Nature of Business and Significant Accounting Policies

9 Months Ended

Sep. 29, 2012

Interim Financial Statements

Note 2. Nature of Business and Significant Accounting Policies [Text Block]

Nature of business: The Company is a natural products company that provides proprietary, science-based solutions and ingredients to the dietary supplement, food and beverage, cosmetic and pharmaceutical industries. The Company supplies ingredients, phytochemical reference standards and related phytochemical products and services. The Company recently launched its BluScience retail consumer line based on its proprietary ingredients. The Company provides these products and services at various terms.

Basis of presentation: The financial statements and accompanying notes have been prepared on a consolidated basis and reflect the consolidated financial position of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated from these financial statements. The Company's fiscal year ends on the Saturday closest to December 31, and the Company’s normal fiscal quarters end on the Saturday 13 weeks after the last fiscal year end or fiscal quarter end. Every fifth or sixth fiscal year, the inclusion of an extra week occurs due to the Company’s floating year-end date. The fiscal year 2014 will include 53 weeks instead of the normal 52 weeks.

Trade accounts receivable: Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a period review of all outstanding amounts. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. The allowances for doubtful accounts for the periods ended September 29, 2012 and December 31, 2011 were $920,000 and $9,000, respectively. Of the allowance amount of $920,000 for the period ended September 29, 2012, $900,000 represents a hold on the receivables placed by a retailer that carries our BluScience retail consumer line. The hold is placed by the retailer as an offset in the event of future returns of our products. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded when received.

Inventories: Inventories are comprised of raw materials, work-in-process and finished goods. They are stated at the lower of cost, determined by the first-in, first-out method (FIFO) method, or market. The inventory on the balance sheet is recorded net of valuation allowances of $238,000 and $227,000 for the periods ended September 29, 2012 and December 31, 2011, respectively. Labor and overhead has been added to inventory that was manufactured or characterized by the Company. The amounts of major classes of inventory as of September 29, 2012 and December 31, 2011 are as follows:

	September 29, 2012		December 31, 2011
Reference standards	$	1,557,187	$	1,459,330
Bulk ingredients		470,870		174,847
Dietary supplements – raw materials		595,123		709,476
Dietary supplements – work in process		38,295		38,293
Dietary supplements – finished goods		3,012,964		750,654
		5,674,439		3,132,600
Less valuation allowance		238,000		227,000
	$	5,436,439	$	2,905,600

Earnings per share: Potentially dilutive common shares consist of the incremental common shares issuable upon the exercise of common stock options and warrants for all periods. For all periods presented, the basic and diluted shares reported are equal because the common share equivalents are anti-dilutive. Below is a tabulation of the potentially dilutive securities that were “in the money” for the three- and nine-month periods ended September 29, 2012 and October 1, 2011.

	Three Months Ended				Nine Months Ended
	September 29, 2012		October 1, 2011		September 29, 2012		October 1, 2011
Basic weighted average common shares outstanding		92,364,418		70,625,913		89,477,758		66,190,731
Warrants and options in the money, net		5,994,067		7,673,885		5,908,491		7,891,916
Weighted average common shares outstanding assuming dilution		98,358,485		78,299,798		95,386,249		74,082,647

Total warrants and options that were not “in the money” at September 29, 2012 and October 1, 2011 were 15,214,767 and 17,095,835, respectively.