[X]
|
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31, 2016
|
[ ]
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
90-0890517
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
2400 Boswell Road, Chula Vista, CA
|
91914
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Large accelerated filer
|
[ ]
|
Accelerated filer
|
[ ]
|
Non-accelerated filer
|
[ ]
|
Smaller reporting company
|
[X]
|
Page
|
||
PART I. FINANCIAL INFORMATION
|
||
1
|
||
1
|
||
2
|
||
3
|
||
4
|
||
5
|
||
19
|
||
25
|
||
25
|
||
PART II. OTHER INFORMATION
|
||
26
|
||
26
|
||
26
|
||
26
|
||
26
|
||
26
|
||
27
|
||
28
|
Youngevity International, Inc. and Subsidiaries
|
||||||||
(In thousands, except share amounts)
|
||||||||
As of
|
||||||||
March 31,
2016
|
December 31,
2015
|
|||||||
ASSETS
|
(Unaudited)
|
|||||||
Current Assets
|
||||||||
Cash and cash equivalents
|
$
|
2,727
|
$
|
3,875
|
||||
Accounts receivable, due from factoring company
|
575
|
556
|
||||||
Accounts receivable, trade
|
768
|
1,068
|
||||||
Income tax receivable
|
-
|
173
|
||||||
Deferred tax assets, net current
|
711
|
711
|
||||||
Inventory
|
19,974
|
17,977
|
||||||
Prepaid expenses and other current assets
|
3,232
|
2,412
|
||||||
Total current assets
|
27,987
|
26,772
|
||||||
Property and equipment, net
|
13,004
|
12,699
|
||||||
Deferred tax assets, long-term
|
1,821
|
1,821
|
||||||
Intangible assets, net
|
15,760
|
13,714
|
||||||
Goodwill
|
6,323
|
6,323
|
||||||
Total assets
|
$
|
64,895
|
$
|
61,329
|
||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
Current Liabilities
|
||||||||
Accounts payable
|
$
|
8,198
|
$
|
7,015
|
||||
Accrued distributor compensation
|
4,927
|
4,223
|
||||||
Accrued expenses
|
4,174
|
3,605
|
||||||
Deferred revenues
|
2,425
|
2,580
|
||||||
Other current liabilities
|
471
|
577
|
||||||
Capital lease payable, current portion
|
141
|
111
|
||||||
Notes payable, current portion
|
221
|
456
|
||||||
Warrant derivative liability
|
4,066
|
4,716
|
||||||
Contingent acquisition debt, current portion
|
428
|
264
|
||||||
Total current liabilities
|
25,051
|
23,547
|
||||||
Capital lease payable, net of current portion
|
316
|
294
|
||||||
Notes payable, net of current portion
|
4,576
|
4,647
|
||||||
Convertible notes payable, net of debt discount
|
7,172
|
6,786
|
||||||
Contingent acquisition debt, net of current portion
|
8,794
|
7,174
|
||||||
Total liabilities
|
45,909
|
42,448
|
||||||
Commitments and contingencies
|
||||||||
Stockholders’ Equity
|
||||||||
Convertible Preferred Stock, $0.001 par value: 100,000,000 shares authorized; 161,135 shares issued and outstanding at March 31, 2016 and December 31, 2015
|
-
|
-
|
||||||
Common Stock, $0.001 par value: 600,000,000 shares authorized; 392,610,015 and 392,583,015 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively
|
393
|
393
|
||||||
Additional paid-in capital
|
169,495
|
169,432
|
||||||
Accumulated deficit
|
(150,467
|
)
|
(150,618
|
)
|
||||
Accumulated other comprehensive loss
|
(435
|
)
|
(326
|
)
|
||||
Total stockholders’ equity
|
18,986
|
18,881
|
||||||
Total Liabilities and Stockholders’ Equity
|
$
|
64,895
|
$
|
61,329
|
Three Months Ended
March 31,
|
||||||||
2016
|
2015
|
|||||||
Revenues
|
$
|
38,202
|
$
|
36,807
|
||||
Cost of revenues
|
14,839
|
16,525
|
||||||
Gross profit
|
23,363
|
20,282
|
||||||
Operating expenses
|
||||||||
Distributor compensation
|
15,974
|
14,138
|
||||||
Sales and marketing
|
1,801
|
2,121
|
||||||
General and administrative
|
4,425
|
3,649
|
||||||
Total operating expenses
|
22,200
|
19,908
|
||||||
Operating income
|
1,163
|
374
|
||||||
Interest expense, net
|
(1,104
|
)
|
(1,082
|
)
|
||||
Change in fair value of warrant derivative liability
|
650
|
(92
|
)
|
|||||
Total other expense
|
(454
|
)
|
(1,174
|
)
|
||||
Net income (loss) before income taxes
|
709
|
(800
|
)
|
|||||
Income tax provision (benefit)
|
558
|
(431
|
)
|
|||||
Net income (loss)
|
151
|
(369
|
)
|
|||||
Preferred stock dividends
|
(3
|
)
|
(3
|
)
|
||||
Net income (loss) available to common stockholders
|
$
|
148
|
$
|
(372
|
)
|
|||
Net income (loss) per share, basic
|
$
|
0.00
|
$
|
0.00
|
||||
Net income (loss) per share, diluted
|
$
|
0.00
|
$
|
0.00
|
||||
Weighted average shares outstanding, basic
|
392,595,949
|
391,059,153
|
||||||
Weighted average shares outstanding, diluted
|
400,981,653
|
391,059,153
|
Three Months Ended
March 31,
|
||||||||
2016
|
2015
|
|||||||
Net income (loss)
|
$
|
151
|
$
|
(369
|
)
|
|||
Foreign currency translation
|
(109
|
)
|
(16
|
)
|
||||
Total other comprehensive loss
|
(109
|
)
|
(16
|
)
|
||||
Comprehensive income (loss)
|
$
|
42
|
$
|
(385
|
)
|
Three Months Ended
March 31,
|
||||||||
2016
|
2015
|
|||||||
Cash Flows from Operating Activities:
|
||||||||
Net income (loss)
|
$
|
151
|
$
|
(369
|
)
|
|||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
||||||||
Depreciation and amortization
|
1,003
|
776
|
||||||
Stock based compensation expense
|
70
|
144
|
||||||
Amortization of deferred financing costs
|
90
|
213
|
||||||
Amortization of prepaid advisory fees
|
15
|
-
|
||||||
Change in fair value of warrant derivative liability
|
(650
|
)
|
92
|
|||||
Amortization of debt discount
|
264
|
237
|
||||||
Amortization of warrant issuance costs
|
32
|
-
|
||||||
Expenses allocated in profit sharing agreement
|
(147
|
)
|
(176
|
)
|
||||
Change in fair value of contingent acquisition debt
|
(391
|
)
|
-
|
|||||
Changes in operating assets and liabilities, net of effect from business combinations:
|
||||||||
Accounts receivable
|
281
|
(417
|
)
|
|||||
Inventory
|
(1,997
|
)
|
(2,137
|
)
|
||||
Prepaid expenses and other current assets
|
(835
|
)
|
(398
|
)
|
||||
Accounts payable
|
1,183
|
(216
|
)
|
|||||
Accrued distributor compensation
|
704
|
90
|
||||||
Deferred revenues
|
(155
|
)
|
(419
|
)
|
||||
Accrued expenses and other liabilities
|
250
|
|
609
|
|||||
Income taxes receivable
|
173
|
(213
|
)
|
|||||
Net Cash Provided by (Used in) Operating Activities
|
41
|
(2,184
|
)
|
|||||
Cash Flows from Investing Activities:
|
||||||||
Acquisitions, net of cash acquired
|
-
|
(100
|
)
|
|||||
Purchases of property and equipment
|
(611
|
)
|
(932
|
)
|
||||
Net Cash Used in Investing Activities
|
(611
|
)
|
(1,032
|
)
|
||||
Cash Flows from Financing Activities:
|
||||||||
Proceeds from issuance of secured promissory notes and common stock, net of offering costs
|
-
|
5,080
|
||||||
Proceeds from factoring company, net
|
210
|
279
|
||||||
Payments of notes payable, net
|
(306
|
)
|
(54
|
)
|
||||
Payments of contingent acquisition debt
|
(328
|
)
|
(688
|
)
|
||||
Payments of capital leases
|
(41
|
)
|
(18
|
)
|
||||
Repurchase of common stock
|
(4
|
)
|
(91
|
)
|
||||
Net Cash (Used in) Provided by Financing Activities
|
(469
|
)
|
4,508
|
|||||
Foreign Currency Effect on Cash
|
(109
|
)
|
(16
|
)
|
||||
Net (decrease) increase in cash and cash equivalents
|
(1,148
|
)
|
1,276
|
|||||
Cash and Cash Equivalents, Beginning of Period
|
3,875
|
2,997
|
||||||
Cash and Cash Equivalents, End of Period
|
$
|
2,727
|
$
|
4,273
|
||||
Supplemental Disclosures of Cash Flow Information
|
||||||||
Cash paid during the period for:
|
||||||||
Interest
|
$
|
719
|
$
|
637
|
||||
Income taxes
|
$
|
35
|
$
|
-
|
