(In thousands, except share amounts)

	September 30, 2020			December 31, 2019
ASSETS	(Unaudited)
Current Assets
Cash and cash equivalents	$	1,238		$	4,463
Accounts receivable, trade		3,043			2,902
Income tax receivable		81			81
Inventory		22,036			22,706
Prepaid expenses and other current assets		5,432			3,982
Total current assets		31,830			34,134
Property and equipment, net		25,189			23,316
Operating lease right-of-use assets		6,467			8,386
Deferred tax assets		75			75
Intangible assets, net		13,726			15,566
Goodwill		6,992			6,992
Other assets		1,279			1,222
Total assets	$	85,558		$	89,691

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	9,405		$	9,069
Accrued distributor compensation		4,167			3,164
Accrued expenses		5,732			5,108
Deferred revenues		8,527			1,943
Line of credit		1,955			2,011
Other current liabilities		3,018			2,664
Operating lease liabilities, current portion		1,290			1,740
Finance lease liabilities, current portion		1,703			736
Notes payable, net of debt discounts, current portion (Note 3)		5,340			4,085
Notes payable, net of debt discounts, current portion		2,108			191
Convertible notes payable, net of debt discounts, current portion		2,927			25
Short term loans		3,923			0
Warrant derivative liability		0			1,542
Contingent acquisition debt, current portion		1,341			1,263
Total current liabilities		51,436			33,541
Operating lease liabilities, net of current portion		5,497			6,646
Finance lease liabilities, net of current portion		1,081			408
Notes payable, net of debt discounts, net of current portion (Note 3)		392			0
Notes payable, net of debt discounts, net of current portion		4,883			6,790
Convertible notes payable, net of debt discounts, net of current portion		0			2,675
Contingent acquisition debt, net of current portion		5,455			7,348
Other long-term liabilities		0			2,115
Total liabilities		68,744			59,523

Commitments and contingencies (Note 11)

Stockholders’ Equity
Preferred stock, $0.001 par value: 5,000,000 shares authorized
Series A – 8% convertible preferred stock; 161,135 shares issued and outstanding at September 30, 2020 and December 31, 2019		0			0
Series B – 5% convertible preferred stock; zero and 129,332 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		0			0
Series D – 9.75% cumulative redeemable perpetual preferred stock; 590,273 and 578,898 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively; $14,877 liquidation preference at September 30, 2020		0			0
Common stock, $0.001 par value: 50,000,000 shares authorized; 32,236,994 and 30,274,601 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		32			30
Additional paid-in capital		268,390			265,825
Accumulated deficit		(251,154	)		(235,751	)
Accumulated other comprehensive income (loss)		(454	)		64
Total stockholders’ equity		16,814			30,168
Total Liabilities and Stockholders’ Equity	$	85,558		$	89,691

As of

March 31,
2019

December 31,
2018

ASSETS

(Unaudited) (Restated)*

Current Assets

       Cash and cash equivalents
$2,540
$2,879
       Accounts receivable trade (Note 1)
  7,706
  4,028
       Income tax receivable
  75
  74
       Inventory
  24,164
  21,776
       Advances (Note 1)
  -
  5,000
       Notes receivable
  5,000
  -
       Prepaid expenses and other current assets
  4,891
  5,263
Total current assets
  44,376
  39,020



Property and equipment, net
  19,729
  15,105
Operating lease right-of-use assets
  5,509
  -
Deferred tax assets
  148
  148
Intangible assets, net
  23,919
  15,377
Goodwill
  13,154
  6,323
Other assets – notes receivable
  949
  -
Total assets
$ 107,784
$75,973



LIABILITIES AND STOCKHOLDERS' EQUITY





Current Liabilities


Accounts payable
$ 8,861
$8,478
Accrued distributor compensation
  4,143
  3,289
Accrued expenses
  6,462
  6,582
Deferred revenues
  2,268
  2,312
Line of credit
  2,432
  2,256
Other current liabilities
  535
  1,912
Operating lease liabilities, current portion
  745
  -
Finance lease liabilities, current portion
  978
  1,168
Notes payable, current portion
  158
  141
Convertible notes payable, current portion
  681
  647
Warrant derivative liability
  5,369
  9,216
Contingent acquisition debt, current portion
  792
  795
Total current liabilities
  33,424
  36,796



Operating lease liabilities, net of current portion
  4,764
  -
Finance lease liabilities, net of current portion
  927
  1,107
Notes payable, net of current portion
  10,378
  7,629
Convertible notes payable, net of current portion
  1,981
  -
Contingent acquisition debt, net of current portion
  7,341
  7,466
Total liabilities
  58,815
  52,998



Commitments and contingencies (Note 1)





Stockholders’ Equity


Preferred Stock, $0.001 par value: 5,000,000 shares authorized


    Convertible Preferred Stock, Series A - 161,135 shares issued and outstanding at March 31, 2019 and December 31, 2018
  -
  -
    Convertible Preferred Stock, Series B – 129,437 shares issued and outstanding at March 31, 2019 and December 31, 2018
  -
  -
Common Stock, $0.001 par value: 50,000,000 shares authorized; 28,890,671 and 25,760,708 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
  29
  26
Additional paid-in capital
  244,906
  206,757
Accumulated deficit
  (196,023)
  (183,763)
Accumulated other comprehensive income (loss)
  57
  (45)
    Total stockholders’ equity
  48,969
  22,975
Total Liabilities and Stockholders’ Equity
$ 107,784
$75,973

* The Unaudited Condensed Consolidated Balance Sheet as of March 31, 2019 has been restated. See Note 2.

See accompanying notes to condensed consolidated financial statements.

-1-

~~-1-~~Table of Contents

Youngevity International, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Revenues	$	34,002		$	33,380		$	102,525		$	112,789
Cost of revenues		14,248			13,642			42,938			40,522
Gross profit		19,754			19,738			59,587			72,267
Operating expenses
Distributor compensation		13,262			13,122			40,044			42,509
Sales and marketing		3,053			4,432			9,398			11,237
General and administrative		8,101			10,663			25,336			38,795
Total operating expenses		24,416			28,217			74,778			92,541
Operating loss		(4,662	)		(8,479	)		(15,191	)		(20,274	)
Other income (expenses), net
Interest expense, net		(658	)		(1,109	)		(1,917	)		(3,678	)
Change in fair value of warrant derivative liability		101			2,457			1,542			4,344
Loss on modification of warrants		0			(876	)		0			(876	)
Total other income (expenses), net		(557	)		472			(375	)		(210	)
Loss before income taxes		(5,219	)		(8,007	)		(15,566	)		(20,484	)
Income tax benefit		(147	)		(133	)		(163	)		(61	)
Net loss		(5,072	)		(7,874	)		(15,403	)		(20,423	)
Preferred stock dividends		(362	)		(85	)		(1,104	)		(127	)
Net loss attributable to common stockholders	$	(5,434	)	$	(7,959	)	$	(16,507	)	$	(20,550	)

Net loss per share, basic	$	(0.17	)	$	(0.27	)	$	(0.52	)	$	(0.71	)
Net loss per share, diluted (Note 1)	$	(0.17	)	$	(0.27	)	$	(0.52	)	$	(0.76	)

Weighted average shares outstanding, basic		32,233,622			30,035,182			31,479,884			28,924,305
Weighted average shares outstanding, diluted		32,233,622			30,039,676			31,479,884			29,003,331

Three Months Ended
March 31,

2019
(Unaudited)

2018

(Restated)*

Revenues
$41,192
$42,994
Cost of revenues
  14,343
  17,982
Gross profit
  26,849
  25,012
Operating expenses


Distributor compensation
  14,890
  15,578
Sales and marketing
  4,019
  3,499
General and administrative
  19,881
  5,911
Total operating expenses
  38,790
  24,988
Income (loss) from Operations
  (11,941)
  24
Interest expense, net
  (1,507)
  (1,712)
Change in fair value of warrant derivative liability
  1,486
  712
Extinguishment loss on debt
  -
  (1,082)
Total other expense
  (21)
  (2,082)
Net loss before income taxes
  (11,962)
  (2,058)
Income tax provision
  298
  250
Net Loss
  (12,260)
  (2,308)
Preferred stock dividends
  (14)
  (3)
Net Loss Available to Common Stockholders
$(12,274)
$(2,311)



Net loss per share, basic
$(0.45)
$(0.12)
Net loss per share, diluted
$(0.49)
$(0.13)



Weighted average shares outstanding, basic
  27,577,576
  19,744,144
Weighted average shares outstanding, diluted
  28,025,172
  19,758,402

* The Unaudited Condensed Consolidated Statement of Operations for the three months ended March 31, 2019 has been restated. See Note 2.

See accompanying notes to condensed consolidated financial statements.

-2-

Table of Contents

~~-2-~~

Youngevity International, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of ComprehensiveLoss

(In thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net loss	$	(5,072	)	$	(7,874	)	$	(15,403	)	$	(20,423	)
Foreign currency translation		(299	)		9			(518	)		49
Total other comprehensive income (loss)		(299	)		9			(518	)		49
Comprehensive loss	$	(5,371	)	$	(7,865	)	$	(15,921	)	$	(20,374	)

Three Months Ended
March 31,

2019

2018

Net loss
$(12,260)
$(2,308)
Foreign currency translation
  102
  201
Total other comprehensive income
  102
  201
Comprehensive loss
$(12,158)
$(2,107)

See accompanying notes to condensed consolidated financial statements.

-3-

~~-3-~~Table of Contents

Youngevity International, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In thousands, except shares)

	Three Months Ended September 30, 2020
	Preferred Stock
	Series A				Series B				Series D				Common Stock					Additional Paid-in			Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Shares		Amount		Shares			Amount		Capital			Loss			Deficit			Equity
Balance at June 30, 2020		161,135	$	0		0	$	0		590,273	$	0		32,216,599		$	32	$	268,473		$	(155	)	$	(246,082	)	$	22,268
Net loss		-		0		-		0		-		0		-			0		0			0			(5,072	)		(5,072	)
Foreign currency translation adjustment		-		0		-		0		-		0		-			0		0			(299	)		0			(299	)
Issuance of common stock for vesting of restricted stock units		0		0		0		0		0		0		31,416			0		0			0			0			0
Shares surrendered for tax obligations for employee restricted stock units		0		-		0		-		0		-		(9,632	)		-		-			-			-			-
Shares surrendered for prior year vesting due to forfeitures for non-employee restricted stock units		0		-		0		-		0		-		(1,389	)		-		-			-			-			-
Fair value of common stock issued related to advance for working capital (recorded in prepaid expenses and other current assets)		-		0		-		0		-		0		-			0		(101	)		0			0			(101	)
Dividends on preferred stock		-		0		-		0		-		0		-			0		(362	)		0			0			(362	)
Equity-based compensation for services		0		0		0		0		0		0		0			0		128			0			0			128
Stock based compensation expense		-		0		-		0		-		0		-			0		252			0			0			252
Balance at September 30, 2020		161,135	$	0		0	$	0		590,273	$	0		32,236,994		$	32	$	268,390		$	(454	)	$	(251,154	)	$	16,814

-4-

Series A
Preferred Stock

Series B
Preferred Stock

Common Stock

Additional
Paid-in Capital

Accumulated
Other
Comprehensive

Accumulated

Total
Stockholders' Equity

Shares

Amount

Shares

Amount

Shares

Amount

(Restated)*

Loss

Deficit

(Restated)*

Balance at December 31, 2018
  161,135
$-
  129,437
$-
  25,760,708
$26
$206,757
$(45)
$(183,763)
$22,975
Net loss
  -
  -
  -
  -
  -
  -
  -
  -
  (12,260)
  (12,260)
Foreign currency translation adjustment
  -
  -
  -
  -
  -
  -
  -
  102
  -
  102
Issuance of common stock from at-the-market offering and exercise of stock options and warrants, net
  -
  -
  -
  -
  309,636
  1
  1,454
  -
  -
  1,455
Issuance of common stock for services
  -
  -
  -
  -
  75,000
  -
  417
  -
  -
  417
Issuance of common stock in private offering, net of issuance costs
  -
  -
  -
  -
  255,000
  -
  1,750
  -
  -
  1,750
Issuance of common stock for acquisition of Khrysos
  -
  -
  -
  -
  1,794,972
  1
  13,999
  -
  -
  14,000
Issuance of common stock for debt financing, net of issuance costs
  -
  -
  -
  -
  40,000
  -
  350
  -
  -
  350
Issuance of common stock for true-up shares
  -
  -
  -
  -
  44,599
  -
  281
  -
  -
  281
Issuance of common stock for convertible note financing, net of issuance costs
  -
  -
  -
  -
  61,000
  -
  293
  -
  -
  293
Issuance of common stock related to purchase of land - H&H
  -
  -
  -
  -
  153,846
  -
  1,200
  -
  -
  1,200
Issuance of common stock related to purchase of trademark - H&H
  -
  -
  -
  -
  100,000
  -
  750
  -
  -
  750
Issuance of common stock related to advance for working capital (note receivable) net of settlement of debt
  -
  -
  -
  -
  295,910
  1
  2,308
  -
  -
  2,309
Release of warrant liability upon exercise of warrants
  -
  -
  -
  -
  -
  -
  866
  -
  -
  866
Release of warrant liability upon reclassification of liability to equity
  -
  -
  -
  -
  -
  -
  1,494
  -
  -
  1,494
Warrant issued upon vesting for services
  -
  -
  -
  -
  -
  -
  1,656
  -
  -
  1,656
Dividends on preferred stock
  -
  -
  -
  -
  -
  -
  (14)
  -
  -
  (14)
Stock based compensation expense
  -
  -
  -
  -
  -
  -
  11,344
  -
  -
  11,344
Balance at March 31, 2019
  161,135
$-
  129,437
$-
  28,890,671
$29
$244,906
$57
$(196,023)
$48,969

* The Unaudited Condensed Consolidated StatementTable of ~~Stockholders’ Equity for the three months ended March 31, 2019 has been restated. See Note 2.~~Contents

	Nine Months Ended September 30, 2020
	Preferred Stock
	Series A				Series B					Series D				Common Stock					Additional Paid-in			Accumulated Other Income			Accumulated			Total Stockholders'
	Shares		Amount		Shares			Amount		Shares		Amount		Shares			Amount		Capital			(Loss)			Deficit			Equity
Balance at December 31, 2019		161,135	$	0		129,332		$	0		578,898	$	0		30,274,601		$	30	$	265,825		$	64		$	(235,751	)	$	30,168
Net loss		-		0		-			0		-		0		-			0		0			0			(15,403	)		(15,403	)
Foreign currency translation adjustment		-		0		-			0		-		0		-			0		0			(518	)		0			(518	)
Issuance of common stock for conversion of Series B preferred stock		0		0		(129,332	)		0		0		0		258,664			1		0			0			0			1
Issuance of common stock for vesting of restricted stock units		0		0		0			0		0		0		39,750			0		0			0			0			0
Shares surrendered for tax obligations for employee restricted stock units		0		-		0			-		0		-		(9,632	)		-		-			-			-			-
Shares surrendered for prior year vesting due to forfeitures for non-employee restricted stock units		0		-		0			-		0		-		(1,389	)		-		-			-			-			-
Issuance of common stock for debt financing, net of issuance costs		0		0		0			0		0		0		50,000			0		65			0			0			65
Preferred stock-Series D issued through Underwritten Registered Public Offering, net		0		0		0			0		11,375		0		0			0		233			0			0			233
Fair value of common stock issued related to Nica Hemp Project		0		0		0			0		0		0		1,500,000			1		2,489			0			0			2,490
Fair value of common stock issued related to advance for working capital (recorded in prepaid expenses and other current assets)		-		0		-			0		-		0		-			0		(324	)		0			0			(324	)
Dividends on preferred stock		-		0		-			0		-		0		-			0		(1,104	)		0			0			(1,104	)
Equity-based compensation for services		0		0		0			0		0		0		125,000			0		429			0			0			429
Stock based compensation expense		-		0		-			0		-		0		-			0		777			0			0			777
Balance at September 30, 2020		161,135	$	0		0		$	0		590,273	$	0		32,236,994		$	32	$	268,390		$	(454	)	$	(251,154	)	$	16,814

~~-4-~~

-5-

Table of Contents

Youngevity International, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In thousands, except shares)

	Three Months Ended September 30, 2019
	Preferred Stock
	Series A				Series B					Series D				Common Stock				Additional Paid-in			Accumulated Other Comprehensive Income			Accumulated			Total Stockholders'
	Shares		Amount		Shares			Amount		Shares		Amount		Shares		Amount		Capital			(Loss)			Deficit			Equity
Balance at June 30, 2019		161,135	$	0		129,437		$	0		0	$	0		29,316,445	$	29	$	247,935		$	(5	)	$	(196,312	)	$	51,647
Net loss		-		0		-			0		-		0		-		0		0			0			(7,874	)		(7,874	)
Foreign currency translation adjustment		-		0		-			0		-		0		-		0		0			9			0			9
Issuance of common stock from exercise of stock options and warrants		0		0		0			0		0		0		790,942		1		3,630			0			0			3,631
Issuance of common stock, related to ATM Financing		0		0		0			0		0		0		16,524		0		96			0			0			96
Issuance of common stock for services		0		0		0			0		0		0		75,600		0		478			0			0			478
Issuance of warrants for services		-		0		-			0		-		0		-		0		414			0			0			414
Issuance of common stock for inducement shares		0		0		0			0		0		0		64,250		0		478			0			0			478
Preferred stock-Series D issued through Underwritten Registered Public Offering, net		0		0		0			0		333,500		0		0		0		7,323			0			0			7,323
Vesting of Restricted Stock Units		0		0		0			0		0		0		1,389		0		0			0			0			0
Warrant issued upon vesting for services		-		0		-			0		-		0		-		0		270			0			0			270
Issuance of common stock for conversion of Series B preferred stock		0		0		(105	)		0		0		0		210		0		0			0			0			0
Issuance of common stock for convertible note financing, net of issuance costs		-		0		-			0		0		0		5,000		0		23			0			0			23
Release of warrant liability upon reclassification of liability to equity		-		0		-			0		-		0		-		0		211			0			0			211
Dividends on preferred stock		-		0		-			0		-		0		-		0		(85	)		0			0			(85	)
Stock based compensation expense		-		0		-			0		-		0		-		0		661			0			0			661
Balance at September 30, 2019		161,135	$	0		129,332		$	0		333,500	$	0		30,270,360	$	30	$	261,434		$	4		$	(204,186	)	$	57,282

-6-

Table of Contents

	Nine Months Ended September 30, 2019
	Preferred Stock
	Series A				Series B					Series D				Common Stock				Additional Paid-in			Accumulated Other Comprehensive Income			Accumulated			Total Stockholders'
	Shares		Amount		Shares			Amount		Shares		Amount		Shares		Amount		Capital			(Loss)			Deficit			Equity
Balance at December 31, 2018		161,135	$	0		129,437		$	0		0	$	0		25,760,708	$	26	$	206,757		$	(45	)	$	(183,763	)	$	22,975
Net loss		-		0		-			0		-		0		-		0		0			0			(20,423	)		(20,423	)
Foreign currency translation adjustment		-		0		-			0		-		0		-		0		0			49			0			49
Issuance of common stock from exercise of stock options and warrants		0		0		0			0		0		0		1,164,102		2		5,371			0			0			5,373
Issuance of common stock, related to ATM Financing		0		0		0			0		0		0		17,524		0		102			0			0			102
Issuance of common stock for services		0		0		0			0		0		0		250,600		0		1,466			0			0			1,466
Issuance of warrants for services		-		0		-			0		-		0		-		0		414			0			0			414
Issuance of common stock for inducement shares		0		0		0			0		0		0		64,250		0		478			0			0			478
Preferred stock-Series D issued through Underwritten Registered Public Offering, net		0		0		0			0		333,500		0		0		0		7,323			0			0			7,323
Vesting of Restricted Stock Units		0		0		0			0		0		0		1,389		0		0			0			0			0
Warrant issued upon vesting for services		-		0		-			0		-		0		-		0		2,196			0			0			2,196
Issuance of common stock for conversion of Series B preferred stock		0		0		(105	)		0		0		0		210		0		0			0			0			0
Issuance of common stock for true-up shares		-		0		-			0		0		0		44,599		0		281			0			0			281
Issuance of common stock for debt financing, net of issuance costs		0		0		0			0		0		0		40,000		0		350			0			0			350
Issuance of common stock, Private Placement, net of issuance costs		0		0		0			0		0		0		505,000		0		3,125			0			0			3,125
Issuance of common stock for convertible note financing, net of issuance costs		-		0		-			0		0		0		77,250		0		451			0			0			451
Issuance of common stock related to advance for working capital (note receivable) net of settlement of debt		-		0		-			0		0		0		295,910		1		2,308			0			0			2,309
Issuance of common stock for related to purchase of land - H&H		-		0		-			0		0		0		153,846		0		1,200			0			0			1,200
Issuance of common stock for related to purchase of trademark - H&H		-		0		-			0		0		0		100,000		0		750			0			0			750
Issuance of common stock for acquisition of Khrysos		0		0		0			0		0		0		1,794,972		1		13,999			0			0			14,000
Release of warrant liability upon warrant exercises		-		0		-			0		-		0		-		0		1,077			0			0			1,077
Release of warrant liability upon reclassification of liability to equity		-		0		-			0		-		0		-		0		1,494			0			0			1,494
Dividends on preferred stock		-		0		-			0		-		0		-		0		(127	)		0			0			(127	)
Stock based compensation expense		-		0		-			0		-		0		-		0		12,418			0			0			12,418
Balance at September 30, 2019		161,135	$	0		129,332		$	0		333,500	$	0		30,270,360	$	30	$	261,434		$	4		$	(204,186	)	$	57,282

-7-

Table of Contents

Youngevity International, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of CashFlows

(In thousands)

Series A
Preferred Stock

Series B
Preferred Stock

Common Stock

Additional
Paid-in

Accumulated
Other Comprehensive

Accumulated

Total
Stockholders'

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Loss

Deficit

Equity

Balance at December 31, 2017
  161,135
$-
  -
$-
  19,723,285
$20
$171,405
$(281)
$(163,693)
$7,451
Net loss
  -
  -
  -
  -
  -
  -
  -
  -
  (2,308)
  (2,308)
Foreign currency translation adjustment
  -
  -
  -
  -
  -
  -
  -
  201
  -
  201
Issuance of Series B preferred stock, net of issuance cost
  -
  -
  381,173
  -
  -
  -
  3,289
  -
  -
  3,289
Issuance of common stock pursuant to the exercise of stock options and warrants
  -
  -
  -
  -
  437
  -
  2
  -
  -
  2
Issuance of common stock for services
  -
  -
  -
  -
  5,000
  -
  27
  -
  -
  27
Issuance of common stock for conversion of Notes – 2017 Notes
  -
  -
  -
  -
  1,577,033
  1
  6,542
  -
  -
  6,545
Dividends on preferred stock
  -
  -
  -
  -
  -
  -
  (3)
  -
  -
  (3)
Stock based compensation expense
  -
  -
  -
  -
  -
  -
  237
  -
  -
  237
Balance at March 31, 2018
  161,135
$-
  381,173
$-
  25,305,755
$21
$181,501
$(80)
$(166,001)
$15,441

	Nine Months Ended September 30,
	2020			2019
Cash Flows from Operating Activities:
Net loss	$	(15,403	)	$	(20,423	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		3,808			4,199
Stock-based compensation expense		777			12,418
Equity-based compensation for services		1,132			3,982
Amortization of debt discounts and issuance costs		1,099			924
Change in fair value of warrant derivative liability		(1,542	)		(4,344	)
Change in fair value of contingent acquisition debt		(1,640	)		(911	)
Change in allowance for other receivable (Note 3)		(324	)		0
Change in allowance for notes receivable (Note 3)		337			0
Change in inventory reserve		(84	)		889
Changes in allowance for accounts receivable		(30	)		0
Gain on debt extinguishment		(48	)		0
Loss on disposal of property and equipment		101			0
Loss on impairment of inventory		200			0
Non-cash operating lease expense		1,919			0
Stock issuance for true-up shares		0			281
Loss on modification of warrants		-			876
Deferred taxes		0			73
Changes in operating assets and liabilities, net of effect from business combinations:
Accounts receivable		(111	)		(5,389	)
Inventory		554			(958	)
Prepaid expenses and other current assets		337			(1,411	)
Income taxes receivable		0			(233	)
Other assets		(395	)		0
Accounts payable		336			454
Accrued distributor compensation		1,003			(37	)
Deferred revenues		6,584			(307	)
Accrued expenses and other liabilities		982			2,155
Operating lease liabilities		(1,599	)		0
Other long-term liabilities		(68	)		0
Net Cash Used in Operating Activities		(2,075	)		(7,762	)

Cash Flows from Investing Activities:
Acquisitions, net of cash acquired		0			(925	)
Purchases of property and equipment		(3,515	)		(5,177	)
Net Cash Used in Investing Activities		(3,515	)		(6,102	)

Cash Flows from Financing Activities:
Proceeds from issuance of promissory notes, net of offering costs		1,000			5,125
Proceeds from private placement of common stock, net of offering costs		0			2,871
Proceeds from the exercise of stock options and warrants, net		0			5,214
Proceeds from at-the-market-offering transaction		0			102
Proceeds from the issuance of preferred stock – series D, net of offering costs		233			7,323
Proceeds from short-term debt		3,923			0
Payments from line of credit, net		(56	)		(275	)
Payments of notes payable		(77	)		(108	)
Payments of convertible notes payable		(25	)		(568	)
Payments of contingent acquisition debt		(175	)		(333	)
Payments of finance leases		(832	)		(1,099	)
Payments of dividends		(1,108	)		(46	)
Net Cash Provided by Financing Activities		2,883			18,206
Foreign Currency Effect on Cash		(518	)		49
Net decrease in cash and cash equivalents		(3,225	)		4,391
Cash and Cash Equivalents, Beginning of Period		4,463			2,879
Cash and Cash Equivalents, End of Period	$	1,238		$	7,270

Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest	$	883		$	2,641
Income taxes	$	30		$	164

Supplemental Disclosures of Noncash Investing and Financing Activities
Purchases of property and equipment funded by finance leases	$	427		$	42
Purchases of property and equipment funded by mortgage agreements	$	0		$	977
Fair value of stock issued for Nica Hemp Project (Note 3)	$	2,490		$	0
Issuance of common stock for promissory note financing (Note 10)	$	65		$	0
Change in fair value of common stock issued for in relation to advance for working capital (Note 3)	$	324		$	0
Fair value of stock issued in connection with the acquisition of Khrysos Global, Inc. (Note 2)	$	0		$	14,000
Fair value of stock issued for services (Note 10)	$	0		$	1,880
Fair value of warrant issued for services, vested portion (Note 10)	$	0		$	2,196
Fair value of stock issued for property and equipment (land)	$	0		$	1,200
Fair value of stock issued for purchase of intangibles (tradename)	$	0		$	750
Fair value of stock issued for note receivable, net of debt settlement	$	0		$	2,309
Issuance of common stock for the noncash exercise of warrants	$	0		$	157
Dividends declared but not paid at the end of period (Note 10)	$	120		$	83

See accompanying notes to condensed consolidated financial statements.

-8-

~~-5-~~

Table of Contents

Youngevity International, Inc. and Subsidiaries

~~Unaudited Condensed Consolidated Statements of Cash Flows~~

~~(In thousands)~~

Three Months Ended
March 31,

2019

2018

Cash Flows from Operating Activities:

(Restated)*

Net loss
$(12,260)
$(2,308)
Adjustments to reconcile net loss to net cash used in operating activities:


Depreciation and amortization
  1,145
  1,259
Stock-based compensation expense
  11,344
  237
Amortization of debt discounts and issuance costs
  199
  543
Change in fair value of warrant derivative liability
  (1,486)
  (712)
Change in fair value of contingent acquisition debt
  -
  (213)
Changes in inventory reserve
  159
  -
Extinguishment loss on debt
  -
  1,082
Equity issuance for services
  1,859
  27
Stock issuance for true-up shares
  281
  -
Deferred taxes
  -
  137
Changes in operating assets and liabilities, net of effect from business combinations:


Accounts receivable
  (3,369)
  (1,231)
Inventory
  (1,283)
  (1,139)
Prepaid expenses and other current assets
  (111)
  (484)
Accounts payable
  54
  794
Accrued distributor compensation
  854
  259
Deferred revenues
  (44)
  1,302
Accrued expenses and other liabilities
  (2,173)
  (1,075)
Income taxes receivable
  -
  95
Net Cash Used in Operating Activities
  (4,831)
  (1,427)



Cash Flows from Investing Activities:


Acquisitions, net of cash acquired
  (425)
  (50)
Purchases of property and equipment
  (2,291)
  (106)
Net Cash Used in Investing Activities
  (2,716)
  (156)



Cash Flows from Financing Activities:


Proceeds from issuance of promissory notes, net of offering costs
  3,750
  -
Proceeds from private placement of common stock, net of offering costs
  2,267
  3,289
Proceeds from at-the-market-offering and exercise of stock options and warrants, net
  1,455
  3
Proceeds net of repayment on line of credit
  176
  770
Payments of notes payable
  (35)
  (58)
Payments of contingent acquisition debt
  (128)
  (10)
Payments of finance leases
  (368)
  (232)
Payments of dividends
  (11)
  -
Net Cash Provided by Financing Activities
  7,106
  3,762



Foreign Currency Effect on Cash
  102
  201
Net (decrease) increase in cash and cash equivalents
  (339)
  2,380
Cash and Cash Equivalents, Beginning of Period
  2,879
  673
Cash and Cash Equivalents, End of Period
$2,540
$3,053



Supplemental Disclosures of Cash Flow Information


Cash paid during the period for:


Interest
$1,034
$1,191
Income taxes
$-
$44



Supplemental Disclosures of Noncash Investing and Financing Activities


Purchases of property and equipment funded by finance leases
$-
$664
Purchases of property and equipment funded by mortgage agreements
$450
$-
Fair value of stock issued for services (Note 11)
$417
$-
Fair value of stock issued for property and equipment (land)
$1,200
$-
Fair value of stock issued for purchase of intangibles (tradename)
$750
$-
Fair value of stock issued for note receivable, net of debt settlement
$2,309
$-
Fair value of stock issued in connection with the acquisition of Khrysos Global, Inc. (Note 5)
$14,000
$-
Dividends declared but not paid at the end of period (Note 11)
$14
$-
Acquisitions of net assets in exchange for contingent debt, net of purchase price adjustments
$-
$1,877
Fair value of warrants issued in connection with the Series B Preferred Stock Offering
$-
$75
Conversion of 2017 Notes to Common Stock
$-
$7,254

* The Unaudited Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2019 has been restated. See Note 2.

~~See accompanying notes to condensed consolidated financial statements.~~

~~-6-~~

~~Youngevity International, Inc. and Subsidiaries~~

Notes to Unaudited Condensed Consolidated Financial Statements

Note1. Description of Business and Basis of Presentation ~~and~~

Description of Business

Youngevity International, Inc. (the “Company”) operates in 3 segments: (i) the direct selling segment where products are offered through a global distribution network of preferred customers and distributors, (ii) the commercial coffee segment where products are sold directly to businesses and (iii) the commercial hemp segment where the Company manufactures proprietary systems to provide end-to-end extraction and processing of hemp feed stock into hemp oil and hemp extracts, oil extraction services, and contract manufacturing services.

Information on the operations of the Company’s three segments is as follows:

●

The direct selling segment is operated through the Company’s three domestic subsidiaries, AL Global Corporation, 2400 Boswell LLC, and Youngevity Global LLC, and twelve foreign subsidiaries:

●

Youngevity Australia Pty. Ltd.,

●

Youngevity NZ, Ltd.,

●

Youngevity Mexico S.A. de CV,

●

Youngevity Russia, LLC,

●

Youngevity Israel, Ltd.,

●

Youngevity Europe SIA (Latvia),

●

Youngevity Colombia S.A.S,

●

Youngevity International Singapore Pte. Ltd.,

●

Mialisia Canada, Inc.,

●

Youngevity Global LLC, Taiwan Branch,

●

Youngevity Global LLC, Philippine Branch, and

●

Youngevity International (Hong Kong).

The Company also operate in Indonesia, Malaysia, and Japan through its sales force of independent distributors.

●

The commercial coffee business is operated through the Company’s wholly-owned subsidiary, CLR Roasters LLC (“CLR”) and its wholly-owned subsidiary, Siles Plantation Family Group S.A. (“Siles”).

●

The commercial hemp business is operated through the Company’s wholly-owned subsidiary, Khrysos Industries, Inc., a Delaware corporation (“KII”). KII acquired the assets of Khrysos Global Inc., a Florida corporation (“Khrysos Global”), in February 2019 and the wholly-owned subsidiaries of Khrysos Global, INXL Laboratories, Inc., a Florida corporation (“INXL”) and INX Holdings, Inc., a Florida corporation (“INXH”).

In the following text, the term “the Company” refers collectively to the Company and its subsidiaries.

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 (the “SEC”) 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.

Youngevity International, Inc. (the “Company”) consolidates all wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The condensed consolidated financial statements presented as of ~~March 31, 2019~~ September 30, 2020 and for the three and nine months ended ~~March 31, 2019~~ September 30, 2020 and ~~2018~~2019 are unaudited. In the opinion of management, these unaudited condensed consolidated 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 Company’s Annual Report on Form ~~10-K~~10-K for the year ended December 31, ~~2018,~~ 2019, filed with the SEC on ~~April 15, 2019.~~ June 25, 2021. The results for interim periods are not necessarily indicative of the results for the entire year.

- 9-

~~Nature~~

Table 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. During the year ended December 31, 2018 the Company operated 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. During the first quarter of 2019, the Company through the acquisition of the assets of Khrysos Global, Inc. added a third business segment to its operations, the commercial hemp segment. The Company's three segments are listed below:

●

~~Commercial coffee business is operated through CLR and its wholly owned subsidiary, Siles Plantation Family Group S.A. (“Siles”).~~Contents

●

Domestic direct selling network is operated through the following (i) domestic subsidiaries: AL Global Corporation, 2400 Boswell LLC, MK Collaborative LLC, and Youngevity Global LLC and (ii) foreign subsidiaries: Youngevity Australia Pty. Ltd., Youngevity NZ, Ltd., Youngevity Mexico S.A. de CV, Youngevity Israel, Ltd., Youngevity Russia, LLC, Youngevity Colombia S.A.S, Youngevity International Singapore Pte. Ltd., Mialisia Canada, Inc. and Legacy for Life Limited (Hong Kong). The Company also operates through the BellaVita Group LLC, with operations in Taiwan, Hong Kong, Singapore, Indonesia, Malaysia and Japan. ~~The Company~~ ~~also operates subsidiary branches of Youngevity Global LLC in the Philippines and Taiwan.~~

●

Commercial hemp business is operated through the Company’s wholly owned subsidiary, Khrysos Industries, Inc., a Delaware corporation. Khrysos Industries, Inc. acquired the assets of Khrysos Global Inc. a Florida corporation in February 2019 and the wholly-owned subsidiaries of Khrysos Global Inc., INXL Laboratories, Inc., a Florida corporation and INX Holdings, Inc., a Florida corporation.

Segment Information

The Company has ~~three~~3 reportable segments: direct selling, commercial coffee, and commercial hemp. The direct selling segment develops and distributes health and wellness products through its global independent direct selling network also known as multi-level marketing. The commercial coffee segment is engaged in coffee roasting and distribution, ~~(specializing~~specializing in gourmet ~~coffee), mill processing of green coffee, and sales of green~~ coffee. The commercial hemp segment manufactures proprietary systems to provide end-to-end extraction and processing that allow for the conversion of hemp feed stock into hemp oil and hemp extracts. The determination that the Company has three reportable segments is based upon the guidance set forth in Accounting Standards Codification (“ASC”) Topic–280, “Segment ~~Reporting~~.Reporting.”

~~-7-~~

During the three months ended ~~March 31, 2019,~~ September 30, 2020, the Company derived approximately ~~81.1%~~92.1% of its revenue from its direct selling segment and ~~approximately 18.7%~~7.3% of its revenue from its commercial coffee ~~segment. Commercial~~segment and 0.6% from the commercial hemp ~~segment revenues during the current quarter represented 0.2% of total revenues as it is newly acquired.~~segment. During the three months ended ~~March 31, 2018,~~ September 30, 2019, the Company ~~had two reportable segments and~~ derived approximately ~~82%~~90.6% of its revenue from its direct selling segment, 8.8% of its revenue from its commercial coffee segment and 0.6% from the commercial hemp segment.

