Gain on Sale of Assets

6 Months Ended

Jun. 29, 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 $6,000,000 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, which $250,000 was paid as of June 29, 2013 and an additional $200,000 was paid on July 12, 2013; (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 fair value of the investment in NeutriSci was determined based on other recent contemporaneous unrelated third party investments in NeutriSci.

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 June 29, 2013.  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 three- and six-month periods ended June 29, 2013, the Company has applied the cost method, however, if the Company determines that NeutriSci investment qualifies for use of the equity method, the investment, results of operations and accumulated deficit of the Company shall be adjusted as if the equity method had been in effect during all periods in which the investment was held.  As of June 29, 2013, the aggregate carrying amount of the equity investment in NeutriSci is $2,678,832.  We have  evaluated for impairment for this aggregate carrying amount and concluded that there is no other-than-temporary impairment as of June 29, 2013, as there were no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment.

As of June 29, 2013, $250,000 cash payment remained unpaid and this amount is reflected as non-trade receivable in our consolidated balance sheet as of June 29, 2013.  Of this unpaid amount, a partial payment of $200,000 was received on July 12, 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