||||
Supplemental Disclosures of Noncash Investing and Financing Activities
|
||||||||
Purchases of property and equipment funded by capital leases
|
$
|
86 | - | |||||
Acquisitions of net assets in exchange for contingent acquisition debt (see Note 4)
|
$
|
2,650
|
$
|
505
|
||||
Common stock issued in connection with financing
|
$
|
-
|
$
|
587
|
As of
|
||||||||
March 31, 2016
|
December 31, 2015
|
|||||||
Finished goods
|
$
|
11,425
|
$
|
9,893
|
||||
Raw materials
|
9,466
|
8,970
|
||||||
20,891
|
18,863
|
|||||||
Reserve for excess and obsolete
|
(917
|
)
|
(886
|
)
|
||||
Inventory, net
|
$
|
19,974
|
$
|
17,977
|
Distributor organization
|
$
|
1,250
|
||
Customer-related intangible
|
900
|
|||
Trademarks and trade name
|
500
|
|||
Total purchase price
|
$
|
2,650
|
March 31, 2016
|
December 31, 2015
|
|||||||||||||||||||||||
Cost
|
Accumulated
Amortization
|
Net
|
Cost
|
Accumulated
Amortization
|
Net
|
|||||||||||||||||||
Distributor organizations
|
$
|
12,423
|
$
|
6,363
|
$
|
6,060
|
$
|
11,173
|
$
|
6,086
|
$
|
5,087
|
||||||||||||
Trademarks and trade names
|
5,166
|
610
|
4,556
|
4,666
|
537
|
4,129
|
||||||||||||||||||
Customer relationships
|
7,687
|
2,980
|
4,707
|
6,787
|
2,751
|
4,036
|
||||||||||||||||||
Internally developed software
|
720
|
283
|
437
|
720
|
258
|
462
|
||||||||||||||||||
Intangible assets
|
$
|
25,996
|
$
|
10,236
|
$
|
15,760
|
$
|
23,346
|
$
|
9,632
|
$
|
13,714
|
|
March 31, 2016
|
|
December 31, 2015
|
|||||
8% Convertible Notes due July and August 2019 (July 2014 Private Placement) (1)
|
|
$
|
1,584
|
|
$
|
1,346
|
||
8% Convertible Notes due October and November 2018 (November 2015 Private Placement) (2)
|
|
6,922
|
|
|
6,896
|
|||
Net debt issuance costs (3)
|
|
(1,334
|
)
|
|
(1,456
|
)
|
||
Total convertible notes payable, net of debt discount (4)
|
$
|
7,172
|
$
|
6,786
|
March 31,
2016
|
December 31, 2015
|
|||||||
Stock price volatility
|
70
|
%
|
70
|
%
|
||||
Risk-free interest rates
|
0.87%-1.21
|
%
|
1.76
|
%
|
||||
Annual dividend yield
|
0
|
%
|
0
|
%
|
||||
Expected life
|
3.3-4.5 years
|
3.6-4.9 years
|
Fair Value at March 31, 2016
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Liabilities:
|
||||||||||||||||
Contingent acquisition debt, current portion
|
$
|
428
|
$
|
-
|
$
|
-
|
$
|
428
|
||||||||
Contingent acquisition debt, less current portion
|
8,794
|
-
|
-
|
8,794
|
||||||||||||
Warrant derivative liability
|
4,066
|
-
|
-
|
4,066
|
||||||||||||
Total liabilities
|
$
|
13,288
|
$
|
-
|
$
|
-
|
$
|
13,288
|
Fair Value at December 31, 2015
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Liabilities:
|
||||||||||||||||
Contingent acquisition debt, current portion
|
$
|
264
|
$
|
-
|
$
|
-
|
$
|
264
|
||||||||
Contingent acquisition debt, less current portion
|
7,174
|
-
|
-
|
7,174
|
||||||||||||
Warrant derivative liability
|
4,716
|
-
|
-
|
4,716
|
||||||||||||
Total liabilities
|
$
|
12,154
|
$
|
-
|
$
|
-
|
$
|
12,154
|
Balance at December 31, 2015
|
41,674,796
|
|||
Granted
|
-
|
|||
Expired / cancelled
|
(50,000
|
)
|
||
Exercised
|
-
|
|||
Balance at March 31, 2016
|
41,624,796
|
Number of
Shares
|
Weighted
Average
Exercise Price
|
Aggregate
Intrinsic
Value
(in thousands)
|
||||||||||
Outstanding December 31, 2015
|
23,521,600
|
0.22
|
$
|
2,044
|
||||||||
Issued
|
197,500
|
0.28
|
||||||||||
Canceled / expired
|
(1,870,300
|
)
|
0.22
|
|||||||||
Exercised
|
(42,250
|
)
|
0.18
|
-
|
||||||||
Outstanding March 31, 2016
|
21,806,550
|
$
|
0.22
|
$
|
1,430
|
|||||||
Exercisable March 31, 2016
|
17,112,950
|
$
|
0.22
|
$
|
994
|
Three Months Ended
|
||||||||
March 31,
|
||||||||
2016
|
2015
|
|||||||
Revenues
|
||||||||
Direct selling
|
$
|
34,798
|
$
|
31,623
|
||||
Commercial coffee
|
3,404
|
5,184
|
||||||
Total revenues
|
$
|
38,202
|
$
|
36,807
|
||||
Gross profit
|
||||||||
Direct selling
|
$
|
23,490
|
$
|
20,724
|
||||
Commercial coffee
|
(127
|
)
|
(442
|
)
|
||||
Total gross profit
|
$
|
23,363
|
$
|
20,282
|
||||
Operating income
|
||||||||
Direct selling
|
$
|
2,024
|
$
|
1,312
|
||||
Commercial coffee
|
(861
|
)
|
(938
|
)
|
||||
Total operating income
|
$
|
1,163
|
$
|
374
|
||||
Net income (loss)
|
||||||||
Direct selling
|
$
|
674
|
$
|
215
|
||||
Commercial coffee
|
(523
|
)
|
(584
|
)
|
||||
Total net income (loss)
|
$
|
151
|
$
|
(369
|
)
|
|||
Capital expenditures
|
||||||||
Direct selling
|
$
|
312
|
$
|
384
|
||||
Commercial coffee
|
299
|
548
|
||||||
Total capital expenditures
|
$
|
611
|
$
|
932
|
As of
|
||||||||
March 31, 2016
|
December 31, 2015
|
|||||||
Total assets
|
||||||||
Direct selling
|
$
|
40,720
|
$
|
36,907
|
||||
Commercial coffee
|
24,175
|
24,422
|
||||||
Total assets
|
$
|
64,895
|
$
|
61,329
|
|
Three Months Ended
|
|||||||
March 31,
|
||||||||
2016
|
2015
|
|||||||
Revenues
|
||||||||
United States
|
$
|
34,963
|
$
|
34,123
|
||||
International
|
3,239
|
2,684
|
||||||
Total revenues
|
$
|
38,202
|
$
|
36,807
|
For the three months
ended March 31,
|
Percentage
change
|
||||||||
Segment Revenues
|
2016
|
2015
|
|||||||
Direct selling
|
$
|
34,798
|
$
|
31,623
|
10.0
|
%
|
|||
Commercial coffee
|
3,404
|
5,184
|
(34.3)
|
%
|
|||||
Total
|
$
|
38,202
|
$
|
36,807
|
3.8
|
%
|
For the three months
ended March 31,
|
Percentage
change
|
|||||||||
Segment Gross Profit
|
2016
|
2015
|
||||||||
Direct selling
|
$
|
23,490
|
$
|
20,724
|
13.3
|
%
|
||||
Gross Profit % of Revenues
|
67.5
|
%
|
65.5
|
%
|
2.0
|
%
|
||||
Commercial coffee
|
(127)
|
(442)
|
71.3
|
%
|
||||||
Gross Profit % of Revenues
|
(3.7)
|
%
|
(8.5)
|
%
|
4.9
|
%
|
||||
Total
|
$
|
23,363
|
$
|
20,282
|
15.2
|
%
|
||||
Gross Profit % of Revenues
|
61.2
|
%
|
55.1
|
%
|
6.1
|
%
|
Three Months Ended
|
||||||||
March 31,
|
||||||||
2016
|
2015
|
|||||||
Net income (loss)
|
$
|
151
|
$
|
(369
|
)
|
|||
Add
|
||||||||
Interest, net
|
1,104
|
1,082
|
||||||
Income taxes
|
558
|
(431
|
)
|
|||||
Depreciation
|
399
|
263
|
||||||
Amortization
|
604
|
513
|
||||||
EBITDA
|
2,816
|
1,058
|
||||||
Add
|
||||||||
Stock based compensation
|
70
|
144
|
||||||
Change in the fair value of warrant derivative
|
(650
|
)
|
92
|
|||||
Adjusted EBITDA
|
$
|
2,236
|
$
|
1,294
|
(a)
|
Evaluation of Disclosure Controls and Procedures
|
(b)
|
Changes in Internal Control Over Financial Reporting
|
ISSUER PURCHASES OF EQUITY SECURITIES
|
||||||||||||||||
Three months ended March 31, 2016
|
Total Number
of Shares
Purchased (*)
|
Average Price
Paid per Share
|
Total Number
of Shares Purchased as Part of Publicly
Announced Plans or Programs
|
Maximum Number
of Shares
that May Yet Be Purchased Under the Plans or Programs
|
||||||||||||
January 1, 2013 to January 31, 2016
|
-
|
$
|
-
|
-
|
11,193,828
|
|||||||||||
February 1, 2016 to February 29, 2016
|
15,000
|
$
|
0.33
|
15,000
|
11,178,828
|
|||||||||||
March 1, 2016 to March 31, 2016
|
-
|
$
|
-
|
-
|
11,178,828
|
|||||||||||
Total
|
15,000
|
$
|
0.33
|
15,000
|
Exhibit No.
|
Exhibit
|
|
31.01
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.02
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.01
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.02
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101.INS
|
XBRL Instance Document
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
YOUNGEVITY INTERNATIONAL INC.