During the nine months ended September 30, 2020, the Company derived approximately 90.5% of its revenue from its direct selling segment and ~~approximately 18%~~8.5% of its revenue from its commercial coffee ~~segment.~~

~~Liquidity~~segment and ~~Going Concern~~

~~The accompanying condensed consolidated financial statements have been prepared and presented on a basis assuming~~ 1.0% from the commercial hemp segment. During the nine months ended September 30, 2019, the Company ~~will continue as a going concern. The Company has sustained significant losses during the three months ended March 31, 2019~~derived approximately 84.9% of its revenue from its direct selling segment, 14.6% of its revenue from its commercial coffee segment and 2018 of approximately $12,260,000 and $2,308,000, respectively. Net cash used in operating activities was approximately $4,831,000 and $1,427,000 for the three months ended March 31, 2019 and 2018, respectively. The Company does not currently believe that its existing cash resources are sufficient to meet the Company’s anticipated needs over the next twelve months0.5% from the date hereof. Based on its current cash levels and its current rate of cash requirements, the Company will need to raise additional capital and/or will need to further reduce its expenses from current levels. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

~~The Company anticipates that revenues will grow, and it intends to make necessary cost reductions related to international operations that are not performing well and reduce non-essential expenses.~~

~~The Company is also considering multiple other fund-raising alternatives.~~

On March 18, 2019, the Company entered into a two-year Secured Promissory Note (the “Note” or “Notes”) with two (2) accredited investors that had a substantial pre-existing relationship with the Company pursuant to which the Company raised cash proceeds of $2,000,000. In consideration of the Notes, the Company issued 20,000 shares of the Company’s common stock par value $0.001 for each $1,000,000 invested as well as for each $1,000,000 invested five-year warrants to purchase 20,000 shares of the Company’s common stock at a price per share of $6.00. ~~The Notes pay 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 March 18, 2021.~~

On February 15, 2019 and on March 10, 2019, the Company closed its first and second tranches of its 2019 January Private Placement debt offering, respectively, pursuant to which the Company offered for sale notes in the principal amount of a minimum of $100,000 and a maximum of notes in the principal amount $10,000,000 (the “2019 PIPE Notes”), with each investor receiving 2,000 shares of common stock for each $100,000 invested. The Company entered into subscription agreements with thirteen (13) accredited investors that had a substantial pre-existing relationship with the Company pursuant to which the Company received aggregate gross proceeds of $2,440,000 and issued the 2019 PIPE Notes in the aggregate principal amount of $2,440,000 and an aggregate of 48,800 shares of common stock. The placement agent received 12,200 shares of common stock in aggregate for the first and second tranches. The placement agent will receive up to 50,000 shares of common stock in the offering. Each 2019 PIPE Note matures 24 months after issuance, bears interest at a rate of six percent (6%) per annum, and the outstanding principal is convertible into shares of common stock at any time after the 180th day anniversary of the issuance of the 2019 PIPE Note, at a conversion price of $10 per share (subject to adjustment for stock splits, stock dividends and reclassification of the common stock).

On February 6, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with one accredited investor that had a substantial pre-existing relationship with the Company pursuant to which the Company sold 250,000 shares of the Company’s common stock, par value $0.001 per share, at an offering price of $7.00 per share. Pursuant to the Purchase Agreement, the Company also issued to the investor a three-year warrant to purchase 250,000 shares of common stock at an exercise price of $7.00. The proceeds to the Company were $1,750,000. Consulting fees for arranging the Purchase Agreement include the issuance of 5,000 shares of restricted shares of the Company’s common stock, par value $0.001 per share, and 100,000 3-year warrants priced at $10.00. No cash commissions were paid.

~~-8-~~

On January 7, 2019, the Company entered into an At-the-Market Offering Agreement (the “ATM Agreement”) with The Benchmark Company, LLC (“Benchmark”), as sales agent, pursuant to which the Company may sell from time to time, at its option, shares of its common stock, par value $0.001 per share, through Benchmark, as sales agent (the “Sales Agent”), for the sale of up to $60,000,000 of shares of the Company’s common stock. The Company is not obligated to make any sales of common stock under the ATM Agreement and the Company cannot provide any assurances that it will issue any shares pursuant to the ATM Agreement. The Company will pay the Sales Agent 3.0% commission of the gross sales proceeds. During the three months ended March 31, 2019, the Company sold a total of 1,000 shares of common stock under the ATM Agreement.

Depending on market conditions, there can be no assurance that additional capital will be available when needed or that, if available, it will be obtained on terms favorable to the Company or to its stockholders.

Failure to raise additional funds from the issuance of equity securities and failure to implement cost reductions could adversely affect the Company’s ability to operate as a going concern. The financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.

commercial hemp segment.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires the Company 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 the Company’s stock-based compensation plan, fair value of assets and liabilities acquired in business combinations, finance 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.

Liquidity and Going Concern

The accompanying consolidated financial statements have been prepared and presented on a basis assuming the Company will continue as a going concern. The Company has sustained significant net losses during the nine months ended September 30, 2020 and 2019 of approximately $15,403,000 and $20,423,000, respectively. Net cash used in operating activities was approximately $2,075,000 and $7,762,000 for the nine months ended September 30, 2020 and 2019, respectively.

Management has assessed the Company’s ability to continue as a going concern and concluded that additional capital will be required during the twelve-months subsequent to the filing date of this Quarterly Report on Form 10-Q. The timing of when the additional capital will be required is uncertain and highly dependent on factors discussed below. There can be no assurance that the Company will be able to execute license or purchase agreements or to obtain equity or debt financing, or on terms acceptable to it. Factors within and outside the Company’s control could have a significant bearing on its ability to obtain additional financing. As a result, management has determined that there are material uncertainties that raise substantial doubt upon the Company’s ability to continue as a going concern.

The Company has and continues to take actions to alleviate the cash used in operations. During the nine months ending September 30 2020, the Company reported total revenue of approximately $102,525,000 a decrease of approximately 9.1% compared to the same period a year ago. The Company continues to focus on revenue growth, but the Company cannot make assurances that revenues will grow. Additionally, the Company has plans to make the necessary cost reductions and to reduce non-essential expenses, including international operations that are not performing well to help alleviate the cash used in operating activities.

- 10-

Table of Contents

The outbreak of COVID-19 and resulting pandemic resulted in significant contraction of economies around the world and interrupted global supply chains as many governments issued stay-at-home orders to combat COVID-19. The outbreak of COVID-19 also impacted the Company’s ability to properly staff and maintain its domestic and international warehousing operations due to stay-at-home orders issued within various locations where the Company operates warehouse and shipping operations. The Company took actions to mitigate the impact but cannot assert that future stay-at-home orders or further restrictive orders will not have an impact on future operations. The Company experienced changes in product mix demand, with demand increasing toward health-oriented products and weakening for non-health related products. Such changes in demand may have a significant impact on revenues, margins and net operating profit in the future. The outbreak also impacted the Company’s ability to obtain some ingredients and packaging as well as ship products in some markets. The Company’s supply chain and logistics incurred some interruptions and cost impacts to date, and the Company could experience more significant interruptions and cost impacts. The Company’s suppliers of raw material and supplies have and could continue to be impacted by geopolitical events, such as the war in Ukraine, thus interrupting the Company’s supply chain. Additionally, the Company’s customers may experience interruptions from other suppliers that could cause a customer to delay or cancel orders. These factors and other events have negatively impacted the Company’s sales and operations and will likely continue to negatively affect the Company’s business and financial results. The Company is unable to predict the possible future effect on the demand for products sold by the Company, and the related revenues, margins and operating profit due to these events.

In addition, the outbreak of the COVID-19 coronavirus has disrupted the Company’s operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in the Company’s office or other workplace, or due to quarantines. COVID-19 illness could also impact members of the Company’s board of directors resulting in absenteeism from meetings of the directors or committees of directors and making it more difficult to convene the quorums of the full board of directors or its committees needed to conduct meetings for the management of the Company’s affairs.

The Company continues to seek and obtain equity or debt financing on terms that are acceptable to the Company. Depending on market conditions, there can be no assurance that additional capital will be available when needed or that, if available, it will be obtained on terms favorable to the Company or to its stockholders.

These financial statements have been prepared on a going concern basis, which asserts the Company has the ability in the near term to continue to realize its assets and discharge its liabilities and commitments in a planned manner giving consideration to the above and expected possible outcomes. The financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty. Within the current operating environment due to the declared national emergency, related to COVID 19 combined with the management plans described above the Company cannot assert that the doubt of the Company’s ability to continue as a going concern has been substantially alleviated. Conversely, if the going concern assumption is not appropriate, adjustments to the carrying amounts of the Company’s assets, liabilities, revenues, expenses and balance sheet classifications may be necessary, and these adjustments could be material.

- 11-

Table of Contents

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.

~~Related Party Transactions~~

~~Richard Renton~~

Richard Renton is a member of the Board of Directors and owns and operates WVNP, Inc., a supplier of certain inventory items sold by the Company. The Company made purchases of approximately $8,000 and $54,000 from WVNP Inc., for the three months ended March 31, 2019 and 2018, respectively.

~~Carl Grover~~

Mr. Grover is the sole beneficial owner of in excess of five percent (5%) of the Company’s outstanding common shares. On December 13, 2018, CLR, entered into a Credit Agreement with Mr. Grover (the “Credit Agreement”) pursuant to which CLR borrowed $5,000,000 from Mr. Grover and in exchange issued to him a $5,000,000 credit note (“Credit Note”) secured by its green coffee inventory under a Security Agreement, dated December 13, 2018 (the “Security Agreement”), with Mr. Grover and CLR’s subsidiary, Siles Family Plantation Group S.A. (“Siles”), as guarantor, and Siles executed a separate Guaranty Agreement (“Guaranty”). The Company issued to Mr. Grover a four-year warrant to purchase 250,000 shares of our common stock, exercisable at $6.82 per share, and a four-year warrant to purchase 250,000 shares of the Company’s common stock, exercisable at $7.82 per share, pursuant to a Warrant Purchase Agreement, dated December 13, 2018, with Mr. Grover. (See Note 7 below.)

~~-9-~~

~~Paul Sallwasser~~

Mr. Paul Sallwasser is a member of the board directors and prior to joining the Company’s Board of Directors he acquired a note (the “2014 Note”) issued in the Company’s private placement consummated in 2014 (the “2014 Private Placement”) in the principal amount of $75,000 convertible into 10,714 shares of common stock and a warrant (the “2014 Warrant”) issued, in the 2014 Private Placement, exercisable for 14,673 shares of common stock. Prior to joining the Company’s Board of Directors, Mr. Sallwasser acquired in the 2017 Private Placement a 2017 Note in the principal amount of approximately $38,000 convertible into 8,177 shares of common stock and a warrant (the “2017 Warrant”) issued, in the 2017 Private Placement, exercisable for 5,719 shares of common stock. Mr. Sallwasser also acquired in the 2017 Private Placement in exchange for the “2015 Note” that he acquired in the Company’s private placement consummated in 2015 (the “2015 Private Placement”), a 2017 Note in the principal amount of $5,000 convertible into 1,087 shares of common stock and a 2017 Warrant exercisable for 543 shares of common stock. On March 30, 2018, the Company completed its Series B Offering, and in accordance with the terms of the 2017 Notes, Mr. Sallwasser’s 2017 Notes converted to 9,264 shares of the Company’s common stock.

~~2400 Boswell LLC~~

In March 2013, the Company acquired 2400 Boswell for approximately $4,600,000. 2400 Boswell is the owner and lessor of the building occupied by the Company for its corporate office and warehouse in Chula Vista, California. The purchase was from an immediate family member of the Company’s Chief Executive Officer and consisted of approximately $248,000 in cash, approximately $334,000 of debt forgiveness and accrued interest, and a promissory note of approximately $393,000, payable in equal payments over 5 years and bears interest at 5.0%. Additionally, the Company assumed a long-term mortgage of $3,625,000, payable over 25 years with an initial interest rate of 5.75%. The interest rate is the prime rate plus 2.5%. The current interest rate as of March 31, 2019 was 7.75%. The lender will adjust the interest rate on the first calendar day of each change period or calendar quarter. The Company and its Chief Executive Officer are both co-guarantors of the mortgage. As of March 31, 2019, the balance on the long-term mortgage is approximately ~~$3,198,000 and the balance on the promissory note is zero.~~

~~Other Relationship Transactions~~

~~Hernandez, Hernandez, Export Y Company and H&H Coffee Group Export Corp.~~

The Company’s commercial coffee segment, CLR, is associated with Hernandez, Hernandez, Export Y Company (“H&H”), a Nicaragua company, through sourcing arrangements to procure Nicaraguan grown green coffee beans. As part of the 2014 Siles acquisition, CLR engaged the owners of H&H, Alain Piedra Hernandez (“Mr. Hernandez”) and Marisol Del Carmen Siles Orozco (“Ms. Orozco”), as employees to manage Siles.

H&H is a sourcing agent that purchases raw green coffee beans from the local producers in Nicaragua and supplies CLR’s mill with unprocessed green coffee for processing. CLR does not have a direct relationship with the local producers and is dependent on H&H to negotiate agreements with local producers for the supply and provide to CLR’s mill raw unprocessed green coffee to CLR in a timely and efficient manner. Substantially all the green coffee processed through the Siles mill was coffee assigned to CLR for processing. In addition, during 2018, CLR sold green coffee beans to H&H Coffee Group Export Corp., (“H&H Export”), a Florida based company which is affiliated with H&H. In consideration for H&H's sourcing of green coffee for processing within CLR’s mill, CLR and H&H share in the green coffee profit from milling operations.

CLR made purchases from H&H of approximately $2,576,000 of green coffee for the three months ended March 31, 2019, for use in the Company’s Miami roasting facilities. There were no purchases of green coffee from H&H to be sold to other third parties during the three months ended March 31, 2019.

CLR made purchases from H&H of approximately $3,734,000 of green coffee for the three months ended March 31, 2018, for use in the Company’s Miami roasting facilities and for use in selling processed green coffee to third parties.

During the three months ended March 31, 2019, CLR recorded net revenues from processing services of approximately $4,826,000. There was no processing service revenue during the three months ended March 31, 2018.

During the three months ended March 31, 2018, CLR recorded the sale of processed green coffee beans, to H&H Export as gross revenue of $2,443,000. There were no processed green coffee bean sales, to H&H Export during the three months ended March 31, 2019.

~~-10-~~

In May 2017, the Company entered a settlement agreement with Alain Piedra Hernandez, one of the owners of H&H and the operating manager of Siles, who was issued a non-qualified stock option for the purchase of 75,000 shares of the Company’s common stock at a price of $2.00 with an expiration date of three years, in lieu of an obligation due from the Company to H&H as relates to a Sourcing and Supply Agreement with H&H. During the period ended September 30, 2017 the Company replaced the non-qualified stock option and issued a warrant agreement with the same terms. There was no financial impact related to the cancellation of the option and the issuance of the warrant. As of March 31, 2019, the warrant remains outstanding.

In December 2018, CLR advanced $5,000,000 to H&H Export to provide services in support of a 5-year contract for the sale and processing of 41 million pounds of green coffee beans on an annual basis. The services include providing hedging and financing opportunities to producers and delivering harvested coffee to the Company’s mills. On March 31, 2019, this advance was converted to a $5,000,000 loan agreement and bears interest at 9% per annum and is due and payable by H&H Export at the end of each year’s harvest season, but no later than October 31 for any harvest year. The loan is secured by H&H Export’s hedging account with INTL FC Stone, trade receivables, green coffee inventory in the possession of H&H Export and all green coffee contracts.

~~Mill Construction Agreement~~

On January 15, 2019, CLR entered into the CLR Siles Mill Construction Agreement (the “Mill Construction Agreement”) with H&H and H&H Export, Alain Piedra Hernandez (“Hernandez”) and Marisol Del Carmen Siles Orozco (“Orozco”), together with H&H, H&H Export, Hernandez and Orozco, collectively referred to as the Nicaraguan Partner, pursuant to which the Nicaraguan Partner agreed to transfer a 45 acre tract of land in Matagalpa, Nicaragua (the “Property”) to be owned 50% by the Nicaraguan Partner and 50% by CLR. In consideration for the land acquisition the Company issued to H&H Export, 153,846 shares of common stock. In addition, the Nicaraguan Partner and CLR agreed to contribute $4,700,000 each toward the construction of a processing plant, office, and storage facilities (“Mill”) on the property for processing coffee in Nicaragua. As of March 31, 2019, the Company paid $1,350,000 towards construction of a mill, which is included in construction in process within property and equipment, net on the Company's condensed consolidated balance sheet.

~~Amendment to Operating and Profit-Sharing Agreement~~

~~On January 15, 2019, CLR entered into an amendment to the March 2014 operating and profit-sharing agreement with the~~ owners of H&H. CLR previously engaged Hernandez and Orozco, the owners of H&H as employees to manage Siles. In addition, CLR and H&H, Hernandez and Orozco have agreed to restructure their profit-sharing agreement in regard to profits from green coffee sales and processing that increases the CLR’s profit participation by an additional 25%. Under the new terms of the agreement with respect to profit generated from green coffee sales and processing from La Pita, a leased mill, or the new mill, now will provide for a split of profits of 75% to CLR and 25% to the Nicaraguan Partner, after certain conditions are met. The Company issued 295,910 shares of the Company’s common stock to H&H Export to pay for certain working capital, construction and other payables. In addition, H&H Export has sold to CLR its espresso brand Café Cachita in consideration of the issuance of 100,000 shares of the Company’s common stock. Hernandez and Orozco are employees of CLR. The shares of common stock issued were valued at $7.50 per share.

Revenue Recognition

The Company recognizes revenue from product sales ~~under~~when the following five steps are completed: i) Identify the contract with the customer; ii) Identify the performance obligations in the contract; iii) Determine the transaction price; iv) Allocate the transaction price to the performance obligations in the contract; and v) Recognize revenue when (or as) each performance obligation is ~~satisfied (see Note 4, below).~~

satisfied.

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

~~-11-~~

The transaction price for all sales is based on the price reflected in the individual customer's contract or purchase order. Variable consideration has not been identified as a significant component of the transaction price for any of our transactions.

Independent distributors receive compensation which is recognized as ~~Distributor Compensation~~distributor compensation in the Company’s consolidated statements of operations. Due to the short-term nature of the contract with the customers, the Company accrues all distributor compensation expense in the month earned and pays the compensation the following month.

The Company also charges fees to become a distributor, and earn a position in the network genealogy, which are recognized as revenue in the period received. The Company’s distributors are required to pay a ~~one-time~~one-time enrollment fee and receive a welcome kit specific to that country or region that consists of forms, policy and procedures, selling aids, access to ~~the Company’s~~our distributor website and a genealogy position with no down line distributors.

The Company has determined that most contracts will be completed in less than one year. For those transactions where all performance obligations will be satisfied within one year or less, the Company is applying the practical expedient outlined in ASC ~~606-10-32-18. This~~606-10-32-18. The practical expedient allows the Company not to adjust promised consideration for the effects of a significant financing component if the Company expects at contract inception the period between when the Company transfers the promised good or service to a customer and when the customer pays for that good or service will be one year or less. For those transactions that are expected to be completed after one year, the Company has assessed that there are no significant financing components because any difference between the promised consideration and the cash selling price of the good or service is for reasons other than the provision of financing.

Revenue recognition by segment is as follows:

Direct Selling. Direct distribution sales are made through the Company’s network (direct selling segment), which is a web-based global network of customers and distributors. The Company’s independent sales force markets a variety of products to an array of customers, through friend-to-friend marketing and social networking. The Company considers itself to be an e-commerce company whereby personal interaction is provided to customers by its independent sales network. Sales generated from direct distribution includes; health and wellness, beauty product and skin care, scrap booking and story booking items, packaged food products and other service-based products.

Revenue is recognized when the Company satisfies its performance obligations under the contract. The Company recognizes revenue by transferring the promised products to the customer, with revenue recognized at shipping point, the point in time the customer obtains control of the products. The majority of the Company’s contracts have a single performance obligation and are short term in nature. Sales taxes in domestic and foreign jurisdictions are collected from customers and remitted to governmental authorities, all at the local level, and are accounted for on a net basis and therefore are excluded from revenues.

- 12-

~~Deferred~~

Table of Contents

Commercial Coffee - Roasted Coffee. The Company engages in the commercial sale of roasted coffee through CLR, which is sold under a variety of private labels through major national sales outlets and to customers including cruise lines and office coffee service operators, and under its own Café La Rica brand, Josie’s Java House Brand, Javalution brands and Café Cachita as well as through its distributor network within the direct selling segment.

Commercial Coffee - Green Coffee. The commercial coffee segment includes the sale of green coffee beans, which are sourced from the Nicaraguan rainforest.

Aswhere the Company has determined it is the agent with regard to the green coffee beans is recorded at net or recorded to reflect only the milling services provided. Sales taxes in domestic and foreign jurisdictions are collected from customers and remitted to governmental authorities, all at the local level, and are accounted for on a net basis and therefore are excluded from revenues.

Commercial Hemp. In the commercial hemp segment, the Company develops, manufactures, and sells equipment and related services to customers which enable them to extract CBD oils from hemp stock. The Company provides hemp growers, feedstock suppliers, and CBD crude oil producers the use of ~~March 31, 2019~~equipment, intellectual capital, production consultancy, tolling services, and ~~December 31, 2018,~~wholesale CBD channel sales capabilities. The Company is also engaged in hemp-based CBD extraction technology including tolling processing which converts hemp crude oil to hemp extracts such as full spectrum distillate, and cannabinoid isolate (CBD, cannabigerol or CBG, cannabinol or CBN). The Company offers customers turnkey manufacturing solutions in extraction services and end-to-end processing systems. In addition, the ~~balance~~Company provides a broad range of capabilities in regard to formulation, quality control, and testing standards with our CBD products, including potency analysis for its supply partners of hemp derived CBD products. The Company follows all guidelines for Current Good Manufacturing Practices ("CGMP") and our hemp extracts are processed, produced, and tested throughout the manufacturing process to confirm that the cannabinoid content meets strict company standards.

Contract Balances. Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records contract assets when performance obligations are satisfied prior to invoicing.

Contract liabilities are reflected as deferred revenues ~~was approximately $2,268,000~~ and ~~$2,312,000, respectively. Deferred~~customer deposits in accrued expenses, deferred revenue, other current liabilities and other long-term liabilities on the Company’s consolidated balance sheets. Contract liabilities relate to payments invoiced or received in advance of completion of performance obligations and are recognized as revenue upon the fulfillment of performance obligations. The Company recognizes deferred revenue in its direct selling, commercial coffee and commercial coffee segments.

In January 2020, the Company introduced a rewards program in the direct selling segment where its distributors earn points awards that can be redeemed for the future product purchases. These points awards are earned by the distributors through the purchase of products or through actions and participation in non-product purchase activities. The Company records the points earned through the purchase of product by reducing revenue and creates the liability at the point of purchase. Award points earned through non-product purchasing activities are recorded as marketing expenses and creates the liability at the time the distributor performs the non-revenue activity.

- 13-

Table of Contents

The deferred revenue related to ~~the Company’s direct selling segment is attributable to the~~ Heritage ~~Makers~~Maker’s product line ~~and also for future Company convention and distributor events.~~

~~Deferred revenues related to Heritage Makers were approximately $2,095,000 and $2,153,000, as of March 31, 2019, and December 31, 2018, respectively. The deferred revenue represents Heritage Maker’s~~ obligation for points purchased by customers represents cash payments received 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.

Deferred revenues related to pre-enrollment in conventions and distributor events primarily related to the Company’s 2020 events. The Company does not recognize revenue until the conventions or distributor events have occurred.

The Company also records deferred revenue within its direct selling, commercial coffee and commercial hemp segments related to payments made by customers for unshipped orders.

Deferred costs relate to Heritage Makers prepaid commissions ~~that~~ are recorded in prepaid expenses and other current assets on the Company’s consolidated balance sheets and recognized in expense at the time the related revenue is recognized. ~~As of March 31, 2019 and 2018, the balance in deferred costs was approximately $338,000 and $364,000, respectively, and is included in prepaid expenses and current assets.~~

Deferred revenues related to pre-enrollment in upcoming conventions and distributor events of approximately $173,000 and $159,000 as of March 31, 2019 and December 31, 2018, respectively, relate primarily to the Company’s 2019 and 2018 events. The Company does not recognize this revenue until the conventions or distributor events occur.

Plantation Costs

The Company’s commercial coffee segment includes the results of Siles, which is comprised of (i) a 500-acre coffee plantation and (ii) a dry-processing facility located on 26 acres, both of which are 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 and are capitalized 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 costs are then recognized as the inventory value. There were 0 deferred costs associated with the harvest at September 30, 2020. Deferred costs associated with the harvest ~~as of March~~at December 31, 2019 ~~and December 31, 2018 are~~were approximately ~~zero and $400,000, respectively, and are included in prepaid expenses and other current assets on the Company’s balance sheets.~~

~~-12-~~

$350,000.

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.~~services from employees and non-employees. 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 net of forfeitures, under the straight-line method, over the vesting period of the equity grant.

Forfeitures are recorded as they occur.

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 usinguses the Black-Scholes ~~option-pricing model. The~~to estimate the fair value of ~~options granted~~stock options. The use of a valuation model requires the Company to ~~non-employees~~make certain assumptions with respect to selected model inputs. Expected volatility is ~~re-measured as they vest,~~calculated based on the historical volatility of the Company’s 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 ~~resulting increase in value, if any, is recognized as expense during~~expected life assumed at the ~~period~~date of the ~~related services are rendered.~~

grant.

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.

- 14-

Table of Contents

Commitments and Contingencies

The Company is from time to time, the subject of claims and suits arising out of matters related to the Company’s business. The Company is party to litigation at the present time and may become party to litigation in the future. In general, litigation claims can be expensive, and time consuming to bring or defend against and could result in settlements or damages that could significantly affect financial results. It is not possible to predict the final resolution of the current litigation to which the Company is party to, and the impact of certain of these matters on the Company’s business, results of operations, and financial condition could be material. Regardless of the outcome, litigation has adversely impacted the Company’s business because of defense costs, diversion of management resources and other ~~factors~~

~~Recently Issued Accounting Pronouncements~~

~~In August 2018,the Financial Accounting Standards Board (FASB)issuedAccounting Standards Update (ASU) No. 2018-15,Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~. Subtopic 350-40 clarifies the accounting for implementation costs of a hosting arrangement that is a service contract and aligns that accounting, regardless of whether the arrangement conveys a license to the hosted software. The amendments in this update are effective for reporting periods beginning after December 15, 2019, with early adoption permitted. ~~The Company does not expect this new guidance to have a material impact on its condensed consolidated financial statements.~~

~~-13-~~

~~In August 2018, the FASB issued ASU No. 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement~~. Topic 820 removes or modifies certain current disclosures and adds additional disclosures. The changes are meant to provide more relevant information regarding valuation techniques and inputs used to arrive at measures of fair value, uncertainty in the fair value measurements, and how changes in fair value measurements impact an entity's performance and cash flows. Certain disclosures in Topic 820 will need to be applied on a retrospective basis and others on a prospective basis. ~~Topic 820 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019.~~ ~~Early adoption is permitted. The Company expects to adopt the provisions of this guidance on January 1, 2020 and is currently evaluating the impact that Topic 820 will have on its related disclosures.~~

~~In January 2017, the FASB~~ ~~issued~~ ~~ASU No. 2017-04,~~ ~~Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~. This ASU simplifies the test for goodwill impairment by removing Step 2 from the goodwill impairment test. Companies will now perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value not to exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in this update are effective for goodwill impairment tests in fiscal years beginning after December 15, ~~2019 for public companies,~~ ~~with early adoption permitted for goodwill impairment tests performed after January 1, 2017.~~ ~~The Company does not expect this new guidance to have a material impact on its condensed consolidated financial statements.~~

~~Recently Adopted Accounting Pronouncements~~

~~In February 2018, the FASB issued Accounting Standards Update ASU No. 2018-02,~~ ~~Income Statement - Reporting Comprehensive Income~~ (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, Topic 220. The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (H.R.1) (the Act). Consequently, the amendments eliminate the stranded tax effects resulting from the Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this Update also require certain disclosures about stranded tax effects. Topic 220 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. ~~The Company adopted the provisions of this guidance on January 1, 2019 and the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.~~

~~In July 2017, the FASB issued ASU No. 2017-11,~~ Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Topic 260 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted classified as liabilities. A company will recognize the value of a down round feature only when it is triggered, and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, such as warrants, an entity will treat the value of the effect of the down round, when triggered, as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in Topic 260 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company adopted ASU No. 2017-11 effective January 1, 2019 and determined that it’s 2018 warrants were to no longer be classified as a derivative, as a result of the adoption and subsequent change in classification of the 2018 warrants, the company reclassed approximately $1,494,000 of warrant derivative liability to equity.

~~-14-~~

~~In February 2016, FASB established Topic 842, Leases, by issuing ASU No. 2016-02,~~ ~~Leases (Topic 842)which required lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01,~~ ~~Land Easement Practical Expedient for Transition to Topic842; ASU No. 2018-10,~~ ~~Codification Improvements to Topic842,Leases; ASU No. 2018-11,~~ ~~Targeted Improvements; ASU No. 2018-20,Narrow-Scope Improvements for Lessors; andASU 2019-01,Codification Improvements~~. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The amendments were adopted by the Company on January 1, 2019. A modified retrospective transition approach is required, applying the standard to all leases existing at the date of initial application. The Company elects to use its effective date as its date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direction costs. In addition, the Company elected the practical expedient to use hindsight when determining lease terms. The practicable expedient pertaining to land easement is not applicable to the Company. The Company continues to assess all of the effects of adoption, with the most significant effect relating to the recognition of new ROU assets and lease liabilities on the Company’s balance sheet for real estate operating leases. The Company adopted the provisions of this guidance on January 1, 2019 and accordingly recognized additional operating liabilities of approximately $5,509,000 with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

Following the expiration of the Company’s Emerging Growth Company filing status (“EGC”) on December 31, 2018 the Company adopted the following accounting pronouncements effective January 1, 2018.

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, to supersede nearly all existing revenue recognition guidance under GAAP. Topic 606 also requires new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations. The Company adopted the provision of this guidance using the modified retrospective approach. The Company has performed an assessment of its revenue contracts as well as worked with industry participants on matters of interpretation and application and has not identified any material changes to the timing or amount of its revenue recognition under Topic 606. The Company’s accounting policies did not change materially as a result of applying the principles of revenue recognition from Topic 606 and are largely consistent with existing guidance and current practices applied by the Company. (See Note 4, below.)

~~Note 2. Restatement of previously reported unaudited condensed consolidated financial statements~~

~~Background and Effects of the Restatement~~

During the Company’s 2019 annual audit, the Company reviewed revenues related to CLR specifically the 2019 green coffee sales program, for sales made by the Company to its joint venture partner, H&H Coffee Group Export Corp. (“H&H Export”). These sales were originally recorded at gross, along with the respective cost of revenue.

As part of the review, the Company assessed whether the 2019 green coffee sales to H&H Export depicted the transfer of promised goods or services to H&H Export in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The following five steps were applied to review if the core revenue recognition principles were met as such the Company concluded it had not met all the criteria when applying these steps:

●

~~Step 1: Identify the contract with the customer~~

●

~~Step 2: Identify the performance obligations in the contract~~

●

~~Step 3: Determine the transaction price~~

●

~~Step 4: Allocate the transaction price to the performance obligations in the contract~~

●

~~Step 5: Recognize revenue when the company satisfies a performance obligation~~

~~-15-~~

During this review process the Company focused on identifying the performance obligations in the contracts with H&H Export (the provider of the “wet” green coffee and the buyer of the processed coffee). The Company’s assessment indicated that according to the underlying terms and conditions of the contracts that CLR entered into with H&H Export, that CLR had been assigned the green coffee beans as coffee was delivered to its mill processing facility. Assignment of the coffee is defined as taking of physical possession of the green coffee for the purpose of processing the green coffee. Under the assignment CLR was responsible for insuring all reasonable and necessary actions to ensure the coffee beans are safeguarded during processing at the Company’s coffee mill. CLR, however, does not take ownership and does not incur financial risk associated with the coffee as it is delivered to its mill for the purpose of processing. Based on the above assessment, management has determined that when CLR provides the processed green coffee to H&H export, the goods or services provided to H&H Export is the performance obligation to provide milling services for the green coffee. As such, the Company is the agent for the milling services.

Management has also determined that since the Company does not control the green coffee beans at the point of delivery to the mill, and that legal title to the green coffee beans is transferred momentarily, before the green coffee beans are sold back to H&H Export, that the Company is therefore an agent in sales transactions of green coffee beans to H&H Export.

Therefore, management has determined that for green coffee sales made by the Company to its joint venture partner, H&H Export, the Company should have recorded these sales at net of costs to purchase inventory, which reflects the value of the performance obligation to provide milling services. For the quarter ended March 31, 2019, the Company is restating its revenue for coffee sold to H&H Export at net.

On February 15, 2019, the Company and Khrysos Industries, Inc., closed its acquisition of Khrysos Global, Inc., detailed further in Note 5 to the unaudited condensed consolidated financial statements below. In conjunction with the Company’s 2019 annual audit the Company concluded that certain fixed assets acquired in the acquisition and the share price valuation for the common stock issued as consideration were not fairly valued as of the closing date including; i) $1,127,000 related to the certain fixed assets, and ii) $1,351,000 related to a change in the fair value of common stock issuance resulting in an increase to goodwill of $2,478,000 acquired and an adjusted aggregate purchase price if $15,894,000.

The tables below summarize the effects of the restatement on our (i) unaudited condensed consolidated balance sheet at March 31, 2019; (ii) unaudited condensed consolidated statement of operations for the three months ended March 31, 2019; and (iii) unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2019. A summary of the effect of the restatement on the unaudited condensed consolidated statement of changes to stockholders’ equity for the three months ended March 31, 2019 are not presented because the impact to additional paid-in-capital are reflected below in the unaudited condensed consolidated balance sheet summaries.

