Nature of Business and Significant Accounting Policies

9 Months Ended

Sep. 28, 2013

Nature Of Business And Significant Accounting Policies

Note 3. Nature of Business and Significant Accounting Policies [Text Block]

Nature of business:  The Company is a natural products company that discovers, acquires, develops and commercializes proprietary-based ingredient technologies through its business model that utilizes its wholly owned business units, including ingredient technologies, natural product fine chemicals, chemistry and analytical testing services, and product regulatory and safety consulting.  The Company provides science-based solutions to the nutritional supplement, food and beverage, animal health, cosmetic and pharmaceutical industries 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 monthly and quarterly reviews 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 28, 2013 and December 29, 2012 were $10,000 and $450,000, respectively.  Of the allowance amount of $450,000 for the period ended December 29, 2012, $433,000 represents a hold on the receivables placed by a retailer that carried the BluScience consumer product line.  The hold was placed by the retailer as an offset in the event of future returns of our products and the hold was treated as a reduction of revenue. On March 28, 2013, we sold the BluScience retail consumer line to NeutriSci International Inc. (“NeutriSci”) and the related trade accounts receivable including the allowance have been transferred to NeutriSci. 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 sheets is recorded net of valuation allowances of $227,000 and $366,000 for the periods ended September 28, 2013 and December 29, 2012, respectively.  Labor and overhead has been added to inventory that was manufactured or characterized by the Company.  On March 28, 2013, the Company sold the BluScience retail consumer line to NeutriSci and related dietary supplements inventory have been transferred to NeutriSci.  The amounts of major classes of inventory as of September 28, 2013 and December 29, 2012 are as follows:

	September 28, 2013		December 29, 2012
Natural product fine chemicals	$	1,708,606	$	1,614,755
Bulk ingredients		736,092		432,230
Dietary supplements – raw materials		-		401,809
Dietary supplements – work in process		-		465,253
Dietary supplements – finished goods		-		2,657,257
		2,444,698		5,571,304
Less valuation allowance		227,000		366,000
	$	2,217,698	$	5,205,304

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 the three- and nine-month periods ended September 28, 2013 and September 29, 2012, the basic and diluted shares reported are equal because the common share equivalents are anti-dilutive due to the net loss. Below is a tabulation of the potentially dilutive securities that were “in the money” for the three- and nine-month periods ended September 28, 2013 and September 29, 2012.

	Three Months Ended				Nine Months Ended
	September 28, 2013		September 29, 2012		September 28, 2013		September 29, 2012
Basic weighted average common shares outstanding		101,309,939		92,364,418		98,590,008		89,477,758
Warrants and options in the money, net		577,190		5,994,067		312,531		5,908,491
Weighted average common shares outstanding assuming dilution		101,887,129		98,358,485		98,902,539		95,386,249

Total warrants and options that were not “in the money” at September 28, 2013 and September 29, 2012 were 10,775,361 and 15,214,767, respectively.

Long-term investment in affiliate: The Company accounts for its investment in affiliate under the equity method. The Company records equity method adjustments in gains (losses) on equity method investments, net, and may do so with up to a three-month lag, pending on the timely availability of financial information of the investee. Equity method adjustments include: our proportionate share of investee income or loss, gains or losses resulting from investee capital transactions, and other adjustments required by the equity method. The long-term investment in affiliate is subject to a periodic impairment review and is considered to be impaired when a decline in carrying value is judged to be other-than-temporary. Evidence of a loss in value might include (i) absence of an ability recover the carrying amount of the investment or (ii) inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.