|
|
(Registrant)
|
|
Date: May 13, 2016
|
/s/ Stephan Wallach
|
Stephan Wallach
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
Date: May 13, 2016
|
/s/ David Briskie
|
David Briskie
|
|
Chief Financial Officer
|
|
(Principal Financial Officer)
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Youngevity International, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Stephan Wallach
|
|
Stephan Wallach,
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
May 13, 2016
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Youngevity International, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ David Briskie
|
|
David Briskie,
|
|
Chief Financial Officer
|
|
(Principal Financial Officer)
|
|
May 13, 2016
|
/s/ Stephan Wallach
|
|
Stephan Wallach,
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
May 13, 2016
|
/s/ David Briskie
|
|
David Briskie,
|
|
Chief Financial Officer
|
|
(Principal Financial Officer)
|
|
May 13, 2016
|
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
May. 09, 2016 |
|
Document And Entity Information | ||
Entity Registrant Name | Youngevity International, Inc. | |
Entity Central Index Key | 0001569329 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer | No | |
Is Entity a Voluntary Filer | No | |
Is Entity's Reporting Status Current | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Trading Symbol | YGYI | |
Entity Common Stock, Shares Outstanding | 392,623,765 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2016 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Equity: | ||
Convertible Preferred Stock, par value | $ 0.001 | $ 0.001 |
Convertible Preferred Stock, shares authorized | 100,000,000 | 100,000,000 |
Convertible Preferred Stock, shares issued | 161,135 | 161,135 |
Convertible Preferred Stock, shares outstanding | 161,135 | 161,135 |
Common Stock, par value | $ 0.001 | $ 0.001 |
Common Stock, shares authorized | 600,000,000 | 600,000,000 |
Common Stock, shares issued | 392,610,015 | 392,583,015 |
Common Stock, shares outstanding | 392,610,015 | 392,583,015 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Condensed Consolidated Statements Of Operations | ||
Revenues | $ 38,202 | $ 36,807 |
Cost of revenues | 14,839 | 16,525 |
Gross profit | 23,363 | 20,282 |
Operating expenses | ||
Distributor compensation | 15,974 | 14,138 |
Sales and marketing | 1,801 | 2,121 |
General and administrative | 4,425 | 3,649 |
Total operating expenses | 22,200 | 19,908 |
Operating income | 1,163 | 374 |
Interest expense, net | (1,104) | (1,082) |
Change in fair value of warrant derivative liability | 650 | (92) |
Total other expense | (454) | (1,174) |
Net income (loss) before income taxes | 709 | (800) |
Income tax provision (benefit) | 558 | (431) |
Net income (loss) | 151 | (369) |
Preferred stock dividends | (3) | (3) |
Net income (loss) available to common stockholders | $ 148 | $ (372) |
Net income (loss) per share, basic | $ 0 | $ 0 |
Net income (loss) per share, diluted | $ 0 | $ 0 |
Weighted average shares outstanding, basic | 392,595,949 | 391,059,153 |
Weighted average shares outstanding, diluted | 400,981,653 | 391,059,153 |
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Condensed Consolidated Statements Of Comprehensive Income Loss | ||
Net income (loss) | $ 151 | $ (369) |
Foreign currency translation | (109) | (16) |
Total other comprehensive loss | (109) | (16) |
Comprehensive income (loss) | $ 42 | $ (385) |
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Cash Flows from Operating Activities: | ||
Net income (loss) | $ 151 | $ (369) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 1,003 | 776 |
Stock based compensation expense | 70 | 144 |
Amortization of deferred financing costs | 90 | $ 213 |
Amortization of prepaid advisory fees | 15 | |
Change in fair value of warrant derivative liability | (650) | $ 92 |
Amortization of debt discount | 264 | $ 237 |
Amortization of warrant issuance costs | 32 | |
Expenses allocated in profit sharing agreement | (147) | $ (176) |
Change in fair value of contingent acquisition debt | (391) | |
Changes in operating assets and liabilities, net of effect from business combinations: | ||
Accounts receivable | 281 | $ (417) |
Inventory | (1,997) | (2,137) |
Prepaid expenses and other current assets | (835) | (398) |
Accounts payable | 1,183 | (216) |
Accrued distributor compensation | 704 | 90 |
Deferred revenues | (155) | (419) |
Accrued expenses and other liabilities | 250 | 609 |
Income taxes receivable | 173 | (213) |
Net Cash Provided by (Used in) Operating Activities | $ 41 | (2,184) |
Cash Flows from Investing Activities: | ||
Acquisitions, net of cash acquired | (100) | |
Purchases of property and equipment | $ (611) | (932) |
Net Cash Used in Investing Activities | $ (611) | (1,032) |
Cash Flows from Financing Activities: | ||
Proceeds from issuance of secured promissory notes and common stock, net of offering costs | 5,080 | |
Proceeds from factoring company, net | $ 210 | 279 |
Payments of notes payable, net | (306) | (54) |
Payments of contingent acquisition debt | (328) | (688) |
Payments of capital leases | (41) | (18) |
Repurchase of common stock | (4) | (91) |
Net Cash (Used in) Provided by Financing Activities | (469) | 4,508 |
Foreign Currency Effect on Cash | (109) | (16) |
Net (decrease) increase in cash and cash equivalents | (1,148) | 1,276 |
Cash and Cash Equivalents, Beginning of Period | 3,875 | 2,997 |
Cash and Cash Equivalents, End of Period | 2,727 | 4,273 |
Supplemental Disclosures of Cash Flow Information Cash paid during the period for: | ||
Interest | 719 | $ 637 |
Income taxes | 35 | |
Supplemental Disclosures of Noncash Investing and Financing Activities | ||
Purchase of property and equipment funded by capital leases | 86 | |
Acquisitions of net assets in exchange for contingent acquisition debt (see Note 4) | $ 2,650 | $ 505 |
Common stock issued in connection with financing | $ 587 |
Basis of Presentation and Description of Business |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Notes to Financial Statements | |
Basis of Presentation and Description of Business | Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations.
The statements presented as of March 31, 2016 and for the three months ended March 31, 2016 and 2015 are unaudited. In the opinion of management, these financial statements reflect all normal recurring and other adjustments necessary for a fair presentation, and to make the financial statements not misleading. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Companys Form 10-K for the year ended December 31, 2015. The results for interim periods are not necessarily indicative of the results for the entire year.
Certain reclassifications have been made to conform to the current year presentations including the Companys adoption of ASU 2015-03 and ASU 2015-15 with retrospective application effective January 1, 2016. This resulted in a reclassification from prepaid expenses and other assets to convertible notes payable, net of debt discount. Refer to Note 1, Recently Issued Accounting Pronouncements of the notes to the condensed consolidated financial statements for further details. These reclassifications did not affect revenue, total costs and expenses, income (loss) from operations, or net income (loss).
The Company consolidates all majority owned subsidiaries, investments in entities in which we have controlling influence and variable interest entities where we have been determined to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Nature of Business
Youngevity International, Inc. (the Company), founded in 1996, develops and distributes health and nutrition related products through its global independent direct selling network, also known as multi-level marketing, and sells coffee products to commercial customers. The Company operates in two business segments, its direct selling segment where products are offered through a global distribution network of preferred customers and distributors and its commercial coffee segment where products are sold directly to businesses. In the following text, the terms we, our, and us may refer, as the context requires, to the Company or collectively to the Company and its subsidiaries.
The Company operates through the following domestic wholly-owned subsidiaries: AL Global Corporation, which operates our direct selling networks, CLR Roasters, LLC (CLR), our commercial coffee business, Financial Destination, Inc., FDI Management, Inc., and MoneyTrax LLC (collectively referred to as FDI), 2400 Boswell LLC, MK Collaborative LLC, Youngevity Global LLC and the wholly-owned foreign subsidiaries Youngevity Australia Pty. Ltd., Youngevity NZ, Ltd., Siles Plantation Family Group S.A. located in Nicaragua, Youngevity Mexico S.A. de CV, Youngevity Israel, Ltd., Youngevity Russia, LLC, Youngevity Colombia S.A.S., Youngevity International Singapore Pte. Ltd., and Mialisia Canada, Inc.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense for each reporting period. Estimates are used in accounting for, among other things, allowances for doubtful accounts, deferred taxes, and related valuation allowances, fair value of derivative liabilities, uncertain tax positions, loss contingencies, fair value of options granted under our stock based compensation plan, fair value of assets and liabilities acquired in business combinations, capital leases, asset impairments, estimates of future cash flows used to evaluate impairments, useful lives of property, equipment and intangible assets, value of contingent acquisition debt, inventory obsolescence, and sales returns.
Actual results may differ from previously estimated amounts and such differences may be material to the consolidated financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected prospectively in the period they occur.
Cash and Cash Equivalents
The Company considers only its monetary liquid assets with original maturities of three months or less as cash and cash equivalents.
Earnings Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to common stockholders by the sum of the weighted-average number of common shares outstanding during the period and the weighted-average number of dilutive common share equivalents outstanding during the period, using the treasury stock method. Dilutive common share equivalents are comprised of in-the-money stock options, warrants and convertible preferred stock, based on the average stock price for each period using the treasury stock method.
The incremental dilutive common share equivalents were 8,385,704 for the three months ended March 31, 2016. Since the Company incurred a loss for the three months ended March 31, 2015, 1,405,101 common share equivalents, were not included in the weighted-average calculation for the three months ended March 31, 2015 since their effect would have been anti-dilutive.
Stock Based Compensation
The Company accounts for stock based compensation in accordance with ASC Topic 718, Compensation Stock Compensation, which establishes accounting for equity instruments exchanged for employee services. Under such provisions, stock based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense, under the straight-line method, over the vesting period of the equity grant.
The Company accounts for equity instruments issued to non-employees in accordance with authoritative guidance for equity based payments to non-employees. Stock options issued to non-employees are accounted for at their estimated fair value, determined using the Black-Scholes option-pricing model. The fair value of options granted to non-employees is re-measured as they vest, and the resulting increase in value, if any, is recognized as expense during the period the related services are rendered.
Factoring Agreement
The Company has a factoring agreement (Factoring Agreement) with Crestmark Bank (Crestmark) related to the Companys accounts receivable resulting from sales of certain products within its commercial coffee segment. Under the terms of the Factoring Agreement, the Company effectively sold those identified accounts receivable to Crestmark with non-credit related recourse. The Company continues to be responsible for the servicing and administration of the receivables.
The Company accounts for the sale of receivables under the Factoring Agreement as secured borrowings with a pledge of the subject receivables as well as all bank deposits as collateral, in accordance with the authoritative guidance for accounting for transfers and servicing of financial assets and extinguishments of liabilities. The caption Accounts receivable, due from factoring company on the accompanying condensed consolidated balance sheets in the amount of approximately $575,000 and $556,000 as of March 31, 2016 and December 31, 2015, respectively, reflects the related collateralized accounts.