~~-16-~~

~~Summary of Restatement – Unaudited Condensed Consolidated Balance Sheet~~

~~The effects of the restatement on the Company’s unaudited condensed consolidated balance sheet are as follows:~~

March 31, 2019

Previously Reported

Adjustments

Restated

ASSETS

Current Assets

       Cash and cash equivalents
$2,540
$-
$2,540
       Accounts receivable, trade
  21,629
  (13,923)
  7,706
       Income tax receivable
  75
  -
  75
       Inventory
  46,805
  (22,641)
  24,164
       Notes receivable
  5,000
  -
  5,000
       Prepaid expenses and Other current assets
  4,891
  -
  4,891
Total current assets
  80,940
  (36,564)
  44,376




Property and equipment, net
  20,856
  (1,127)
  19,729
Operating lease right-of-use assets
  5,509
  -
  5,509
Deferred tax assets
  148
  -
  148
Intangible assets, net
  23,919
  -
  23,919
Goodwill
  10,676
  2,478
  13,154
Other assets – notes receivable
  949
  -
  949
Total assets
$142,997
$ (35,213)
$ 107,784




LIABILITIES AND STOCKHOLDERS' EQUITY







Current Liabilities



Accounts payable
$22,784
$ (13,923)
$ 8,861
Accrued distributor compensation
  4,143
  -
  4,143
Accrued expenses
  29,103
  (22,641)
  6,462
Deferred revenues
  2,268
  -
  2,268
Line of credit
  2,432
  -
  2,432
Other current liabilities
  535
  -
  535
Operating lease liabilities, current portion
  745
  -
  745
Finance lease liabilities, current portion
  978
  -
  978
Notes payable, current portion
  158
  -
  158
Convertible notes payable, current portion
  681
  -
  681
Warrant derivative liability
  5,369
  -
  5,369
Contingent acquisition debt, current portion
  792
  -
  792
Total current liabilities
  69,988
  (36,564)
  33,424




Operating lease liabilities, net of current portion
  4,764
  -
  4,764
Finance lease liabilities, net of current portion
  927
  -
  927
Notes payable, net of current portion
  10,378
  -
  10,378
Convertible notes payable, net of current portion
  1,981
  -
  1,981
Contingent acquisition debt, net of current portion
  7,341
  -
  7,341
Total liabilities
  95,379
  (36,564)
  58,815




Commitments and contingencies (Note 1)







Stockholders’ Equity



Preferred Stock, $0.001 par value: 5,000,000 shares authorized
  -
  -
  -
    Convertible Preferred Stock, Series A - 161,135 shares issued and outstanding at March 31, 2019 and December 31, 2018
  -
  -
  -
    Convertible Preferred Stock, Series B – 129,437 shares issued and outstanding at March 31, 2019 and December 31, 2018
  -
  -
  -
Common Stock, $0.001 par value: 50,000,000 shares authorized; 28,890,671 and 25,760,708 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
  29
  -
  29
Additional paid-in capital
  243,555
  1,351
  244,906
Accumulated deficit
  (196,023)
  -
  (196,023)
Accumulated other comprehensive loss
  57
  -
  57
    Total stockholders’ equity
  47,618
  1,351
  48,969
Total Liabilities and Stockholders’ Equity
$142,997
$ (35,213)
$ 107,784

~~-17-~~

~~Summary of Restatement – Unaudited Condensed Consolidated Statement of Operations~~

~~The effects of the restatement on our unaudited condensed consolidated statement of operations are as follows:~~

Three Months Ended March 31, 2019

Previously Reported

Adjustments

Restated

Revenues
$56,300
$(15,108)
$41,192
Cost of revenues
  29,451
  (15,108)
  14,343
Gross profit
  26,849
  -
  26,849
Operating expenses



Distributor compensation
  14,890
  -
  14,890
Sales and marketing
  4,019
  -
  4,019
General and administrative
  19,881
  -
  19,881
Total operating expenses
  38,790
  -
  38,790
Loss from Operations
  (11,941)
  -
  (11,941)
Interest expense, net
  (1,507)
  -
  (1,507)
Change in fair value of warrant derivative liability
  1,486
  -
  1,486
Total other expense, net
  (21)
  -
  (21)
Net loss before income taxes
  (11,962)
  -
  (11,962)
Income tax provision
  298
  -
  298
Net loss
  (12,260)
  -
  (12,260)
Preferred stock dividends
  (14)
  -
  (14)
Net Loss Available to Common Stockholders
$(12,274)
$-
$(12,274)




Net loss per share, basic
$(0.45)
$-
$(0.45)
Net loss per share, diluted
$(0.49)
$-
$(0.49)




Weighted average shares outstanding, basic
  27,577,576
  -
  27,577,576
Weighted average shares outstanding, diluted
  28,025,172
  -
  28,025,172

~~-18-~~

~~Summary of Restatement – Unaudited Condensed Consolidated Statement of Cash Flows~~

~~The effect of the restatement on our unaudited condensed consolidated statement of cash flows are as follows:~~

Three Months Ended March 31, 2019

Previously Reported

Adjustments

Restated

Cash Flows from Operating Activities:

Net loss
$(12,260)
$-
$(12,260)
Adjustments to reconcile net loss to net cash used in operating activities:



Depreciation and amortization
  1,145
  -
  1,145
Stock-based compensation expense
  11,344
  -
  11,344
Amortization of debt discounts and issuance costs
  199
  -
  199
Change in fair value of warrant derivative liability
  (1,486)
  -
  (1,486)
Change in inventory reserve
  159
  -
  159
Equity issuance for services
  1,859
  -
  1,859
Stock issuance for true-up shares
  281
  -
  281
Changes in operating assets and liabilities, net of effect from business combinations:



Accounts receivable
  (17,292)
  13,923
  (3,369)
Inventory
  (23,924)
  22,641
  (1,283)
Prepaid expenses and other current assets
  (111)
  -
  (111)
Accounts payable
  13,977
  (13,923)
  54
Accrued distributor compensation
  854
  -
  854
Deferred revenues
  (44)
  -
  (44)
Accrued expenses and other liabilities
  20,468
  (22,641)
  (2,173)
Net Cash Used in Operating Activities
  (4,831)
  -
  (4,831)




Cash Flows from Investing Activities:



Acquisitions, net of cash acquired
  (425)
  -
  (425)
Purchases of property and equipment
  (2,291)
  -
  (2,291)
Net Cash Used in Investing Activities
  (2,716)
  -
  (2,716)




Cash Flows from Financing Activities:



Proceeds from issuance of promissory notes, net of offering costs
  3,750
  -
  3,750
Proceeds from private placement of common stock, net of offering costs
  2,267
  -
  2,267
Proceeds from at-the-market-offering and exercise of stock options and warrants, net
  1,455
  -
  1,455
Proceeds net of repayment on line of credit
  176
  -
  176
Payments of notes payable
  (35)
  -
  (35)
Payments of contingent acquisition debt
  (128)
  -
  (128)
Payments of finance leases
  (368)
  -
  (368)
Payments of dividends
  (11)
  -
  (11)
Net Cash Provided by Financing Activities
  7,106
  -
  7,106
Foreign Currency Effect on Cash
  102
  -
  102
Net decrease in cash and cash equivalents
  (339)
  -
  (339)
Cash and Cash Equivalents, Beginning of Period
  2,879
  -
  2,879
Cash and Cash Equivalents, End of Period
$2,540
$-
$2,540




Supplemental Disclosures of Cash Flow Information



Cash paid during the period for:



Interest
$1,034
$-
$1,034
Income taxes
$-
$-
$-




Supplemental Disclosures of Noncash Investing and Financing Activities



Purchases of property and equipment funded by finance leases
$-
$-
$-
Purchases of property and equipment funded by mortgage agreements
$450
$-
$450
Fair value of stock issued for services (Note 11)
$417
$-
$417
Fair value of stock issued for property and equipment (land)
$1,200
$-
$1,200
Fair value of stock issued for purchase of intangibles (tradename)
$750
$-
$750
Fair value of stock issued for note receivable, net of debt settlement
$2,309
$-
$2,309
Fair value of stock issued in connection with the acquisition of Khrysos Global, Inc. (Note 5) (1)
$12,649
$1,351
$14,000
Dividends declared but not paid at the end of period (Note 11)
$14
$-
$14
Acquisitions of net assets in exchange for contingent debt, net of purchase price adjustments
$-
$-
$-
Fair value of warrants issued in connection with the Series B Preferred Stock Offering
$-
$-
$-
Conversion of 2017 Notes to Common Stock
$-
$-
$-

~~(1)~~

~~The Fair~~ value of stock issued in connection with the acquisition of Khrysos Global, Inc., was previously reported in Note 4 to the original filing of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 as filed with the SEC on May 20, 2019.

~~-19-~~

~~Note 3.~~ factors.

Basic and Diluted Net Loss Per Share

Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss 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 stock options, restricted stock, warrants, convertible preferred stock and common stock associated with the Company's convertible notes based on the average stock price for each period using the treasury stock method. Potentially dilutive shares are excluded from the computation of diluted net loss per share when their effect is anti-dilutive.

In periods where a net loss is presented, all potentially dilutive securities are anti-dilutive and are excluded from the computation of diluted net loss per share.

Potentially dilutive securities for the ~~three months~~periods ended ~~March 31,~~ September 30, 2020 and 2019 ~~were~~ ~~12,882,194.~~ ~~Potentially dilutive securities~~ were ~~7,321,334 for the three months ended March 31, 2018.~~

10,594,784 and 10,988,108 shares, respectively.

	September 30,
	2020		2019
	(unaudited)		(unaudited)
Warrants		5,266,187		6,238,182
Preferred stock conversions		22,786		275,600
Principal conversions on convertible notes		309,000		312,571
Stock options		4,567,368		3,705,644
Restricted stock units		429,443		456,111
Total		10,594,784		10,988,108

The calculation of diluted loss per share requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the warrants and the presumed exercise of such securities are dilutive to loss per share for the period, an adjustment to net loss used in the calculation is required to remove the change in fair value of the warrants, net of tax from the numerator for the period. Likewise, an adjustment to the denominator is required to reflect the related dilutive shares, if any, under the treasury stock method. During the three and nine months ended ~~March 31,~~September 30, 2019, ~~and 2018,~~ the Company recorded net of tax gain of ~~$1,409,000~~$27,000 and ~~$254,000,~~$1,529,000, respectively, on the valuation of the ~~Warrant Derivative Liability~~warrant derivative liability which ~~has~~had a dilutive impact on loss per ~~share, respectively.~~share.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020				2019
	(unaudited)			(unaudited)			(unaudited)				(unaudited)
Loss per Share – Basic
Numerator for basic loss per share	$	(5,434,000	)	$	(7,959,000	)	$	(16,507,000	)		$	(20,550,000	)
Denominator for basic loss per share		32,233,622			30,035,182			31,479,884		��		28,924,305
Loss per common share - basic	$	(0.17	)	$	(0.27	)	$	(0.52	)		$	(0.71	)

Loss per Share - Diluted
Numerator for basic loss per share	$	(5,434,000	)	$	(7,959,000	)	$	(16,507,000	)		$	(20,550,000	)
Adjust: Fair value of dilutive warrants outstanding		0			(27,000	)		0				(1,529,000	)
Numerator for dilutive loss per share	$	(5,434,000	)	$	(7,986,000	)	$	(16,507,000	)		$	(22,079,000	)

Denominator for basic loss per share		32,233,622			30,035,182			31,479,884				28,924,305
Plus: Incremental shares underlying “in the money” warrants outstanding		0			4,494			0				79,026
Denominator for dilutive loss per share		32,233,622			30,039,676			31,479,884				29,003,331
Loss per common share - diluted	$	(0.17	)	$	(0.27	)	$	(0.52	)		$	(0.76	)

- 15-

Table of Contents

Three months ended
March 31,
(unaudited)

2019

2018

Loss per Share – Basic

Numerator for basic loss per share
$(12,274,000)
$(2,311,000)
Denominator for basic loss per share
  27,577,576
  19,744,144
Loss per common share – basic
$(0.45)
$(0.12)



Loss per Share – Diluted


Numerator for basic loss per share
$(12,274,000)
$(2,311,000)
Adjust: Fair value of dilutive warrants outstanding
  (1,409,000)
  (254,000)
Numerator for dilutive loss per share
$(13,683,000)
$(2,565,000)



Denominator for basic loss per share
  27,577,576
  19,744,144
Plus: Incremental shares underlying “in the money” warrants outstanding
  447,595
  14,258
Denominator for diluted loss per share
  28,025,172
  19,758,402
Loss per common share – diluted
$(0.49)
$(0.13)

~~Note 4. Balance Sheet Account Details~~

~~Inventory~~

Recently Issued and ~~Cost of Revenues~~

~~Inventory is stated at the lower of cost or net realizable value, net of a valuation allowance. Cost is determined using the first-in, first-out method.~~ Adopted Accounting Pronouncements

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 withdoes not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a ~~definite life are taken into consideration.~~

~~-20-~~

~~Inventories consist of the following (in thousands):~~

As of

March 31,
2019

December 31,
2018

( Restated)*

Finished goods
$14,948
$11,300
Raw materials
  11,643
  12,744
Total inventory
  26,591
  24,044
Reserve for excess and obsolete
  (2,427)
  (2,268)
Inventory, net
$24,164
$21,776

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.

* Net inventory at March 31, 2019 has been restated. See Note 2.

~~Leases~~

Generally, the Company leases certain office space, warehouses, distribution centers, manufacturing centers, and equipment. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration

In general, the Company’s leases include one or more options to renew, with renewal terms that generally vary from one to ten years. The exercise of lease renewal options is generally at the Company’s sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

~~The Company’s lease agreements do not contain any~~ material ~~residual value guarantees or material restrictive covenants.~~

~~Leases with an initial term of twelve months or less are not recorded~~effect on the Company’s ~~condensed consolidated balance sheets, and~~ financial statements. During the nine months ended September 30, 2020, the Company ~~does~~ did not ~~separate nonlease components from lease components. The Company’s lease assets~~ adopt any accounting pronouncements.

Note 2. Acquisitions and ~~liabilities recognized within its condensed consolidated balance sheets were as follows (in thousands):~~

	~~March 31,~~ ~~2019~~	~~Balance Sheet Location~~
~~ASSETS:~~
~~Operating lease right-of-use assets~~	$~~5,509~~	~~Operating lease right-of-use assets~~
~~Finance lease right-of-use assets~~	~~1,330~~	~~Property, plant, and equipment, net at cost, net of accumulated amortization (1)~~
~~Total lease assets~~	$~~6,839~~
~~LIABILITIES:~~
~~Current:~~
~~Operating lease liabilities~~	$~~745~~	~~Other current liabilities~~
~~Finance lease liabilities~~	~~978~~	~~Current portion of long-term debt~~
~~Non-current:~~
~~Operating lease liabilities~~	~~4,764~~	~~Non-current operating lease liabilities~~
~~Finance lease liabilities~~	~~927~~	~~Long-term debt, net of current portion~~
~~Total lease liabilities~~	$~~7,714~~

~~(1)~~

~~Finance lease assets are recorded net of accumulated amortization of approximately $522,000 as of March 31, 2019.~~

~~-21-~~

~~Lease cost is recognized on a straight-line basis over the lease term (in thousands):~~

	~~March 31,~~ ~~2019~~
~~Operating lease costs~~	$~~271~~
~~Finance lease cost~~	-
~~Amortization of right-of-use assets~~	96
~~Interest on lease liabilities~~	37
~~Net lease costs~~	$~~404~~

~~As of March 31,~~ Business Combinations

During 2019, ~~annual scheduled lease payments were as follows (in thousands):~~

Operating
Leases

Finance
Leases

2019
$788
$1,086
2020
  753
  742
2021
  688
  204
2022
  648
  9
2023
  889
  3
Thereafter
  3,139
  -
Total lease payments
  6,905
  2,044
Less imputed interest
  1,396
  139
Present value of lease liabilities
$5,509
$1,905

~~Finance lease right-of-use assets are amortized over their estimated useful life, as~~ the Company ~~does believe that it is reasonably certain that options~~entered into two acquisitions which ~~transfer ownership will be exercised. In general, for the majority of the Company’s material leases, the renewal options~~ are ~~not included in the calculation of its right-of-use assets and lease liabilities, as~~detailed below. The acquisitions were conducted to allow the Company ~~does not believe that it is reasonably certain that these renewal options will be exercised. Periodically,~~to enter into the ~~Company assesses its leases to determine whether it is reasonably certain that these options~~hemp market and ~~any renewal options could be reasonably expected to be exercised.~~

~~The majority of~~expand the Company’s leases are for real estate and equipment. In general, the individual lease contracts do not provide information about the rate implicit in the lease. Because the Company is not able to determine the rate implicit in its leases, it instead generally uses its incremental borrowing rate to determine the present value of lease liabilities. In determining its incremental borrowing rate, the Company reviewed the terms of its leases, its senior secured credit facility, swap rates, and other factors. The weighted-average remaining lease term and weighted-average discount rate used to calculate the present value of lease liabilities are as follows:

	~~March 31,~~ ~~2019~~
~~Weighted-average remaining lease terms:~~
~~Operating leases~~	~~5.8~~
~~Finance leases~~	~~2.1~~
~~Weighted-average remaining discount rate:~~
~~Operating leases~~	~~5.5~~%
~~Finance leases~~	~~9.1~~%

~~-22-~~

~~Revenue Recognition~~

~~Direct Selling~~

Direct distribution sales are made through the Company’s network (direct selling segment), which is a web-based global network of customers and distributors. The Company’s independent sales force markets a variety of products to an array of customers, through friend-to-friend marketing and social networking. The Company considers itself to be an e-commerce company whereby personal interaction is provided to customers by its independent sales network. Sales generated from direct distribution includes health and wellness, beauty product and skin care, scrap booking and story booking items, packaged food products and other service-based products.

~~Commercial Coffee - Coffee Roaster~~

The Company engages in the commercial sale of roasted coffee through its subsidiary CLR, which is sold under a variety of private labels through major national sales outlets and to customers including cruise lines and office coffee service operators, and under its own Café La Rica brand, Josie’s Java House Brand and Javalution brands as well as through its distributor network within the direct selling ~~segment.~~

~~Revenue is recognized when the title~~segment, enhance and ~~risk of loss is passed to the customer under the terms of the shipping arrangement, typically, FOB shipping point. At this point the customer has~~expand its product portfolio, and diversify its product mix. As a present obligation to pay, takes physical possession of the product, takes legal title to the product, bears the risks and rewards of ownership, and as such, revenue will be recognized at this point in time. Sales taxes in domestic and foreign jurisdictions are collected from customers and remitted to governmental authorities, all at the local level, and are accounted for on a net basis and therefore are excluded from revenues.

~~Commercial Coffee - Green Coffee~~

~~The commercial coffee segment includes the sale of green coffee beans, which are sourced from the Nicaraguan rainforest and providing milling serves to H&H.~~

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. At this point the customer has a present obligation to pay, takes physical possession of the product, takes legal title to the product, bears the risks and rewards of ownership, and as such, revenue will be recognized at this point in time. Revenues derived from the sales of green coffee beans by the Company that it has milled, and it has determined it is the agent with regard to such green coffee beans is recorded at net of costs to purchase inventory or recorded to reflect only the revenue derived from the milling services provided. Sales taxes in domestic and foreign jurisdictions are collected from customers and remitted to governmental authorities, all at the local level, and are accounted for on a net basis and therefore are excluded from revenues.

~~Commercial Hemp~~

The commercial hemp segment provides end to end extraction and processing via the Company’s proprietary systems that allow for the conversion of hemp feed stock into hemp oil and hemp extracts. The primary focus of the segment will be to generate revenue through sales of extraction services and end to end processing services for the conversion of Hemp and Hemp oil into sellable ingredients. Additionally, the company offers various rental, sales, and service programsresult of the Company’s ~~extraction~~business combinations, the Company’s distributors and ~~processing systems.~~

~~-23-~~

~~Revenue is recognized when the title and risk of loss is passed~~customers will have access to the ~~customer under~~acquired company’s products and acquired company’s distributors and customers will gain access to products offered by the ~~terms of~~Company.

As such, the shipping arrangement, typically, FOB shipping point. At this point the customer has a present obligation to pay, takes physical possession of the product, takes legal title to the product, bears the risks and rewards of ownership, and as such, revenue will be recognized at this point in time. Sales taxes in domestic and foreign jurisdictions are collected from customers and remitted to governmental authorities, all at the local level, and are accounted for on a net basis and therefore are excluded from revenues.

The Company operates in three primary segments: the direct selling segment where products are offered through a global distribution network of preferred customers and distributors, the commercial coffee segment where products are sold directly to businesses and the Hemp segment.

~~The following table summarizes revenue disaggregated by segment (in thousands):~~

For the three months ended
March 31,

2019

2018

(Restated)*

Direct selling
$33,420
$35,311
Commercial coffee:


Processed green coffee
  100
  4,985
Milling and processing services
  4,826
  -
Roasted coffee and other
  2,779
  2,698
Total commercial coffee
  7,705
  7,683
Commercial hemp
  67
  -
Total
$41,192
$42,994

* Revenuemajor purpose for the ~~three~~business combinations was to increase revenue and profitability. The acquisitions were structured as asset purchases which resulted in the recognition of certain intangible assets.

During the nine months ended ~~March~~September 30, 2020, the Company did not have any acquisitions.

2019 Acquisitions

BeneYOU

On October 31, 2019, ~~has been restated. See Note 2.~~

~~Contract Balances~~

~~Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records contract assets when performance obligations are satisfied prior to invoicing.~~

Contract liabilities are reflected as deferred revenues in current liabilities on the Company’s condensed consolidated balance sheets and includes deferred revenue and customer deposits. Contract liabilities relate to payments invoiced or received in advance of completion of performance obligations and are recognized as revenue upon the fulfillment of performance obligations. Contract Liabilities are classified as short-term as all performance obligations are expected to be satisfied within the next 12 months.

As of March 31, 2019 and December 31, 2018, the balance in deferred revenues was approximately $2,268,000 and $2,312,000, respectively. The Company records deferred revenue related to its direct selling segment which is primarily attributable to the Heritage Makers product line and represents Heritage Maker’s obligation for points purchased by customers that have not yet been redeemed for product. In addition, deferred revenues include future Company convention and distributor events.

Deferred revenue related to the commercial coffee segment represents deposits on customer orders that have not yet been completed and shipped. Revenue is recognized when the title and risk of loss is passed to the customer under the terms of the shipping arrangement FOB shipping point. (See Note 1, above.)

Of the deferred revenue from the year ended December 31, 2018, the Company recognized revenue of approximately $2,095,000 from the Heritage Makers product line during the three months ended March 31. 2019.

~~There were no deferred revenues associated with the commercial coffees segment and the commercial hemp as of March 31, 2019.~~

~~-24-~~

~~Note 5. 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 Company’s 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 Company’s 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, 2019,~~ the Company entered into ~~one acquisition, which is detailed below. The acquisition was conducted in~~ an ~~effort to expand the Company’s operations into the field~~asset purchase agreement with an effective date of ~~commercial hemp business.~~

November 1, 2019, ~~Acquisitions~~

~~Khrysos Global, Inc.~~

~~On February 12, 2019,~~with BeneYOU, LLC, a Utah limited liability company (“BeneYOU”), and Ryan Anderson (the “BeneYOU Representing Party”), for the Company and Khrysos Industries, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“KII”) entered into an Asset and Equity Purchase Agreement (the “AEPA”) with, Khrysos Global, Inc., a Florida corporation (“Seller”), Leigh Dundore (“LD”), and Dwayne Dundore (the “Representing Party”) for KII to acquire ~~substantially~~certain assets of BeneYOU to including all ~~the assets (the “Assets”)~~ of ~~KGI and all~~ the outstanding equity of ~~INXL Laboratories, Inc.~~BeneYOU Holding, LLC, a Utah limited liability company (“BeneYOU Holding”), collectively “BeneYOU”. In accordance with the asset purchase agreement, the Company also acquired BeneYOU’s customer and distributor organization lists, all intellectual property, product formulations, products, product packaging, product registrations, licenses, marketing materials, sales tools and swag, and all saleable inventory. BeneYOU’s flagship brand Jamberry has an extensive line of nail products with a ~~Florida corporation (“INXL”)~~core competency in social selling, and ~~INX Holdings, Inc., a Florida corporation (“INXH”). Seller, INXL and INXH~~ ~~provides end to end extraction and processing via~~two other brands including Avisae which focuses on the company’s proprietary systems that allow for the conversion of hemp feed stock into hemp oil and hemp extracts. Additionally, KII offers various rental, sales, and service programs of KII’s extraction and processing systems.

~~The consideration payable for the assets~~gut health and the ~~equity~~M.Global brand of ~~KGI, INXL and INXH~~products that includes hydration products.

The Company is ~~an aggregate of $16,000,000,~~obligated to ~~be paid as set forth under the terms~~make monthly payments based on a percentage of the ~~AEPA and allocated between the Sellers and LD in such manner as they determine at their discretion.~~

~~At the closing on February 15, 2019, the Seller, LD and the Representing Party received an aggregate of 1,794,972 shares~~BeneYOU distributor revenue derived from sales of the Company’s ~~common stock which have~~products and a ~~value~~percentage of ~~$14,000,000 for~~royalty revenue derived from sales of BeneYOU products until the ~~purposes~~earlier of the ~~AEPA~~date that is ten years from the closing date or ~~$12,649,000 fair value for~~such time as the ~~acquisition valuation~~Company has paid to BeneYOU aggregate cash payments of the BeneYOU distributor revenue and ~~$500,000 in cash. Thereafter, Seller, LD and~~royalty revenue equal to the ~~Representing Party are to receive an~~maximum aggregate ~~of: $500,000 in cash thirty (30) days following the date~~purchase price of closing; $250,000 in cash ninety (90) days following the date of closing; $250,000 in cash one hundred and eighty (180) days following the Date of closing; $250,000 in cash two hundred and seventy (270) days following the date of closing; and $250,000 in cash one (1) year following the date of closing.

$3,500,000. In addition, the Company ~~agreed~~paid an acquisition liability payment of $200,000 on the closing date, which reduced the maximum aggregate purchase price to ~~issue to Representing Party, subject to~~$3,300,000.

The contingent consideration’s estimated fair value at the ~~approval~~date of ~~the holders of at least~~acquisition was approximately $2,648,000 as determined by management using a ~~majority of the issued~~discounted cash flow methodology. The acquisition related costs, such as legal costs and ~~outstanding shares of the Company’s common stock~~other professional fees were minimal and ~~the approval of~~ expensed as incurred.

The ~~Nasdaq Stock Market (collectively, the “Contingent Consideration Warrants”) consisting of six (6) six-year warrants, to~~ purchase 500,000 shares of common stock each, for an aggregate of 3,000,000 shares of common stock at an exercise price of $10 per share exercisable upon reaching certain levels of cumulative revenue or cumulative net income before taxes by the business during the any of the years ending December 31, 2019, 2020, 2021, 2022, 2023 or 2024.

~~The AEPA~~agreement contains customary representations, warranties and covenants of the Company, ~~KII,~~BeneYOU and the ~~Seller, LD and the~~BeneYOU Representing Party. Subject to certain customary limitations the ~~Seller, LD and the~~BeneYOU Representing Party have agreed to indemnify the Company and ~~KII~~BeneYOU against certain losses related to, among other things, breaches of the ~~Seller’s, LD’s and the~~BeneYOU Representing Party’s representations and warranties, certain specified liabilities and the failure to perform covenants or obligations under the ~~AEPA.~~

~~On February 28, 2019, KII purchased a 45-acre tract of land in Groveland, Florida, in central Florida, which KII intends to build a R&D facility, greenhouse and allocate a portion for farming.~~

~~-25-~~

~~Restatement Note - related to the Acquisition of Khrysos Global, Inc.~~

In conjunction with the Company’s 2019 annual audit the Company concluded that certain fixed assets acquired in the acquisition and the share price valuation for the common stock issued as consideration were not fairly valued as of the closing date February 15, 2019 including; a) $1,127,000 related to the certain fixed assets, and b) $1,351,000 related to a change in the fair value of common stock issuance resulting in an increase to goodwill of $2,478,000 acquired and an adjusted aggregate purchase ~~price if $15,894,000. As such, the Company here restates its Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.~~

agreement.

The Company ~~has estimated~~recorded the fair value at the date of acquisition of the acquired tangible and intangible assets and liabilities as follows ~~including the resulting adjustments in changes to the aggregate purchase price~~ (in thousands):

Consideration as Originally Reported

Adjustments

Consideration as Currently Reported

Present value of cash consideration
$1,894 $
$-
$1,894
Estimated fair value of common stock issued
  12,649
  1,351
  14,000
Aggregate purchase price
$14,543
$1,351
$15,894

Contingent consideration		$	2,648
Aggregate purchase price		$	2,648

The following table summarizes the ~~estimated preliminary and as adjusted~~ fair values of the assets acquired and liabilities assumed in ~~February~~November 2019 ~~(in~~(in thousands):

Fair Value as Originally Reported

Adjustments

Fair Value as Currently Reported

Current assets
$636
$-
$636
Inventory
  1,264
  -
  1,264
Property, plant and equipment
  2,260
  (1,127)
  1,133
Trademarks and trade name
  1,876
  -
  1,876
Customer-related intangible
  5,629
  -
  5,629
Non-compete intangible
  956
  -
  956
Goodwill
  4,353
  2,478
  6,831
Current liabilities
  (1,904)
  -
  (1,904)
Notes payable
  (527)
  -
  (527)
Net assets acquired
$14,543
$1,351
$15,894

Current assets (excluding inventory)	$	408
Inventory (net of $469 reserve)		441
Trademarks and trade name		343
Distributor organization		1,175
Customer relationships		44
Non-compete agreement		277
Goodwill		669
Current liabilities		(709	)
Net assets acquired	$	2,648

The ~~preliminary estimated~~reported fair value of intangible assets acquired ~~in the amount~~ of ~~$8,461,000~~$1,839,000 was determined through the use of a ~~third-party~~third-party valuation firm using various income and cost approach methodologies. Specifically, the intangibles identified in the acquisition were trademarks and trade name, ~~customer-related intangible~~distributor organization, customer relationships and non-compete ~~agreement. The trademarks~~agreement and ~~trade name, customer-related intangible and non-compete~~ are being amortized over their estimated useful life of 85 years, 79 years, 5 years and 64 years, respectively. The straight-line method is being used and is believed to approximate the ~~time-line~~timeline within which the economic benefit of the underlying intangible asset will be realized.

~~-26-~~

Goodwill ~~acquired as currently reported~~ of ~~$6,831,000 is~~$669,000 was recognized as the excess purchase price over the acquisition-date fair value of net assets acquired. Goodwill is estimated to represent the synergistic values expected to be realized from the combination of the two businesses. The goodwill is expected to be deductible for tax purposes.

The ~~Contingent Consideration Warrants~~pro-forma effect assuming the business combination with BeneYOU discussed above ~~are subject~~had occurred at the beginning of 2019 is not presented as the information was not available.

- 16-

Table of Contents

Khrysos Global, Inc.

On February 12, 2019, the Company and KII entered into an asset and equity purchase agreement (the “AEPA”) with Khrysos Global, and Leigh Dundore and Dwayne Dundore (collectively, the “Khrysos Representing Party”), for KII to ~~vesting based upon~~acquire substantially all the ~~achievement~~assets of ~~various sales milestones~~Khrysos Global and ~~only if~~all the outstanding equity of INXL and INXH. The collective business manufactures proprietary systems to provide end-to-end extraction and processing that allow for the conversion of hemp feed stock into hemp oil and hemp extracts.

The aggregate consideration payable for the assets of Khrysos Global and the equity of INXL and INXH of $16,000,000 is to be paid as set forth under the terms of the AEPA and allocated between Khrysos Global and Leigh Dundore in such manner as they determine at their discretion.

At closing, Khrysos Global and the Khrysos Representing Party received an aggregate of 1,794,972 shares of the Company’s common stock which had a value of $14,000,000 for the purposes of the AEPA and $500,000 in cash. The fair value of the common stock calculated as part of the acquisition valuation was approximately $14,000,000. In addition, the Company agreed to pay the sellers ~~do not terminate their services. As such,~~$1,500,000 in cash towards the ~~warrants were considered equity-based~~AEPA of which $1,000,000 was paid to Khrysos Global and the Khrysos Representing Party during 2019. The remaining cash payment of $500,000 was not paid as of the filing date herewith as the Company continues to evaluate the terms of the acquisition agreement in conjunction with the termination of the KII President, noted below. At September 30, 2020 and December 31, 2019, the Company’s remaining liability of $500,000, was outstanding and recorded as accrued expenses on the condensed consolidated balance sheet.

The AEPA contains customary representations, warranties and covenants of the Company, Khrysos Global and the Khrysos Representing Party. Subject to certain customary limitations Khrysos Global and the Khrysos Representing Party have agreed to indemnify the Company and KII against certain losses related to, among other things, breaches of the Khrysos Representing Party’s representations and warranties, certain specified liabilities and the failure to perform covenants or obligations under the AEPA.

In conjunction with the acquisition and organization of KII, the Company retained Dwayne Dundore as President of KII. Previously agreed-upon equity compensation ~~for future services and not considered contingent consideration~~ in the ~~calculation~~form of warrants that was to be provided as part of the closing to Dwayne Dundore by the Company were mutually terminated. Effective September 17, 2020, Dwayne Dundore was no longer employed with KII or the Company.

The Company has estimated fair value at the date of acquisition of the acquired tangible and intangible assets and liabilities as follows (in thousands):

Present value of cash consideration	$	1,894
Estimated fair value of common stock issued		14,000
Aggregate purchase price	$	15,894

The following table summarizes the estimated and as adjusted fair values of the assets acquired and liabilities assumed in February 2019 (in thousands):

Current assets	$	636
Inventory		1,264
Property, plant and equipment		1,133
Trademarks and trade name		1,876
Customer-related intangible		5,629
Non-compete intangible		956
Goodwill		6,831
Current liabilities		(1,904	)
Notes payable		(527	)
Net assets acquired	$	15,894

The reported fair value of intangible assets acquired in the amount of $8,461,000 was determined through the use of a third-party valuation firm using various income and cost approach methodologies. Specifically, the intangibles identified in the acquisition were trademarks and trade name, customer relationships and non-compete agreement. The trademarks and trade name, customer relationships and non-compete agreement are being amortized over their estimated useful life of 8 years, 4 years and 6 years, respectively. The straight-line method is being used and is believed to approximate the timeline within which the economic benefit of the underlying intangible asset will be realized. In connection with the Company’s annual impairment test in 2019, the net book value of intangible assets of $8,461,000 was determined to be impaired. (See Note 5)

Goodwill of $6,831,000 was recognized as the excess purchase ~~price.~~

price over the acquisition-date fair value of net assets acquired. In connection with the Company’s annual impairment test in 2019, the full amount of goodwill recognized was determined to be impaired. (See Note 5)

The costs related to the acquisition are included in legal and accounting ~~fees.~~fees and were expensed as incurred.

The pro-forma effect assuming the business combination with KII discussed above had occurred at the beginning of 2019 is not presented as the information was not available.

- 17-

Table of Contents

Note 3.Related Party Transactions

Hernandez, Hernandez, Export Y Company and H&H Coffee Group Export Corp.

The Company’s wholly-owned subsidiary, CLR, is associated with Hernandez, Hernandez, Export Y Company (“H&H”), a Nicaragua company, through sourcing arrangements to procure Nicaraguan grown green coffee beans. As part of the 2014 Siles acquisition, CLR engaged the owners of H&H, Alain Piedra Hernandez (“Mr. Hernandez”) and Marisol Del Carmen Siles Orozco (“Ms. Orozco”), as employees to manage Siles.

H&H is a sourcing agent that purchases raw green coffee beans from the local producers in Nicaragua and supplies CLR’s mill with unprocessed green coffee for processing. CLR does not have a direct relationship with the local producers and is dependent on H&H to negotiate agreements with local producers for the supply and provide to CLR’s mill raw unprocessed green coffee to CLR’s mill in a timely and efficient manner. Substantially all the green coffee processed through the Siles mill was coffee assigned to CLR for processing. During the three and nine months ended September 30, 2019, CLR’s largest customer for green coffee beans was H&H Coffee Group Export Corp. (“H&H Export”), a company related to H&H. In consideration for H&H's sourcing of green coffee for processing within CLR’s mill, CLR and H&H share in the green coffee profit from milling operations.

During the three and nine months ended September 30, 2020, CLR had purchases from H&H of approximately $1,072,000 and $2,847,000, respectively, and had purchases from H&H Export of $229,000 and $700,000, respectively. CLR made purchases from H&H of approximately $2,828,000 during the nine months ended September 30, 2019.

During the three months ended September 30, 2020 and 2019, CLR recorded net revenues from H&H Export of approximately $211,000 and $29,000, respectively, and $535,000 and $6,416,000, respectively, for the nine months then ended.

At September 30, 2020 and December 31, 2019, CLR's accounts receivable balances for customer related revenue from H&H Export were approximately $7,871,000 and $8,707,000 of which the full amounts were past due at the corresponding periods. As a result, the Company reserved $7,871,000 as bad debt related to the accounts receivable balances for both periods, which was net of collections through December 31, 2020.

At September 30, 2020, the following balances were recorded from transactions with H&H:

●

Prepaid expenses and other current assets of approximately $1,017,000 related to green coffee acquisition,

●

accounts payable of $230,000 related to billings for freight and other charges by H&H,

●

accrued expenses of $544,000 primarily related to mill operation costs, and

●

accrued expenses offset of $994,000 related to overpaid cost of green coffee.

