Investment in Affiliate

12 Months Ended

Jan. 03, 2015

Investment In Affiliate

Investment in Affiliate

During the year ended December 28, 2013, the Company entered into an asset purchase and sale agreement with NeutriSci International Inc. (“NeutriSci”) and consummated the sale of BluScience consumer product line to NeutriSci.  The Company used the cost recovery method to account the sale transaction, which was estimated at approximately $3,157,804.  The consideration received consisted of following: (a) a $1,000,000 cash payment; (b) a $2,500,000 senior convertible secured note (convertible into 625,000 shares Series I Preferred Stock); and (c) 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 the date of the transaction.

The Company had previously applied the equity method of accounting due to a significant influence that it had obtained from the financial instruments noted above, and the carrying value, which includes the Senior Note, was reflected as long-term investment in affiliate in the Company’s consolidated balance sheet at the date of transaction.  The initial carrying value of this investment recognized at the date of transaction was $2,157,804, which is the Company’s unrecovered cost or the difference between the net assets transferred to NeutriSci and the initial monetary consideration received.  The 669,708 shares of Series I Preferred Shares and the senior convertible secured note were accounted for as one long-term investment in NeutriSci.  Under the cost recovery method, no gain on the sale is recognized until the Company’s cost basis in the net assets transferred has been recovered.

During the year ended December 28, 2013, the Company received a partial payment of $225,000 for the first installment repayment that was due under the Senior Note.

Sale of Senior Secured Convertible Note

On December 30, 2013, the Company assigned the Senior Note to an unrelated third party for $1,250,000.  $2,275,000 remained outstanding on the Senior Note at the date of the assignment.  The Company also paid legal fees of $7,500 out of the proceeds of the purchase price.  The Company also agreed to transfer to the third party a number of shares of preferred stock of NeutriSci having a value of $500,000 upon the consummation by NeutriSci of any action resulting in the shares of its common stock being listed on an exchange.  There was no recourse provision to the Company associated with the assignment of the note.  In connection with the assignment of the note, the Company paid Palladium Capital Advisors, LLC (“Palladium”), a placement agent, a cash fee of $150,000 and agreed to transfer to Palladium a number of shares of preferred stock of NeutriSci having a value of $50,000 upon the consummation by NeutriSci of any action resulting in the shares of its common stock being listed on an exchange.  The net proceeds received from the assignment of the Senior Note have been charged against the carrying value of the long-term investment in affiliate.

Sale and Transfer of Preferred Shares

On December 1, 2014, NeutriSci consummated its reverse merger with Disani Capital Corporation and became listed on Toronto Stock Exchange, TSX Venture Exchange.  Immediately prior to NeutriSci’s listing, the Company transferred 108,676 and 10,868 Series I Preferred Shares of NeutriSci to the unrelated third party and Palladium, respectively, pursuant to the terms of the assignment of the Senior Note.  In addition, the Company sold the remaining 551,114 Series I Preferred Shares to another unrelated third party for $749,515.  The Company recorded a loss of $24,286 as the carrying value prior to these transactions was $773,801.  As of January 3, 2015, the Company does not have any investments in NeutriSci.

Loss of Significant Influence

As a result of the assignment of the Senior Note described above, the Company no longer had a significant influence on NeutriSci as of December 30, 2013.  As a result, the Company discontinued applying equity method of accounting and applied cost method of accounting from December 30, 2013.  The adjusted carrying amount as of December 30, 2013 became the new cost figure for the investment and no retrospective adjustments to the financial statements have been made. The Company had elected to record equity method adjustments in losses on the investment in NeutriSci, with a three-month lag, as the financial information of NeutriSci was not available in a timely manner.  The equity method adjustment for the previously unaccounted NeutriSci’s operations from October 1, 2013 to December 31, 2013 was recorded during the year ended January 3, 2015, and was incorporated into the adjusted carrying amount of the investment.

Sales, gross profit, net loss of NeutriSci for the six months ended September 30, 2013 and the three months ended December 31, 2013 are as follows:

	Six Months Ended			Three Months Ended
	September 30, 2013			December 31, 2013
Sales	$	36,451		$	60,575
Gross profit		13,310			33,619
Net loss	$	(813,212	)	$	(435,208	)

Changes in carrying value and the Company ownership percentage since the inception are summarized as follows:

	Carrying Value			Ownership Percentage
At March 28, 2013	$	2,157,804			5.7	%
Company's share of NeutriSci's loss
through September 30, 2013		(44,961	)
Proceeds from investment in affiliate		(225,000	)
At December 28, 2013		1,887,844			4.9	%
Company's share of NeutriSci's loss
for the three-month period ended December 31, 2013;
previously not recognized due to a three-month lag		(21,543	)
Proceeds from assignment of the Senior Note		(1,092,500	)
Proceeds from sale and transfer of the Preferred Shares		(749,515	)
Loss from investment in affiliate		(24,286	)
At January 3, 2015	$	-			0.0	%