The Company's outstanding liability related to the Factoring Agreement was approximately $247,000 and $457,000 as of March 31, 2016 and December 31, 2015, respectively, and is included in other current liabilities on the condensed consolidated balance sheets.
Plantation Costs
The Companys commercial coffee segment CLR includes the results of the Siles Plantation Family Group (Siles), which is a 450 acre coffee plantation and a dry-processing facility located on 26 acres both located in Matagalpa, Nicaragua. Siles is a wholly-owned subsidiary of CLR, and the results of CLR include the depreciation and amortization of capitalized costs, development and maintenance and harvesting costs of Siles. In accordance with GAAP, plantation maintenance and harvesting costs for commercially producing coffee farms are charged against earnings when sold. Deferred harvest costs accumulate throughout the year, and are expensed over the remainder of the year as the coffee is sold. The difference between actual harvest costs incurred and the amount of harvest costs recognized as expense is recorded as either an increase or decrease in deferred harvest costs, which is reported as an asset and included with prepaid expenses and other current assets in the condensed consolidated balance sheets. Once the harvest is complete, the harvest cost is then recognized as the inventory value.
In April 2015, the Company completed the 2015 coffee harvest in Nicaragua and approximately $723,000 of deferred harvest costs were reclassified as inventory during the quarter ended June 30, 2015. The remaining inventory as of March 31, 2016 and December 31, 2015 is $144,000 and $192,000, respectively.
Costs associated with the 2016 harvest as of March 31, 2016 and December 31, 2015 total approximately $650,000 and $350,000, respectively and are included in prepaid expenses and other current assets as deferred harvest costs on the Companys condensed consolidated balance sheets.
Revenue Recognition
The Company recognizes revenue from product sales when the following four criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. The Company ships the majority of its direct selling segment products directly to the distributors via UPS or USPS and receives substantially all payments for these sales in the form of credit card transactions. The Company regularly monitors its use of credit card or merchant services to ensure that its financial risk related to credit quality and credit concentrations is actively managed. Revenue is recognized upon passage of title and risk of loss to customers when product is shipped from the fulfillment facility. The Company ships the majority of its coffee segment products via common carrier and invoices its customer for the products. Revenue is recognized when the title and risk of loss is passed to the customer under the terms of the shipping arrangement, typically, FOB shipping point.
Sales revenue and a reserve for estimated returns are recorded net of sales tax when product is shipped.
Deferred Revenues and Costs
Deferred revenues relate primarily to the Heritage Makers product line and represent the Companys obligation for points purchased by customers that have not yet been redeemed for product. Cash received for points sold is recorded as deferred revenue. Revenue is recognized when customers redeem the points and the product is shipped. As of March 31, 2016 and December 31, 2015, the balance in deferred revenues was approximately $2,425,000 and $2,580,000 respectively, of which the portion attributable to Heritage Makers was approximately $2,238,000 and $2,485,000, respectively. The remaining balance of approximately $187,000 and $95,000 as of March 31, 2016 and December 31, 2015, respectively, relates primarily to the Companys 2016 conventions whereby attendees pre-enroll to the events and the Company does not recognize this revenue until the conventions.
Deferred costs relate to Heritage Makers prepaid commissions that are recognized in expense at the time the related revenue is recognized. As of March 31, 2016 and December 31, 2015, the balance in deferred costs was approximately $810,000 and $967,000, respectively and was included in prepaid expenses and current assets.
Recently Issued Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting (ASU 2016-07). ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU 2016-07 requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. ASU 2016-17 requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. ASU 2016-07 is effective for the Companys financial statements for annual and interim periods beginning on or after December 15, 2016, and must be applied prospectively. The Company does not believe that the adoption of this standard will have a material impact on the Companys consolidated financial position or results of operations.
In March 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for us beginning January 1, 2017. Early adoption is permitted. The Company is currently evaluating the impact adopting this guidance will have on its financial statements.
In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In July 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard. The new standard will become effective for the Company on January 1, 2018 and the Company has the option to adopt it effective January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net) ("ASU 2016-08"), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. ASU 2016-08 clarifies how an entity should identify the unit of accounting (i.e., the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing ("ASU 2016-10"), which amends certain aspects of the guidance on identifying performance obligations and the implementation guidance on licensing. The Company is evaluating the effect the ASUs will have on its consolidated financial statements and related disclosures. The Company has not yet selected an adoption date, a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs to simplify the presentation of debt issuance costs. The amendments in the update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction of the carrying amount of the debt. Recognition and measurement of debt issuance costs were not affected by this amendment. In August 2015, FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated With Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting which clarified that the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. ASU 2015-03 represents a change in accounting principle and was effective on January 1, 2016 and was applied on a retrospective basis. The adoption of ASU 2015-03 resulted in a retrospective reclassification of our debt issuance costs as described above from prepaid expenses and other assets to convertible notes payable, net of debt discount on our December 31, 2015 balance sheet in the amount of $1,456,000.
|
Income Taxes |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Notes to Financial Statements | |
Income Taxes | The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes, under the asset and liability method which includes the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements. Under this approach, deferred taxes are recorded for the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial statement and tax basis of assets and liabilities, and are adjusted for changes in tax rates and tax laws when changes are enacted. The effects of future changes in income tax laws or rates are not anticipated.
Income taxes for the interim periods are computed using the effective tax rates estimated to be applicable for the full fiscal year, as adjusted for any discrete taxable events that occur during the period.
The Company files income tax returns in the United States (U.S.) on a federal basis and in many U.S. state and foreign jurisdictions. Certain tax years remain open to examination by the major taxing jurisdictions to which the Company is subject. |
Inventory and Cost of Sales |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory and Cost of Sales | Inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. The Company records an inventory reserve for estimated excess and obsolete inventory based upon historical turnover, market conditions and assumptions about future demand for its products. When applicable, expiration dates of certain inventory items with a definite life are taken into consideration.
Inventories consist of the following (in thousands):
Cost of revenues includes the cost of inventory, shipping and handling costs, royalties associated with certain products, transaction banking costs, warehouse labor costs and depreciation on certain assets. |
Acquisitions and Business Combinations |
3 Months Ended | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | |||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||
Acquisitions and Business Combinations | The Company accounts for business combinations under the acquisition method and allocates the total purchase price for acquired businesses to the tangible and identified intangible assets acquired and liabilities assumed, based on their estimated fair values. When a business combination includes the exchange of the Companys common stock, the value of the common stock is determined using the closing market price as of the date such shares were tendered to the selling parties. The fair values assigned to tangible and identified intangible assets acquired and liabilities assumed are based on management or third-party estimates and assumptions that utilize established valuation techniques appropriate for the Companys industry and each acquired business. Goodwill is recorded as the excess, if any, of the aggregate fair value of consideration exchanged for an acquired business over the fair value (measured as of the acquisition date) of total net tangible and identified intangible assets acquired. A liability for contingent consideration, if applicable, is recorded at fair value as of the acquisition date. In determining the fair value of such contingent consideration, management estimates the amount to be paid based on probable outcomes and expectations on financial performance of the related acquired business. The fair value of contingent consideration is reassessed quarterly, with any change in the estimated value charged to operations in the period of the change. Increases or decreases in the fair value of the contingent consideration obligations can result from changes in actual or estimated revenue streams, discount periods, discount rates and probabilities that contingencies will be met.
During the three months ended March 31, 2016, the Company entered into one acquisition, which is described below. The acquisition was conducted in an effort to expand the Companys distributor network, enhance and expand its product portfolio, and diversify its product mix. As such, the major purpose for the Companys business combination was to increase revenue and profitability. The acquisition was structured as an asset purchase which resulted in the recognition of certain intangible assets.
South Hill Designs Inc.
In January 2016, the Company acquired certain assets of South Hill Designs Inc., (South Hill) a direct-sales and proprietary jewelry company that sells customized lockets and charms, which further expands the Companys jewelry line that the Companys distributors have access to offering more variety and appealing to a broader consumer base and the South Hill distributors and customers will gain access to products offered by the Company.
The contingent considerations estimated fair value at the date of acquisition was $2,650,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.
The Company has agreed to pay South Hill a monthly royalty payment on all gross sales revenue generated by the South Hill distributor organization in accordance with this agreement, regardless of products being sold and a monthly royalty payment on South Hill product revenue for seven (7) years from the closing date.
The assets acquired were recorded at estimated fair values as of the date of the acquisition. The fair values of the acquired assets have not been finalized pending further information that may impact the valuation of certain assets or liabilities. The preliminary purchase price allocation for South Hill is as follows (in thousands):
The preliminary fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.
The Company expects to finalize the valuation within one (1) year from the acquisition date.
Revenues related to the acquisition for the three months ended March 31, 2016 were $1,395,000.
The pro-forma effect assuming the business combination with South Hill discussed above had occurred at the beginning of the current period is not presented as the information was not available. |
Intangible Assets and Goodwill |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets and Goodwill | Intangible Assets
Intangible assets are comprised of distributor organizations, trademarks and tradenames, customer relationships and internally developed software. The Company's acquired intangible assets, which are subject to amortization over their estimated useful lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. An impairment loss is recognized when the carrying amount of an intangible asset exceeds its fair value.
Intangible assets consist of the following (in thousands):
Amortization expense related to intangible assets was approximately $604,000 and $513,000 for the three months ended March 31, 2016 and 2015, respectively.
Trade names, which do not have legal, regulatory, contractual, competitive, economic, or other factors that limit the useful lives are considered indefinite lived assets and are not amortized but are tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Approximately $2,267,000 in trademarks from business combinations have been identified as having indefinite lives.
Goodwill
Goodwill is recorded as the excess, if any, of the aggregate fair value of consideration exchanged for an acquired business over the fair value (measured as of the acquisition date) of total net tangible and identified intangible assets acquired. In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 350, Intangibles Goodwill and Other, goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. The Company conducts annual reviews for goodwill and indefinite-lived intangible assets in the fourth quarter or whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable.