H&H Finance Agreement

In March 2020, CLR entered into a Finance, Security and ARAP Monetization Agreement (the “H&H Finance Agreement”) with H&H Export Y CIA. LTDA and H&H Export (collectively, the “H&H Export Group”). The H&H Finance Agreement was designed to provide the Company with access to a continued supply of unprocessed green coffee beans for the 2020 growing season and a solution for funding of the continued operations of the Company’s green coffee distribution business. Pursuant to the Agreement, the H&H Export Group had agreed to allow a Nicaraguan agency (the “Nicaraguan Agency”) to advance on behalf of the H&H Export Group, approximately $22,000,000 of the $30,100,000 of accounts receivable owed by H&H Export to CLR for its purchase of processed green coffee during the 2019 season. The Nicaraguan Agency also entered into a $46,500,000 credit facility with the H&H Export Group to provide funding for the H&H Export Group’s future coffee purchases of unprocessed green coffee from independent producers. Of the 2020 sales amounts to be billed by CLR for future coffee purchases of processed coffee, CLR was to be paid an additional amount, at a rate of $0.225 per pound of processed green coffee shipped to customers, to be applied to the remaining outstanding 2019 accounts receivable balance owed by H&H Export to CLR. Until such time as the entire accounts receivable balance is paid in full, H&H Export has agreed not take any profit interest. However, given the COVID crisis’ impact on the 2020 growing season and the continued delay in full payment of the 2020 receivable balances, management considered H&H Export accounts receivable impaired at September 30, 2020. Subsequent to the H&H Finance Agreement, CLR adopted the recognition of recording revenues at net for sales between CLR and H&H Export.

In March 2021, CLR entered into a master relationship agreement with the owners of H&H in order to memorialize the various agreements and modifications to those agreements. (See Note 13)

H&H Export Note Receivable

In December 2018, CLR advanced $5,000,000 to H&H Export to provide services in support of a five-year contract for the sale and processing of 41 million pounds of green coffee beans on an annual basis. The services include providing hedging and financing opportunities to producers and delivering harvested coffee to the Company’s mills. In March 2019, this advance was converted to a $5,000,000 loan agreement as a note receivable and bears interest at 9.00% per annum and is due and payable by H&H Export at the end of each year’s harvest season, but no later than October 31 for any harvest year. In October 2019, CLR and H&H Export amended the March 2019 agreement in terms of the maturity date such that all outstanding principal and interest was due and payable at the end of the 2020 harvest (or when the 2020 season’s harvest was exported and collected), but never to be later than November 30, 2020.

Management reviewed the security against the loan and the impact of the underlying COVID crisis and determined that the full amount of the note receivable including interest of approximately $5,677,000 and $5,340,000 was not collected at September 30, 2020 and December 31, 2019, respectively, and therefore the full amounts were recognized as an allowance for collectability at the end of each respective period.

~~Revenues~~

- 18-

Table of Contents

Mill Construction Agreement between CLR and H&H

In January 2019, to accommodate CLR’s green coffee purchase contract, CLR entered into a mill construction agreement with H&H and H&H Export, Mr. Hernandez and Ms. Orozco (together with H&H, collectively referred to as the “Nicaraguan Partner”), pursuant to which the Nicaraguan Partner agreed to transfer a 45-acre tract of land in Matagalpa, Nicaragua (the “Matagalpa Property”) to be owned 50% by the Nicaraguan Partner and 50% by CLR. In consideration for the land acquisition the Company issued to H&H Export, 153,846 shares of common stock. The fair value of the shares issued was $1,200,000 and was based on the stock price on the date of issuance of the shares. In addition, the Nicaraguan Partner and CLR agreed to contribute $4,700,000 each toward construction of a processing plant, office, and storage facilities on the Matagalpa Property (collectively the “Matagalpa Mill”) for processing coffee in Nicaragua. The addition of the mill will accommodate CLR’s green coffee contract commitments.

For the three and nine months ended September 30, 2020, CLR made payments of approximately $706,000 and $1,506,000, respectively, towards the Matagalpa mill project. For the nine months ended September 30, 2019, CRL made payments toward the Matagalpa mill project of $2,150,000.

At September 30, 2020, CLR contributed a total of $4,556,000 towards the construction of the Matagalpa mill project, which is included in construction in process within property and equipment, net on the Company's consolidated balance sheets, and paid a total of $1,304,000 for operating equipment. At September 30, 2020, the Nicaraguan Partner contributed a total of $2,528,000 towards the Matagalpa Mill project. At the filing date of this Quarterly Report on Form 10-Q, the Matagalpa Mill was still incomplete for total operations.

In January 2019, the Company issued 295,910 shares of common stock to H&H Export to pay for certain working capital, construction and other payables. In connection with the issuance, the Company over issued 121,649 shares of common stock, resulting in the net issuance of common stock to settle payables of 174,261 shares. H&H Export agreed to reimburse CLR for the over issuance of the 121,649 shares of common stock in cash. At September 30, 2020 and December 31, 2019, the value of the shares was approximately $73,000 and $397,000, respectively, based on the stock price at the respective periods. Management reviewed the amount due in conjunction with the impact of the underlying COVID crisis and has determined that the full receivable balances were more than likely to be uncollected at September 30, 2020 and December 31, 2019, and therefore the full amount was recognized as an allowance for collectability at the respective periods.

Amended Operating and Profit-Sharing Agreement between CLR and H&H

In January 2019, CLR entered into an amendment to the March 2014 operating and profit-sharing agreement with the owners of H&H. In addition, CLR and H&H, Mr. Hernandez and Ms. Orozco restructured their profit-sharing agreement in regard to profits from green coffee sales and processing that increased CLR’s profit participation by an additional 25%. Under the new terms of the agreement with respect to profit generated from green coffee sales and processed from La Pita or the Matagalpa Mill, now will provide for a split of profits of 75% to CLR and 25% to the Nicaraguan Partner, after certain conditions are met. Profit-sharing income for the three and nine months ended September 30, 2020 was approximately $424,000 and $635,000, respectively. The profit-sharing expense for the three and nine months ended September 30, 2019 was approximately $863,000 and $1,331,000, respectively.

Joint Venture Agreement in Nicaragua for Hemp Processing Center between the CLR and KII and Nicaraguan partner

In April and July 2020, CLR and KII (the U.S. Partners) entered into agreements (the “Hemp Joint Venture Agreements”) with H&H Export and Fitracomex, Inc. (“Fitracomex”) (collectively “The Nicaraguan JV Partners”) and established the Nicaraguan Hemp Grow and Extractions Group joint venture (the “Hemp Joint Venture”). Fitracomex is indirectly related the Company due to its relationship with H&H and is being treated as a related party.

In accordance with the terms of the Hemp Joint Venture Agreements, H&H Export will contribute the 2,200-acre Chaguitillo Farms in Sebaco-Matagalpa, Nicaragua which will be owned by H&H Export and the U.S. Partners on a 50/50 basis separate from the Hemp Joint Venture should the Hemp Joint Venture determine to sell the land in the future.

The Nicaraguan JV Partners will contribute the excavation and preparation for hemp growth of the 2,200 acres, installation of electrical service, and the construction of 45,000 square feet of buildings to be used for office, processing, storage, drying and green house space.

- 19-

Table of Contents

The U.S. Partners will contribute all the necessary extraction equipment to convert hemp to crude oil and will also provide the feminized hemp seeds for the pilot grow program, along with their expertise in the hemp business. The U.S. Partners will also provide all necessary working capital as required.

In April 2020, the Company issued 1,500,000 shares of restricted common stock to Fitracomex in accordance with the Hemp Joint Venture Agreements. The fair value of the shares at issuance was approximately $2,490,000. The Company also agreed to issue warrants to Fitracomex for the purchase 5,000,000 shares of the Company’s common stock at an exercise price of $1.50, exercisable for a term of five years after completion of the construction and upon the approval of the Company’s stockholders. At December 31, 2020, the Company reserved the full amount of the investment issued to Fitracomex.

The U.S. Partners and H&H Export will serve as the managing partners and all business decisions will require prior consent and agreement of both parties. The net profits and net losses for each fiscal period shall be allocated twenty five percent to the Nicaraguan JV Partners and seventy five percent to the U.S. Partners. At the filing date of this Quarterly Report on Form 10-Q, the Hemp Joint Venture is currently being assessed for changing market conditions related to the hemp industry, and as a result of the fluctuating indicators the Company is considering the timing of entering the market space in regard to the launch of this project.

Other Agreements between CLR, H&H and H&H Export

In January 2019, H&H Export sold to CLR its espresso brand Café Cachita in consideration of the issuance of 100,000 shares of the Company’s common stock. The shares of common stock issued were valued at $7.50 per share.

In May 2017, CLR entered a settlement agreement, as amended, with Mr. Hernandez who was issued a warrant for the purchase of 75,000 shares of the Company’s common stock at a price of $2.00 with an expiration date of three years, in lieu of an obligation due from CLR to H&H as relates to a sourcing and supply agreement with H&H and H&H Export. The warrants were outstanding at December 31, 2019 and expired in May 2020.

Other Related Party Transactions

Richard Renton

Richard Renton was a member of the board of directors until February 11, 2020 and owned WVNP, Inc., a supplier of certain inventory items sold by the Company. The Company made purchases from WVNP Inc. of approximately $56,000 during the three months ended March 31, 2020. The Company made purchases from WVNP Inc. of approximately $8,000 and $120,000 for the three and nine months ended September 30, 2019, respectively. In addition, Mr. Renton is a distributor of the Company and was paid distributor commissions of $81,000 for the three months ended March 31, 2020.

Carl Grover (Estate of Carl Wilford Grover)

Mr. Grover was the sole beneficial owner of in excess of 5% of the Company’s outstanding common shares at September 30, 2020 and December 31, 2019. At September 30, 2020 and December 31, 2019, the balance of the borrowing from the credit agreement the Company entered into with Mr. Grover in December 2018 was approximately $4,763,000 and $4,085,000, respectively, net of debt discounts. (See Note 6)

In July 2019, Mr. Grover acquired 600,242 shares of the Company's common stock upon the partial exercise at $4.60 per share of a 2014 warrant to purchase 782,608 shares of common stock held by him. In connection with such exercise, the Company received approximately $2,761,000 from Mr. Grover, issued to Mr. Grover 50,000 shares of restricted common stock as an inducement fee and agreed to extend the expiration date of the July 2014 warrant held by him to December 15, 2020, and the exercise price of the warrant was adjusted to $4.75 with respect to 182,366 shares of common stock remaining for exercise thereunder.

Paul Sallwasser

Mr. Paul Sallwasser is a member of the board directors, and prior to joining the Company’s board of directors he acquired in the Company’s 2014 private placement a note in the principal amount of $75,000 convertible into 10,714 shares of common stock and a warrant exercisable for 14,673 shares of common stock. Mr. Sallwasser additionally acquired in the Company’s 2017 private placement a note in the principal amount of $38,000 convertible into 8,177 shares of common stock and a warrant issued to purchase 5,719 shares of common stock. Mr. Sallwasser also acquired, as part of the 2017 private placement in exchange for the 2015 note that he acquired in the Company’s 2015 private placement, an additional 2017 note in the principal amount of $5,000 convertible into 1,087 shares of common stock and a 2017 warrant exercisable for 543 shares of common stock.

In March 2018, the Company completed its Series B offering and in accordance with the terms of the 2017 notes, Mr. Sallwasser’s 2017 notes converted to 9,264 shares of the Company’s common stock. Mr. Sallwasser’s 2017 warrants of to purchase an aggregate 6,262 shares of common stock expired in July and August 2020.

In August 2019, Mr. Sallwasser acquired 14,673 shares of the Company's common stock upon the exercise of his 2014 warrant. In connection with the exercise, Mr. Sallwasser applied approximately $67,000 of the proceeds of his 2014 note due to him from the Company as consideration for the warrant exercise. The warrant exercise proceeds to the Company would have been approximately $67,000. The Company paid the balance owed to him under his 2014 note including accrued interest of approximately $8,000.

At September 30, 2020 and 2019, Mr. Sallwasser owned 76,924 shares of common stock and options to purchase an aggregate of 116,655 shares of common stock, which are exercisable.

- 20-

Table of Contents

Daniel Mangless

Daniel Mangless became a beneficial owner of in excess of 5% of the Company’s outstanding common stock upon consummation of a securities purchase agreement transaction in March 2020.

In February 2019, the Company entered into a securities purchase agreement with Mr. Mangless pursuant to which the Company sold 250,000 shares of common stock at an offering price of $7.00 per share. Pursuant to the purchase agreement, the Company also issued Mr. Mangless a three-year warrant to purchase 250,000 shares of common stock at an exercise price of $7.00. The Company received proceeds of $1,750,000 from the stock offering. (See Note 10)

In June 2019, the Company entered into a second securities purchase agreement with Mr. Mangless pursuant to which the Company sold 250,000 shares of common stock at an offering price of $5.50 per share. The Company received proceeds of $1,375,000 from the stock offering. (See Note 10)

In March 2020, the Company entered into a securities purchase agreement with Mr. Mangless, pursuant to which the Company issued a senior secured promissory note in the principal amount of $1,000,000 which matured in December 2020. In addition, the Company issued 50,000 shares of common stock in connection with this senior secured promissory note. (See Note 6 and 10)

In February 2021, Mr. Mangless liquated some of his Youngevity common stock and is no longer a beneficial owner of in excess of 5% of the outstanding shares of common stock. (See Note 13)

In April 2021, the Company entered into a settlement agreement with Mr. Mangless related to the payment schedule of the senior secured promissory note issued in March 2020. In addition, as part of the settlement agreement the Company issued Mr. Mangless 1,000,000 shares of common stock. (See Note 13)

2400 Boswell LLC

2400 Boswell LLC (“Boswell”) is the owner and lessor of the building occupied by the Company for its corporate office and warehouse in Chula Vista, California. The Company acquired Boswell from an immediate member of the Company’s Chief Executive Officer in 2013. (See Note 6)

JJL Equipment Holding, LLC

In connection with the acquisition of Khrysos Global, the Company held a deposit from JJL Equipment Holding, LLC (“JJL Equipment”) for an equipment purchase of approximately $230,000 and $233,000 on September 30, 2020 and December 31, 2019, respectively. Leigh Dundore is a member and part owner of JJL Equipment. The deposit is to be applied to future machinery and equipment orders from JJL Equipment and was recorded in other current liabilities in the consolidated ~~statement~~balance sheet.

Youngevity Be the Change Foundation

Youngevity Be the Change Foundation (the “Youngevity Foundation”) was formed in 2013 as a 501 c 3 charitable organization. The Company’s Chief Executive Officer and its President and Chief Investment Officer both serve officers and directors of ~~operations~~the Youngevity Foundation, as well as the Company’s Chief Operating Officer and the wife of the Chief Investment Officer who both serve as a director of the Youngevity Foundation. During the three months ended September 30, 2020 and 2019, the Company contributed approximately $22,000 and $24,000, respectively, and $92,000 and $82,000, respectively, for the nine months then ended. At September 30, 2020 and December 31, 2019, the liability representing future contributions to be made to the Youngevity Foundation by the Company was $444,000 and $357,000, respectively, and was included in current liabilities on the Company’s consolidated balance sheets.

Daniel Briskie and Maida Briskie

Daniel Briskie and Maida Briskie, the father and mother of the Company’s Chief Investment Officer, entered into note purchase agreements in the principal amount of $25,000 in September 2014 related to the Company’s private placement offering in 2014. In September 2019, the Company entered into an agreement with Daniel Briskie and Maida Briskie to extend the maturity date of their 2014 PIPE Note for one year. At December 31, 2019, the balance of the loan was $25,000 which was paid off in September 2020. (See Note 7).

Douglas Briskie

Douglas Briskie, the brother of the Company’s Chief Investment Officer, entered into note purchase agreements in the principal amount of $50,000 in August 2014 related to the Company’s private placement offering in 2014. The note was paid in full in August 2019. (See Note 7).

-21-

Table of Contents

Note 4.Revenue Recognition

The following table summarizes disaggregated revenue by segment (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020		2019			2020		2019
	(unaudited)		(unaudited)			(unaudited)		(unaudited)
Direct selling	$	31,319	$	30,256		$	92,750	$	95,800
Processed green coffee		254		(22	)		773		1,046
Milling and processing services		211		29			535		6,416
Roasted coffee and other		2,017		2,933			7,467		9,002
Commercial coffee		2,482		2,940			8,775		16,464
Commercial hemp		201		184			1,000		525
Total revenue	$	34,002	$	33,380		$	102,525	$	112,789

Contract Balances

As of September 30, 2020 and December 31, 2019, deferred revenues were approximately $10,954,000 and $3,569,000, respectively. Deferred revenues in the direct selling segment related to customer deposits were $1,800,000 and $1,626,000 on September 30, 2020 and December 31, 2019, respectively. Deferred revenues related to the rewards program in the direct selling segment that began at the beginning of 2020 were $2,624,000 at September 30, 2020. Deferred revenues in the direct selling segment related to Heritage Makers were $1,598,000 and $1,795,000 at September 30, 2020, and December 31, 2019, respectively. Deferred revenues related to pre-enrollment in upcoming conventions were $148,000 at December 31, 2019. The Company did not have a deferred revenue balance related to pre-enrollment in upcoming conventions at September 30, 2020.

Deferred revenues in the commercial coffee segment related to customer deposits were $4,305,000 at September 30, 2020. The commercial coffee segment did not have a deferred revenue balance on December 31, 2019.

Deferred revenues in the commercial hemp segment related to customer deposits were $627,000 on September 30, 2020. The commercial hemp segment did not have a deferred revenue balance on December 31, 2019.

The following table summarizes the classification of deferred revenues balances on the balance sheets (in thousands):

	September 30, 2020		December 31, 2019
	(unaudited)
Accrued expenses	$	627	$	0
Deferred revenue		8,527		1,943
Other current liabilities		1,800		1,626
Deferred revenue, total	$	10,954	$	3,569

Note 5.Selected Consolidated Balance Sheet Information

Accounts Receivable, net

Net accounts receivable consists of the following (in thousands):

	September 30, 2020			December 31, 2019
	(unaudited)
Accounts receivable	$	11,253		$	11,142
Allowance for doubtful accounts		(8,210	)		(8,240	)
Accounts receivable, net	$	3,043		$	2,902

On September 30, 2020 and December 31, 2019, CLR's accounts receivable balance for customer related revenue by H&H Export was approximately $8,707,000 of which the full amount was past due at the respective periods. As a result, the Company reserved $7,871,000 as bad debt related to the accounts receivable balances for both periods, which was net of collections through December 31, 2020.

- 22-

Table of Contents

Inventory, net

Inventories consist of the following (in thousands):

	September 30, 2020			December 31, 2019
	(unaudited)
Finished goods	$	12,448		$	14,890
Raw materials		13,382			11,694
Total inventory		25,830			26,584
Reserve for excess and obsolete		(3,794	)		(3,878	)
Inventory, net	$	22,036		$	22,706

Property and Equipment, net

Property and equipment consist of the following (in thousands):

	September 30, 2020			December 31, 2019
	(unaudited)
Buildings	$	4,117		$	4,789
Leasehold improvements		3,148			2,948
Land		2,544			3,307
Land improvements		606			606
Producing coffee trees		553			553
Manufacturing equipment		10,464			9,568
Furniture and other equipment		2,062			2,050
Computer software		1,442			1,420
Computer equipment		2,714			2,648
Vehicles		326			326
Assets held for sale ⁽¹⁾		1,496			0
Construction in process		9,133			6,562
Total property and equipment, gross		38,605			34,777
Accumulated depreciation		(13,416	)		(11,461	)
Total property and equipment, net	$	25,189		$	23,316

(1)	Assets held for sale at September 30, 2020 consisted of approximately $1,053,000 in land and $443,000 in buildings related to the commercial hemp segment. (See Note 13)

Depreciation expense totaled approximately $635,000 and $617,000 for the three months ended ~~March 31,~~ September 30, 2020 and 2019, respectively, and $1,968,000 and $1,694,000 for the respective nine month periods.

Operating and Financing Leases

The Company’s operating and financing lease assets and liabilities recognized within its consolidated balance sheets were classified as follows (in thousands):

	September 30, 2020		December 31, 2019
	(unaudited)
Assets
Operating lease right-of-use assets	$	6,467	$	8,386
Finance lease right-of-use assets (1)		882		1,052
Total leased assets		7,349	$	9,438
Liabilities
Operating lease liabilities, current portion	$	1,290	$	1,740
Finance lease liabilities, current portion		1,703		736
Total leased liabilities, current portion		2,993		2,476
Operating lease liabilities, net of current portion		5,497		6,646
Finance lease liabilities, net of current portion		1,081		408
Total lease liabilities	$	9,571	$	9,530

(1)	Finance lease right-of-use assets are recorded within property and equipment, net of accumulated amortization of approximately $2,070,000 and $1,367,000 at September 30, 2020 and December 31, 2019, respectively.

In August 2020, the Company entered into a lease for assorted CBD oil extraction equipment that included processing equipment, modular buildings, assorted laboratory equipment, refrigeration equipment with Varilease Finance, Inc. (“VFI”). The value of the equipment at the lease date was approximately ~~$67,000.~~$2,006,000. The monthly lease payments are $79,000 over a period of 24 months, with an advance payment of $79,000 to be applied to the last rental payment date. At the filing date of this Quarterly Report on Form 10-Q, the VFI lease was in default.

- 23-

Table of Contents

~~Note 6.~~

The weighted-average remaining lease term and weighted-average discount rate used to calculate the present value of lease liabilities are as follows:

	September 30, 2020			December 31, 2019
	(unaudited)
Weighted-average remaining lease term (in years)
Operating leases		6.7			6.8
Finance leases		1.7			1.6
Weighted-average discount rate
Operating leases		5.41	%		5.47	%
Finance leases		17.63	%		4.57	%

Operating and finance lease costs were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Operating lease cost (1)	$	495	$	420	$	1,591	$	962
Finance lease cost:
Amortization of leased assets (2)		311		84		703		274
Interest on lease liabilities (3)		18		30		66		101
Total operating and finance lease cost	$	824	$	534	$	2,360	$	1,337

(1)	Operating lease costs are classified within selling and marketing and general and administrative expenses.
(2)	Amortization of leased assets are classified as a component of depreciation and amortization.
(3)	Interest on lease liabilities are classified within interest expense, net.

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):

March 31, 2019

December 31, 2018

Cost

Accumulated
Amortization

Net

Cost

Accumulated
Amortization

Net

Distributor organizations
$14,559
$9,796
$4,763
$14,559
$9,575
$4,984
Trademarks and trade names
  9,963
  2,033
  7,930
  7,337
  1,781
  5,556
Customer relationships
  16,028
  5,895
  10,133
  10,398
  5,723
  4,675
Internally developed software
  720
  583
  137
  720
  558
  162
Non-compete agreement
  956
  -
  956
  -
  -
  -
Intangible assets
$42,226
$18,307
$23,919
$33,014
$17,637
$15,377

	September 30, 2020 (unaudited)						December 31, 2019
	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Distributor organizations	$	15,735	$	11,090	$	4,645	$	15,735	$	10,418	$	5,317
Trademarks and trade names		8,430		3,070		5,360		8,430		2,539		5,891
Customer relationships		10,442		6,934		3,508		10,442		6,413		4,029
Internally developed software		720		720		0		720		657		63
Non-compete agreement		277		64		213		277		11		266
Intangible assets	$	35,604	$	21,878	$	13,726	$	35,604	$	20,038	$	15,566

Amortization expense related to intangible assets was approximately ~~$670,000~~$600,000 and ~~$827,000~~$1,249,000 for the three months ended ~~March~~September 30, 2020 and 2019, respectively. Amortization expense related to intangible assets was approximately $1,840,000 and $2,505,000 for the nine months ended September 30, 2020 and 2019, respectively.

At September 30, 2020 and December 31, 2019, ~~and 2018, 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. As of March 31, 2019 and December 31, 2018, approximately $1,649,000 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.

~~-27-~~

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 Company’s 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 Company’s 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 operatingby 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 Company’s reportable segments. As such, the Company analyzes its goodwill balances separately for the commercial coffee reporting unit, the direct selling reporting unit and the commercial hemp reporting unit. The goodwill balance as of March 31, 2019 and December 31, 2018 is approximately $13,154,000 and $6,323,000, respectively, which includes an adjustment to the KII acquisition goodwill during the three months ended March 31, 2019, discussed above in Note 5, which increased the goodwill for KII in the amount of $2,478,000. There were no triggering events indicating impairment of goodwill or intangible assets during the three months ended March 31, 2019 and 2018.

~~Goodwill~~ consists of the following (in thousands):

	September 30, 2020		December 31, 2019
	(unaudited)
Direct selling	$	3,678	$	3,678
Commercial coffee		3,314		3,314
Commercial hemp		0		0
Total goodwill	$	6,992	$	6,992

- 24-

Table of Contents

March 31,
2019

December 31,
2018

Goodwill, commercial coffee
$3,314
$3,314
Goodwill, direct selling
  3,009
  3,009
Goodwill, commercial hemp
  6,831
  -
Total goodwill
$13,154
$6,323

Note 7. 6.Notes Payable and Other Debt

~~Short-term Debt~~

~~On July 18,~~

Credit Note

In December 2018, the Company entered into lending agreements (the “Lending Agreements”) with three (3) separate entities and received loans in the total amount of $1,907,000, net of loan fees to be paid back over an eight-month period on a monthly ~~basis. Payments are comprised of principal and accrued interest with an effective interest rate between 15% and 20%~~. The Company’s outstanding balance related to the Lending Agreements was approximately $504,000 as of December 31, 2018 and was included in other current liabilities on the Company’s balance sheet as of December 31, 2018. During the quarter ended March 31, 2019 the loans were paid in their entirety and the outstanding loan balance was zero.

~~Notes Payable~~

~~Promissory Notes~~

On March 18, 2019, the Company entered into a two-year Secured Promissory Note (the “Note” or “Notes”) with two (2) accredited investors that had a substantial pre-existing relationship with the Company pursuant to which the Company raised cash proceeds of $2,000,000.In consideration of the Notes, the Company issued 20,000 shares of the Company’s common stock par value $0.001 for each $1,000,000 invested as well as for each $1,000,000 invested five-year warrants to purchase 20,000 shares of the Company’s common stock at a price per share of $6.00. ~~The Notes pay 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 March 18, 2021.~~

The Company recorded debt discounts of approximately $139,000 related to the fair value of warrants issued in the transaction and $212,000 of transaction issuance costs to be amortized to interest expense over the life of the Notes. As of March 31, 2019, the remaining balance of the debt discounts is approximately $345,000. The Company recorded approximately $5,000 amortization of the debt discounts during the three months ended March 31, 2019 and is recorded as interest expense.

~~-28-~~

~~Credit Note~~

~~On December 13, 2018, the Company’s wholly owned subsidiary,~~ CLR entered into a ~~Credit Agreement~~credit agreement with Mr. ~~Carl~~ Grover pursuant to which CLR borrowed $5,000,000 from Mr. Grover and in exchange issued to him a $5,000,000 ~~Credit Note~~credit note (the “Credit Note”). In addition, Siles, as guarantor, executed a separate guaranty agreement. The Credit Note is secured by ~~its~~CLR’s green coffee inventory, ~~under a Security Agreement, dated~~ subordinate to certain debt owed to Crestmark Bank and pari passu with certain holders of notes issued by the borrowers of the company in 2014. At both September 30, 2020 and December ~~13, 2018, with Mr. Grover and CLR’s subsidiary, Siles. In connection with~~31, 2019, the outstanding principal balance of the Credit ~~Agreement,~~Note was $5,000,000.

The Credit Note accrues interest at a rate of 8.00% per annum and is paid quarterly. The Credit Note contains customary events of default including the Company issued to Mr. Grover a four-year warrant to purchase 250,000 shares of its common stock, exercisable at $6.82 per share (“Warrant 1”), and a four-year warrant to purchase 250,000 shares of its common stock, exercisable at $7.82 per share (“Warrant 2”), pursuant to a Warrant Purchase Agreement, dated December 13, 2018, with Mr. Grover. The Company also entered into an Advisory Agreement with Ascendant Alternative Strategies, LLC (“Ascendant”), a third party not affiliated with Mr. Grover, in connection with the Credit Agreement, pursuant to which it agreedor Siles failure to pay ~~to Ascendant a 3% fee on the transaction with Mr. Grover~~its obligations, commencing bankruptcy or liquidation proceedings, and ~~issued to Ascendant (or it’s designees) a four-year warrant to purchase 50,000 shares~~breach of ~~its common stock, exercisable at $6.33 per share.~~

representations and warranties. Upon the occurrence of an event of default, the unpaid balance of the principal amount of ~~this~~the Credit Note together with all accrued but unpaid interest thereon, may become, or may be declared to be, due and payable inby Mr. Grover and shall bear interest from the manner, upon the conditions and with the effect provided in the Credit Agreement. The Company determined that the contingent call (put) option meets the definition of a derivative (i.e., has an underlying, a notional amount, requires no initial investment, and can be net settled). Therefore, it must be separately measured at fair value with changes in fair value impacting current earnings.

~~Management has assessed the probability of a trigger event (i.e., the occurrence of an event of default,~~due date until such amounts are ~~declared due and payable or made automatically due and payable, in each case, in accordance~~paid at the rate of 10.00% per annum. In connection with the ~~terms~~credit agreement, the Company issued to Mr. Grover a four-year warrant to purchase 250,000 shares of ~~this Note)~~its common stock, exercisable at $6.82 per share, and a four-year warrant to ~~be de minimis during~~purchase 250,000 shares of its common stock, exercisable at $7.82 per share.

In connection with the ~~term~~Credit Note, the Company also entered into an advisory agreement with a third party not affiliated with Mr. Grover, pursuant to which the Company agreed to pay to the advisor a 3.00% fee on the transaction with Mr. Grover and issued to the advisor’s designee a four-year warrant to purchase 50,000 shares of the Credit Note. As such, the fair value of the contingent put feature would have a de minimis value (i.e., there is no need to separately measure the contingent put feature, as assigning a probability of zero percent or near zero percent to the occurrence of an event of default would result in de minimis fair value for the feature). Management will reassess the probability of a trigger eventCompany’s common stock, exercisable at ~~each reporting period during the term of the Credit Note.~~

$6.33 per share.

The Company recorded debt discounts of approximately $1,469,000 related to the fair value of warrants issued in the transaction and $175,000 of transaction issuance costs ~~to be~~both of which are amortized to interest expense over the life of the Credit ~~Agreement. As~~Note. The Company recorded amortization of ~~March~~approximately $245,000 and $182,000 related to the debt discount and issuance cost during the three months ended September 30, 2020 and 2019, respectively, and $678,000 and $503,000 during the nine months ended September 30, 2020 and 2019, respectively. At September 30, 2020 and December 31, 2019, the combined remaining balance of the debt discounts and issuance cost was approximately $237,000 and $915,000, respectively.

In December 2020, the Credit Note became payable and due in accordance with its terms. CLR did not make the payment due upon the maturity date of the Credit Note. At the filing date of this Quarterly Report on Form 10-Q, the Company was in default of the terms of settlement of the Credit Note and the Credit Note remains outstanding; however no formal demand for repayment has been made.

2019 Promissory Notes

In March 2019, the Company entered into a two-year secured promissory note (the “2019 Promissory Notes”) with two accredited investors that had a substantial pre-existing relationship with the Company pursuant to which the Company raised cash proceeds in the aggregate of $2,000,000. The 2019 Promissory Notes bear interest at a rate of 8.00% per annum and interest is paid quarterly in arrears with all principal and unpaid interest due at maturity on March 18, 2021. The 2019 Promissory Notes are secured by all equity in KII. At both September 30, 2020 and December 31, 2019, the outstanding principal balance of the 2019 Promissory Notes was $2,000,000.

In conjunction with the 2019 Promissory Notes, the Company also issued 40,000 shares of the Company’s common stock and five-year warrants to purchase 40,000 shares of the Company’s common stock. (See Note 10)

The Company recorded debt discounts of approximately $212,000 related to transaction issuance costs and $139,000 related to the fair value of warrants issued in the transaction both of which are amortized to interest expense over the life of the 2019 Promissory Notes. The Company recorded amortization of approximately $47,000 and $41,000 related to the debt discount and issuance cost related to the promissory notes during the three months ended September 30, 2020 and 2019, respectively and $135,000 and $83,000 during the nine months ended September 30, 2020 and 2019, respectively. At September 30, 2020 and December 31, 2019, the combined remaining balance of the debt discount and issuance costs was approximately $93,000 and $228,000, respectively.

In February 2021, the Company entered into amendment agreements extending the 2019 Promissory Notes and increasing the interest rate. At the filing date, the Company was in default of the terms of the amended agreements. (See Note 13)

- 25-

Table of Contents

Mangless Note

In March 2020, the Company entered into a securities purchase agreement with Daniel Mangless pursuant to which the Company issued a senior secured promissory note in the principal amount of $1,000,000 (the “Mangless Note”) which matured in December 2020, bearing interest at 18.00% per annum. In December 2020, the Company defaulted on the settlement of the Mangless Note.

The Mangless Note provided the Company with an option to prepay at any time without permission or penalty. The Mangless Note is secured pursuant to the terms of a pledge and security agreement, entered into by the Company and CLR with Mr. Mangless, whereby the Mangless Note is secured by a first priority lien granted by CLR in its rights under the pledge and security agreement, by and between H&H, H&H Export and CLR to receive certain payments (the “Mangless Pledge and Security Agreement”).

In addition, the Company issued 50,000 shares of common stock in connection with Mangless Note. (See Note 10)

The Company recognized debt discounts of approximately $65,000 resulting from the allocated portion of offering proceeds to the separable common stock issuance. The debt discount was amortized to interest expense over the term of the Mangless Note. The Company recorded amortization of approximately $16,000 and $34,000 related to the debt discount during the three and nine months ended September 30, 2020, respectively. At September 30, 2020, the remaining balance of the debt discounts iswas approximately ~~$1,460,000. The~~$31,000.

In April 2021, the Company ~~recorded approximately $154,000 amortization~~entered into a settlement agreement with Mr. Mangless related to the payment schedule of the ~~debt discounts during~~Mangless Note issued in March 2020. In addition, as part of the ~~three months ended March 31, 2019 and is recorded as interest expense.~~

~~2400 Boswell Mortgage~~

~~In March 2013,~~settlement agreement the Company ~~acquired~~ issued Mr. Mangless 1,000,000 shares of common stock. (See Note 13)

2400 Boswell ~~for approximately $4,600,000.~~ Mortgage Note

In connection with the acquisition of 2400 Boswell, ~~is the owner and lessor of the building occupied by the Company for its corporate office and warehouse~~LLC in Chula Vista, California. The purchase was from an immediate family member of our Chief Executive Officer and consisted of approximately $248,000 in cash, $334,000 of debt forgiveness and accrued interest, and a promissory note of approximately $393,000, payable in equal payments over 5 years with interest at 5.0%. Additionally,2013, the Company assumed a ~~long-term~~ mortgage of $3,625,000, payable over 25 years with an initial interest rate of 5.75%. The interest rate is the prime rate plus 2.5%. As of March 31, 2019, the interest rate was 7.75%. The lender will adjust the interest rate on the first calendar day of each change period.years. The Company and its Chief Executive Officer and Chairman and Chief Operating Officer are ~~both co-guarantors~~guarantors of the mortgage. AsInterest is paid monthly at the prime rate plus 2.50% and is adjusted by the lender on the first calendar day of ~~March~~month. At September 30, 2020 and December 31, 2019, the interest rate was 5.75% and 7.50%, respectively. At September 30, 2020 and December 31, 2019, the outstanding principal balance on the ~~long-term~~ mortgage was approximately $3,082,000 and $3,143,000, respectively.

The Company’s corporate office’s mortgage qualified for the mortgage payment program for a period of six months under the Small Business Administration (“SBA”) lenders program which is discussed further below.

Khrysos Mortgage Notes

In conjunction with the Company’s acquisition of Khrysos Global, the Company assumed an interest only mortgage for properties located in Mascotte, Florida in the amount of $350,000 and interest paid monthly at a rate of 8.00% per annum. In September 2021, the mortgage was amended to extend the maturity date by one year to the earlier of September 2022 or the date of the sale of the property.

In addition, the Company assumed a mortgage of approximately ~~$3,198,000 and–~~ $177,000 for properties located in Clermont, Florida with all unpaid principal due in June 2023 and interest paid monthly at a rate of 7.00% per annum.

At September 30, 2020 and December 31, 2019, the aggregate outstanding principal balance on the ~~promissory note is zero.~~mortgages was approximately $517,000 and $528,000, respectively.

In February 2019, KII purchased a 45-acre tract of land in Groveland, Florida for $750,000. The Company paid $300,000 as a down payment and assumed a mortgage of $450,000. All unpaid principal was due in February 2024 and interest was paid monthly at a rate of 6.00% per annum. At September 30, 2020 and December 31, 2019, the remaining mortgage balance was approximately $432,000 and $440,000, respectively.

