payable, net of debt discount	$ 2,358	$ 0
Convertible notes payable, current	3,074	647
Convertible Notes Payable 1 [Member]
Convertible notes issued	750	750
Net debt issuance costs	(35)	(103)
Total convertible notes payable, net of debt discount	716	647
Convertible Notes Payable 2 [Member]
Convertible notes issued	2,890	0
Net debt issuance costs	(532)	0
Total convertible notes payable, net of debt discount	$ 2,358	$ 0

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Derivative Liability (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Annual dividend yield	0.00%	0.00%
Minimum [Member]
Stock price volatility	100.40%	83.78%
Risk-free interest rate	1.87%	2.465%
Expected life	29 days	6 months 29 days
Maximum [Member]
Stock price volatility	106.80%	136.76%
Risk-free interest rate	2.18%	2.577%
Expected life	1 year 3 months 14 days	2 years 9 months 4 days

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Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Liabilities:
Contingent acquisition debt, current portion	$ 695	$ 795
Contingent acquisition debt, less current portion	6,898	7,466
Warrant derivative liability	46,969	9,216
Embedded conversion option derivative	12,562	17,477
Level 1 [Member]
Liabilities:
Contingent acquisition debt, current portion	695	0
Contingent acquisition debt, less current portion	6,898	0
Warrant derivative liability	46,969	0
Embedded conversion option derivative	12,562	0
Level 2 [Member]
Liabilities:
Contingent acquisition debt, current portion	0	0
Contingent acquisition debt, less current portion	0	0
Warrant derivative liability	0	0
Embedded conversion option derivative	0	0
Level 3 [Member]
Liabilities:
Contingent acquisition debt, current portion	0	795
Contingent acquisition debt, less current portion	0	7,466
Warrant derivative liability	0	9,216
Embedded conversion option derivative	$ 0	$ 17,477

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Fair Value of Financial Instruments (Details 1) $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($)
Fair Value Disclosures [Abstract]
Warant derivative liability, beginning	$ 9,216
Issuance	0
Adjustments to estimated fair value	(1,887)
Adjustments related to warrant exercises	(866)
Adjustment related to the modification of warrants (Note 7)	(1,494)
Warant derivative liability, ending	4,969
Contingent consideration, beginning	8,261
Liabilities acquired	0
Liabilities settled	(235)
Adjustments to liabilities included in earnings	(433)
Adjustment to purchase price	0
Contingent consideration, ending	$ 7,593

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Stockholders' Equity (Details) - Warrant [Member]	6 Months Ended
	Jun. 30, 2019 shares
Outstanding, beginning of period	5,876,980
Issued	1,315,000
Expired / cancelled	0
Exercised	(288,106)
Outstanding, end of period	6,903,874
Exercisable	6,556,999

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Stockholders' Equity (Details 1) - Stock Option [Member] $ / shares in Units, $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($) $ / shares shares
Number of Shares
Outstanding, beginning of period | shares	2,349,379
Granted | shares	2,540,062
Canceled / expired | shares	(133,085)
Exercised | shares	(85,054)
Outstanding, end of period | shares	4,716,302
Exercisable, end of period | shares	3,719,801
Outstanding, beginning of period | $ / shares	$ 4.45
Granted | $ / shares	6.66
Canceled / expired | $ / shares	4.75
Exercised | $ / shares	4.36
Outstanding, end of period | $ / shares	5.63
Exercisable, end of period | $ / shares	$ 5.96
Weighted Average Remaining Contract Life (years) Outstanding, Beginning	6 years 11 months 8 days
Weighted Average Remaining Contract Life (years) Outstanding, Ending	8 years 1 month 17 days
Weighted Average Remaining Contract Life (years) Exerciseable, Ending	8 years 11 days
Aggregate Intrinsic Value
Outstanding, beginning of period | $	$ 3,049
Granted | $	0
Exercised | $	0
Cancelled | $	0
Outstanding, end of period | $	2,907
Exercisable, end of period | $	$ 1,642

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Stockholders' Equity (Details 2) - Restricted Stock Units [Member]	6 Months Ended
	Jun. 30, 2019 shares
Outstanding, beginning of period	475,000
Issued	0
Cancelled	(50,000)
Outstanding, end of period	425,000

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Stockholders' Equity (Details Narrative) - shares	Jun. 30, 2019	Dec. 31, 2018
Common Stock, shares outstanding	29,316,445	25,760,708
Series A Preferred Stock [Member]
Convertible Preferred Stock, shares outstanding	161,135	161,135
Series B Preferred Stock [Member]
Convertible Preferred Stock, shares outstanding	129,437	129,437

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Segment and Geographical Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenues	$ 53,687	$ 44,255	$ 109,987	$ 87,249
Gross profit	25,922	25,382	52,771	50,394
Operating income (loss)	388	653	(11,553)	677
Net (loss) income	(47)	(614)	(12,307)	(2,922)
Capital expenditures	1,005	79	4,977	845
Direct Selling [Member]
Revenues	32,124	36,846	65,544	72,157
Gross profit	22,240	25,087	44,995	49,822
Operating income (loss)	(818)	1,376	(13,126)	2,157
Net (loss) income	(1,250)	723	(14,627)	132
Capital expenditures	63	28	80	115
Commercial Coffee [Member]
Revenues	21,289	7,409	44,102	15,092
Gross profit	3,731	295	7,798	572
Operating income (loss)	2,117	(723)	3,001	(1,480)
Net (loss) income	2,148	(1,337)	3,781	(3,054)
Capital expenditures	843	51	3,415	730
Commercial Hemp [Member]
Revenues	274	0	341	0
Gross profit	(49)	0	(22)	0
Operating income (loss)	(911)	0	(1,428)	0
Net (loss) income	(945)	0	(1,461)	0
Capital expenditures	$ 99	$ 0	$ 1,482	$ 0

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Segment and Geographical Information (Details 1) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Total assets	$ 136,524	$ 75,973
Direct Selling [Member]
Total assets	40,315	38,947
Commercial Coffee [Member]
Total assets	74,113	37,026
Commercial Hemp [Member]
Total assets	$ 21,096	$ 0

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Segment and Geographical Information (Details 2) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Total revenues	$ 53,687	$ 44,255	$ 109,987	$ 87,249
United States [Member]
Total revenues	48,105	37,980	98,995	75,373
International [Member]
Total revenues	$ 5,582	$ 6,275	$ 10,992	$ 11,876

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Segment and Geographical Information (Details Narrative) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
International [Member]
Tangible assets	$ 8,000	$ 6,200