The Company first assesses qualitative factors to determine whether it is more likely than not (a likelihood of more than 50%) that goodwill is impaired. After considering the totality of events and circumstances, the Company determines whether it is more likely than not that goodwill is not impaired. If impairment is indicated, then the Company conducts the two-step impairment testing process. The first step compares the Companys fair value to its net book value. If the fair value is less than the net book value, the second step of the test compares the implied fair value of the Companys goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, the Company would recognize an impairment loss equal to that excess amount. The testing is generally performed at the reporting unit level. A reporting unit is the operating segment, or a business one level below that operating segment (referred to as a component) if discrete financial information is prepared and regularly reviewed by management at the component level. The Company has determined that its reporting units for goodwill impairment testing are the Companys reportable segments. As such, the Company analyzed its goodwill balances separately for the commercial coffee reporting unit and the direct selling reporting unit. The goodwill balance as of March 31, 2016 and December 31, 2015 was $6,323,000. There were no triggering events indicating impairment of goodwill or intangible assets during the three months ended March 31, 2016 and 2015. |
Debt |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||
Debt | Our total convertible notes payable, net of debt discount outstanding consisted of the amount set forth in the following table (in thousands):
(1) Amounts are net of unamortized debt discounts of $3,166,000 as of March 31, 2016 and $3,404,000 as of December 31, 2015. (2) Amounts are net of unamortized debt discounts of $266,000 as of March 31, 2016 and $292,000 as of December 31, 2015. (3) As of January 1, 2016, we adopted ASU 2015-03 with retrospective application. This resulted in a $1,456,000 reclassification from prepaid expenses and other current assets to convertible notes payable, net of debt discount, for unamortized debt issuance costs. (4) Amounts are net of unamortized discounts and issuance costs of $4,766,000 as of March 31, 2016 and $5,152,000 as of December 31, 2015.
Convertible Notes Payable
November 2015 Private Placement
Between October 13, 2015 and November 25, 2015 the Company entered into Note Purchase Agreements (the Note or Notes) by way of completing a private placement offering (November 2015 Private Placement) with three (3) accredited investors to which the Company raised cash proceeds of $3,187,500 in the offering and converted $4,000,000 of debt from the January 2015 Private Placement to this offering and sold aggregate units consisting of three (3) year senior secured convertible Notes in the aggregate principal amount of $7,187,500, convertible into 20,535,714 shares of common stock, par value $0.001 per share, at a conversion price of $0.35 per share, subject to adjustment as provided therein; and five (5) year Warrants exercisable to purchase 9,583,333 shares of the Companys common stock at a price per share of $0.45. The Notes bear interest at a rate of eight percent (8%) per annum and interest is paid quarterly in arrears with all principal and unpaid interest due at maturity on October 12, 2018. As of March 31, 2016 and December 31, 2015 the principal amount of $7,187,500 remains outstanding.
July 2014 Private Placement
Between July 31, 2014 and September 10, 2014 the Company entered into Note Purchase Agreements (the Note or Notes) by way of completing a private placement offering (2014 Private Placement) with seven accredited investors pursuant to which the Company raised aggregate gross proceeds of $4,750,000 and sold units consisting of five (5) year senior secured convertible Notes in the aggregate principal amount of $4,750,000, that are convertible into 13,571,429 shares of our common stock, at a conversion price of $0.35 per share, and warrants to purchase 18,586,956 shares of common stock at an exercise price of $0.23 per share. The Notes bear interest at a rate of eight percent (8%) per annum and interest is paid quarterly in arrears with all principal and unpaid interest due between July and September 2019. As of March 31, 2016 and December 31, 2015 the principal amount of $4,750,000 remains outstanding.
Notes Payable
January 2015 Private Placement
In January 2015, the Company entered into Note Purchase Agreements (the Note or Notes) by way of completing a private placement offering (January 2015 Private Placement) with three (3) accredited investors pursuant to which the Company sold units consisting of one (1) year senior secured notes in the aggregate principal amount of $5,250,000. One holder of a January 2015 Note in the principal amount of $5,000,000 was prepaid on October 26, 2015 through a cash payment from us to the investor of $1,000,000 and the remaining $4,000,000 owed was applied to the investors purchase of a $4,000,000 November 2015 Note in the November 2015 Private Placement and a November 2015 Warrant exercisable to purchase 5,333,333 shares of Common Stock. The Notes bore interest at a rate of eight percent (8%) per annum and interest was paid quarterly in 2015. The remaining balance of the January 2015 Notes as of December 31, 2015 was $250,000 and was paid in January 2016. |
Derivative Liability |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||
Derivative Liability |
The Company accounted for the warrants issued in conjunction with our November 2015 and July 2014 Private Placements in accordance with the accounting guidance for derivatives ASC Topic 815. The accounting guidance sets forth a two-step model to be applied in determining whether a financial instrument is indexed to an entitys own stock, which would qualify such financial instruments for a scope exception. This scope exception specifies that a contract that would otherwise meet the definition of a derivative financial instrument would not be considered as such if the contract is both (i) indexed to the entitys own stock and (ii) classified in the stockholders equity section of the entitys balance sheet. The Company determined the warrants related to Notes are ineligible for equity classification due to anti-dilution provisions set forth therein.
The Company revalued the warrants as of the end of each reporting period, and the estimated fair value of the outstanding warrant liabilities was $4,066,000 and $4,716,000 as of March 31, 2016 and December 31, 2015, respectively.
Increases or decreases in fair value of the derivative liability are included as a component of total other expense in the accompanying condensed consolidated statements of operations for the respective period. The changes to the derivative liability for warrants resulted in a decrease of approximately $650,000 and an increase of approximately $92,000 for the three months ended March 31, 2016 and 2015, respectively.
Various factors are considered in the pricing models we use to value the warrants, including our current stock price, the remaining life of the warrants, the volatility of our stock price, and the risk free interest rate. Future changes in these factors may have a significant impact on the computed fair value of the warrant liability. As such, we expect future changes in the fair value of the warrants to continue and may vary significantly from period to period. The warrant liability and revaluations have not had a cash impact on our working capital, liquidity or business operations.
Warrants classified as derivative liabilities are recorded at their estimated fair value (see Note 8, below) at the issuance date and are revalued at each subsequent reporting date. We will continue to revalue the derivative liability on each subsequent balance sheet date until the securities to which the derivative liabilities relate are exercised or expire.
The estimated fair value of the warrants were computed as of March 31, 2016 and as of December 31, 2015 using Black-Scholes and Monte Carlo option pricing models, using the following assumptions:
In addition, Management assessed the probabilities of future financing assumptions in the valuation models. |
Fair Value of Financial Instruments |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments | Fair value measurements are performed in accordance with the guidance provided by ASC Topic 820, Fair Value Measurements and Disclosures. ASC Topic 820 defines fair value as the price that would be received from selling an asset, or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied.
ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities recorded at fair value in the financial statements are categorized based upon the hierarchy of levels of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 Unobservable inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability.
The carrying amounts of the Companys financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, capital lease obligations and deferred revenue approximate their fair values based on their short-term nature. The carrying amount of the Companys long term notes payable approximates its fair value based on interest rates available to the Company for similar debt instruments and similar remaining maturities.
The estimated fair value of the contingent consideration related to the Company's business combinations is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument.
In connection with the 2015 and 2014 Private Placements, we issued warrants to purchase shares of our common stock which are accounted for as derivative liabilities (see Note 7 above.) The estimated fair value of the warrants is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument.
We used Level 3 inputs for the valuation methodology of the derivative liabilities. Our derivative liabilities are adjusted to reflect estimated fair value at each period end, with any decrease or increase in the estimated fair value being recorded in other income or expense accordingly, as adjustments to the fair value of the derivative liabilities.
The following table details the fair value measurement within the three levels of the value hierarchy of the Companys financial instruments, which includes the Level 3 liabilities (in thousands):
The fair value of the contingent acquisition liabilities are evaluated each reporting period using projected revenues, discount rates, and projected timing of revenues. Projected contingent payment amounts are discounted back to the current period using a discount rate. Projected revenues are based on the Companys most recent internal operational budgets and long-range strategic plans. In some cases, there is no maximum amount of contingent consideration that can be earned by the sellers. Increases in projected revenues will result in higher fair value measurements. Increases in discount rates and the time to payment will result in lower fair value measurements. Increases (decreases) in any of those inputs in isolation may result in a significantly lower (higher) fair value measurement. During the three months ended March 31, 2016 the net adjustment to the fair value of the contingent acquisition debt was a decrease of $391,000. There were no adjustments to the fair value of the contingent acquisition debt during the three months ended March 31, 2015. |
Stockholders' Equity |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity | The Companys Articles of Incorporation, as amended, authorize the issuance of two classes of stock to be designated Common Stock and Preferred Stock.
Convertible Preferred Stock
The Company had 161,135 shares of Series A Convertible Preferred Stock ("Series A Preferred") outstanding as of March 31, 2016 and December 31, 2015, and accrued dividends of approximately $101,000 and $98,000, respectively. The holders of the Series A Preferred Stock are entitled to receive a cumulative dividend at a rate of 8.0% per year, payable annually either in cash or shares of the Company's Common Stock at the Company's election. Shares of Common Stock paid as accrued dividends are valued at $0.50 per share. Each share of Series A Preferred is convertible into two shares of the Company's Common Stock. The holders of Series A Preferred are entitled to receive payments upon liquidation, dissolution or winding up of the Company before any amount is paid to the holders of Common Stock. The holders of Series A Preferred shall have no voting rights, except as required by law.
Common Stock
The Company had 392,610,015 common shares outstanding as of March 31, 2016. The holders of Common Stock are entitled to one vote per share on matters brought before the shareholders.