In February 2021, the Company determined that KII’s original plan for use of certain properties was not viable for its future as KII had shifted its focus back to its primary core business of extraction of cannabinoids and the production of products for sale with the cannabinoids. As a result, the Khrysos Mortgage Notes were subsequently sold. (See Note 13)

- 26-

Table of Contents

M2C Purchase Agreement

In March 2007, the Company entered into an agreement to purchase certain assets of M2C Global, Inc., a Nevada corporation, for $4,500,000. The agreement required payments totaling $500,000 in ~~three~~3 installments during 2007, followed by monthly payments in the amount of ~~10%~~10.00% of the sales related to the acquired assets until the entire note balance is paid. ~~As of March 31,2019~~ At September 30, 2020 and December 31, ~~2018,~~ 2019, the carrying value of the liability was approximately ~~$1,061,000~~$997,000 and ~~$1,071,000,~~$1,027,000, respectively.

Small Business Administration – Paycheck Protection Program Loans

In April 2020, the Company’s three segments participated in “The Coronavirus Aid, Relief, and Economic Security Act and the Paycheck Protection Program due to losses caused by the COVID-19 pandemic. In July 2020, the Company received an additional $150,000 from SBA lenders related to its commercial coffee segment. The ~~interest associated with~~Company received cash in the ~~note~~aggregate of approximately $3,763,000 from qualified Small Business Administration (“SBA”) lenders. Under the SBA loans, the Company received $2,508,000 related to its direct selling segment, $783,000 related to its commercial coffee segment and $623,000 related to its commercial hemp segment.

Under the SBA loans, the Company’s direct selling segment qualified for mortgage assistance, whereby the Company’s corporate office’s mortgage had been paid directly from the SBA lenders. The Company qualified for the mortgage payment program for a period of six months. During the three and nine months ended ~~March 31, 2019~~September 30, 2020, the SBA paid approximately $70,000 and ~~2018 was minimal.~~

~~-29-~~

~~Khrysos Mortgage Notes~~

~~In conjunction with~~$142,000 in principal and interest directly to the Company’s ~~acquisition~~mortgage holder.

In November 2020, the SBA lenders forgave approximately $613,000 in loan proceeds received in April 2020 from the commercial hemp segment. (See Note 13)

In April 2021, the Company’s commercial coffee segment received a second PPP loan in the amount of ~~Khrysos,~~approximately $633,000. (See Note 13)

In June 2021, the SBA lenders forgave approximately $3,141,000 which represented loan proceeds the Company ~~assumed one interest only mortgage~~received in the amounts of $350,000 (due in September 2021) that bears an interest rate of 8% and a second mortgage of approximately $177,000 (due in June 2023) that bears an interest rate of 7% per annum. Both properties are located in Florida. As of March 31, 2019, the remaining mortgage balances are approximately $527,000.

In February 2019, Khrysos purchased a 45-acre tract of land in Groveland, Florida, in central Florida for $750,000, which Khrysos intends to build a R&D facility, greenhouse and allocate a portion for farming. Khrysos paid approximately $303,000 down and assumed a mortgage of $450,000. The entire balance is due in February 2024 and bears interest at 6% per annum. As of March 31, 2019, the remaining mortgage balance is $450,000.

2020. (See Note 13)

Other Notes

The Company’s other notes relate to loans for commercial vans at CLR in the amount of ~~$90,000 as of March~~$56,000 and $71,000 at September 30, 2020 and December 31, 2019,respectively, which expire at various dates through 2023.

Line of Credit ~~- Loan~~

The Company’s loan and ~~Security Agreement~~

~~CLR had a factoring~~security agreement ~~(“Factoring Agreement”)~~ with Crestmark Bank (“Crestmark”) related to accounts receivable resulting from sales of certain CLR products. On November 16, 2017, CLR entered into a new Loan and Security Agreement (“Agreement”) with Crestmark which amended and restated the original Factoring Agreement dated February 12, 2010 with Crestmark and subsequent agreement amendments thereto. CLR is provided withprovides for a line of credit related to accounts receivables resulting from sales of certain products that includes borrowings to be advanced against acceptable eligible inventory related to CLR. ~~Effective December 29, 2017, CLR entered into a First Amendment to~~Under the ~~Agreement, to include an increase in~~loan and security agreement the maximum overall borrowing tolimit on the line of credit is $6,250,000. The ~~loan amount~~ line of credit may not exceed an amount which is the lesser of (a) $6,250,000 or (b) the sum of up (i) to 85% of the value of the eligible accounts; plus, (ii) the lesser of $1,000,000 or 50% of eligible inventory or 50% of the amount calculated in (i) above, plus (iii) the lesser of $250,000 or eligible inventory or 75% of certain specific inventory identified within the ~~Agreement.~~

agreement.

The ~~Agreement~~agreement contains certain financial and nonfinancial covenants with which the Company must comply to maintain its borrowing availability and avoid penalties.

At the filing date of this Quarterly Report on Form 10-Q, the Company was not in compliance with the covenants under the terms of the agreement.

In January 2022, the Company entered into the second amendment to the Crestmark loan and security agreement which reduced the maximum overall borrowing limit on the line of credit to $3,000,000. In February 2022, the Company received a notice of default related to the loan and security agreement from Crestmark. In April 2022, The Company entered into a forbearance agreement with Crestmark. (See Note 13)

The outstanding principal balance of the ~~Agreement will bear~~line of credit bears interest based upon a 360-day year ~~of 360 days~~ with interest ~~being~~ charged for each day the principal amount is outstanding including the date of actual payment. The interest rate is a rate equal to the prime rate plus 2.50% with a floor of 6.75%. ~~As of March~~At September 30, 2020 and December 31, 2019, the interest rate was ~~8.0%.~~6.75% and 7.25%, respectively. In addition, other fees are incurred for the maintenance of the loan in accordance with the ~~Agreement.~~agreement. Other fees may be incurred in the event the minimum loan balance of $2,000,000 is not maintained. The ~~Agreement is~~agreement was effective beginning in November 2017 and will continue to be effective until ~~November 16, 2020.~~

June 30, 2022, the termination date agreed upon in the forbearance agreement entered in April 2022.

The Company and ~~the Company’s CEO,~~ Stephan Wallach ~~have~~ entered into a ~~Corporate Guaranty~~corporate guaranty and ~~Personal Guaranty,~~personal guaranty, respectively, with Crestmark guaranteeing payments in the event that the Company’s commercial coffee segment CLR were to default. In addition, David Briskie, the Company’s President and Chief Financial Officer, ~~David Briskie,~~ personally entered into a ~~Guaranty~~guaranty of ~~Validity~~validity representing the Company’s financial statements so long as the indebtedness is ~~owing~~owed to Crestmark, maintaining certain covenants and guarantees.

The Company’s outstanding line of credit liability related to the ~~Agreement~~Crestmark Loan was approximately ~~$2,432,000 as of March~~$1,955,000 and $2,011,000 at September 30, 2020 and December 31, 2019, ~~and $2,256,000 as~~respectively.

- 27-

Table of ~~December 31, 2018.~~Contents

~~Contingent Acquisition Debt~~

The Company has contingent acquisition debt associated with its 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 as of the acquisition date. A liability for contingent consideration, if applicable, is recorded at fair value as of the acquisition date and evaluated each period for changes in the fair value and adjusted as appropriate. (See

Note ~~10 below.)~~

The Company’s contingent acquisition debt as of March 31, 2019 and December 31, 2018 is $8,133,000 and $8,261,000, respectively, and is attributable to debt associated with the Company’s direct selling segment.

~~-30-~~

~~Note 8.~~7. Convertible Notes Payable

Total convertible notes payable, ~~as of March 31, 2019 and December 31, 2018,~~ net of debt discount outstanding consisted of the amount set forth in the following table ~~(in~~(in thousands):

March 31,
2019
(unaudited)

December 31,
2018

8% Convertible Notes due July and August 2019 (2014 Notes), principal
$750
$750
Debt discounts
  (69)
  (103)
Carrying value of 2014 Notes
  681
  647
6% Convertible Notes due February and March 2021 (2019 PIPE Notes), principal
  2,400
  -
Debt discounts
  (459)
  -
Carrying value of 2019 PIPE Notes
  1,941
  -
Total carrying value of convertible notes payable
$2,622
$647

	September 30, 2020			December 31, 2019
	(unaudited)
6.00% Convertible Notes (2019 PIPE Notes), principal	$	3,090		$	3,090
Debt discounts		(163	)		(415	)
Carrying value of 2019 PIPE Notes		2,927			2,675

8.00% Convertible Notes (2014 PIPE Notes), principal		0			25
Debt discounts		0			0
Carrying value of 2014 PIPE Notes		0			25
Total carrying value of convertible notes payable	$	2,927		$	2,700

Unamortized debt discounts and issuance costs are included with convertible notes payable, net of debt discount on the consolidated balance sheets.

2019 PIPE Notes

Between February and July 2019, the Company closed five tranches related to the 2019 private placement debt offering, pursuant to which the Company offered for sale up to $10,000,000 in principal amount of notes (the “2019 PIPE Notes”), with each investor receiving 2,000 shares of common stock for each $100,000 invested. (See Note 10)

The Company entered into subscription agreements with thirty-one accredited investors, that had a substantial pre-existing relationship with the Company, pursuant to which the Company issued the 2019 PIPE Notes in the aggregate principal amount of $3,090,000. Each 2019 PIPE Note matures 24 months after issuance, bears interest at a rate of 6.00% per annum which is paid quarterly, and the outstanding principal is convertible into shares of common stock at any time after the 180th day anniversary of the issuance of the 2019 PIPE Notes, at a conversion price of $10.00 per share, subject to adjustment for stock splits, stock dividends and reclassification of the common stock. The 2019 PIPE Notes are secured by all equity in KII. At September 30, 2020 and December 31, 2019, the 2019 PIPE Notes remained outstanding.

Upon issuance of the 2019 PIPE Notes, the Company recognized debt discounts of approximately $671,000, resulting from the allocated portion of offering proceeds to the separable common stock issuance. The debt discount will be amortized to interest expense over the term of the 2019 PIPE Notes.

During the nine months ended September 30, 2020 and 2019, the Company recorded approximately $252,000 and $172,000, respectively, of amortization related to the debt discounts. At September 30, 2020 and December 31, 2019, the remaining balance of the debt discount was approximately $163,000 and $415,000, respectively.

In February and March 2021, the 2019 PIPE Notes that were maturing were extended by one year by way of an amendment with certain note holders of an aggregate $2,440,000 in principal amount. At the filing date of this Quarterly Report on Form 10-Q, the Company was in default of the terms of settlement set forth in the amendments. (See Note 13)

2014 PIPE Notes

Between July and September 2014, ~~Private Placement~~

~~Between July 31, 2014 and September 10, 2014~~ the Company entered into ~~Note Purchase Agreements~~note purchase agreements (the ~~“Note”~~“2014 PIPE Note” or ~~“Notes”~~“2014 PIPE Notes”) related to its private placement offering (“(the “2014 ~~Private Placement”~~ 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 convertible2014 PIPE Notes in the aggregate principal amount of $4,750,000 that ~~are~~were convertible into 678,568 shares of our common stock, at a conversion price of $7.00 per share, and warrants to purchase 929,346 shares of common stock at an exercise price of $4.60 per share. The 2014 PIPE Notes bear interest at a rate of ~~eight percent (8%)~~8.00% per annum and interest iswas paid quarterly in ~~arrears with all principal and unpaid interest due between July and~~ arrears.

- 28-

Table of Contents

In September ~~2019.~~

~~The~~2019, the Company ~~has~~extended the ~~right to prepay the Notes at any time after the one-year anniversary~~maturity date of one holder of a 2014 PIPE Note for one year with a balance of $25,000, with interest being paid under the issuance of the Notes at a rate equal to 110% of the then outstanding principal balance and any unpaid accrued interest. The Notes are secured by Company pledged assets and rank senior to all debt of the Company other than certain senior debt that has been previously identified as senior to the convertible notes. Additionally, Stephan Wallach, the Company’s Chief Executive Officer, has also personally guaranteed the repayment of the Notes, subject to theoriginal terms of ~~a Guaranty Agreement executed by him with the investors.~~ 8.00% per annum and interest paid quarterly in arrears. At September 30, 2020, all 2014 PIPE Notes have been settled.

In ~~addition, Mr. Wallach has agreed not to sell, transfer or pledge 1.5 million shares of the common stock that he owns so long as his personal guaranty is in effect.~~

On October 23, 2018, the Company entered into an agreement with Carl Grover to exchange (the “Debt Exchange”), subject to stockholder approval which was received on December 6, 2018, all amounts owed under the 2014, Note held by him in the principal amount of $4,000,000 which matures on July 30, 2019, for 747,664 shares of the Company’s common stock, at a conversion price of $5.35 per share and a four-year warrant to purchase 631,579 shares of common stock at an exercise price of $4.75 per share. ~~Upon the closing the Company~~ issued Ascendant Alternative Strategies, LLC, a FINRA broker dealer (or its designees), which acted as the Company’s advisor in connection with a Debt Exchange transaction, 30,000 shares of common stock in accordance with an advisory agreement and four-year warrants to purchase 80,000 shares of common stock at an exercise price of $5.35 per share and four-year warrants to purchase 70,000 shares of common stock at an exercise price of $4.75 per share.

~~The Company considered the guidance of ASC 470-20, Debt:Debt with Conversion and Other Optionsand ASC 470-60, Debt:Debt Troubled Debt Restructuring by Debtors~~and concluded that the 2014 Note held by Mr. Grover should be recognized as a debt modification for an induced conversion of convertible debt under the guidance of ASC 470-20. The Company recognized all remaining unamortized discounts of approximately $679,000 immediately subsequent to October 23, 2018 as interest expense, and the fair value of the warrants and additional shares issued as discussed above were recorded as a loss on the Debt Exchange in the amount of $4,706,000 during the year ended December 31, 2018 with the corresponding entry recorded to equity.

~~In 2014,~~ the Company initially recorded debt discounts of $4,750,000 related to the beneficial conversion feature and related detachable warrants. The beneficial conversion feature discount and the detachable warrants discount are amortized to interest expense over the life of the 2014 PIPE Notes. The unamortized debt discounts recognized with the ~~Debt Exchange~~debt exchange was approximately $679,000. ~~As of March 31, 2019 and December 31, 2018 the remaining balance of the debt discounts is approximately $63,000 and $94,000, respectively.~~ The Company recorded approximately ~~$31,000 and $238,000~~$94,000 of amortization of the debt discounts during the ~~three~~nine months ended ~~March~~September 30, 2019. At December 31, 2019, ~~and 2018 and is recorded as interest expense.~~

~~-31-~~

~~With respect~~the debt discounts relating to the 2014 ~~Private Placement,~~ PIPE Notes were fully amortized.

In 2014, the Company paid approximately $490,000 in expenses including placement agent ~~fees.~~fees relating to issuance costs with the 2014 private placement. The unamortized issuance costs recognized with the debt exchange was approximately $63,000. The issuance costs ~~are~~were amortized to interest expense over the term of the 2014 PIPE Notes. The ~~unamortized issuance costs recognized with the Debt Exchange was~~Company recorded approximately ~~$63,000. As~~$10,000 of ~~March 31, 2019 and December 31, 2018 the remaining balance~~amortization of the issuance costs ~~is approximately $6,000 and $10,000, respectively. The Company recorded approximately $3,000 and $25,000 of the debt discounts amortization~~ during the ~~three~~nine months ended ~~March~~September 30, 2019. At December 31, 2019, all issuance costs relating to the 2014 private placement and ~~2018, respectively, and is recorded as interest expense.~~

debt exchange were fully amortized.

~~As of March~~

Note 8.Derivative Liability

Warrants

At, December 31, 2019, ~~and December 31, 2018~~ the ~~principal amount of $750,000 remains outstanding.~~

~~Unamortized debt discounts and issuance costs are included with convertible notes payable, net of debt discount on the condensed consolidated balance sheets.~~

~~January 2019 Private Placement~~

On February 15, 2019 and on March 10, 2019, the Company closed its first and second tranches of its 2019 January Private Placement debt offering, respectively, pursuant to which the Company offered for sale a minimum of notes in the principal amount of a minimum of $100,000 and a maximum of notes in the principal amount $10,000,000 (the “2019 PIPE Notes”), with each investor receiving 2,000 shares of common stock for each $100,000 invested. The Company entered into subscription agreements with thirteen (13) accredited investors that had a substantial pre-existing relationship with the Company pursuant to which the Company received aggregate gross proceeds of $2,440,000 and issued 2019 PIPE Notes in the aggregate principal amount of $2,440,000 and an aggregate of 48,800 shares of common stock. The placement agent will receive up to 50,000 shares of common stock in the offering. Each 2019 PIPE Note matures 24 months after issuance, bears interest at a rate of six percent (6%) per annum, and the outstanding principal is convertible into shares of common stock at any time after the 180th day anniversary of the issuance of the 2019 PIPE Note, at a conversion price of $10 per share (subject to adjustment for stock splits, stock dividends and reclassification of the common stock).

Upon issuance of the 2019 PIPE Notes, the Company recognized debt discounts of approximately $467,000, resulting from the allocated portion of offering proceeds to the separable common stock issuance. The debt discount is being amortized to interest expense over the term of the 2019 PIPE Notes. ~~During the three months ended March 31, 2019 the Company recorded approximately $7,000 of amortization related to the debt discounts.~~

~~Note 9. Derivative Liability~~

~~The Company recognizes and measures the warrants issued in conjunction with the Company’s August 2018, July 2017, November 2015 and July 2014 Private Placements in accordance with ASC Topic 815,~~ ~~Derivatives and Hedging~~. The accounting guidance sets forth a two-step model to be applied in determining whether a financial instrument is indexed to an entity’s 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 entity’s own stock and (ii) classified in the stockholders’ equity section of the entity’s balance sheet. The Company determined that certain warrants and embedded conversion features issued in the Company’s private placements are ineligible for equity classification due to anti-dilution provisions set forth therein.

~~Derivative liabilities are recorded at their~~ estimated fair value (see Note 10, below) at the issuance date and are revalued at each subsequent reporting date. The Company 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.

Various factors are considered in the pricing models the Company uses to value the derivative liabilities, including its current stock price, the remaining life, the volatility of its 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 ~~liability. As such, the Company expects future changes in the fair values to continue and may vary significantly from period to period. The~~outstanding warrant ~~and embedded liability and revaluations have not had a cash impact on working capital, liquidity or business operations.~~

~~-32-~~

~~Warrants~~

~~Effective January 1, 2019, the Company adopted ASU No. 2017-11 (see above,Recently Adopted Accounting Pronouncements~~). The new guidance requires companies to exclude any down round feature when determining whether a freestanding equity-linked financial instrument (or embedded conversion option) is considered indexed to the entity’s own stock when applying the classification guidance in ASC 815-40. Upon adoption of the new guidance, existing equity-linked financial instruments (or embedded conversion options) with down round features must be reassessed as liability classification may no longer be required. As a result, the Company determined in regard to its 2018 warrants the appropriate treatment of these warrants that were initially classified as derivative liabilities ~~should now be classified as equity instruments.~~

The Company determined that the liability associated with the 2018 warrants should be remeasured and adjusted to fair value on the date of the change in classification with the offset to be recorded through earnings and then the fair value of the warrants should be reclassified to equity. The Company recorded the change in the fair value of the 2018 warrants as of the date of change in classification to earnings. The fair value of the 2018 warrants as of the date of change in classification, in the amount of $1,494,000 was ~~reclassified from~~$1,542,000. There were 0 warrant derivative ~~liability to additional paid in capital as a result of the change in classification of the warrants.~~

liabilities outstanding at September 30, 2020.

Increases or decreases in the 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 ~~$1,486,000~~ $101,000 and $2,457,000 for the three months ended September 30, 2020 and 2019, respectively. The changes to the derivative liability for warrants resulted in a decrease of ~~$712,000~~$1,542,000 and $4,344,000 for the ~~three~~nine months ended ~~March 31, 2019~~ September 30, 2020 and ~~2018,~~2019, respectively.

~~The estimated fair value of the outstanding warrant liabilities is $5,369,000 and $9,216,000 as of March 31, 2019 and December 31, 2018, respectively.~~

The estimated fair value of the warrants was computed ~~as of March 31, 2019 and December 31, 2018~~ using the Monte Carlo option pricing model with the following assumptions:

March 31,
2019
(unaudited)
December 31,
2018
Stock price volatility 97.2% - 111.5% 83.78% - 136.76%
Risk-free interest rates 2.33% - 2.42% 2.465% - 2.577%
Annual dividend yield 0% 0%
Expected life 0.33 - 1.54 years 0.58 - 2.76 years

	December 31, 2019
Stock price volatility		64.10			%
Risk-free interest rates		1.59%	–	1.60	%
Annual dividend yield		0
Expected life (in years)		0.6	–	1.0

In addition, management assessed the probabilities of future financing assumptions in the valuation models.

Note ~~10.~~ 9.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.~~

~~-33-~~

The carrying amounts of the Company’s 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 Company’s 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.

The following table details the fair value measurement within the fair value hierarchy of the Company’s financial instruments, which includes the Level 3 liabilities (in thousands):

	Fair Value at September 30, 2020 (unaudited)
	Total		Level 1		Level 2		Level 3
Liabilities:
Contingent acquisition debt, current portion	$	1,341	$	0	$	0	$	1,341
Contingent acquisition debt, less current portion		5,455		0		0		5,455
Warrant derivative liability		0		0		0		0
Total derivative liabilities	$	6,796	$	0	$	0	$	6,796

- 29-

Table of Contents

Fair Value at March 31, 2019

Total

Level 1

Level 2

Level 3

Liabilities:

Contingent acquisition debt, current portion
$792
$-
$-
$792
Contingent acquisition debt, less current portion
  7,341
  -
  -
  7,341
Warrant derivative liability
  5,369
  -
  -
  5,369
    Total liabilities
$13,502
$-
$-
$13,502

Fair Value at December 31,2018

Total

Level 1

Level 2

Level 3

Liabilities:

Contingent acquisition debt, current portion
$795
$-
$-
$795
Contingent acquisition debt, less current portion
  7,466
  -
  -
  7,466
Warrant derivative liability
  9,216
  -
  -
  9,216
    Total liabilities
$17,477
$-
$-
$17,477

	Fair Value at December 31, 2019
	Total		Level 1		Level 2		Level 3
Liabilities:
Contingent acquisition debt, current portion	$	1,263	$	0	$	0	$	1,263
Contingent acquisition debt, less current portion		7,348		0		0		7,348
Warrant derivative liability		1,542		0		0		1,542
Total derivative liabilities	$	10,153	$	0	$	0	$	10,153

The following table reflects the activity for the Company’s warrant derivative liability associated with the Company’s ~~2019, 2018, 2017, 2015 and 2014 Private Placements~~private placements measured at fair value using Level 3 inputs (in thousands):

	~~Warrant Derivative Liability~~
~~Balance at December 31, 2018~~	$~~9,216~~
~~Issuance~~	-
~~Adjustments to estimated fair value~~	~~(1,486~~)
~~Adjustments related to warrant exercises~~	~~(867~~)
~~Adjustments related to the reclassification of warrants to equity~~	~~(1,494~~)
~~Balance at March 31, 2019~~	$~~5,369~~

Balance at December 31, 2019	$	1,542
Adjustments to estimated fair value		(1,542	)
Balance at September 30, 2020 (unaudited)	$	0

The following table reflects the activity for the Company’s contingent acquisition liabilities measured at fair value using Level 3 inputs (in thousands):

	~~Contingent Consideration~~
~~Balance at December 31, 2018~~	$~~8,261~~
~~Liabilities acquired~~	-
~~Liabilities settled~~	~~(128~~)
~~Adjustments to liabilities included in earnings~~	-
~~Adjustment to purchase price~~	-
~~Balance at March 31, 2019~~	$~~8,133~~

~~-34-~~

Balance at December 31, 2019	$	8,611
Liabilities settled		(175	)
Adjustments to liabilities included in earnings		(1,640	)
Balance at September 30, 2020 (unaudited)	$	6,796

The ~~fair value of the contingent acquisition liabilities is evaluated each reporting period using projected revenues,~~weighted-average discount ~~rates, and projected timing of revenues. Projected contingent payment amounts are discounted back~~rate used to the current period using a discount rate. Projected revenues are based on the Company’s most recent internal operational budgets and long-range strategic plans. 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, 2018, the net adjustment todetermine the fair value of ~~the~~ contingent acquisition debt was ~~a decrease $213,000~~18.50% and ~~is included in the Company’s statements of operations in general~~ 18.42% at September 30, 2020 and ~~administrative expense. The Company did not have any adjustments to the fair value of the contingent acquisition debt during the three months ended March~~December 31, ~~2019.~~

2019, respectively.

Note ~~11. Stockholders’~~10.Stockholders’ Equity

The Company’s Certificate of Incorporation, as amended, authorizes the issuance of two classes of stock to be ~~designated: “Common Stock”~~designated “common stock” and ~~“Preferred Stock”~~“preferred stock”.

~~The~~

At September 30, 2020, the total number of shares of stock which the Company has authority to issue iswas 50,000,000 shares of common stock, par value $0.001 per share and 5,000,000 shares of preferred stock, par value $0.001 per share, of which (i) 161,135 shares ~~have been~~was designated as Series A ~~convertible~~ preferred stock ~~par value $0.001 per share (“Series A Convertible Preferred”),~~(ii) 1,052,631 ~~has been~~was designated as Series B ~~convertible~~ preferred stock, ~~(“Series B Convertible Preferred”), and~~(iii) 700,000 ~~has been~~was designated as Series C ~~convertible~~ preferred stock (“and (iv) 650,000 was designated as Series ~~C Convertible Preferred”~~D preferred stock.

The Company’s common stock is traded on the OTC Pink Market operated by OTC Markets under the symbol “YGYI”. From June 2017 until November 2020, the Company’s common stock was traded on Nasdaq Capital Market under the symbol “YGYI.” From June 2013 until June 2017, the Company’s common stock was traded on the OTCQX Marketplace operated by OTC Markets under the symbol “YGYI”. Previously, the common stock was quoted on the OTC Markets OTC Pink market system under the symbol “JCOF”.

The Company’s 9.75% Series D Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value is traded on OTC Pink market operated by OTC Markets Group under the symbol “YGYIP”.

Shelf Registration

In May 2018, the SEC declared the Company’s shelf registration statement on Form S-3 effective to register shares of the Company’s common stock for sale of up to $75,000,000 giving the Company the opportunity to raise funding when considered appropriate at prices and on terms to be determined at the time of any such offerings. The Company’s ability to sell securities registered on our registration statement on Form S-3 (the “Shelf”).

will be limited until such time that the market value of our voting securities held by non-affiliates is $75 million or more. The Company raised gross proceeds under the Shelf in the aggregate of approximately $12,371,000 from the issuance of the Company’s preferred stock series D offering and the ATM noted below through September 30, 2020.

Common Stock

~~As of March~~

At September 30, 2020 and December 31, 2019 ~~and December 31, 2018~~ there were ~~28,890,671~~32,236,994 and ~~25,760,708~~30,274,601 shares of common stock outstanding, respectively. The holders of the common stock are entitled to ~~one~~1 vote for each share held at all meetings of stockholders (and written actions in lieu of meetings).

~~Stock Offering~~

~~On February 6, 2019,~~

March 2020 Private Placement

In March 2020, the Company closed one tranche of its March 2020 private placement debt offering, pursuant to which the Company offered of up to an aggregate of $5,000,000 in principal amount together with up to 250,000 shares of common stock with each investor receiving 50,000 shares of common stock for each $1,000,000 invested. In March 2020, the Company entered into a ~~Securities~~securities purchase agreement with Daniel Mangless pursuant to which the Company received proceeds of $1,000,000 and issued the Mangless Note. Mr. Mangless received 50,000 shares of the Company’s common stock in connection with his investment.

- 30-

Table of Contents

In April 2021, the Company entered into a settlement agreement with Daniel Mangless related to the Mangless Note issued in March 2020. In addition, pursuant to the settlement agreement, the Company issued Mr. Mangless 1,000,000 shares of its common stock. (See Note 13)

2019 Share Purchase ~~Agreement (the “Purchase Agreement”)~~Agreements

In June 2019, the Company entered into a securities purchase agreement with ~~one accredited investor that had a substantial pre-existing relationship with the Company~~Daniel Mangless pursuant to which the Company sold 250,000 shares of common stock ~~par value $0.001~~at an offering price of $5.50 per ~~share,~~share. There were 0 fees related to this agreement. The Company received proceeds of $1,375,000.

In February 2019, the Company entered into a securities purchase agreement with Daniel Mangless pursuant to which the Company sold 250,000 shares of common stock at an offering price of $7.00 per share. Pursuant to the ~~Purchase Agreement,~~purchase agreement, the Company also issued to ~~the investor~~Mr. Mangless a ~~three-year~~three-year warrant to purchase 250,000 shares of common stock at an exercise price of $7.00. The Company received gross proceeds ~~were~~of $1,750,000. Consulting fees to the placement agent for arranging the ~~Purchase Agreement include~~purchase agreement included the issuance of 5,000 shares of restricted shares of the Company’s common stock ~~par~~with a fair value ~~$0.001~~of $7.00 per share, and ~~100,000 3-year~~three-year warrants ~~priced at $10.00. No cash commissions were paid.~~

~~On February 15, 2019 and on March 10, 2019, the Company closed its first and second tranches of its 2019 January Private Placement debt offering, respectively, pursuant~~ to which the Company offered for sale a minimum of notes in the principal amount of a minimum of $100,000 and a maximum of notes in the principal amount $10,000,000 (the “2019 PIPE Notes”), with each investor receiving 2,000purchase 100,000 shares of common stock ~~for each $100,000 invested.~~expiring in February 2022 which were priced at $10.00 per share. The Company ~~entered into subscription agreements with thirteen (13) accredited investors that had a substantial pre-existing relationship with~~used the ~~Company pursuant~~Black-Scholes option-pricing model to ~~which~~estimate the Company received aggregate gross proceeds of $2,440,000 and issued 2019 PIPE Notes in the aggregate principal amount of $2,440,000 and an aggregate of 48,800 shares of common stock. The placement agent will receive up to 50,000 shares of common stock in the offering. Each 2019 PIPE Note matures 24 months after issuance, bears interest at a rate of six percent (6%) per annum, and the outstanding principal is convertible into shares of common stock at any time after the 180th day anniversaryfair value of the warrants issued to the selling agent to be $324,000 at the time of issuance ~~of the~~as direct issuance costs and recorded in equity. NaN cash commissions were paid.

2019 Promissory Notes

In March 2019, ~~PIPE Note, at a conversion price of $10 per share (subject to adjustment for stock splits, stock dividends and reclassification of the common stock).~~

~~-35-~~

~~On March 18, 2019,~~ the Company entered into ~~a two-year Secured~~2019 Promissory ~~Note (the “Note or Notes”) with two accredited investors that the Company had a substantial pre-existing relationship with~~Notes and ~~from whom the Company~~ raised cash proceeds in the aggregate of $2,000,000. In consideration of the 2019 Promissory Notes, the Company issued 20,000 shares of common stock ~~par value $0.001 for each $1,000,000 invested as well as for each $1,000,000 invested~~ and ~~five-year~~five-year warrants to purchase 20,000 shares of common stock at a price per share of ~~$6.00.~~ ~~The Notes pay 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 March 18, 2021.~~$6.00 for each $1,000,000 invested. The Company issued in the aggregate 40,000 shares of common stock and 40,000 warrants with the 2019 Promissory Notes.

~~Issuance of additional common shares and repricing of warrants related~~ The Company used the Black-Scholes option-pricing model to ~~2018 Private Placement~~

~~On March 13, 2019,~~estimate the ~~Company determined that three~~aggregate fair value of the ~~investors~~warrants issued to be $138,000 at the time of issuance as direct issuance costs and recorded as a debt discount and is being amortized as expense over the life of the 2019 Promissory Notes. The aggregate fair value of the shares issued was based on the closing price of the Company’s common stock on the closing date was approximately $212,000 was recorded as a debt discount and was amortized as expense over the life of the 2019 Promissory Notes.

2019 Private Placement - Convertible Notes

Between February and July 2019, the Company closed five tranches related to the 2019January private placement debt offering, pursuant to which the Company offered the 2019 PIPE Notes, with each investor receiving in addition to the 2019 PIPE Notes, 2,000 shares of common stock for each $100,000 invested. The Company issued an aggregate of 61,800 shares of common stock as a result of the 2019 private placement. The placement agent received 15,450 shares of common stock for the closed tranches. The aggregate fair value of the shares issued based on the closing price of the Company’s common stock on the closing date was approximately $451,000 which was recorded as a debt discount and was amortized as expense over the life of the promissory notes.

In February and March 2021, the 2019 PIPE Notes that were maturing were extended by one year by way of an amendment with certain note holders of an aggregate $2,440,000 in principal amount. In connection with the foregoing, the Company issued to the holders of the amended 2019 PIPE Notes an aggregate of 366,000 shares of its restricted common stock as an inducement to enter into the amendments. At the filing date of this Quarterly Report on Form 10-Q, the Company was in default of the terms of settlement set forth in the amendments. (See Note 13)

At-the-Market Equity Offering Program

In January 2019, the Company entered into the “ATM agreement with the Benchmark Company LLC (“Benchmark”) pursuant to which the Company may sell from time to time, at the Company’s option, shares of its common stock through Benchmark as sales agent, for the sale of up to $60,000,000 of shares of the Company’s common stock. The Company is not obligated to make any sales of common stock under the ATM agreement and the Company cannot provide any assurances that it will continue to issue any shares pursuant to the ATM agreement. During the year ended December 31, 2019, the Company sold 17,524 shares of common stock under the ATM agreement and received net proceeds of approximately $102,000. The Company paid the Benchmark 3.0% commission of the gross sales proceeds. The Company is not currently eligible to register the offer and sale of the Company’s securities using a registration statement on Form S-3 and therefore cannot make sales under the ATM agreement until such time that the Company once again becomes S-3 eligible.

- 31-

Table of Contents

2018 Private Placement

Between August 2018 ~~Private Placement became eligible~~and October 2018, the Company completed its 2018 private placement and entered into securities purchase agreements with nine investors with whom the Company had a substantial pre-existing relationship pursuant to ~~receive~~which the Company sold an aggregate of 630,526 shares of common stock at an offering price of $4.75 per share. In addition, the Company issued the investors an aggregate of 150,000 additional shares of common stock as an advisory fee and issued the investors three-year warrants to purchase an aggregate of 630,526 shares of common stock at an exercise price of $4.75 per share. The fair value of the warrants as issuance date was approximately $1,689,000. During the year ended December 31, 2019, investors exercised a portion of the 2018 warrants into 182,106 shares of common stock. The 2018 warrants to purchase 448,420 shares of common stock remained outstanding at September 30, 2020 and December 31, 2019.

The Company adopted ASU No.2017-11 effective January 1, 2019 and determined that the 2018 warrants should no longer be classified as a derivative. As a result of the adoption and subsequent change in classification of the 2018 warrants, the Company reclassed approximately $1,494,000 of warrant derivative liability to equity.

2014 Convertible Note – Debt Exchange

In October 2018, the Company entered into an agreement with Carl Grover to exchange all amounts owed under the 2014 Note held by him in the principal amount of $4,000,000 which matured in July 2019, for 747,664 shares of the Company’s common stock ~~as it was referred~~at a conversion price of $5.35 per share, and a four-year warrant to ~~in their respective Purchase Agreement as True-up Shares. Total number of additional shares issued to those three investors is 44,599~~purchase 631,579 shares of ~~restricted shares of the Company’s~~ common stock ~~par value $0.001. In addition, the~~at an exercise price of $4.75 per share. The agreement was subject to shareholder approval which was received in December 2018. The warrant to purchase 631,579 shares of common stock remained outstanding at September 30, 2020 and December 31, 2019.

