Gain on Sale of Assets

3 Months Ended

Mar. 30, 2013

Gain On Sale Of Assets

Note 3. Gain on sale of assets

On March 28, 2013, we entered into an asset purchase and sale agreement with NeutriSci and consummated the sale of BluScience consumer product line to NeutriSci.  The total sale transaction value is estimated at approximately $6.0 million and consists of following: (a) a $250,000 cash payment, which NeutriSci paid as a deposit in February 2013; (b) an additional $250,000 cash payment, which was paid at the closing of the sale;  (c) an additional cash payment of $500,000 due no later than 60 days after the closing of the sale; (d) $2,500,000 senior convertible secured note (convertible into 625,000 shares Series I Preferred Stock as described below) payable in quarterly installments of $416,667 beginning August 15, 2013; and (e) 669,708 shares of Series I Preferred Shares that are convertible into 2,678,832 Class “A” common shares of NeutriSci, representing an aggregate of 19% of the NeutriSci shares at a deemed price for each Class A common share of $1.00 per share.  The transaction documents contain certain equity blockers that preclude our ownership in NeutriSci in excess of 9.99% and 19% without obtaining a waiver from NeutriSci.  We will continue to generate revenue through a royalty on 6% of future net sales of BluScience products as well as a supply agreement with NeutriSci for our patented pTeroPure pterostilbene. The Company does not yet have enough information to make a determination if the equity method accounting will apply to the equity investment in NeutriSci. For the period ended March 30, 2013 the Company held this investment for only 3 days and, as such, the amount of any impact if the Company determines that the equity method should be applied on the financials for the period ended March 30, 2013, is immaterial.

The cash payment of $500,000 that is due no later than 60 days after the closing of the sale is reflected as non-trade receivable in our consolidated balance sheet as of March 30, 2013.  The 669,708 shares of Series I Preferred Shares that are convertible into 2,678,832 Class “A” common shares of NeutriSci is reflected as long-term equity investment in our consolidated balance sheet as of March 30, 2013.

The gain on sale of assets is recognized since the consideration we received from the sale is more than the carrying amount of transferred assets and liabilities.  Below are details on assets and liabilities transferred and the consideration we received:

	March 28, 2013
Assets transferred
Trade receivables, less allowance for returns	$	(16,984	)
Inventories		3,467,530
Prepaid expenses and other assets		76,131
Total assets transferred		3,526,677
Liabilities transferred
Accounts payable		368,873
Total liabilities transferred		368,873
Total net assets transferred	$	3,157,804
Consideration received
Cash	$	500,000
Non-trade receivable		500,000
Note receivable (See Note 4)		2,370,889
Long-term equity investment		2,678,832
Total consideration received	$	6,049,721
Difference recognized as gain on sale	$	2,891,917