Repurchase of Common Stock
On December 11, 2012, the Company authorized a share repurchase program to repurchase up to 15 million of the Company's issued and outstanding common shares from time to time on the open market or via private transactions through block trades. Under this program, for the three months ended March 31, 2016, the Company repurchased a total of 15,000 shares at a weighted-average cost of $0.33. A total of 3,821,172 shares have been repurchased to-date at a weighted-average cost of $0.26. The remaining number of shares authorized for repurchase under the plan as of March 31, 2016 is 11,178,828.
Warrants to Purchase Preferred Stock and Common Stock
As of March 31, 2016, warrants to purchase 41,624,796 shares of the Company's common stock at prices ranging from $0.10 to $0.50 were outstanding. All warrants are exercisable as of March 31, 2016 and expire at various dates through December 2020 and have a weighted average remaining term of approximately 3.23 years as of March 31, 2016.
A summary of the warrant activity for the three months ended March 31, 2016 is presented in the following table:
Advisory agreements
PCG Advisory Group. On September 1, 2015, the Company entered into an agreement with PCG Advisory Group (PCG), pursuant to which PCG agreed to provide investor relations services for six (6) months in exchange for fees paid in cash of $6,000 per month and 100,000 shares of restricted common stock issued in accordance with the agreement. In connection with this agreement, the Company has accrued for the estimated per share value of issuance at $0.32 per share, the price of Companys common stock at September 1, 2015 for a total of $32,000 due to PCG. The fair values of the shares was recorded as prepaid advisory fees and are included in prepaid expenses and other current assets on the Companys balance sheets and will be amortized on a pro-rate basis over the term of the contract. During the three months ended March 31, 2016, the Company recorded expense of approximately $10,000, in connection with amortization of the stock issuance. As of March 31, 2016, the total remaining balance of the prepaid investor relation services related to this agreement is $0.
On March 1, 2016, the Company signed a renewal contract with PCG, pursuant to which PCG agreed to provide investor relations services for six (6) months in exchange for fees paid in cash of $6,000 per month and 100,000 shares of restricted common stock issued in accordance with the agreement. In connection with this agreement, the Company has accrued for the estimated per share value of issuance at $0.30 per share, the price of Companys common stock at March 1, 2016 for a total of $30,000 due to PCG. The fair values of the shares was recorded as prepaid advisory fees and are included in prepaid expenses and other current assets on the Companys balance sheets and will be amortized on a pro-rate basis over the term of the contract. During the three months ended March 31, 2016, the Company recorded expense of approximately $5,000, in connection with amortization of the stock issuance. As of March 31, 2016, the total remaining balance of the prepaid investor relation services is approximately $25,000.
Stock Options
On May 16, 2012, the Company established the 2012 Stock Option Plan (Plan) authorizing the granting of options for up to 40,000,000 shares of Common Stock. The purpose of the Plan is to promote the long-term growth and profitability of the Company by (i) providing key people and consultants with incentives to improve stockholder value and to contribute to the growth and financial success of the Company and (ii) enabling the Company to attract, retain and reward the best available persons for positions of substantial responsibility. The Plan permits the granting of stock options, including non-qualified stock options and incentive stock options qualifying under Section 422 of the Code, in any combination (collectively, Options). At March 31, 2016, the Company had 17,784,525 shares of Common Stock available for issuance under the Plan.
A summary of the Plan Options for the three months ended March 31, 2016 is presented in the following table:
The weighted-average fair value per share of the granted options for the three months ended March 31, 2016 and 2015 was approximately $0.14 and $0.12, respectively.
Stock based compensation expense included in the condensed consolidated statements of operations was $70,000 and $144,000 for the three months ended March 31, 2016 and 2015, respectively.
As of March 31, 2016, there was approximately $577,000 of total unrecognized compensation expense related to unvested share-based compensation arrangements granted under the Plan. The expense is expected to be recognized over a weighted-average period of 3.3 years.
The Company uses the Black-Scholes option-pricing model (Black-Scholes model) to estimate the fair value of stock option grants. The use of a valuation model requires the Company to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on the historical volatility of the Companys stock price over the expected term of the option. The expected life is based on the contractual life of the option and expected employee exercise and post-vesting employment termination behavior. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of the grant. |
Segment and Geographic Information |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment and Geographic Information | The Company offers a wide variety of products to support a healthy lifestyle including; Nutritional Supplements, Sports and Energy Drinks, Health and Wellness, Weight Loss, Gourmet Coffee, Skincare and Cosmetics, Lifestyle Services, Digital products including Scrap books and Memory books, Packaged Foods, Pharmacy Discount Cards, and Clothing and Jewelry line. The Companys business is classified by management into two reportable segments: direct selling and commercial coffee.
The Companys segments reflect the manner in which the business is managed and how the Company allocates resources and assesses performance. The Companys chief operating decision maker is the Chief Executive Officer. The Companys chief operating decision maker evaluates segment performance primarily based on revenue and segment operating income. The principal measures and factors the Company considered in determining the number of reportable segments were revenue, gross margin percentage, sales channel, customer type and competitive risks. In addition, each reporting segment has similar products and customers, similar methods of marketing and distribution and a similar regulatory environment.
The accounting policies of the segments are consistent with those described in the summary of significant accounting policies. Segment revenue excludes intercompany revenue eliminated in the consolidation. The following tables present certain financial information for each segment (in thousands):
Total tangible assets, net located outside the United States are approximately $5.4 million as of March 31, 2016. For the year ended December 31, 2015, total assets, net located outside the United States were approximately $5.2 million.
The Company conducts its operations primarily in the United States. The Company also sells its products in 70 different countries. The following table displays revenues attributable to the geographic location of the customer (in thousands):
|
Subsequent Events |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Events | None. |
Basis of Presentation and Description of Business (Policies) |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Basis Of Presentation And Description Of Business Policies | |
Basis of Presentation | The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations.
The statements presented as of March 31, 2016 and for the three months ended March 31, 2016 and 2015 are unaudited. In the opinion of management, these financial statements reflect all normal recurring and other adjustments necessary for a fair presentation, and to make the financial statements not misleading. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Companys Form 10-K for the year ended December 31, 2015. The results for interim periods are not necessarily indicative of the results for the entire year.
Certain reclassifications have been made to conform to the current year presentations including the Companys adoption of ASU 2015-03 and ASU 2015-15 with retrospective application effective January 1, 2016. This resulted in a reclassification from prepaid expenses and other assets to convertible notes payable, net of debt discount. Refer to Note 1, Recently Issued Accounting Pronouncements of the notes to the condensed consolidated financial statements for further details. These reclassifications did not affect revenue, total costs and expenses, income (loss) from operations, or net income (loss).
The Company consolidates all majority owned subsidiaries, investments in entities in which we have controlling influence and variable interest entities where we have been determined to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation. |
Nature of Business | Youngevity International, Inc. (the Company), founded in 1996, develops and distributes health and nutrition related products through its global independent direct selling network, also known as multi-level marketing, and sells coffee products to commercial customers. The Company operates in two business segments, its direct selling segment where products are offered through a global distribution network of preferred customers and distributors and its commercial coffee segment where products are sold directly to businesses. In the following text, the terms we, our, and us may refer, as the context requires, to the Company or collectively to the Company and its subsidiaries.
The Company operates through the following domestic wholly-owned subsidiaries: AL Global Corporation, which operates our direct selling networks, CLR Roasters, LLC (CLR), our commercial coffee business, Financial Destination, Inc., FDI Management, Inc., and MoneyTrax LLC (collectively referred to as FDI), 2400 Boswell LLC, MK Collaborative LLC, Youngevity Global LLC and the wholly-owned foreign subsidiaries Youngevity Australia Pty. Ltd., Youngevity NZ, Ltd., Siles Plantation Family Group S.A. located in Nicaragua, Youngevity Mexico S.A. de CV, Youngevity Israel, Ltd., Youngevity Russia, LLC, Youngevity Colombia S.A.S., Youngevity International Singapore Pte. Ltd., and Mialisia Canada, Inc. |
Use of Estimates | The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense for each reporting period. Estimates are used in accounting for, among other things, allowances for doubtful accounts, deferred taxes, and related valuation allowances, fair value of derivative liabilities, uncertain tax positions, loss contingencies, fair value of options granted under our stock based compensation plan, fair value of assets and liabilities acquired in business combinations, capital leases, asset impairments, estimates of future cash flows used to evaluate impairments, useful lives of property, equipment and intangible assets, value of contingent acquisition debt, inventory obsolescence, and sales returns.
Actual results may differ from previously estimated amounts and such differences may be material to the consolidated financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected prospectively in the period they occur. |
Cash and Cash Equivalents | The Company considers only its monetary liquid assets with original maturities of three months or less as cash and cash equivalents. |
Earnings Per Share | Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to common stockholders by the sum of the weighted-average number of common shares outstanding during the period and the weighted-average number of dilutive common share equivalents outstanding during the period, using the treasury stock method. Dilutive common share equivalents are comprised of in-the-money stock options, warrants and convertible preferred stock, based on the average stock price for each period using the treasury stock method.
The incremental dilutive common share equivalents were 8,385,704 for the three months ended March 31, 2016. Since the Company incurred a loss for the three months ended March 31, 2015, 1,405,101 common share equivalents, were not included in the weighted-average calculation for the three months ended March 31, 2015 since their effect would have been anti-dilutive. |
Stock Based Compensation | The Company accounts for stock based compensation in accordance with ASC Topic 718, Compensation Stock Compensation, which establishes accounting for equity instruments exchanged for employee services. Under such provisions, stock based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense, under the straight-line method, over the vesting period of the equity grant.
The Company accounts for equity instruments issued to non-employees in accordance with authoritative guidance for equity based payments to non-employees. Stock options issued to non-employees are accounted for at their estimated fair value, determined using the Black-Scholes option-pricing model. The fair value of options granted to non-employees is re-measured as they vest, and the resulting increase in value, if any, is recognized as expense during the period the related services are rendered. |
Factoring Agreement | The Company has a factoring agreement (Factoring Agreement) with Crestmark Bank (Crestmark) related to the Companys accounts receivable resulting from sales of certain products within its commercial coffee segment. Under the terms of the Factoring Agreement, the Company effectively sold those identified accounts receivable to Crestmark with non-credit related recourse. The Company continues to be responsible for the servicing and administration of the receivables.