A FINRA broker dealer acted as the ~~warrants issued at their respective closings is reset pursuant to~~Company’s advisor in connection with the ~~terms~~debt exchange. Upon the closing of the debt exchange, the Company subsequently received shareholder approval to issue the broker dealer 30,000 shares of common stock, a four-year warrant to purchase 80,000 shares of common stock at an exercise price of $5.35 per share and a four-year warrant to purchase 70,000 shares of common stock at an exercise price of $4.75 per share. The warrants to ~~exercise prices ranging from $4.06 to $4.44 from the exercise price~~purchase an aggregate 150,000 shares remained outstanding at ~~issuance of $4.75.~~

~~Convertible~~ September 30, 2020 and December 31, 2019.

Preferred Stock

Series A ~~Convertible~~ Preferred Stock

The Company ~~has~~had 161,135 shares of Series A ~~Convertible Preferred Stock~~preferred stock outstanding ~~as of March~~at both September 30, 2020 and December 31, 2019 ~~and December 31, 2018~~ and accrued dividends of approximately ~~$140,000~~$160,000 and ~~$137,000,~~$150,000, respectively.

The holders of the Series A ~~Convertible Preferred Stock~~preferred stock are entitled to receive a cumulative dividend at a rate of ~~8.0%~~8.00% per year, payable annually either in cash or shares of the Company's common stock at the Company's election. Each share of Series A ~~Convertible Preferred~~preferred stock is convertible into common stock at a conversion rate of ~~0.10.~~one-tenth of a share. The holders of Series A ~~Convertible Preferred~~preferred stock 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 ~~Convertible Preferred~~preferred stock have no voting rights, except as required by law.

Series B ~~Convertible~~ Preferred Stock

In March ~~30,~~ 2018, the Company completed the Series B ~~Offering,~~offering, pursuant to which the Company sold 381,173 shares of Series B ~~Convertible Preferred Stock~~preferred stock at an offering price of $9.50 per share and received gross proceeds in aggregate of approximately $3,621,000. The net proceeds to the Company from the Series B Offering were approximately $3,289,000 after deducting commissions, closing and issuance costs.share. Each share of Series B ~~Convertible Preferred Stock~~preferred stock is initially convertible at any time, in whole or in part, at the option of the holders, at ~~an initial~~a conversion price of $4.75 per share, into ~~two (2)~~2 shares of common stock and automatically converts into ~~two (2)~~2 shares of common stock on its ~~two-year~~two-year anniversary of issuance.

~~The Company has 129,437 shares of Series B Convertible Preferred Stock outstanding as of March 31, 2019 and December 31, 2018. The holders of~~

In connection with the Series B ~~Convertible Preferred Stock are entitled to receive cumulative dividends on~~offering, the Series B Convertible Preferred Stock from the date of original issue at a rate of 5.0% per annum payable quarterly in arrears on or about the last day of March, June, September and December of each year, beginning June 30, 2018. As of March 31, 2019 and December 31, 2018 accrued dividends were approximately $11,000 and $11,000, respectively.

The shares of Series B Convertible Preferred Stock issued in the Series B Offering were sold pursuant to the Company’s Registration Statement, which was declared effective on February 13, 2018. Upon the receipt of the proceeds of the Series B Offering, the 2017 Notes in the principal amount of approximately $7,254,000 automatically converted into 1,577,033 shares of common stock. The holders of Series B Convertible Preferred are entitled to receive a distribution, to be paid in an amount equal to $9.50 for each and every share of Series B Preferred Stock held by the holders of Series B Preferred Stock, plus all accrued and unpaid dividends in preference to any distribution or payments made or any asset distributed to the holders of common stock, the Series A Preferred Stock, or any other class or series of stock ranking junior to the Series B Preferred Stock. Holders of the Series B Convertible Preferred Stock have no voting rights, except as required by law.

~~-36-~~

~~Series C Preferred Stock~~

Between August 17, 2018 and October 4, 2018, the Company closed three tranches of its Series C Offering, pursuant to which the Company sold 697,363 shares of Series C Convertible Preferred Stock at an offering price of $9.50 per share and agreed to issue two-year warrants (the “Preferred Warrants”) to purchase up to 1,394,726 shares of the Company’s common stock at an exercise price of $4.75 per share to Series C Preferred holders that voluntarily convert their shares of Series C Preferred to the Company’s common stock within two-years from the issuance date. Each share of Series C Convertible Preferred Stock is initially convertible at any time, in whole or in part, at the option of the holders, at an initial conversion price of $4.75 per share, into two (2) shares of common stock and automatically converts into two (2) shares of common stock on its two-year anniversary of issuance.

~~The~~ Company issued the placement agent ~~in connection with the Series C Offering 116,867~~38,117 warrants as compensation, exercisable at ~~$4.75~~$5.70 per share and expire in ~~December 2020.~~ February 2023. The Company determined that the warrants should be classified as equity instruments and used Black-Scholes to estimate the fair value of the warrants issued to the placement agent of ~~$458,000 as of~~$75,000 at the issuance ~~date December 19, 2018. As of~~ date. At September 30, 2020 and December 31, ~~2018, the 116,867~~2019, 6,098 warrants issued to the placement agent ~~remain~~remained outstanding.

- 32-

Table of Contents

The Company had 129,332 shares of Series B preferred stock outstanding at December 31, 2019. In March 2020, all outstanding shares of Series B preferred stock automatically converted into 2 shares of common stock on the two-year anniversary date of the issuance of the Series B preferred stock, pursuant to the automatic conversion feature of the Series B preferred stock. A total of 129,332 shares of Series B preferred stock outstanding automatically converted into 258,664 shares of common stock.

During the year ended December 31, 2019, the Company received ~~aggregate~~notice of conversion for 105 shares of Series B preferred stock which converted to 210 shares of common stock.

Pursuant to the certificate of designation, the Company paid cumulative dividends on the Series B preferred stock from the date of original issue at a rate of 5.0% per annum payable quarterly in arrears on or about the last day of March, June, September and December of each year, which ended in March 2020.

At December 31, 2019, accrued dividends for Series B preferred stock were approximately $15,000. During the nine months ended September 30, 2020 and 2019 a total of approximately $32,000 and $46,000, respectively, of dividends was paid to the holders of the Series B preferred stock. All dividends related to the Series B preferred stock were paid in full as of March 31, 2020. The Series B preferred stock ranked senior to the Company’s outstanding Series A preferred stock and the common stock with respect to dividend rights and rights upon liquidation, dissolution or winding up. Holders of the Series B preferred stock had no voting rights.

Series C Preferred Stock

In connection with the Series C offering in 2018, the Company issued the placement agent 116,867 warrants as compensation, exercisable at $4.75 per share. At December 31, 2019, 0 Series C preferred stock remained outstanding. During the year ended December 31, 2019, the placement agent exercised a portion of the warrants into 99,143 shares of common stock. The remaining warrants expire in December 2020.

Series D Preferred Stock

In September and December 2019, the Company closed two tranches of its Series D offering (the “Series D Offering”), pursuant to which the Company issued and sold a total of 578,898 shares of its 9.75% Series D cumulative preferred stock at a weighted average price to the public of $24.05 per share, less underwriting discounts and commissions, pursuant to the terms of the underwriting agreements that the Company entered into with Benchmark, as representative of the several underwriters. The 578,898 shares of Series D preferred stock that were sold included 43,500 shares sold pursuant to the overallotment option that the Company granted to the underwriters. At December 31, 2019, 36,809 overallotment shares were unissued and available for purchase by the underwriters within 45 days from December 17, 2019.

In January 2020, the Company issued an additional 11,375 shares of Series D preferred stock upon the partial exercise by the underwriters in the Company’s public offering of Series D preferred stock of the overallotment option granted to such underwriters. The overallotment shares were sold at a price to the public of $22.75 per share, generating additional gross proceeds ~~totaling~~of approximately ~~$6,625,000.~~ $259,000.

The Series D preferred stock was approved for listing on the Nasdaq Capital Market under the symbol “YGYIP,” and trading the Series D preferred stock on Nasdaq commenced in September 2019. The net proceeds to the Company from the Series CD Offering were approximately ~~$6,236,000~~$12,269,000 after deducting underwriting discounts and commissions ~~closing~~ and expenses which were paid by the Company.

At September 30, 2020, a total of 650,000 shares of the preferred stock was designated as Series D preferred stock. At September 30, 2020, the Company has available for issuance ~~costs.~~an additional 59,727 shares of Series D preferred stock.

The Series D preferred stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. The holders of the Series D preferred stock are entitled to cumulative dividends from the first day of the calendar month in which the Series D preferred stock is issued and payable on the fifteenth day of each calendar month, when, as and if declared by the Company's board of directors. The Company’s board of directors has declared an annual cash dividend of $2.4375 per share, or a monthly dividend of $0.203125 per share, on the Series D preferred stock.

At September 30, 2020 and December 31, 2019, accrued dividends were approximately $120,000 and $118,000, respectively. During the nine months ended September 30, 2020, the Company paid $1,076,000 in cash dividends to holders of Series D preferred stock.

- 33-

Table of

Contents

At September 30, 2020 and December 31, 2019, the Company had 590,273 and 578,898 shares, respectively, of Series D preferred stock outstanding.

Upon liquidation, dissolution or winding up of the Company, each holder of Series ~~C Preferred Stock was~~D preferred stock would be entitled to receive a distribution, to be paid in an amount equal to ~~$9.50 for each and every~~$25.00 per share ~~of Series C Preferred Stock~~ held by the holders of Series ~~C Preferred Stock,~~D preferred stock, plus all accrued and unpaid dividends in preference to any distribution or payments made or any asset distributed to the holders of common stock, the Series A ~~Preferred Stock,~~preferred stock, the Series B ~~Preferred Stock~~preferred stock, the Series C preferred stock or any other class or series of stock ranking junior to the Series ~~C Preferred Stock.~~

D preferred stock.

The ~~shares~~Series D preferred stock is not redeemable by the Company prior to September 23, 2022, except upon a change of ~~Series C Convertible Preferred Stock issued~~control (as defined in the ~~Series C Offering were sold pursuant to the Company’s Registration Statement, which was declared effective with the SEC on December 10, 2018.~~

~~Pursuant to the Certificate~~certificate of ~~Designation,~~designations). On and after such date, the Company ~~agreed to pay cumulative dividends on~~may, at its option, redeem the Series ~~C Convertible Preferred Stock~~D preferred stock, in whole or in part, at any time or from ~~the date of original issue~~time to time, for cash at a ~~rate~~redemption price equal to $25.00 per share, plus any accumulated and unpaid dividends to, but not including the redemption date. Upon the occurrence of ~~6.0% per annum payable quarterly in arrears on or about~~a change of control, the ~~last day of March, June, September and December of each year, beginning September 30, 2018. In 2018 a total of approximately $51,000 of dividends was paid to the holders of~~Company may, at its option, redeem the Series ~~C Convertible Preferred Stock. The Series C Convertible Preferred Stock ranks senior~~D preferred stock, in whole or in part, within 120 days after the first date on which such change of control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends to, but not including, the Company’s outstanding Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and the common stock with respect to dividend rights and rights upon liquidation, dissolution or winding up.redemption date. Holders of the Series ~~C Convertible Preferred Stock~~D preferred stock generally have no voting rights.

The contingent obligation to issue warrants is considered an outstanding equity-linked financial instrument and was therefore recognized as equity classified warrants, initially measured at relative fair value of approximately $3,727,000, resulting in an initial discount to the carrying value of the Series C Preferred Stock.

Due to the reduction of allocated proceeds to the contingently issuable common stock warrants and Series C Preferred Stock, the effective conversion price of the Series C Preferred Stock was less than the Company’s common stock price on each commitment date, resulting in an aggregate beneficial conversion feature of approximately $3,276,000, which reduced the carrying value of the Series C Preferred Stock. Since the conversion option of the Series C Preferred Stock was immediately exercisable, the beneficial conversion feature was immediately accreted as a deemed dividend, resulting in an increase in the carrying value of the C Preferred Stock of approximately $3,276,000.

The Series C Preferred Stock was automatically redeemable at a price equal to its original purchase price plus all accrued but unpaid dividends in the event the average of the daily volume weighted average price of the Company’s common stock for the 30 days preceding the two-year anniversary date of issuance is less than $6.00 per share. As redemption was outside of the Company’s control, the Series C Preferred Stock was classified in temporary equity at issuance. All of the Series C Preferred shares were converted to common stock during 2018 and the Company has issued 1,394,726 warrants. As of March 31, 2019, no shares of Series C Convertible Preferred Stock remain outstanding.

~~-37-~~

~~Repurchase of Common Stock~~

On December 11, 2012, the Company authorized a share repurchase program to repurchase up to 750,000 of the Company's issued and outstanding shares of common stock from time to time on the open market or via private transactions through block trades. A total of 196,594 shares have been repurchased to-date as of March 31, 2019 at a weighted-average cost of $5.30 per share. There were no repurchases during the three months ended March 31, 2019 and 2018. The remaining number of shares authorized for repurchase under the plan as of March 31, 2019 is 553,406.

Advisory Agreements

The Company records the fair value of common stock issued in conjunction with advisory service agreements based on the closing stock price of the Company’s common stock on the measurement date. The ~~fair value of the stock issued is recorded through equity and prepaid advisory fees and amortized over the life of the service agreement.~~

~~ProActive CapitalResources Group, LLC~~

~~On September 1, 2015, the Company entered into an agreement with~~ ~~ProActive CapitalResources Group, LLC~~ (“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 5,000 shares of restricted common stock to be issued upon successfully meeting certain criteria in accordance with the agreement. Subsequent to the September 1, 2015 initial agreement, the agreement was extended through August 2018 under six-month incremental service agreements under the same terms with the monthly cash payments of $6,000 per month and 5,000 shares of restricted common stock for every six (6) months of service performed.

~~The~~ stock issuance expense associated with the amortization of advisory fees iswas recorded as stock issuance expense and iswas included in general and administrative expense on the Company’s ~~condensed~~ consolidated statements of ~~operations for the three months ended March 31,~~operations.

Capital Market Solutions, LLC

In July 2018, ~~is approximately $13,000. The Company did not further extend this agreement subsequent to August 2018.~~

~~Ignition Capital, LLC~~

~~On April 1, 2018,~~ the Company entered into an agreement with Ignition Capital, LLC (“Ignition”), pursuant to which Ignition agreed to provide investor relations services for a period of twenty-one (21) months in exchange for 50,000 shares of restricted common stock which were issued in advance of the service period. The fair value of the shares issued is recorded as prepaid advisory fees and is included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets and is amortized on a pro-rata basis over the term of the agreement. During the three months ended March 31, 2019, the Company recorded expense of approximately $30,000 in connection with amortization of the stock issuance. The stock issuance expense associated with the amortization of advisory fees is recorded as stock issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations for the three months ended March 31, 2019.

~~Greentree Financial Group, Inc.~~

~~On March 27, 2018, the Company entered into an agreement with~~ ~~Greentree Financial Group, Inc.~~ (“Greentree”), pursuant to which Greentree agreed to provide investor relations services for a period of twenty-one (21) months in exchange for 75,000 shares of restricted common stock which were issued in advance of the service period. The fair value of the shares issued is approximately $311,000 and is recorded as prepaid advisory fees and is included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets and is amortized on a pro-rata basis over the term of the agreement. During the three months ended March 31, 2018, the Company recorded expense of approximately $44,000 in connection with amortization of the stock issuance. The stock issuance expense associated with the amortization of advisory fees is recorded as stock issuance expense and is included in general and administrative expense on the Company’s condensed consolidated statements of operations for the three months ended March 31, 2019.

~~-38-~~

Capital Market Solutions, ~~LLC.~~

~~On July 1, 2018, the Company entered into an agreement with~~ ~~Capital Market Solutions, LLC.~~LLC (“Capital Market”), pursuant to which Capital Market agreed to provide investor relations services for a period of 18 months in exchange for 100,000 shares of restricted common stock which were issued in advance of the service period. In addition, the Company agreed to pay ina cash a base fee of $300,000 ~~payable as follows;~~of which $50,000 was paid in August 2018 and the remaining balance ~~shall~~was to be paid monthly in the amount of ~~$25,000 through January 1, 2019. Subsequent to the initial agreement, the~~$25,000. The Company subsequently extended the term of the Capital Market agreement for an additional 24 months through December 31, ~~2021 and agreed to issue Capital Market~~2021. The Company also issued an additional 100,000 shares of restricted common stock ~~which were issued~~to Capital Market in advance of the service period and paid $125,000 offor additional fees. On The fair value of the shares issued was approximately $1,226,000.

In January 9, 2019, the ~~Company executed the second amendment to the agreement with~~ Capital Market agreement was amended pursuant to which the aggregate base fee increased to $525,000 and the Company issued an additional 75,000 of restricted common stock. In addition, the Company issued to Capital Market a ~~four-year~~four-year warrant to purchase 925,000 shares of the Company’s common stock at $6.00 per share, vesting 50% at issuance, on 25% vesting in January ~~9, 2019~~ 2020 and 25% on vesting in January ~~9, 2020 and 25% on January 9,~~ 2021. ~~The fair value of~~

During both the ~~vested portion of the warrant is approximately $1,656,000 and is recorded as equity on the Company’s balance sheet as of March 31, 2019 and equity issuance expense on the Company’s~~ ~~condensed consolidated statement of operations for the three~~nine months ended ~~March 31, 2019.~~

~~The fair value of the common stock shares issued is recorded as prepaid advisory fees~~ September 30, 2020 and is included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets and is amortized on a pro-rata basis over the term of the agreement. During the three months ended March 31, 2019, ~~and 2018,~~ the Company recorded expense of approximately ~~$129,000,~~$386,000 in connection with amortization of the stock issuance expense. During the ~~three~~nine months ended ~~March 31,~~September 30, 2019,the Company recorded expense of $100,000 in connection with the base fee. During the nine months ended September 30, 2020 and 2019, the Company recorded expense of approximately ~~$50,000,~~280,000 and $2,197,000, respectively, in connection with amortization of equity issuance expense related to fair value of the ~~base fee.~~vested portion of the warrant.

Corinthian Partners, LLC

In August 2019, the Company issued 600 shares of restricted common stock to Corinthian Partners, LLC, the initial placement agent for the issuance of the 2018 warrants which represented 10% of the shares issued to certain investors. The fair value of the shares issued of approximately $3,000 was fully expensed in 2019.

Greentree Financial Group, Inc.

In March 2018, the Company entered into an agreement with Greentree Financial Group, Inc. (“Greentree”), pursuant to which Greentree agreed to provide investor relations services for a period of 21 months in exchange for 75,000 shares of restricted common stock which were issued in advance of the service period. The fair value of the shares issued was approximately $311,000. During the nine months ended September 30, 2019, the Company recorded expense of approximately $134,000 in connection with amortization of the stock issuance. The agreement with Greentree ended in December 2019.

- 34-

Table of Contents

I-Bankers Securities Incorporated

In April 2019, the Company entered into an agreement with I-Bankers Securities Incorporated (“I-Bankers”), pursuant to which I-Bankers agreed to provide financial advisory services for a period of twelve months ending in March 2020 in exchange for 100,000 shares of restricted common stock which were issued in advance of the service period. The fair value of the shares issued was approximately $571,000. During the nine months ended September 30, 2020 and 2019, the Company recorded expense of approximately $143,000 and $286,000, respectively, in connection with amortization of the stock issuance ~~expense associated~~expense.

In addition, the Company agreed to pay in cash a base fee for debt arrangements and equity offerings in conjunction with any transactions I-Bankers closes with the Company in accordance with the agreement. The Company did not engage in any financing activity with I-Bankers through September 30, 2020.

Ignition Capital, LLC

In April 2018, the Company entered into an agreement with Ignition Capital, LLC (“Ignition”), pursuant to which Ignition agreed to provide investor relations services for a period of 21 months in exchange for 50,000 shares of restricted common stock which were issued in advance of the service period. The fair value of the shares issued was approximately $208,000. During the nine months ended September 30, 2019, the Company recorded expense of approximately $89,000 in connection with amortization of the stock issuance.

In March 2019, the Ignition agreement was amended to provide additional compensation of 55,000 shares of the Company’s common stock for advisory fees isand additionally 5,000 shares of the Company’s common stock were issued in conjunction with one of the Company’s equity transactions. Under the amended Ignition agreement, the Company also issued a warrant convertible upon exercise of 100,000 shares of the Company’s common stock exercisable at $10.00 per share for a period of three years for services provided by Ignition at the amendment date. The fair value of the shares issued was approximately $384,000 and the fair value of the warrant issued was approximately $414,000 and was fully expensed as equity issuance cost and recorded as ~~stock issuance expense and is included~~equity in ~~general and administrative expense on~~2019.

Ivan Gandrud Chevrolet, Inc.

In March 2020, the Company entered into an agreement with Ivan Gandrud Chevrolet, Inc. (“IGC”), pursuant to which IGC agreed to provide consulting services for the Company’s ~~condensed consolidated statements~~commercial hemp segment in exchange for 125,000 shares of ~~operations~~restricted common stock which were issued as fully earned. The fair value of the shares issued was approximately $158,000. In addition, the Company issued a 5-year warrant exercisable for 250,000 shares of the ~~three~~Company’s common stock at an exercise price of $4.75. The warrant was deemed fully earned. The fair value of the warrant issued was approximately $167,000. During the nine months ended ~~March 31, 2019.~~

~~Warrants~~

AsSeptember 30, 2020, the Company recorded issuance costs of ~~March~~approximately $325,000 in connection this agreement.

IGC is 100% owned by Daniel Mangless, who was the beneficial owner of in excess of 5% of the Company’s outstanding common stock at September 30, 2020.

The Benchmark Company, LLC

In August 2019, the board of directors approved the issuance of 20,000 shares of restricted common stock to Benchmark for investment banking services provided to the Company. The fair value of shares issued was approximately $91,000 and was fully expensed in 2019.

Warrants

At September 30, 2020 and December 31, 2019, warrants to purchase ~~6,943,874~~5,266,187 and 6,238,182, respectively, of shares of the Company's common stock at prices ranging from ~~$2.00~~$4.60 to $10.00 were outstanding. ~~As of March 31, 2019, 6,539,187~~At September 30, 2020, 5,208,374 warrants ~~are~~were exercisable and expire at various dates through March ~~2024~~ 2025 and have a weighted average remaining term of approximately ~~2.23~~1.5 years and are included in the table ~~below as~~below.

At December 31, 2019, the intrinsic value of ~~March 31, 2019.~~

the outstanding warrants based on the Company’s closing stock prices was approximately $95,000. There was 0 intrinsic value of outstanding warrants based on the Company’s closing stock prices at September 30, 2020.

The Company uses ~~the Monte Carlo and Black-Scholes~~a combination of option-pricing ~~model to estimate the fair value of the warrants.~~

~~Warrants – Securities Purchase Agreement~~

During the three months ended March 31, 2019, the Company issued the selling agent in connection with the Securities Purchase Agreement 100,000 warrants as compensation, exercisable at $10.00 per share and expire in February 2022. The Company used the Black-Scholes option-pricing model (“Black-Scholes”)models to estimate the fair value of the warrants ~~issued to~~including the ~~selling agent of $324,000 as of March 30, 2019.~~ Monte Carlo, Lattice and Black-Scholes.

- 35-

Table o

f Contents

A summary of the warrant activity ~~for the three months ended March 31, 2019~~ is presented in the following table:

		Number of Warrants
~~Balance~~ Outstanding at December 31, ~~2018~~2019	~~5,876,980~~		6,238,182
Issued	~~1,315,000~~		250,000
Expired / cancelled	-		(1,221,995	)
Exercised	~~(248,106~~)		0
~~Balance~~ Outstanding at ~~March 31, 2019, outstanding~~September 30, 2020 (unaudited)	~~6,943,874~~		5,266,187
~~Balance at March 31, 2019, exercisable~~	~~6,539,187~~

~~-39-~~

~~Stock Options~~

~~On May 16, 2012,~~

Warrant Modification – loss on modification of warrants

In July 2019, Carl Grover, who is also a related party to the Company ~~established the 2012 Stock Option Plan (“Plan”) authorizing the granting of options for up to 9,000,000 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 allows for the grant of: (a) incentive stock options; (b) nonqualified stock options; (c) stock appreciation rights; (d) restricted stock; and (e) other stock-based and cash-based awards to eligible individuals qualifying under Section 422 of the Internal Revenue Code, in any combination (collectively, “Options”). At March 31, 2019, the Company had ~~3,587,072~~ acquired 600,242 shares of common stock, ~~available~~ upon the partial exercise at $4.60 per share of a 2014 warrant to purchase 782,608 shares of common stock held by him. In connection with such exercise, the Company received approximately $2,761,000 from Mr. Grover and issued to Mr. Grover 50,000 shares of restricted common stock as an inducement fee and agreed to extend the expiration date of the remaining unexercised 2014 warrant held by him to December 15, 2020 with respect to 182,366 shares of common stock. The 2014 warrant was classified as a liability.

In July 2019 one investor (the “July 2014 Investor”) from the Company’s 2014 private placement acquired 19,565 shares of the Company’s common stock upon exercise of their 2014 warrant. The July 2014 Investor used the proceeds from their 2014 note in the amount of $100,000 which was payable on July 31, 2019 by the Company and applied this amount to the exercise of the warrant. In connection with the exercise, the Company paid to the July 2014 Investor the remaining balance due on the 2014 note with interest of approximately $11,000 and issued an additional 2,500 shares of restricted common stock as an inducement to exercise the 2014 warrant. The 2014 warrant was classified as a liability.

In August 2019, one investor (the “August 2014 Investor”) from the Company’s 2014 private placement acquired 48,913 shares of the Company’s common stock upon exercise of their 2014 warrant. In connection with the exercise, the Company received approximately $228,000 and issued an additional 5,750 shares of restricted common stock as an inducement to exercise the 2014 warrant. The 2014 warrant was classified as a liability.

The Company also agreed to amend a warrant issued to Brian Frank (the “Placement Agent”) in September 2014, to purchase 44,107 shares of common stock at $7.00 per share and expiring on September 10, 2019, and a warrant issued to the Placement Agent in September 2014, to purchase 60,407 shares of common stock at $4.60 per share of common stock and expiring on September 10, 2019 (collectively, the “Placement Agent Warrants”), to extend the expiration date of the Placement Agent Warrants to December 15, 2020 for ~~issuance under~~his assistance in connection with the ~~Plan.~~ above transaction with Mr. Grover. The Placement Agent Warrants were classified as equity.

In August 2019, one investor from the Company’s Series C offering acquired 63,156 shares of common stock of the Company, upon the exercise at $4.75 per share of a preferred warrant to purchase 63,156 shares of common stock held by them. In connection with such exercise, the Company received approximately $300,000 from the investor and issued to the investor 6,000 shares of restricted common stock as an inducement fee. The preferred warrant was classified as equity.

The Company considered the guidance of ASC 470-20-40, Debt with Conversion and Other Options, ASC 505-50, Equity-Based Payments to Non-Employees and ASC 718-20-35, Awards Classified as Equity to determine the appropriate accounting treatment to record the impact of the modification of the warrants and the inducement shares issued upon the exercise of the warrants.

The Company concluded that the inducement of shares and the change in the terms of the warrants were considered modification of the warrant terms.

The liability classified warrants were measured before and after the modification with changes in the fair value recorded to earnings. The fair value of the inducement shares was recorded as a loss on modification of warrants and a credit to additional paid in capital and common stock.

- 36-

Table of Contents

Some of the equity-classified warrants were modified by issuing common shares, not called for by the warrant agreement, to induce exercise of the warrant. Other equity-classified warrants, such as the Placement Agent Warrants, were modified by increasing the exercise period of the warrants. All of these changes are considered modifications of the warrant terms.

These modifications result in the recognition of incremental fair value. Incremental fair value is equal to the difference between the fair value of the modified warrant and the fair value of the original warrant immediately before it was modified. Based on the above guidance, the incremental fair value of the warrants is recognized immediately, as a non-operating expense, as the warrants are not subject to vesting conditions.

The fair value of the Placement Agent Warrants was estimated on July 29, 2019 (date of warrant maturity date modification) using a Black-Scholes option pricing model both before and after modification. The increase in fair value was recognized as a debit to loss on modification of warrants expense and a credit to additional paid-in capital. The fair value of the inducement shares issued with the preferred warrant was calculated as the number of shares issued times the per share price of the Company’s common stock on the exercise date of August 20, 2019. This amount was recorded as a loss on modification of warrants expense and a credit to additional paid-in capital and common stock.

The Company recorded a loss on modification of warrants expense for the three and nine months ended September 30, 2019, related to the above warrant modifications in the aggregate of approximately $876,000.

The Company concluded that the 2014 warrant held by Mr. Grover would continue to be treated as a liability.

Stock-based Compensation

Stock-based compensation expense related to stock options and restricted stock units included in the consolidated statements of operations was charged as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
	2020		2019		2020		2019
Cost of revenues	$	5	$	6	$	16	$	89
Sales and marketing		31		33		92		563
General and administrative		216		622		669		11,766
Total stock-based compensation	$	252	$	661	$	777	$	12,418

Stock Options

A summary of the Plan stock option activity for the ~~three~~nine months ended ~~March 31, 2019~~ September 30, 2020 is presented in the following table:

Number of
Shares

Weighted Average
Exercise Price

Weighted Average
Remaining Contract Life (years)

Aggregate Intrinsic Value (in thousands)

Outstanding December 31, 2018
  2,394,379
$4.45
  6.94
$3,049
Issued
  2,540,000
  6.66


Canceled / expired
  (37,275)
  5.00


Exercised
  (60,530)
  4.46

  -
Outstanding March 31, 2019
  4,836,574
$5.61
  8.35
$3,045
Exercisable March 31, 2019
  3,723,870
$5.96
  8.23
$1,617

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contract Life (years)		Aggregate Intrinsic Value (in thousands)
Outstanding December 31, 2019		4,637,642		$	5.63		7.8	$	0
Granted		0			0				0
Canceled / expired		(70,274	)		4,88				0
Exercised		0			0				0
Outstanding September 30, 2020 (unaudited)		4,567,368		$	5.64		7.1	$	0
Exercisable September 30, 2020 (unaudited)		4,219,877		$	5.71		7.1	$	0

The weighted-average fair value per share of the granted stock options for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was approximately ~~$4.26.~~ $4.18. There were no0 options granted during the ~~three~~nine months ended ~~March 31, 2018~~

~~Stock-based compensation expense included in the condensed consolidated statements of operations was~~ ~~$11,248,000~~ ~~and $122,000 for the three months ended March 31, 2019 and 2018, respectively.~~

~~As of March 31, 2019,~~ September 30, 2020.

At September 30, 2020, there was approximately ~~$2,132,000~~ $746,000 of total unrecognized compensation expense related to unvested stock options granted under the 2012Plan. The expense is expected to be recognized over a weighted-average period of ~~1.75~~ 1.2 years.

- 37-

Table of Contents

~~The~~

Restricted Stock Units

In August 2019, the Company ~~uses~~issued 50,000 restricted stock units to a consultant. Vesting occurs monthly over a three-year period with the ~~Black-Scholes to estimate~~first vesting period commencing one month from the grant date. The fair value of the restricted stock ~~options. The use of a valuation model requires~~units issued to the ~~Company to make certain assumptions with respect to selected model inputs. Expected volatility is calculated~~consultant was based on the ~~historical volatility of the Company’s~~grant date closing stock price of $4.55 and is recognized as stock-based compensation expense over the ~~expected~~vesting term of the ~~option. The expected life is based~~award. During 2019, a total of 5,556 restricted stock units vested. During the nine months ended September 30, 2020, a total of 12,501 restricted stock units vested which were forfeited by the consultant 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 equalDecember 31, 2020. All unvested restricted stock units issued to the ~~expected life assumed at the date of the grant.~~

~~Restricted Stock Units~~

On consultant were forfeited on December 31, 2020.

In August 9, 2017, the Company issued restricted stock units for an aggregate of 500,000 shares of common stock, to its employees and consultants. These shares of common stock will be issued upon vesting of the restricted stock units. Full vesting occurs on the ~~sixth-year~~sixth-year anniversary of the grant date, with 10% vesting on the ~~third-year,~~third-year, 15% on the ~~fourth-year,~~fourth-year, 50% on the ~~fifth-year~~fifth-year and 25% on the ~~sixth-year~~sixth-year anniversary of the vesting commencement date. ~~As of March 31, 2019, none of the restricted stock units have vested. There were no grants during the three months ended March 31, 2019.~~

~~-40-~~

The fair value of each restricted stock unit issued to employees iswas based on the closing ~~stock~~ price on the grant date of $4.53 and restricted stock units issued to consultants ~~are~~were revalued ~~as they vest~~ with the closing stock price at each change in financial period. During the nine months ended September 30, 2020, there were 39,750 restricted stock units that vested from the August 2017 issuance, of which 9,632 shares of common stock were withheld for tax obligations.

The Company adopted ASU 2018-07 on January 1, 2019 and ~~is recognized as~~the stock-based compensation expense ~~over~~for non-employee grants was based on the ~~vesting term~~closing price of our common stock of $5.72 on December 31, 2018, which was the ~~award.~~

last business day before we adopted ASU 2018-07.

A summary of restricted stock unit activity is presented in the following table:

		Number of Shares
Balance at December 31, ~~2018~~2019	~~475,000~~		451,944
Issued	-		0
Canceled	-		(10,000	)
Vested			(52,251	)
Balance at ~~March 31, 2019~~September 30, 2020 (unaudited)	~~475,000~~		389,693

~~Stock-based compensation expense included in the condensed consolidated statements of operations was $96,000 and $115,000 for the three months ended March 31, 2019 and 2018, respectively.~~

~~As of March 31, 2019,~~

At September 30, 2020, total unrecognized stock-based compensation expense related to restricted stock units to employees and consultants was approximately ~~$1,629,000,~~$1,028,000, which will be recognized over a weighted average period of ~~4.36~~2.9 years.

Note 11. Commitments and Contingencies

Credit Risk

The Company maintains cash balances at various financial institutions primarily located in the U.S. Accounts held at the U.S. institutions are secured, up to certain limits, by the Federal Deposit Insurance Corporation. At times, balances may exceed federally insured limits. The Company has not experienced any losses in such accounts. There is credit risk related to the Company’s ability to collect on its accounts receivables from its major customers. Management believes that the Company is not exposed to any significant credit risk with respect to its cash and cash equivalent balances and accounts receivables.

Litigation

The Company is party to litigation at the present time and may become party to litigation in the future. In general, litigation claims can be expensive, and time consuming to bring or defend against and could result in settlements or damages that could significantly affect financial results. However, it is not possible to predict the final resolution of any litigation to which the Company is, or may be party to, and the impact of certain of these matters on the Company’s business, results of operations, and financial condition could be material. At both September 30, 2020 and December 31, 2019, the Company believed that existing litigation had no merit and was not likely that the Company would incur any losses with respect to litigation.

- 38-

Table of Contents

Vendor Concentration

For the three months ended September 30, 2020, the Company’s direct selling segment made purchases from 2 vendors, Global Health Laboratories and Michael Schaffer, LLC., that individually comprised more than 10% of total segment purchases and in aggregate approximated 48% of total segment purchases. For the nine months ended September 30, 2020, the Company’s direct selling segment made purchases from 2 vendors, Global Health Laboratories and Michael Schaffer, LLC., that individually comprised more than 10% of total purchases and in aggregate approximated 46% of total segment purchases.

For the three months ended September 30, 2019, the Company’s direct selling segment made purchases from 2 vendors, Global Health Labs, Inc. and Michael Schaeffer, LLC., that individually comprised more than 10% of total purchases and in aggregate approximated 39% of total purchases made by the direct selling segment. For the nine months ended September 30, 2019, the Company’s direct selling segment made purchases from 2 vendors, Global Health Labs, Inc. and Michael Schaeffer, LLC., that individually comprised more than 10% of total purchases and in aggregate approximated 41% of total purchases made by the direct selling segment.

For the three months ended September 30, 2020, the Company’s commercial coffee segment made purchases from 2 vendors, H&H and StoneX Commodity Solutions, LLC, that individually comprised more than 10% of total purchases and in aggregate approximated 62% of total segment purchases. For the nine months ended September 30, 2020, the Company’s commercial coffee segment made purchases from 2 vendors, H&H and StoneX Commodity Solutions, LLC, that individually comprised more than 10% of total purchases and in aggregate approximated 55% of total segment purchases.