The Company accounts for the sale of receivables under the Factoring Agreement as secured borrowings with a pledge of the subject receivables as well as all bank deposits as collateral, in accordance with the authoritative guidance for accounting for transfers and servicing of financial assets and extinguishments of liabilities. The caption Accounts receivable, due from factoring company on the accompanying condensed consolidated balance sheets in the amount of approximately $575,000 and $556,000 as of March 31, 2016 and December 31, 2015, respectively, reflects the related collateralized accounts.
The Company's outstanding liability related to the Factoring Agreement was approximately $247,000 and $457,000 as of March 31, 2016 and December 31, 2015, respectively, and is included in other current liabilities on the condensed consolidated balance sheets. |
Plantation Costs | The Companys commercial coffee segment CLR includes the results of the Siles Plantation Family Group (Siles), which is a 450 acre coffee plantation and a dry-processing facility located on 26 acres both located in Matagalpa, Nicaragua. Siles is a wholly-owned subsidiary of CLR, and the results of CLR include the depreciation and amortization of capitalized costs, development and maintenance and harvesting costs of Siles. In accordance with GAAP, plantation maintenance and harvesting costs for commercially producing coffee farms are charged against earnings when sold. Deferred harvest costs accumulate throughout the year, and are expensed over the remainder of the year as the coffee is sold. The difference between actual harvest costs incurred and the amount of harvest costs recognized as expense is recorded as either an increase or decrease in deferred harvest costs, which is reported as an asset and included with prepaid expenses and other current assets in the condensed consolidated balance sheets. Once the harvest is complete, the harvest cost is then recognized as the inventory value.
In April 2015, the Company completed the 2015 coffee harvest in Nicaragua and approximately $723,000 of deferred harvest costs were reclassified as inventory during the quarter ended June 30, 2015. The remaining inventory as of March 31, 2016 and December 31, 2015 is $144,000 and $192,000, respectively.
Costs associated with the 2016 harvest as of March 31, 2016 and December 31, 2015 total approximately $650,000 and $350,000, respectively and are included in prepaid expenses and other current assets as deferred harvest costs on the Companys condensed consolidated balance sheets. |
Revenue Recognition | The Company recognizes revenue from product sales when the following four criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. The Company ships the majority of its direct selling segment products directly to the distributors via UPS or USPS and receives substantially all payments for these sales in the form of credit card transactions. The Company regularly monitors its use of credit card or merchant services to ensure that its financial risk related to credit quality and credit concentrations is actively managed. Revenue is recognized upon passage of title and risk of loss to customers when product is shipped from the fulfillment facility. The Company ships the majority of its coffee segment products via common carrier and invoices its customer for the products. Revenue is recognized when the title and risk of loss is passed to the customer under the terms of the shipping arrangement, typically, FOB shipping point.
Sales revenue and a reserve for estimated returns are recorded net of sales tax when product is shipped. |
Deferred Revenues and Costs | Deferred revenues relate primarily to the Heritage Makers product line and represent the Companys obligation for points purchased by customers that have not yet been redeemed for product. Cash received for points sold is recorded as deferred revenue. Revenue is recognized when customers redeem the points and the product is shipped. As of March 31, 2016 and December 31, 2015, the balance in deferred revenues was approximately $2,425,000 and $2,580,000 respectively, of which the portion attributable to Heritage Makers was approximately $2,238,000 and $2,485,000, respectively. The remaining balance of approximately $187,000 and $95,000 as of March 31, 2016 and December 31, 2015, respectively, relates primarily to the Companys 2016 conventions whereby attendees pre-enroll to the events and the Company does not recognize this revenue until the conventions.
Deferred costs relate to Heritage Makers prepaid commissions that are recognized in expense at the time the related revenue is recognized. As of March 31, 2016 and December 31, 2015, the balance in deferred costs was approximately $810,000 and $967,000, respectively and was included in prepaid expenses and current assets.
|
Recently Issued Accounting Pronouncements | In March 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting (ASU 2016-07). ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU 2016-07 requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. ASU 2016-17 requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. ASU 2016-07 is effective for the Companys financial statements for annual and interim periods beginning on or after December 15, 2016, and must be applied prospectively. The Company does not believe that the adoption of this standard will have a material impact on the Companys consolidated financial position or results of operations.
In March 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for us beginning January 1, 2017. Early adoption is permitted. The Company is currently evaluating the impact adopting this guidance will have on its financial statements.
In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In July 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard. The new standard will become effective for the Company on January 1, 2018 and the Company has the option to adopt it effective January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net) ("ASU 2016-08"), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. ASU 2016-08 clarifies how an entity should identify the unit of accounting (i.e., the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing ("ASU 2016-10"), which amends certain aspects of the guidance on identifying performance obligations and the implementation guidance on licensing. The Company is evaluating the effect the ASUs will have on its consolidated financial statements and related disclosures. The Company has not yet selected an adoption date, a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs to simplify the presentation of debt issuance costs. The amendments in the update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction of the carrying amount of the debt. Recognition and measurement of debt issuance costs were not affected by this amendment. In August 2015, FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated With Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting which clarified that the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. ASU 2015-03 represents a change in accounting principle and was effective on January 1, 2016 and was applied on a retrospective basis. The adoption of ASU 2015-03 resulted in a retrospective reclassification of our debt issuance costs as described above from prepaid expenses and other assets to convertible notes payable, net of debt discount on our December 31, 2015 balance sheet in the amount of $1,456,000.
|
Inventory and Cost of Sales (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory And Cost Of Sales Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories |
|
Acquisitions and Business Combinations (Tables) |
3 Months Ended | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | |||||||||||||||||||||
South Hill Designs Inc [Member] | |||||||||||||||||||||
Assets acquired and liabilities assumed |
|
Intangible Assets and Goodwill (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets And Goodwill Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets and Goodwill |
|
Debt (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||
Debt Tables | ||||||||||||||||||||||||||||||||||||||||||||||
Convertible note oustanding |
(1) Amounts are net of unamortized debt discounts of $3,166,000 as of March 31, 2016 and $3,404,000 as of December 31, 2015. (2) Amounts are net of unamortized debt discounts of $266,000 as of March 31, 2016 and $292,000 as of December 31, 2015. (3) As of January 1, 2016, we adopted ASU 2015-03 with retrospective application. This resulted in a $1,456,000 reclassification from prepaid expenses and other current assets to convertible notes payable, net of debt discount, for unamortized debt issuance costs. (4) Amounts are net of unamortized discounts and issuance costs of $4,766,000 as of March 31, 2016 and $5,152,000 as of December 31, 2015. |
Derivative Liability (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||
Derivative Liability Tables | ||||||||||||||||||||||||||||||||||||||||||||||
Monte Carlo fair value of warrants |
|
Fair Value of Financial Instruments (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Of Financial Instruments Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value measurement within the three levels of value hierarchy |
|
Stockholder's Equity (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Option Plan Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Plan Options |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrant Activity |
The following table summarizes warrant activity for the following periods:
|
Segment and Geographic information (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment And Geographical Information Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment information revenue |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment information assets |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment information geographical |
|
Basis of Presentation and Description of Business (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2015 |
|
Common stock equivalents anti-dilutive | 8,385,704 | 1,405,101 | |