For the three months ended September 30, 2019, the Company’s commercial coffee segment made purchases from 3 vendors, INTL FC Stone, Inc., Sixto Packaging, Inc. and The Serengeti Trading Co., that individually comprised more than 10% of total purchases and in aggregate approximated 65% of total purchases made by the commercial coffee segment. For the nine months ended September 30, 2019, the Company’s commercial coffee segment made purchases from 3 vendors, H&H and INTL FC Stone, Inc. and Sixto Packaging, Inc., that individually comprised more than 10% of total purchases and in aggregate approximated 70% of total purchases made by the commercial coffee segment.

For the three months ended September 30, 2020, the Company’s commercial hemp segment made purchases from 2 vendors, Fluid Flow Products, Inc. and Livingston & Haven, LLC, that individually comprised more than 10% of total segment purchases and in aggregate approximated 53% of total segment purchases. For the nine months ended September 30, 2020, the Company’s commercial hemp segment made purchases from 2 vendors, BioProcessing Corporation and Xtraction Services, Inc., that individually comprised more than 10% of total segment purchases and in aggregate approximated 45% of total segment purchases.

For the three months ended September 30, 2019, the Company’s commercial hemp segment made purchases from 2 vendors, Bio Processing Corp., and AMAZON Hose & Rubber Company, that individually comprised more than 10% of total purchases and in aggregate approximated 50% of total purchases made by the commercial hemp segment. For the nine months ended September 30, 2019, the Company’s commercial hemp segment made purchases from 1 vendor, Bio Processing Corp., that in aggregate approximated 35% of total purchases made by the commercial hemp segment.

Customer Concentration

For the three months ended September 30, 2020, the Company’s commercial coffee segment had 3 customers, Super Store Industries, Rothfos Corporation, and Topco Associates, LLC, that individually comprised more than 10% of segment revenue and in aggregate approximated 55% of total segment revenue. For the nine months ended September 30, 2020, the Company’s commercial coffee segment had 2 customers, Super Store Industries and Topco Associates, LLC, that individually comprised more than 10% of segment revenue and in aggregate approximated 39% of total segment revenue.

For the three months ended September 30, 2019, the Company’s commercial coffee segment had 4 customers, Topco Associates, LLC, Carnival Cruise Lines, Walmart Corporation and Super Store Industries, that individually comprised more than 10% of revenue and in aggregate approximated 61% of total revenue generated by the commercial coffee segment. For the nine months ended September 30, 2019, the Company’s commercial coffee segment had 1 customer, H&H Export, that approximated 39% of total revenue generated by the commercial coffee segment.

- 39-

Table

of Contents

At September 30, 2020 and December 31, 2019, CLR's accounts receivable balance for customer related revenue by H&H Export was approximately $8,707,000 of which the full amount was past due at the corresponding periods. As a result, the Company reserved $7,871,000 as bad debt related to the accounts receivable balances for both periods, which was net of collections through December 31, 2020.

The Company has purchase obligations related to minimum future purchase commitments for green coffee to be used in the Company’s commercial coffee segment. Each individual contract requires the Company to purchase and take delivery of certain quantities at agreed upon prices and delivery dates. The contracts have minimum future purchase commitments of approximately $1,507,000 at September 30, 2020. The contracts contain provisions whereby any delays in taking delivery of the purchased product will result in additional charges related to the extended warehousing of the coffee product. The Company has not incurred fees however fees can average approximately $0.01 per pound for every month of delay.

For the three months ended September 30, 2020, the Company’s commercial hemp segment had 2 customers, The Fishel Company and Fluent Servicing, LLC that approximated 31% of total segment revenue. For the nine months ended September 30, 2020, the Company’s commercial hemp segment had 1 customer, BioProcessing Corporation, that approximated 22% of total segment revenue.

For the three months ended September 30, 2019, the Company’s commercial hemp segment had 4 customers, Air Spec, The Fishel Company, Carolina Botanicals and Xtraction Services, that individually comprised more than 10% of revenue and in aggregate approximated 75% of total revenue generated by the commercial hemp segment. For the nine months ended September 30, 2019, the Company’s commercial hemp segment had 3 customers, Xtraction Services, Air Spec and David Shin that individually comprised more than 10% of revenue and in aggregate approximated 58% of total revenue generated by the commercial hemp segment.

Note 12.Segment and Geographical Information

The Company is a leading multi-channel lifestyle company offering a hybrid of the direct selling business model that also offers e-commerce and the power of social selling. Assembling a virtual main street of products and services under one corporate entity, Youngevity offers products from top selling retail categories: health/nutrition, home/family, food/beverage (including coffee), spa/beauty, apparel/jewelry, as well as innovative services. The Company operates in ~~three~~3 segments: the direct selling segment where products are offered through a global distribution network of preferred customers and distributors, the commercial coffee segment where roasted and green coffee bean products are sold directly to businesses, and the commercial hemp segment ~~provides end~~manufactures proprietary systems to ~~end~~provide end-to-end extraction and processing ~~via the Company's proprietary systems~~ that allow for the conversion of hemp feed stock into hemp oil and hemp extracts. The primary focus of the segment will be to generate revenue through sales of extraction services and end to end processing services for the conversion of Hemp and Hemp oil into sellable ingredients. Additionally, the Company offers various rental, sales, and service programs of the company's extraction and processing systems.

The Company’s segments reflect the manner in which the business is managed and how the Company allocates resources and assesses performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company’s chief operating decision maker evaluates segment performance primarily based on revenue and segment operating ~~income.~~income (loss). 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.

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.

- 40-

Table of Contents

The following tables present ~~certain~~selected financial information for each segment (in thousands):

~~-41-~~

Three Months Ended
March 31,

2019
(unaudited)

2018

Revenues

(Restated)*

   Direct selling
$33,420
$35,311
   Commercial coffee
  7,705
  7,683
   Commercial hemp
  67
  -
      Total revenues
$41,192
$42,994
Gross profit


   Direct selling
$22,755
$24,735
   Commercial coffee
  4,067
  277
   Commercial hemp
  27
  -
      Total gross profit
$26,849
$25,012
Operating income (loss)

  -
   Direct selling
$(12,309)
$781
   Commercial coffee
  884
  (757)
   Commercial hemp
  (516)
  -
      Total operating income (loss)
$(11,941)
$24
Net income (loss)


   Direct selling
$(13,377)
$(591)
   Commercial coffee
  1,633
  (1,717)
   Commercial hemp
  (516)
  -
      Total net loss
$(12,260)
$(2,308)
Capital expenditures


   Direct selling
$17
$87
   Commercial coffee
  2,572
  679
   Commercial hemp
  1,384
  -
      Total capital expenditures
$3,973
$766
Capital expenditures acquired through acquisition

    Direct selling
$-
$-
    Commercial coffee
  -
  -
    Commercial hemp
  1,133
  -
    Total capital expenditures acquired through acquisition
$1,133
$-

As of

March 31,
2019
(unaudited)

December 31,
2018

Total assets

(Restated)*

   Direct selling
$45,011
$38,947
   Commercial coffee
  41,584
  37,026
   Commercial hemp
  21,189
  -
      Total assets
$ 107,784
$75,973

* Segment results

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues
Direct selling	$	31,319		$	30,256		$	92,750		$	95,800
Commercial coffee		2,482			2,940			8,775			16,464
Commercial hemp		201			184			1,000			525
Total revenues	$	34,002		$	33,380		$	102,525		$	112,789
Gross profit (loss)
Direct selling	$	20,429		$	19,749		$	61,425		$	64,744
Commercial coffee		(407	)		(163	)		(1,187	)		7,393
Commercial hemp		(268	)		152			(651	)		130
Total gross profit	$	19,754		$	19,738		$	59,587		$	72,267
Operating income (loss)
Direct selling	$	(1,180	)	$	(3,997	)	$	(4,259	)	$	(17,090	)
Commercial coffee		(1,249	)		(2,336	)		(4,652	)		390
Commercial hemp		(2,233	)		(2,146	)		(6,280	)		(3,574	)
Total operating income (loss)	$	(4,662	)	$	(8,479	)	$	(15,191	)	$	(20,274	)
Net income (loss)
Direct selling	$	(1,271	)	$	(4,332	)	$	(4,556	)	$	(18,959	)
Commercial coffee		(1,555	)		(1,397	)		(4,526	)		2,142
Commercial hemp		(2,246	)		(2,145	)		(6,321	)		(3,606	)
Total net loss	$	(5,072	)	$	(7,874	)	$	(15,403	)	$	(20,423	)
Capital expenditures
Direct selling	$	15		$	594		$	266		$	674
Commercial coffee		1,516			181			2,977			3,596
Commercial hemp		30			1,127			699			2,609
Total capital expenditures	$	1,561		$	1,902		$	3,942		$	6,879
Capital expenditures acquired through acquisitions
Direct selling	$	-		$	-		$	-		$	-
Commercial coffee		-			-			-			-
Commercial hemp	$	-		$	-		$	-		$	1,133
Total capital expenditures acquired through acquisitions		-			-			-			1,133

	September 30, 2020		December 31, 2019
	(unaudited)
Total assets
Direct selling	$	38,349	$	43,221
Commercial coffee		36,302		34,348
Commercial hemp		10,907		12,122
Total assets	$	85,558	$	89,691

Total net property and ~~total~~equipment assets ~~as of and for the three months ended March 31, 2019 have been restated. See Note 2.~~

~~Total tangible assets, net~~ located outside the ~~United States~~U.S. were approximately ~~$7.3 million~~$7,477,000 and ~~$6.2 million as of March~~$7,787,000 at September 30, 2020 and December 31, 2019, ~~and December 31, 2018,~~ respectively.

The Company conducts its operations primarily in the ~~United States.~~U.S. For ~~both~~ the three months ended ~~March 31, 2019~~ September 30, 2020 and ~~2018~~2019 approximately ~~13%~~16% of the Company’s revenue in both periods were derived from sales outside the U.S. For the nine months ended September 30, 2020 and 2019, approximately 16% and 15%, respectively, of the Company’s sales were derived from sales outside the ~~United States.~~U.S.

- 41-

Table of Contents

The following table displays revenues attributable to the geographic location of the customer (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues
United States	$	28,522	$	28,004	$	85,814	$	96,421
International		5,480		5,376		16,711		16,368
Total revenues	$	34,002	$	33,380	$	102,525	$	112,789

Three Months
Ended March 31,

2019
(unaudited)

2018

Revenues

(Restated)*

   United States
$35,782
$37,393
   International
  5,410
  5,601
      Total revenues
$41,192
$42,994

* Revenue

Note 13.Subsequent Events

Line of Credit

In January 2022, the Company entered into the second amendment to the Crestmark loan and security agreement which reduced the maximum overall borrowing limit on the line of credit to $3,000,000. Under the second amendment to the Crestmark loan and security agreement, the line of credit may not exceed an amount which is the lesser of (a) $3,000,000 or (b) the sum of up (i) to 85% of the value of the eligible accounts; plus, (ii) the lesser of $1,000,000 or 50% of eligible inventory or 50% of the amount calculated in (i) above.

In February 2022, the Company received a notice of default related to the loan and security agreement from Crestmark. The default includes the Company’s failure to provide quarterly financial statements for the ~~three~~quarters ended September 30, 2021 and December 31, 2021, as set forth in the loan agreement. As a result of this default, Crestmark has the right to charge a higher rate, to accelerate the indebtedness, and to enforce any other right or remedy set forth in the loan agreement.

In April 2022, the Company entered into a forbearance agreement with Crestmark. The forbearance agreement provides that Crestmark agreed to forbear from collection action under the loan documents until the termination date of June 30, 2022, provided the Company is in compliance with the terms of the forbearance agreement. At the filing date of this Quarterly Report on Form 10-Q, the Company is not currently in compliance with the term of the forbearance agreement. On June 17, 2022, the balance of the line of credit was $1,718,000.

Daniel Mangless - Settlement Agreement

Effective February 2021, the beneficial ownership in the Company’s common stock for Mr. Mangless dropped below 5% to sole ownership of 176,000 shares of common stock based on information contained in a Schedule 13G filed with the SEC in March 2021.

In April 2021, the Company entered into a Settlement Agreement (the “Settlement Agreement”) by and among the Company, CLR, and Daniel Mangless to settle all claims related to a lawsuit filed by Mr. Mangless against the Company and CLR in February 2021, for the alleged breach by the Company and CLR of their obligations under the Mangless Note and the Mangless Pledge and Security Agreement (See Mangless v. Youngevity International, Inc. and CLR Roasters LLC, Case No.2021-CA-996-O (Fla. Cir. Ct.)) (the “Lawsuit”). Pursuant to the Settlement Agreement, Mr. Mangless has agreed to dismiss the lawsuit, with prejudice within five days of the Company making all of the payments required under the Settlement Agreement.

Pursuant to the Settlement Agreement, the Company made a payment of approximately $195,000 to Mr. Mangless in April 2021 and made payments of approximately $102,000 per month to Mr. Mangless beginning in May 2021, and on every month thereafter through and including January 2022. In addition, pursuant to the Settlement Agreement, the Company agreed to issue Mr. Mangless 1,000,000 shares of its common stock (the “Settlement Shares”). The Company also agreed that following the date the Company has completed the audit of its financial statements for the years ended December 31, 2020, if it is then necessary to register the Settlement Shares with the SEC to allow Mr. Mangless to resell the Settlement Shares in the open market, to file a registration statement on Form S-1 within 60 days after bringing its audit filings up to date. The promissory note, including interest was paid, and the shares were issued in accordance with the terms of the settlement agreement.

Small Business Administration – Paycheck Protection Program Loan

In November 2020, the SBA lenders forgave approximately $613,000 of the loan proceeds received related to its commercial hemp segment of which the remaining $10,000 was unforgiven.

- 42-

Table of Contents

In February 2021, the Company was notified that it had qualified for an additional mortgage relief of approximately $18,000 for the months of March and April 2021 which do not require repayment.

In April 2021, the Company’s commercial coffee segment received a third loan in the amount of approximately $633,000 with an annual interest rate of 1% from SBA lenders, payable within 60 months if relief for the loan is not granted.

In June 2021, the SBA lenders forgave approximately $3,141,000 which represented loan proceeds the Company received in April 2020 of $2,508,000 related to its direct selling segment and $633,000 related to its commercial coffee segment.

At the filing date of this Quarterly Report on Form 10-Q, the Company was in communication with the SBA lenders regarding the potential liability the Company will incur (if any) in respect for repayment of the remaining unforgiven loans and consideration of any portion of loan forgiveness of the debt.

2019 PIPE Note Amendments

In February 2021, the Company entered into note amendments (the “2019 PIPE Note Amendments”) with certain holders of an aggregate of $1,000,000 in principal amount of the 2019 PIPE Notes issued by the Company to such investors in February 2019. The 2019 PIPE Notes had been in default and the 2019 PIPE Note Amendments extended the maturity date of the 2019 PIPE Notes by one year to February 2022 and increased the interest rate to 16%. In connection with the foregoing, as an inducement to enter into the 2019 PIPE Note Amendments, the Company issued to certain holders of the 2019 PIPE Notes an aggregate of 150,000 shares of its restricted common stock. At the filing date of this Quarterly Report on Form 10-Q, the Company was in default of the terms of settlement set forth in the 2019 PIPE Note Amendments.

In March 2021, the Company entered into note amendments (the “2019 PIPE Note Amendments”) with certain note holders of an aggregate of $1,440,000 in principal amount of the 2019 PIPE Notes issued by the Company to such investors in February and March 2019. The 2019 PIPE Notes had been in default and the 2019 PIPE Note Amendments extend the maturity date of the 2019 PIPE Notes by one year to February and March 2022, as applicable, and increased the interest rate to 12%. In connection with the foregoing, as an inducement to enter into the 2019 PIPE Note Amendments, the Company issued to the holders of the 2019 PIPE Notes an aggregate of 216,000 shares of its restricted common stock. At the filing date of this Quarterly Report on Form 10-Q, the Company was in default of the terms of settlement set forth in the 2019 PIPE Note Amendments.

2019 Promissory Notes Amendments

In February 2021, the Company entered into note amendments (the “2019 Promissory Notes Amendments”) with the holders of an aggregate of $2,000,000 in principal amount of the 2019 Promissory Notes, issued by the Company in March 2019. The 2019 Promissory Notes Amendments extend the maturity date of the 2019 Promissory Notes held by the investors to May 2022 and increase the interest rate to 16%. In connection with the foregoing, as an inducement to enter into the 2019 Promissory Notes Amendments, the Company issued to certain holders of the 2019 Promissory Notes an aggregate of 400,000 shares of its restricted common stock. In addition, the Company issued one of the note holders a two-year warrant to purchase 150,000 shares of the Company’s common stock at a price per share of $1.00. At the filing date of this Quarterly Report on Form 10-Q, the Company was in default of the terms of settlement set forth in the 2019 Promissory Notes Amendments.

Lending Agreements

In May 2022, the CLR and KII entered into a lending agreement and received a loan in the amount of approximately $2,000,000, net of loan fees with a stated interest rate of 18.15% through the term of the loan. Principal and interest payments are scheduled weekly through January 2024. The Company used $1,595,000 of the proceeds to pay off the existing balance with the lender. In addition, David Briskie, the Company’s President and Chief Investment Officer, personally guaranteed the Company’s indebtedness with the lender.

In September 2021, the Company entered into a lending agreement and received a loan in the amount of approximately $1,965,000, net of loan fees with a stated interest rate of 23.17% through the term of the loan. Principal and interest payments are scheduled weekly through November 2022. The Company used $465,000 of the proceeds to pay off the existing balance with the lender. In addition, David Briskie, the Company’s President and Chief Investment Officer, personally guaranteed the Company’s indebtedness with the lender.

In December 2020, the Company and CLR entered into lending agreements with two separate entities and received loans in the total amount of approximately $2,075,000, net of loan fees to be paid back over various periods under one year. Payments are made weekly and are comprised of principal and accrued interest with a stated interest rate between 20% and 25%. The Company’s Chief Executive Officer and Chief Investment Officer are both co-guarantors of the lending agreements.

In December 2020, KII entered into a lending agreement with an entity and received a loan in the amount of approximately $240,000 to be paid back over one year. Payments are made monthly and are comprised of principal and accrued interest with an effective interest rate of approximately 31%. The Company is a guarantor of the lending agreement. At the filing date of this Quarterly Report on Form 10-Q, this lending agreement was in default.

- 43-

Table of Contents

Cannooba Joint Venture

In April 2021, CLR and KII (collectively, the “Manufacturing Partner”) entered into a joint venture agreement (the “Cannooba Joint Venture”) with GROWTH by Sabir, Inc. (the “Web Marketing Partner”) for the purpose of selling hemp-derived components such as gummies, tinctures, gel caps, and topicals focused on strong scientific efficacy and extraordinary quality and will primarily be marketed via e-commerce. The Manufacturing Partner will be primarily responsible for manufacturing and operations while the Web Marketing Partner will be primarily responsible for marketing and sales. The net profit and losses will be allocated equally between the Manufacturing Partner and the Web Marketing Partner and will be distributed annually as soon as practicable after each year end.

At the time of this filing, the Cannooba Joint Venture was in the pre-launch phase and is expected to launch by the end of the second quarter of 2022.

H&H MA Agreement

In March 2021, CLR entered into a Master Relationship Agreement (the “MA Agreement”) with H&H, H&H Export and the owners of H&H and H&H Export in order to memorialize the various agreements and modifications to those agreements. Additionally, certain events have occurred that have kept the parties from complying with the terms of each of the original agreements and have caused there to be an imbalance with the respect to the funds owed by one party to the other; therefore this MA Agreement also sets forth a detailed accounting of the different business relationships and reconciles the monetary obligations between each party through the end of fiscal year 2020.

The MA Agreement memorialized the key settlement terms and established that H&H owes CLR approximately $10,700,000 that is composed of:

●

past due accounts receivable owed to CLR from H&H Export for 2019 and 2020;

●

the $5,000,000 note due plus accrued interest on the note;

●

CLR lost profits in 2019 and 2020;

●

the return of working capital provided by CLR for the 2019 and 2020 green coffee program.

The agreement also includes an offset against amounts owed by H&H to CLR consisting of:

●

H&H’s 25% profit sharing participation for 2019 and 2020;

●

and an offset of H&H’s open payables owed by CLR to H&H in the amount of approximately $243,000.

The MA Agreement provides that approximately $10,700,000 is owed to CLR by H&H Export and H&H agrees to satisfy this obligation by providing CLR a minimum of 20 containers (approximately 825,000 pounds) of strictly high grown coffee per month, commencing at the end of March 2021 and continuing monthly until the aforesaid amount is paid in full. The MA Agreement stipulates that the parties have agreed that the coffee to be provided to CLR by H&H for the shipments described above, that in order to satisfy H&H Exports’ debt to CLR, shall not be produced on any plantation that the parties have a joint interest in. CLR has recorded allowances of $7,871,000 related to the H&H Export trade accounts receivable and $5,789,000 related to the H&H Export notes receivable during the year ended December 31, 2020 due to H&H Export’s repayment history and risks associated with redemption of the receivable in coffee.

- 44-

Table of Contents

Properties Sold and Held for Sale

As a result, the following transactions occurred:

●

The Groveland property was sold in May 2021 for $800,000,

●

the Mascotte facility was sold in October 2021 for $975,000, and

●

the Clermont property was sold in February 2022 for $375,000.

The remaining balances of the notes payable associated with the above properties were paid off at the time of sale.

Location Shutdowns

During 2021, the Company’s direct selling segment voluntarily shut down its locations in Jamaica, Russia and Malaysia based on non-performance. The Company determined it was no longer economically viable to continue to do business in these markets.

Restricted Stock Units

In August 2021, the Company issued in aggregate 54,000 shares of common stock, of which 12,575 shares of common stock were withheld for tax obligations, due to partial vesting of restricted stock units issued to certain employees and consultants of the Company from the August 2017 issuance.

Dividends

During the last three months of 2020, the Company declared a regular monthly dividend of $0.203125 per share of its 9.75% Series D Cumulative Redeemable Perpetual Preferred Stock (OTCM:YGYIP) for each calendar month end to holders of record as of the last day of the calendar month for the last three months of 2020. The dividend is payable on approximately the fifteenth day of the following calendar month from date of record. The Company paid cash dividends in the three months of 2020 of approximately $360,000.

During 2021, the Company declared a regular monthly dividend of $0.203125 per share of its 9.75% Series D Cumulative Redeemable Perpetual Preferred Stock (OTCM:YGYIP) for each calendar month end to holders of record as of the last day of the calendar month in 2021. The dividend is payable on approximately the fifteenth day of the following calendar month from date of record. At the filing date of this Quarterly Report on Form 10-Q, the Company paid cash dividends in 2021 of approximately $1,440,000.

During 2022, the Company declared a regular monthly dividend of $0.203125 per share of its Series D preferred stock for the calendar month end to holders of record (i) as of the last day of December 2021, which was paid in January 2022, (ii) as of the last day of January 2022, which was paid in February 2022, (iii) as of the last day of February 2022, which was paid in March ~~31, 2019 has been restated. See Note 2.~~2022, (iv) as of the last day of March 2022, which was paid in April 2022, (iv) as of the last day of April 2022, which was paid in May 2022, and (vi) as of the last day of May 2022, which was paid June 15, 2022. At the filing date of this quarterly report, the Company paid cash dividends of approximately $719,000 during 2022.

- 45-

Table of Contents

~~-42-~~

~~Note 13. Subsequent Events~~

~~None.~~

~~-43-~~

~~ITEM~~

Item 2. ~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Restatement of previously reported unaudited condensed consolidated financial statements~~

~~This “Item 2. Management’s~~Management’s Discussion and Analysis of Financial Condition and Results of Operations” has been amended and restated to give effect to the restatement of our unaudited condensed consolidated financial statements as more fully described in “Note 2. Restatement of previously reported unaudited condensed consolidated financial statements” in “Item 1. Financial Statements.”

Operations

FORWARD LOOKING STATEMENTS

This quarterly report on Form ~~10-Q/A~~10-Q contains forward-looking statements. The words “expects,” “anticipates,” “believes,” “intends,” “plans” and similar expressions identify forward-looking statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. We undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Form ~~10-Q/A~~10-Q with the Securities and Exchange Commission. These forward-looking statements are subject to risks and uncertainties, including, without limitation, those risks and uncertainties discussed in Part I, Item 1A, “Risk Factors” and in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 10-K”), as filed with the Securities and Exchange Commission on ~~April 15, 2019 and herein as reported under Part II Other Information, Item 1A. Risk Factors.~~June 25, 2021. In addition ~~new~~to historical information, the following discussion contains certain forward-looking statements that involve risks, ~~emerge from time~~uncertainties and assumptions. Where possible, we have tried to ~~time and it is not possible for management to predict all~~identify these forward-looking statements by using words such ~~risk factors~~as “anticipate,” “believe,” “intends,” or ~~to assess the impact of such risk factors on our business. Accordingly, our future~~similar expressions. Our actual results ~~may~~could differ materially from ~~historical results or from~~ those ~~discussed~~anticipated expressed or implied by ~~these~~the forward-looking ~~statements. Given these~~statements due to important factors and risks ~~and uncertainties,~~including, but not limited to, those set forth under “Risk Factors” in Part I, Item 1A of the ~~reader should not place undue reliance on these forward-looking statements.~~

~~In the following text, the terms “we,” “our,” and “us” may refer, as~~2019 10-K.

Unless the context requires otherwise, references to ~~Youngevity International, Inc. or collectively~~“we,” “us,” “our,” the “Company” and “Youngevity,” refer to Youngevity International, Inc. and its subsidiaries.

Overview

We operate in three segments: (i) the direct selling segment, where products are offered through a global distribution network of preferred customers and distributors, (ii) the commercial coffee segment, where products are sold directly to businesses, the distribution of processed green coffee beans ~~are processed~~ and provides milling services ~~are provided~~ for unprocessed green coffee beans, and (iii) the commercial hemp segment where we manufacture proprietary systems to provide end-to-end extraction and processing ~~that allow for the conversion~~ of hemp feed stock into hemp oil and hemp ~~extracts.~~

Inextracts, oil extraction services, and contract manufacturing services.

For the three months ended September 30, 2020, we derived approximately 92.1% of our revenue from direct sales, 7.3% of our revenue from our commercial coffee sales and 0.6% of our revenue from our commercial hemp business. During the three months ended September 30, 2019, we derived 90.6% of our revenue from our direct selling segment, ~~we sell health~~8.8% of our revenue from our commercial coffee segment and wellness products on a global basis and offer a wide range of products through an international direct selling network of independent distributors. Our multiple independent selling forces sell a variety of products through friend-to-friend marketing and social networking.

We also engage in the commercial sale of coffee. We own a traditional coffee roasting business, CLR, that sells roasted and unroasted coffee and produces coffee under its own Café La Rica brand, Josie’s Java House brand and Javalution brands. CLR produces coffee under a variety of private labels through major national sales outlets and major customers including cruise lines and office coffee service operators. During fiscal 2014 CLR acquired the Siles Plantation Family Group, a coffee plantation and dry-processing facility located in Matagalpa, Nicaragua, an ideal coffee growing region that is historically known for high quality coffee production. The dry-processing facility is approximately 26 acres and the plantation is approximately 500 acres and produces 100 percent Arabica coffee beans that are shade grown, Rainforest Alliance Certified™ and Fair Trade Certified™. CLR is also in the process of expanding its capabilities in Nicaragua by constructing a large processing mill. The plantation, the dry-processing facilities and existing U.S. based coffee roaster facilities allows CLR to control the coffee production process0.6% from ~~field to cup.~~

In the commercial hemp segment.

For the nine months ended September 30, 2020, we derived approximately 90.5% of our revenue from direct sales, 8.5% of our revenue from our commercial coffee sales and 1.0% of our revenue from our commercial hemp business. During the nine months ended September 30, 2019, we derived approximately 84.9% of our revenue from our direct selling segment, ~~we are engaged in~~14.6% of our revenue from its commercial coffee segment and 0.5% from the ~~CBD~~commercial hemp ~~extraction technology and equipment business. We develop, manufacture and sell equipment and related services to clients which enable them to extract CBD oils from hemp stock.~~

segment.

We conduct our operations primarily in the ~~United States.~~U.S. For ~~both~~ the three months ended ~~March 31,~~September 30, 2020 and 2019 approximately 16% of our revenue in both periods were derived from sales outside the U.S. For the nine months ended September 30, 2020 and ~~2018,~~2019 approximately ~~87%~~16% and 15%, respectively, of our revenues were derived from sales ~~within~~outside the ~~United States.~~

~~-44-~~

~~Recent~~U.S.

Overview of Significant Events

~~New Acquisitions During the three months ended March 31,~~

Public Offering. Between September and December 2019,

~~New Acquisitions - Khrysos Global, Inc.~~

~~(See Note 2~~ we closed two tranches of our Series D offering, pursuant to which we issued and ~~Note 5,~~sold a total of 578,898 shares of our 9.75% Series D preferred stock at a weighted average price to the ~~condensed consolidated financial statements)~~

~~On February 12, 2019, we~~public of $24.05 per share, less underwriting discounts and Khrysos Industries, Inc., a Delaware corporation our wholly owned subsidiary of (“KII”) entered into an Asset and Equity Purchase Agreement (the “AEPA”) with, Khrysos Global, Inc., a Florida corporation (“Seller”), Leigh Dundore (“LD”), and Dwayne Dundore (the “Representing Party”) for KIIcommissions, pursuant to acquire substantially all the assets (the “Assets”) of KGI and all the outstanding equity of INXL Laboratories, Inc., a Florida corporation (“INXL”) and INX Holdings, Inc., a Florida corporation (“INXH”). Seller, INXL and INXH provides end to end extraction and processing via the company's proprietary systems that allow for the conversion of hemp feed stock into hemp oil and hemp extracts. Additionally, the company offers various rental, sales, and service programs of the company’s extraction and processing systems.

~~The consideration payable for the assets and the equity of KGI, INXL and INXH is an aggregate of $16,000,000, to be paid as set forth under~~ the terms of the ~~AEPA~~underwriting agreement that we entered into with the Benchmark Company, LLC (“Benchmark”) as representative of the several underwriters. The 578,898 shares of Series D preferred stock that were sold included 43,500 shares sold pursuant to the overallotment option that we granted to the underwriters that was exercised in full. In January 2020, we issued an additional 11,375 shares of Series D preferred stock upon the partial exercise by the underwriters.

The Series D preferred stock was approved for listing on The Nasdaq Capital Market under the symbol “YGYIP,” and ~~allocated between~~had commenced trading on September 20, 2019. The net proceeds from this offering were approximately $12,269,000 after deducting underwriting discounts and commissions and expenses which were paid by us. Trading in the ~~Sellers~~Series D preferred stock was suspended on the Nasdaq Capital Market on November 20, 2020, and ~~LD in such manner as they determine~~on February 2, 2021, the Series D preferred stock was removed from listing on Nasdaq Capital Market, effective at ~~their discretion.~~

~~At closing, Seller, LD and~~ the ~~Representing Party received an aggregate~~opening of ~~1,794,972~~the trading session on February 12, 2021. Our Series D preferred stock is now traded on OTC Pink market under the same symbol YGYIP.

-46-

Table of Contents

Stock Offerings. In February 2019, we entered into a securities purchase agreement with one accredited investor that had a substantial pre-existing relationship with us pursuant to which we sold 250,000 shares of our common stock ~~which have a value~~at an offering price of $14,000,000 for the purposes of the AEPA or $12,649,000 fair value for the acquisition valuation and $500,000 in cash. Thereafter, Seller, LD and the Representing Party are to receive an aggregate of: $500,000 in cash thirty (30) days following the date of closing; $250,000 in cash ninety (90) days following the date of closing; $250,000 in cash one hundred and eighty (180) days following the Date of closing; $250,000 in cash two hundred and seventy (270) days following the date of closing; and $250,000 in cash one (1) year following the date of closing.

~~In addition, we agreed to issue to Representing Party, subject~~$7.00 per share. Pursuant to the ~~approval of~~purchase agreement, we also issued to the ~~holders of at least~~investor a majority of the issued and outstanding shares of our common stock and the approval of The Nasdaq Stock Market (collectively, the “Contingent Consideration Warrants”) consisting of six (6) six-year warrants,three-year warrant to purchase ~~500,000 shares of common stock each, for an aggregate of 3,000,000~~250,000 shares of common stock at an exercise price of ~~$10~~$7.00. We received proceeds of $1,750,000 from the stock offering. Consulting fees for arranging the purchase agreement include the issuance of 5,000 shares of restricted shares of our common stock and a three-year warrant priced at $10.00 per share ~~exercisable~~convertible into 100,000 shares of our common stock upon ~~reaching certain levels~~exercise.

In June 2019, we entered into a securities purchase agreement with Daniel Mangless, with whom we had a pre-existing relationship, pursuant to which we sold 250,000 shares of ~~cumulative revenue or cumulative net income before taxes by~~common stock at an offering price of $5.50 per share. We received proceeds of $1,375,000 from the ~~business during the any of the years ending December 31, 2019, 2020, 2021, 2022, 2023 or 2024.~~

The AEPA contains customary representations, warranties and covenants of Youngevity, KII, the Seller, LD and the Representing Party. Subject to certain customary limitations, the Seller, LD and the Representing Party have agreed to indemnify us and KII against certain losses related to, among other things, breaches of the Seller’s, LD’s and the Representing Party’s representations and warranties, certain specified liabilities and the failure to perform covenants or obligations under the AEPA.

~~On February 28, 2019, KII purchased a 45-acre tract of land in Groveland, Florida, in central Florida, which KII intends to build R&D facility, greenhouse and allocate a portion for farming.~~

~~Overview of Significant Events~~

stock offering.

At-the-Market Equity Offering ~~Program~~

OnProgram. In January 7, 2019, we entered into an ~~At-the-Market Offering Agreement~~at-the-market offering agreement (the “ATM ~~Agreement”~~agreement”) with ~~The~~ Benchmark ~~Company, LLC (“Benchmark”), as sales agent,~~ pursuant to which we may sell from time to time, at ~~its~~our option, shares of our common stock ~~par value $0.001 per share,~~ through Benchmark, as sales agent, ~~(the “Sales Agent”),~~ for the sale of up to $60,000,000 of shares of our common stock. We are not obligated to make any sales of common stock under the ATM ~~Agreement~~agreement and we cannot provide any assurances that itwe will issue any shares pursuant to the ATM ~~Agreement. We will pay the Sales Agent 3.0% commission of the gross sales proceeds.~~agreement. During the ~~three months~~year ended ~~March~~December 31, 2019, we received approximately $102,000 from the ~~Company sold a total~~sale of ~~1,000~~17,524 shares of common stock under the ATM ~~Agreement~~agreement. We are not currently eligible to register the offer and sale of our securities using a registration statement on Form S-3 and therefore cannot make sales under the ATM agreement until such time as we once again become S-3 eligible.

Convertible Notes. Between February and July 2019, we closed five tranches related to the January 2019 private placement debt offering, pursuant to which we offered for sale up to $10,000,000 in principal amount of notes (the “2019 PIPE Notes”), with each investor receiving 2,000 shares of common stock for each $100,000 invested. We entered into subscription agreements with thirty-one accredited investors that had a substantial pre-existing relationship with us pursuant to which we received aggregate gross proceeds of $3,090,000 and issued 2019 PIPE Notes in the aggregate principal amount of $3,090,000 and an aggregate ~~purchase~~of 61,800 shares of common stock. The placement agent received 15,450 shares of common stock for the closed tranches as compensation. Each 2019 PIPE Note matures 24 months after issuance, bears interest at a rate of 6.00% per annum, and the outstanding principal is convertible into shares of common stock at any time after the 180^th day anniversary of the issuance of the 2019 PIPE Notes, at a conversion price of ~~$6.6118 pursuant~~$10.00 per share, subject to adjustment for stock splits, stock dividends and reclassification of the common stock. The 2019 PIPE Notes are secured by all equity in KII.

In February and March 2021, the 2019 PIPE Notes that were maturing were amended to extend the maturity dates by one year with certain note holders of an aggregate total of $2,440,000 in principal amount. At the filing date of this Quarterly Report on Form 10-Q, we were in default of the terms of settlement set forth in the amendments. (See Note 13 to the ~~ATM Agreement.~~

~~-45-~~

~~Cross-Marketing Agreement~~

~~On January 10,~~condensed consolidated financial statements.)