Entity date of incorporation | Jan. 01, 1996 | ||
Accounts receivable, due from factoring company | $ 575 | $ 556 | |
Inventory | 144 | 192 | |
Production harvest costs | 650 | 350 | |
Other current liabilities | 247 | 457 | |
Deferred revenues | 2,425 | 2,580 | |
Deferred costs | 810 | 967 | |
Heritage Makers [Member] | |||
Deferred revenues | $ 2,238 | $ 2,485 |
Inventory and Cost of Sales (Details) - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Inventory And Cost Of Sales Details | ||
Finished goods | $ 11,425 | $ 9,893 |
Raw materials | 9,466 | 8,970 |
Inventory, gross | 20,891 | 18,863 |
Reserve for excess and obsolete | (917) | (886) |
Inventory, net | $ 19,974 | $ 17,977 |
Acquisitions and Business Combinations (Details) $ in Thousands |
3 Months Ended |
---|---|
Mar. 31, 2016
USD ($)
| |
Total purchase price | $ 2,650 |
South Hill Designs Inc [Member] | Distributor organizations [Member] | |
Total purchase price | 1,250 |
South Hill Designs Inc [Member] | Customer-related intangible [Member] | |
Total purchase price | 900 |
South Hill Designs Inc [Member] | Trademarks and trade name [Member] | |
Total purchase price | $ 500 |
Acquisitions and Business Combinations (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Jan. 02, 2016 |
|
Revenue | $ 38,202 | $ 36,807 | |
South Hill Designs Inc [Member] | |||
Total purchase price | $ 2,650 | ||
Revenue | $ 1,395 |
Intangible Assets and Goodwill (Details) - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Distributor organizations [Member] | ||
Cost | $ 12,423 | $ 11,173 |
Accumulated Amortization | 6,363 | 6,086 |
Net | 6,060 | 5,087 |
Trademarks and trade names [Member] | ||
Cost | 5,166 | 4,666 |
Accumulated Amortization | 610 | 537 |
Net | 4,556 | 4,129 |
Customer relationships [Member] | ||
Cost | 7,687 | 6,787 |
Accumulated Amortization | 2,980 | 2,751 |
Net | 4,707 | 4,036 |
Internally developed software [Member] | ||
Cost | 720 | 720 |
Accumulated Amortization | 283 | 258 |
Net | 437 | 462 |
Intangible assets [Member] | ||
Cost | 25,996 | 23,346 |
Accumulated Amortization | 10,236 | 9,632 |
Net | $ 15,760 | $ 13,714 |
Intangible Assets and Goodwill (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2015 |
|
Intangible Assets And Goodwill Details Narrative | |||
Amortization expense | $ 604 | $ 513 | |
Trademarks | 2,267 | ||
Goodwill balance | $ 6,323 | $ 6,323 |
Debt (Details) - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Debt Details | |||||||||||
8% Convertible Notes due July and August 2019 (July 2014 Private Placement) | [1] | $ 1,584 | $ 1,346 | ||||||||
8% Convertible Notes due October and November 2018 (November 2015 Private Placement) | [2] | 6,922 | 6,896 | ||||||||
Net debt issuance costs | [3] | (1,334) | (1,456) | ||||||||
Total convertible notes payable, net of debt discount | [4] | $ 7,172 | $ 6,786 | ||||||||
|
Debt (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
|
November 2015 Private Placement [Member] | ||
Bearing interest rate | 8.00% | |
Principal outstanding amount remains | $ 7,187,500 | |
July 2014 Private Placement [Member] | ||
Principal outstanding amount remains | $ 4,750,000 | |
January 2015 Private Placement [Member] | ||
Bearing interest rate | 8.00% | |
Principal outstanding amount remains | $ 250,000 |
Derivative Liability (Details) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
|
Stock price volatility | 70.00% | 70.00% |
Risk-free interest rate | 1.76% | |
Annual dividend yield | 0.00% | 0.00% |
Minimum [Member] | ||
Risk-free interest rate | 0.87% | |
Expected life | 3 years 3 months 18 days | 3 years 7 months 6 days |
Maximum [Member] | ||
Risk-free interest rate | 1.21% | |
Expected life | 4 years 6 months | 4 years 10 months 24 days |
Derivative Liability (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Derivative Liability Details Narrative | ||
Fair value of the outstanding warrant liabilities | $ 4,066 | $ 4,716 |
Increase to derivative liability | $ 650 | $ 92 |
Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Liabilities: | ||
Contingent acquisition debt, current portion | $ 428 | $ 264 |
Contingent acquisition debt, less current portion | 8,794 | 7,174 |
Warrant derivative liability | 4,066 | 4,716 |
Total liabilities | $ 13,288 | $ 12,154 |
Level 1 [Member] | ||
Liabilities: | ||
Contingent acquisition debt, current portion | ||
Contingent acquisition debt, less current portion | ||
Warrant derivative liability | ||
Total liabilities | ||
Level 2 [Member] | ||
Liabilities: | ||
Contingent acquisition debt, current portion | ||
Contingent acquisition debt, less current portion | ||
Warrant derivative liability | ||
Total liabilities | ||
Level 3 [Member] | ||
Liabilities: | ||
Contingent acquisition debt, current portion | $ 428 | $ 264 |
Contingent acquisition debt, less current portion | 8,794 | 7,174 |
Warrant derivative liability | 4,066 | 4,716 |
Total liabilities | $ 13,288 | $ 12,154 |
Fair Value of Financial Instruments (Details Narratives) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Notes to Financial Statements | ||
Change in fair value of contingent acquisition debt | $ 391 |
Stockholders' Equity (Details) $ / shares in Units, $ in Thousands |
3 Months Ended |
---|---|
Mar. 31, 2016
USD ($)
$ / shares
shares
| |
Number of Shares | |
Outstanding, beginning of period | shares | 23,521,600 |
Granted | shares | 197,500 |
Canceled / expired | shares | (1,870,300) |
Exercised | shares | (42,250) |
Outstanding, end of period | shares | 21,806,550 |
Exercisable, end of period | shares | 17,112,950 |
Weighted Average Exercise Price | |
Outstanding, beginning of period | $ / shares | $ 0.22 |
Granted | $ / shares | 0.28 |
Canceled / expired | $ / shares | 0.22 |
Exercised | $ / shares | 0.18 |
Outstanding, end of period | $ / shares | 0.22 |
Exercisable, end of period | $ / shares | $ 0.22 |
Aggregate Intrinsic Value | |
Outstanding, beginning of period | $ | $ 2,044 |
Exercised | $ | |
Outstanding, end of period | $ | $ 1,430 |
Exercisable, end of period | $ | $ 994 |
Stockholders' Equity (Details 1) |
3 Months Ended |
---|---|
Mar. 31, 2016
shares
| |
Warrant activity | |
Balance, beginning | 41,674,796 |
Granted | |
Expired/cancelled | (50,000) |
Exercised | |
Balance, ending | 41,624,796 |
Stockholders' Equity (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2015 |
|
Convertible Preferred Stock, shares outstanding | 161,135 | 161,135 | |
Common Stock, shares outstanding | 392,610,015 | 392,583,015 | |
Shares repurchased | 15,000 | ||
Stock repurchase program, total shares repurchased to date | 3,821,172 | ||
Stock repurchase program, total shares repurchased to date, per share | $ 0.26 | ||
Remaining shares authorized for repurchase | 11,178,828 | ||
Remaining balance of the prepaid investor relation services | $ 0 | ||
Amortization of the stock issuance | $ 10 | ||
Shares available for issuance under plan | 17,784,525 | ||
Warrant outstanding | 41,624,796 | 41,674,796 | |
Warrant outstanding, price range | $ 0.33 | ||
Stock based compensation expense | $ 70 | $ 14 | |
Unrecognized compensation expense related to unvested share-based compensation arrangements | $ 577 | ||
Weighted-average period recognized | 3 years 3 months 18 days | ||
PCG Advisory Group Member | |||
Remaining balance of the prepaid investor relation services | $ 5 | ||
Amortization of the stock issuance | $ 25 | ||
Series A Preferred Stock [Member] | |||
Convertible Preferred Stock, shares outstanding | 161,135 | 161,135 | |
Accrued dividends | $ 101 | $ 98 | |
Warrant [Member] | |||
Warrant outstanding | 41,624,796 | ||
Weighted average remaining term, warrant | 3 years 2 months 23 days | ||
Minimum [Member] | |||
Warrant outstanding, price range | $ 0.10 | ||
Maximum [Member] | |||
Warrant outstanding, price range | $ 0.50 |
Segment and Geographic Information (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Revenues | $ 38,202 | $ 36,807 |
Gross profit | 23,363 | 20,282 |
Operating income | 1,163 | 374 |
Net income (loss) | 151 | (369) |
Capital expenditures | 611 | 932 |
Direct Selling [Member] | ||
Revenues | 34,798 | 31,623 |
Gross profit | 23,490 | 20,724 |
Operating income | 2,024 | 1,312 |
Net income (loss) | 674 | 21 |
Capital expenditures | 312 | 384 |
Commercial Coffee [Member] | ||
Revenues | 3,404 | 5,184 |
Gross profit | (127) | (442) |
Operating income | (861) | (938) |
Net income (loss) | (523) | (584) |
Capital expenditures | $ 29 | $ 548 |
Segment and Geographic Information (Details 1) - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Total assets | $ 64,895 | $ 61,329 |
Direct Selling [Member] | ||
Total assets | 40,720 | 36,907 |
Commercial Coffee [Member] | ||
Total assets | $ 24,175 | $ 24,422 |
Segment and Geographic Information (Details 2) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Total revenues | $ 38,202 | $ 36,807 |
United States [Member] | ||
Total revenues | 34,963 | 34,123 |
International [Member] | ||
Total revenues | $ 3,239 | $ 2,684 |
Segment and Geographic Information (Details Narrative) - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
International [Member] | ||
Tangible assets | $ 5,400 | $ 5,200 |
K-X0&ZGTYGM-IH'CGM $GK)F2(3@NU<$QJ4#8/;>VF)EC9NJ-
M^#44=G_\(';\ Y!I'
MHN/6]MR?X.[(W$:4Q(2BCJMW08VK7@O&=CF]>J$)PP+FO,3<$=2ISQ9LRV*B
MLZ7%-CW;HF S4T8[?AF4
MV4"]T>E\?AF/YX?Q=;; >V)M0R^B[T;RQ")^&0;,_CV0GEZW,8CGA>?N>!)J(6F;9,G;
M=P,9>4?'B)'#-KX'FP>H0W3$GXY ]N&SE[\DOV_!OS'P=T .#H ,*"3,NP.
MV./'P6[ED,9PD1V.O-LYJ7)V7/= #T^!O$*_J=$2O@/T8BZXSNI;LW_-&2)W
M!IR1?,HY6:BN8>].80"!LNF(Z,AQ]_ WT[
M7S@WFFS7@TM!U88,.8
M!.4N>% -:]6TG0\$&JFWN=IS.X#L0;+A.D[GF5[^ U!+ P04 " #=?JU(
MKSO=G9N%.B[^\
&PO=V]R:W-H965TKHF*P)N02.DAN
MN >:B@$REJ#245%DZSN7V$%ZPRU0E>PN2\QRIZ-R;-$K<"D>9+?<@DP-%"/S
M#](5REHJEWY"[KH(\]@ JCBBW(2I-$P<71]-H QD'1D.XZ#*O"T]]UQ.0,KN
M.@P_(CG07>T_R2%Y'/0^W93%J3Z07_5P:'KFO5(NQL5QMMM3RHE@%]Z+KCZ*
M,7Y=M&3/Y6LJWH=IL)T6G)Z6.7W]9Z'\#U!+ P04 " #=?JU(N.3)*]8!
M +!0 &0 'AL+W=O
P@JM]?++#=>6;YPX;2[MG?)G!IBUR-L02@V2)*
IB^/67I.$?+RN.U"6G#B>J4(1=9*BHL,(X
M8C&K/N3S)0/%*O],Y0WA2 @%3U+^*K\MV-Q)3]'/D_YOGC-5WCBXP:1#MN[K
M6LP9>-@J%--Q2+Z)$]WMD8QO03+P5L< W *(*JHH4-'K:Y>X
G6?4\89?B<_5>&I/L4M/5)?B-
MV2HZ1I%W8MU-8."(BX:-1AR>^5/& :%FTZELD\7M((ECH$9C7+\TPI*M?5IW
MK3*]GHT*$G4,GMM:AUS\F?5?JB]#B=BB\1YB^N8F(<^;J6S0R