Promissory Notes. In March 2019, we entered into 2019 Promissory Notes with two accredited investors with whom we had a substantial pre-existing relationship with and from whom we raised cash proceeds in the aggregate of $2,000,000. The 2019 Promissory Notes are secured by all equity in KII. In consideration of the 2019 Promissory Notes, we issued 20,000 shares of our common stock for each $1,000,000 invested as well as for each $1,000,000 invested five-year warrants to purchase 20,000 shares of our common stock at a price per share of $6.00. The 2019 Promissory Notes paid interest at a rate of 8.00% per annum and interest was paid quarterly in arrears with all principal and unpaid interest due at maturity in March 2021. We issued in the aggregate 40,000 shares of common stock and 40,000 warrants with the 2019 Promissory Notes.

In February 2021, we entered into amendment agreements extending the 2019 Promissory Notes and increasing the interest rate. (See Note 13 to the condensed consolidated financial statements.)

In March 2020, we closed one tranche of our March 2020 private placement debt offering, pursuant to which we received net proceeds of $1,000,000 and we issued a senior secured promissory note in the principal amount of $1,000,000 which matured in December 2020 and 50,000 shares of our common stock in connection with this senior secured promissory note. The note and stock was issued in our private placement pursuant to which we offered up to an ~~exclusive cross-marketing~~aggregate of $5,000,000 in principal amount together with up to 250,000 shares of common stock with each investor receiving 50,000 shares of common stock for each $1,000,000 invested. The senior secured promissory notes interest rate was 18.00% per annum.

In April 2021, we entered into a settlement agreement with ~~Icelandic Glacial™~~Mr. Mangless related to the payment schedule of the senior secured promissory note issued in March 2020. (See Note 13 to the condensed consolidated financial statements.)

-47-

Table of Contents

Small Business Administration – Paycheck Protection Program Loan. Our three segments participated in “The Coronavirus Aid, Relief, and Economic Security Act, and the Paycheck Protection Program (the “PPP”) due to losses caused by the COVID-19 pandemic. In April 2020, we received cash in the aggregate of approximately $3,763,000 from qualified Small Business Administrators (“SBA”) lenders. In July 2020, we received an ~~Iceland based spring water drinking water company~~additional $150,000 from SBA lenders. Under the SBA loans, we received $2,508,000 related to our direct selling segment, $783,000 related to our commercial coffee segment and ~~is now available~~$623,000 related to our commercial hemp segment of which $613,000 was forgiven in November 2020 and the remaining $10,000 was unforgiven.

Under the SBA loans, our direct selling segment qualified for ~~customers~~mortgage assistance, whereby our corporate office’s mortgage had been paid directly from the SBA lenders. We qualified for the mortgage payment program for a period of six months. During the three and nine months ended September 30, 2020, the SBA paid approximately $70,000 and $142,000 in principal and interest directly to ~~purchase.~~

our mortgage holder.

In November 2020, the SBA lenders forgave approximately $613,000 of the loan proceeds received related to its commercial hemp segment of which the remaining $10,000 was unforgiven. Under the SBA loans, the Company’s direct selling segment qualified for mortgage assistance, whereby our corporate office’s mortgage was paid directly from the SBA lenders. In April 2021, our commercial coffee segment received a third loan in the amount of approximately $633,000 from SBA lenders. In June 2021, the SBA lenders forgave approximately $3,141,000 which represented loan proceeds we received in 2020. (See Note 13 to the condensed consolidated financial statements.)

H&H transactions

Mill Construction Agreement

In January ~~15,~~ 2019, to accommodate CLR’s green coffee purchase contract, CLR entered into ~~the CLR Siles Mill Construction Agreement (the “Mill Construction Agreement”)~~an agreement with H&H and H&H Export, ~~Alain Piedra~~Mr. Hernandez ~~(“Hernandez”)~~ and ~~Marisol Del Carmen Siles Orozco (“Orozco”), together with H&H, H&H Export, Hernandez and~~Ms. Orozco, collectively referred to as the Nicaraguan Partner, pursuant to which the Nicaraguan Partner agreed to transfer ~~a 45 acre tract of land in~~the Matagalpa ~~Nicaragua (the “Property”)~~Property to be owned 50% by the Nicaraguan Partner and 50% by CLR. In consideration for the land acquisition ~~the Company~~we issued to H&H Export, 153,846 shares of common stock. The fair value of the shares issued was $1,200,000 and was based on the stock price on the date of issuance of the shares. In addition, the Nicaraguan Partner and CLR agreed to contribute $4,700,000 each toward construction of a processing plant, office, and storage facilities ~~(“Mill”)~~ on the ~~property~~Matagalpa Property for processing coffee in Nicaragua. AsThe addition of ~~March~~the mill will accommodate CLR’s green coffee contract commitments.

For the three and nine months ended September 30, 2020, CLR made payments of approximately $706,000 and $1,506,000, respectively, towards the Matagalpa mill project. For the nine months ended September 30, 2019, CRL made payments toward the Matagalpa mill project of $2,150,000. At September 30, 2020, CLR contributed a total of $4,556,000 towards the construction of the Matagalpa mill project, and paid a total of $1,304,000 for operating equipment. At September 30, 2020, the Nicaraguan Partner contributed a total of $2,528,000 towards the Matagalpa Mill project. At the filing date of this Quarterly Report on Form 10-Q, the Matagalpa Mill was still incomplete for total operations.

In January 2019, we issued 295,910 shares of our common stock to H&H Export to pay for certain working capital, construction and other payables. In connection with the issuance, we over issued 121,649 shares of common stock, resulting in the net issuance of common stock to settle payables of 174,261 shares. H&H Export agreed to reimburse CLR for the over issuance of the 121,649 shares of common stock in cash. At September 30, 2020 and December 31, 2019, the ~~Company has made deposits~~value of ~~$2,250,000 towards~~ the ~~Mill, which is included in construction in process in property~~shares was approximately $73,000 and ~~equipment, net~~$397,000, respectively, based on the ~~Company’s consolidated balance sheet.~~

stock price at the respective periods. Management reviewed the amount due in conjunction with the impact of the underlying COVID crisis and has determined that the full receivable balances were more than likely to be uncollected at September 30, 2020 and December 31, 2019, and therefore the full amount was recognized as an allowance for collectability at the respective periods.

Amendment to Operating and Profit-Sharing Agreement

On between CLR and H&H

In January ~~15,~~ 2019, CLR entered into an amendment to the March 2014 operating and profit-sharing agreement with the owners of H&H. ~~CLR engaged Hernandez and Orozco, the owners of H&H as employees to manage Siles.~~ In addition, CLR and H&H, Mr. Hernandez and Ms. Orozco ~~have agreed to restructure~~restructured their profit-sharing agreement in regard to profits from green coffee sales and processing that ~~increases the~~increased CLR’s profit participation by an additional 25%. Under the new terms of the agreement with respect to profit generated from green coffee sales and ~~processing~~processed from La Pita ~~a leased mill,~~ or the ~~new mill,~~Matagalpa Mill. now will provide for a split of profits of 75% to CLR and 25% to the Nicaraguan Partner, after certain conditions are met. WeProfit-sharing income for the three and nine months ended September 30, 2020 was approximately $424,000 and $635,000, respectively. The profit-sharing expense for the three and nine months ended September 30, 2019 was approximately $863,000 and $1,331,000, respectively.

-48-

Table of Contents

Joint Venture Agreement in Nicaragua for Hemp Processing Center between the CLR and KII and Nicaraguan partner

In April and July 2020, CLR and KII (the U.S. Partners) entered into agreements (the “Hemp Joint Venture Agreements”) with H&H Export and Fitracomex, Inc. (“Fitracomex”) (collectively “The Nicaraguan JV Partners”) and established the Nicaraguan Hemp Grow and Extractions Group joint venture (the “Hemp Joint Venture”). Fitracomex is indirectly related us due to its relationship with H&H and is being treated as a related party.

In accordance with the terms of the Hemp Joint Venture Agreements, H&H Export will contribute the 2,200-acre Chaguitillo Farms in Sebaco-Matagalpa, Nicaragua which will be owned by H&H Export and the U.S. Partners on a 50/50 basis separate from the Hemp Joint Venture should the Hemp Joint Venture determine to sell the land in the future.

The Nicaraguan JV Partners will contribute the excavation and preparation for hemp growth of the 2,200 acres, installation of electrical service, and the construction of 45,000 square feet of buildings to be used for office, processing, storage, drying and green house space.

In April 2020, we issued ~~295,910~~1,500,000 shares of ~~our~~restricted common stock to ~~H&H Export to pay for certain working capital, construction and other payables. In addition, H&H Export has sold to CLR its espresso brand Café Cachita~~Fitracomex in ~~consideration~~accordance with the Hemp Joint Venture Agreements. The fair value of the shares at issuance ~~of 100,000~~was approximately $2,490,000. We also agreed to issue warrants to Fitracomex for the purchase 5,000,000 shares of our ~~common stock. Hernandez and Orozco are employees of CLR. The shares of common stock issued were valued at $7.50 per share.~~

~~Stock Offering~~

On February 6, 2019, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with one accredited investor that had a substantial pre-existing relationship with us pursuant to which we sold 250,000 shares of our common stock, par value $0.001 per share, at an offering price of $7.00 per share. Pursuant to the Purchase Agreement, we also issued to the investor a three-year warrant to purchase 250,000 shares of common stock at an exercise price of ~~$7.00. The proceeds to us were $1,750,000. Consulting fees~~$1.50, exercisable for ~~arranging~~a term of five years after completion of the ~~Purchase Agreement include~~construction and upon the ~~issuance of 5,000 shares of restricted shares~~approval of our ~~common stock, par value $0.001 per share,~~stockholders. At December 31, 2020, we reserved the full amount of the investment issued to Fitracomex.

The U.S. Partners and ~~100,000 3-year warrants priced at $10.00. No cash commissions were paid.~~

~~Convertible Notes~~

~~On February 15, 2019~~H&H Export will serve as the managing partners and all business decisions will require prior consent and agreement of both parties. The net profits and net losses for each fiscal period shall be allocated twenty five percent to the Nicaraguan JV Partners and seventy five percent to the U.S. Partners. At the filing date of this Quarterly Report on Form 10-Q, the Hemp Joint Venture is currently being assessed for changing market conditions related to the hemp industry, and as a result of the fluctuating indicators we are considering the timing of entering the market space in regard to the launch of this project.

Master Relationship Agreement

In March ~~10, 2019,~~2021, CLR entered into a Master Relationship Agreement (“MA Agreement”) with the ~~Company closed its first~~owners of H&H in order to memorialize the various agreements and ~~second tranches~~modifications to those agreements. Additionally, certain events have occurred that have kept the parties from complying with the terms of ~~its 2019 January Private Placement debt offering, respectively, pursuant~~each of the original agreements and have caused there to ~~which~~be an imbalance with the ~~Company offered for sale~~respect to the funds owed by one party to the other; therefore this MA Agreement also sets forth a detailed accounting of the different business relationships and reconciles the monetary obligations between each party through the end of fiscal year 2020.

This MA Agreement memorialized the key settlement terms and established that H&H owes CLR approximately $10,700,000 that is composed of:

●

past due accounts receivable owed to CLR from H&H for 2019 and 2020;

●

the $5,000,000 note due plus accrued interest on the note;

●

CLR lost profits in 2019 and 2020;

●

the return of working capital provided by CLR for the 2019 and 2020 green coffee program.

The agreement also includes an offset against amounts owed by H&H to CLR consisting of:

●

H&H’s 25% profit sharing participation for 2019 and 2020;

●

and an offset of H&H’s open payables owed by CLR to H&H in the amount of approximately $243,000.

The MA Agreement provides that approximately $10,700,000 is owed to CLR by H&H and H&H agrees to satisfy this obligation by providing CLR a minimum of ~~notes~~20 containers (approximately 825,000 pounds) of strictly high grown coffee per month, commencing at the end of March 2021 and continuing monthly until the aforesaid amount is paid in full. The MA Agreement stipulates that the ~~principal amount~~parties have agreed that the coffee to be provided to CLR by H&H for the shipments described above, that in order to satisfy H&H’s debt to CLR, shall not be produced on any plantation that the parties have a joint interest in. CLR has recorded allowances of $7,871,000 related to the H&H trade accounts receivable and $5,789,000 related to the H&H note receivable during the year ended December 31, 2020 due to H&H’s repayment history and risks associated with redemption of the receivable in coffee.

Acquisitions

In November 2019, we acquired certain assets of BeneYOU. BeneYOU is a ~~minimum~~nutritional and beauty product company that brings customers and distributors of ~~$100,000 and~~brands of Jamberry which offers a ~~maximum~~line of ~~notes in~~nail products, the principal amount $10,000,000 (the “2019 PIPE Notes”), with each investor receiving 2,000 shares of common stock for each $100,000 invested. The Company entered into subscription agreements with thirteen (13) accredited investors that had a substantial pre-existing relationship with the Company pursuant tobrand Avisae which the Company received aggregate gross proceeds of $2,440,000 and issued 2019 PIPE Notes in the aggregate principal amount of $2,440,000 and an aggregate of 48,800 shares of common stock. The placement agent will receive up to 50,000 shares of common stock in the offering. Each 2019 PIPE Note matures 24 months after issuance, bears interest at a rate of six percent (6%) per annum,focuses on gut health and the brand M.Global which delivers hydration products. (See Note 2 to the condensed consolidated financial statements.)

In February 2019, KII acquired the assets of Khrysos Global and all the outstanding ~~principal is convertible into shares~~equity of ~~common stock at any time after the 180th day anniversary of the issuance of the 2019 PIPE Note, at a conversion price of $10 per share (subject~~INXL and INXH. The collective business manufactures proprietary systems to ~~adjustment for stock splits, stock dividends~~provide end-to-end extraction and ~~reclassification of the common stock).~~

~~-46-~~

~~Promissory Notes~~

~~On March 18, 2019, we entered into a two-year Secured Promissory Note (the “Note or Notes”) with two accredited investors~~processing that we had a substantial pre-existing relationship with and from whom we raised cash proceeds in the aggregate of $2,000,000. In consideration of the Notes, we issued 20,000 shares of our common stock par value $0.001 for each $1,000,000 invested as well as for each $1,000,000 invested and five-year warrants to purchase 20,000 shares of our common stock at a price per share of $6.00. ~~The Notes pay 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 March 18, 2021.~~

~~Results of Operations~~

~~Three months ended March 31, 2019 compared to three months ended March 31, 2018~~

~~Revenues~~

~~For the three months ended March 31, 2019, our revenues decreased 4.2% to $41,192,000 as compared to $42,994,000~~allow for the ~~three months ended March 31, 2018. During the three months ended March 31, 2019, we derived approximately 81.1%~~conversion of ~~our revenue from our direct selling segment, 18.7% of our revenue from our commercial coffee segment~~hemp feed stock into hemp oil and ~~0.2% of our revenue from our commercial~~ hemp ~~segment.~~

For the three months ended March 31, 2019, direct selling segment revenues decreased by $1,891,000 or 5.4% to $33,420,000 as compared to $35,311,000 for the three months ended March 31, 2018. This decrease was primarily attributed to revenues from new acquisitions of $421,000, offset by a decrease of $2,333,000 in revenues from existing business. The decrease in direct selling revenues was also attributable to a general decline in net sales, primarily in North America and in Taiwan.

extracts. For the three months ended March 31, 2019, commercial ~~coffee segment~~hemp revenues represented transactions beginning from the date of acquisition of Khrysos Global. (See Note 2 to the condensed consolidated financial statements.)

-49-

Table of Contents

Going Concern

The accompanying condensed consolidated financial statements have been prepared and presented on a basis assuming we will continue as a going concern. At September 30, 2020, we had a significant accumulated deficit and had experienced significant losses and incurred negative cash flows for the last few years. We sustained significant net losses during the nine months ended September 30, 2020 and 2019 of approximately $15,403,000 and $20,423,000, respectively. Net cash used in operating activities was approximately $2,075,000 and $7,762,000 for the nine months ended September 30, 2020 and 2019, respectively We anticipate similar continued results for the year 2021.

Management has assessed our ability to continue as a going concern and concluded that additional capital will be required during the twelve-months subsequent to the filing date of this Quarterly Report on Form 10-Q. The timing of when the additional capital will be required is uncertain and highly dependent on factors discussed below. There can be no assurance that we will be able to execute license or purchase agreements or to obtain equity or debt financing, or on terms acceptable to it. Factors within and outside our control could have a significant bearing on its ability to obtain additional financing. As a result, management has determined that there are material uncertainties that raise substantial doubt upon our ability to continue as a going concern.

At September 30, 2020, cash and cash equivalents totaled approximately $1,238,000. We have and continue to take actions to alleviate the cash used in operations. During the nine months ended September 30, 2020, we reported total revenue of approximately $102,525,000 a decrease of approximately 9.1% compared to the same period a year ago. We continue to focus on revenue growth, but we cannot make assurances that revenues will grow. Additionally, we have plans to make the necessary cost reductions and to reduce non-essential expenses, including international operations that are not performing well to help alleviate the cash used in operating activities.

The outbreak of COVID-19 and resulting pandemic resulted in significant contraction of economies around the world and interrupted global supply chains as many governments issued stay-at-home orders to combat COVID-19. The outbreak of COVID-19 also impacted our ability to properly staff and maintain our domestic and international warehousing operations due to stay-at-home orders issued within various locations where we operate warehouse and shipping operations. We took actions to mitigate the impact but cannot assert that future stay-at-home orders or further restrictive orders will not have an impact on future operations. We experienced changes in product mix demand, with demand increasing toward health-oriented products and weakening for non-health related products. Such changes in demand may have a significant impact on revenues, margins and net operating profit in the future. The outbreak has also impacted our ability to obtain some ingredients and packaging as well as ship products in some markets. Our supply chain and logistics have incurred some interruptions and cost impacts to date, and we could experience more significant interruptions and cost impacts. Our suppliers of raw material and supplies have and could continue to be impacted by geopolitical events, such as the war in Ukraine, thus interrupting our supply chain. Additionally, our customers may experience interruptions from other suppliers that could cause a customer to delay or cancel orders. These factors and other events have negatively impacted our sales and operations and will likely continue to negatively affect our business and financial results. We are unable to predict the possible future effect on the demand for products sold by the Company, and the related revenues, margins and operating profit due to these events.

In addition, the outbreak of the COVID-19 coronavirus has disrupted our operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in our office or other workplace, or due to quarantines. COVID-19 illness could also impact members of our board of directors resulting in absenteeism from meetings of the directors or committees of directors and making it more difficult to convene the quorums of the full board of directors or its committees needed to conduct meetings for the management of the Company’s affairs.

We continue to seek and obtain equity or debt financing on terms that are acceptable to the Company. Depending on market conditions, there can be no assurance that additional capital will be available when needed or that, if available, it will be obtained on terms favorable to us and our stockholders.

These financial statements have been prepared on a going concern basis, which asserts the Company has the ability in the near term to continue to realize its assets and discharge its liabilities and commitments in a planned manner giving consideration to the above and expected possible outcomes. The financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty. Within the current operating environment due to the declared national emergency, related to COVID 19 combined with the management plans described above the Company cannot assert that the doubt of the Company’s ability to continue as a going concern has been substantially alleviated, Conversely, if the going concern assumption is not appropriate, adjustments to the carrying amounts of the Company’s assets, liabilities, revenues, expenses and balance sheet classifications may be necessary, and these adjustments could be material.

-50-

Table of Contents

Results of Operations

Three months ended September 30, 2020 compared to three months ended September 30, 2019

Revenues

For the three months ended September 30, 2020, our revenues increased ~~by $22,000 or 0.3%~~1.9% to ~~$7,705,000~~approximately $34,002,000 as compared to ~~$7,683,000~~$33,380,000 for the three months ended ~~March 31, 2018. This~~September 30, 2019. During the three months ended September 30, 2020, we derived 92.1% of our revenue from our direct selling sales, 7.3% of our revenue from our commercial coffee sales and approximately 0.6% from our hemp segment.

For the three months ended September 30, 2020, direct selling segment revenues increased by $1,063,000 or 3.5% to $31,319,000 as compared to $30,256,000 for the three months ended September 30, 2019. The increase in revenue was primarily due to the increase in economic activity within the economy during the three months ended September 30, 2020, compared to the same period last year. Economic activity increased during this three-month period primarily due to the lifting of COVID 19 restrictions that increased overall consumer spending and increased interest by consumers in nutrition products. Offsetting these increases was a year-over-year decline in the number of distributors resulting from lower overall consumer interest in direct selling and the Company’s inability to hold distributor events and training.

For the three months ended September 30, 2020, commercial coffee segment revenues decreased by $458,000 or 15.6% to $2,482,000 as compared to $2,940,000 for the three months ended September 30, 2019. The decrease in revenue was attributed to decreases in revenues from our roasted coffee business of $916,000, partially offset by increases in green coffee sales of $276,000 and milling and processing services of $182,000. The decline in roasted coffee sales reflects the impact of COVID-19 on the cruise line industry, a primary purchaser of our roasted coffee.

For the three months ended September 30, 2020, commercial hemp segment revenues increased by $17,000 or 9.2% to $201,000 as compared to $184,000 for the three months ended September 30, 2019. The increase was primarily attributed to ~~increased revenues of $81,000 from our roasted coffee business, offset by a decrease in revenues from~~higher sales of ~~green coffee of $4,885,000,~~ ~~attributable to~~ the ~~change in recognition of H&H Export revenue in 2019 to milling~~hemp product lines and ~~processing services related to the green coffee business. The decrease in sales from green coffee was offset byrevenues from milling and processing services of approximately $4,826,000 to H&H Export.~~

~~Our new commercial hemp segment recorded $67,000 in revenues related to the acquisition of Khrysos which closed on February 15, 2019.~~

tolling services.

The following table summarizes our revenue ~~in thousands~~ by ~~segment:~~

Three Months Ended March 31,

2019

2018

Percentage
Change (1)

(Restated)*

Direct selling
$33,420
$35,311
  (5.4)%
As a % of Revenue
  81.1%
  82.1%
  (1.0)%
Commercial coffee:



Processed green coffee
  100
  4,985
  (98.0)%
As a % of Segment Revenue
  1.3%
  64.9%
  (63.6)%
Milling and processing services
  4,826
  -
  N/A
As a % of Segment Revenue
  62.6%
  -%
  N/A
Roasted coffee and other
  2,779
  2,698
  3.0%
As a % of Segment Revenue
  36.1%
  35.1%
  1.0%
Total commercial coffee
  7,705
  7,683
  0.3%
As a % of Revenue
  18.7%
  17.9%
  0.8%
Commercial hemp
  67
  -
  N/A
As a % of Revenue
  0.2%
  -%
  N/A
Total Revenues
$41,192
$42,994
  (4.2)%

~~See Note 2 to the unaudited condensed consolidated financial statements.~~

~~(1)~~

~~Percentages denoted as N/A do not contain prior period comparatives~~

~~-47-~~

segment (in thousands):

	Three Months Ended September 30,
	2020			2019			Percentage Change
Direct selling	$	31,319		$	30,256			3.5	%
As a % of Revenue		92.1	%		90.6	%		1.5	%
Processed green coffee		254			(22	)		(1,254.5	)%
As a % of Segment Revenue		10.2	%		(0.7	)%		10.9	%
Milling and processing services		211			29			627.6	%
As a % of Segment Revenue		8.5	%		1.0	%		7.5	%
Roasted coffee and other		2,017			2,933			(31.2	)%
As a % of Segment Revenue		81.3	%		99.7	%		(18.4	)%
Commercial coffee		2,482			2,940			(15.6	)%
As a % of Revenue		7.3	%		8.8	%		(1.5	)%
Commercial hemp		201			184			9.2	%
As a % of Revenue		0.6	%		0.6	%		0.0	%
Total Revenues	$	34,002		$	33,380			1.9	%

Cost of Revenues

For the three months ended ~~March 31, 2019, overall~~September 30, 2020, cost of revenues ~~decreased~~increased approximately ~~20.2%~~4.4% to ~~$14,343,000~~$14,248,000 as compared to ~~$17,982,000~~$13,642,000 for the three months ended ~~March 31, 2018.~~

September 30, 2019.

The direct selling segment cost of revenues increased ~~0.8%~~3.6% to ~~$10,665,000 when~~approximately $10,890,000 as compared to ~~$10,576,000~~$10,507,000 for the ~~same period last year,~~three months ended September 30, 2019, primarily due to increases in the cost of inventory and shipping product ~~sales mix and an increase in stock and equity-based compensation expense of $74,000.~~

to our distributors.

The commercial coffee segment cost of revenues decreased ~~50.9%~~6.9% to approximately ~~$3,638,000 when~~$2,889,000 as compared to ~~$7,406,000~~$3,103,000 for the ~~same period last year. This was~~three months ended September 30, 2019, primarily attributable the cost of revenues for roasted coffee that decreased 23.7% to $2,420,000 compared to $3,170,000 during the three months ended September 30, 2019, partially offset by the shift inaway from revenue ~~from processed green coffee sales to~~for milling and processing services ~~year on year.~~in 2020 when compared to 2019. As revenue for milling services does not contain a cost of goods sold component, ~~related to processed green coffee, this~~the shift in ~~revenues to~~revenue away from milling and processing services ~~lowers~~increased our cost of ~~revenue.~~revenue year-over-year. Cost of revenues ~~from the sale of~~for processed green coffee ~~was $607,000 or 7.9% of commercial coffee segment revenues~~ for the three months ended ~~March 31, 2019. During~~September 30, 2020 increased to $469,000 compared to a credit balance of $67,000 during the three months ended March 31, 2018, cost of revenues on processed green coffee sales were $4,809,000 or 96.5% of commercial coffee segment revenues. Cost of revenue for roasted coffee increased 16.7% to $3,031,000 for the three months ended March 31,September 30, 2019.

The commercial hemp segment cost of revenues increased to approximately $469,000 for the three months ended September 30, 2020 as compared to $32,000 for the three months ended September 30, 2019. The increase was ~~$40,000.~~

~~Cost of revenues includes the cost of inventory including green coffee, shipping and handling costs incurred in connection with shipments~~primarily attributable to ~~customers,~~higher manufacturing consulting fees, direct labor costs, and ~~benefits costs, royalties associated with certain products, transaction merchant fees~~supply and ~~depreciation on certain assets.~~material costs.

-51-

Table of Contents

Gross Profit

(Loss)

For the three months ended ~~March 31, 2019,~~September 30, 2020, gross profit increased 0.1% to approximately ~~7.3% to $26,849,000~~$19,754,000 as compared to ~~$25,012,000~~$19,738,000 for the three months ended ~~March 31, 2018. Overall gross~~September 30, 2019. Gross profit as a percentage of revenues ~~increased to 65.2%~~for the three months ended September 30, 2020 and 2019 was 58.1% and 59.1%, ~~compared to 58.2% in the same period last year, primarily due to the increased revenues in the commercial coffee segment.~~

respectively.

Gross profit in the direct selling segment ~~decreased by 8.0%~~increased 3.4% to ~~$22,755,000~~approximately $20,429,000 from ~~$24,735,000 in~~$19,749,000 for the ~~prior period~~three months ended September 30, 2019 primarily as a result of the ~~decrease in revenues and the~~ higher ~~cost of sales discussed above.~~revenues. Gross profit as a percentage of revenues ~~in the direct selling segment decreased by approximately 1.9% to 68.1%~~ for the three months ended ~~March 31,~~September 30, 2020 and 2019 ~~compared to 70.0% in the same period last year.~~

was 65.2% and 65.3%, respectively.

Gross ~~profit~~loss in the commercial coffee segment ~~increased to~~was approximately ~~$4,067,000~~$407,000 compared to ~~$277,000 in~~$163,000 for the ~~prior period.~~three months ended September 30, 2019. Gross ~~profit~~loss as a percentage of revenues ~~in the commercial coffee segment increased to 52.8%~~ for the three months ended ~~March 31,~~September 30, 2020 and 2019 ~~compared to 3.6% in the same period last year.~~was 16.4% and 5.5%, respectively. The increase in the gross ~~profit~~loss in the commercial coffee segment was primarily due to the ~~overall~~year-over-year change in roasted coffee sales and cost of goods sold that increased negative gross profit by $166,000 and the changes in revenue and cost of goods sold from processed green coffee sales that generated a year-over-year decrease in gross profit of approximately $260,000, partially offset by increase of $182,000 in revenue from the processing and milling of unprocessed green coffee at our mill that in turn drove higher gross profits from the combination of processed green coffee sales and revenues on milling and processing services during the three months ended March 31, 2019. coffee.

Gross ~~profit from the sales of processed green coffee was a negative $507,000 or 6.6% ofcommercial coffee segment revenuesand gross profits from milling and processing services was $4,826,000.~~

~~Gross profit~~loss in the commercial hemp segment was ~~$27,000~~ ~~related~~approximately $268,000 compared to gross profit of $152,000 for the ~~acquisition~~three months ended September 30, 2019. Gross loss as a percentage of ~~Khrysos which closed on February 15, 2019.~~

~~-48-~~

revenues for the three months ended September 30, 2020 was 133.3%. Gross profit as a percentage of revenues for the three months ended September 30, 2019 was 82.6%.

Below is a table of gross profit (loss) by segment (in thousands) and gross profit (loss) as a percentage of segment revenues:

Three Months Ended March 31,

2019

2018

Percentage
Change (1)

(Restated) (1)

Direct selling
$22,755
$24,735
  (8.0)%
  Gross Profit % of Segment Revenues
  68.1%
  70.0%
  (1.9)%
Commercial Coffee:



Processed green coffee
  (507)
  176
  (388.1)%
  Gross Profit % of Segment Revenues
  (6.6)%
  2.3%
  (8.9)%
Milling and processing services
  4,826
  -
  N/A
  Gross Profit % of Segment Revenues
  62.6%
  -%
  N/A
Roasted coffee and other
  (252)
  101
  (349.5)%
  Gross Loss % of Segment Revenues
  (3.3)%
  1.3%
  (4.6)%
Total commercial coffee
  4,067
  277
  1,368.2%
  Gross Profit % of Segment Revenues
  52.8%
  3.6%
  49.2%
Commercial hemp
  27
  -
  N/A
  Gross Profit % of Segment Revenues
  40.3%
  -%
  N/A
Total
$26,849
$25,012
  7.3%
  Gross Profit % of Revenues
  65.2%
  58.2%
  7.0%

* See Note 2 to the unaudited condensed consolidated financial statements.

~~(1) Percentages denoted as N/A do not contain prior period comparatives~~

	Three Months Ended September 30,
	2020			2019			Percentage Change
Direct selling	$	20,429		$	19,749			3.4	%
Gross Profit % of Segment Revenues		65.2	%		65.3	%		(0.1	)%
Processed green coffee		(215	)		45			(577.8	)%
Gross Profit (Loss) % of Segment Revenues		(8.7	)%		1.5	%		(10.2	)%
Milling and processing services		211			29			627.6	%
Gross Profit % of Segment Revenues		8.5	%		1.0	%		7.5	%
Roasted coffee and other		(403	)		(237	)		70.0	%
Gross Loss % of Segment Revenues		(16.2	)%		(8.1	)%		(8.1	)%
Commercial coffee		(407	)		(163	)		149.7	%
Gross Loss % of Segment Revenues		(16.4	)%		(5.5	)%		(10.9	)%
Commercial hemp		(268	)		152			(276.3	)%
Gross Profit (Loss) % of Segment Revenues		(133.3	)%		82.6	%		(215.9	)%
Total	$	19,754		$	19,738			0.1	%
Gross Profit % of Revenues		58.1	%		59.1	%		(1.0	)%

Operating Expenses

For the three months ended ~~March 31, 2019,~~September 30, 2020, our operating expenses ~~increased 55.2%~~decreased 13.5% to ~~$38,790,000~~approximately $24,416,000 as compared to ~~$24,988,000~~$28,217,000 for the three months ended ~~March 31, 2018. The increase included $12,892,000 in stock and equity-based compensation expense~~ (~~see Note 11, to the condensed consolidated financial statements).~~

September 30, 2019.

Distributor Compensation

For the three months ended ~~March 31, 2019,~~September 30, 2020, the distributor compensation paid to our independent distributors in the direct selling segment decreased ~~4.4%~~1.1% to ~~$14,890,000~~approximately $13,262,000 from ~~$15,578,000~~$13,122,000 for the three months ended ~~March 31, 2018. This~~September 30, 2019. The decrease was primarily attributable to ~~the decrease in~~lower revenues. Distributor compensation as a percentage of direct selling revenues ~~increased to 44.6%~~was 42.3% and 43.4% for the three months ended ~~March 31,~~September 30, 2020 and 2019, ~~as compared~~respectively.

-52-

Table of Contents

Sales and Marketing

For the three months ended September 30, 2020, total sales and marketing expense decreased 31.1% to ~~44.1%~~approximately $3,053,000 from $4,432,000 for the three months ended ~~March 31, 2018.~~

For the three months ended March 31, 2019, total sales and marketing expense increased 14.9% to $4,019,000 from $3,499,000 for the three months ended March 31, 2018. This increase included an increase of $471,000 in equity-based compensation expense. Excluding the increase in equity-based compensation expense, the increase in sales and marketing expense would have been 1.4%.

September 30, 2019.

In the direct selling segment, sales and marketing expense ~~increased by 12.8%~~for the three months ended September 30, 2020 decreased 29.9% to ~~$3,715,000 in the current quarter~~approximately $2,811,000 from ~~$3,292,000~~$4,009,000 for the same period last year. ~~This increase included~~The decrease was primarily due to decreases in expenses related to conventions and distributor events, wages and benefits related to temporary labor costs, partially offset by an increase ~~of $471,000~~ in ~~equity-based compensation expense. Excluding~~marketing expenses related to the ~~increase in equity-based compensation expense, sales and marketing expense would have decreased by 1.5%.~~ rewards programs.

In the commercial coffee segment, sales and marketing costs ~~increased by $84,000~~for the three months ended September 30, 2020 decreased 11.0% to ~~$291,000 in the current quarter compared to~~approximately $227,000 from $255,000 for the same period last ~~year,~~year. The decrease was primarily due to ~~increased advertising costs and compensation expense. Sales and~~lower marketing ~~expense was $13,000 in~~expenses.

In the commercial hemp ~~segment.~~

~~-49-~~

segment, sales and marketing costs for the three months ended September 30, 2020 decreased 91.1% to approximately $15,000 from $168,000 for the same period last year. The decrease was primarily due to reduced advertising and promotion expenses.

General and Administrative

For the three months ended ~~March 31, 2019,~~September 30, 2020, total general and administrative expense ~~increased 236.3%~~decreased 24.0% to ~~$19,881,000~~approximately $8,101,000 from ~~$5,911,000~~$10,663,000 for the three months ended March 31, 2018. This increase included an increase of $12,421,000 in equity-based compensation expense. Excluding the increase in equity-based compensation expense, the increase in general and administration expense would have been 27.2%.

September 30, 2019.

In the direct selling segment, general and administrative expense ~~increased by 223.7%~~for the three months ended September 30, 2020 decreased 16.3% to ~~$16,459,000 in the current quarter~~approximately $5,536,000 from ~~$5,084,000~~$6,615,000 for the same period last year. This increase included an increase of $10,995,000 in equity-based compensation expense. Excluding the increase in equity-based compensation expense, general and administrative expense would have increased by 7.7%. This increaseThe decrease was primarily due to ~~an increase in accounting and legal fees. In addition, there was no contingent liability revaluation adjustment~~the change in the ~~current quarter~~contingent acquisition debt of $156,000 in the three months ended September 30, 2020 compared to ~~a reduction in expense of $213,000 for~~ the same period last ~~year.~~ year, which reduced expenses.

In the commercial coffee segment, general and administrative costs ~~increased by $2,065,000 or 249.7%~~for the three months ended September 30, 2020 decreased 68.0% to ~~$2,892,000 in the current quarter compared to $827,000 in~~$615,000 from $1,919,000 for the same period last year. This increase included an increase of $1,425,000 in equity-based compensation expense. Excluding the increase in stock based compensation expense, general and administration expense in the commercial coffee segment would have increased by 77.4%. ThisThe decrease was primarily due to ~~an increase in wages, incentives, warehouse storage costs, workers’ compensation costs and~~lower profit-sharing expense of ~~$243,000,~~$1,287,000 in the three months ended September 30, 2020 compared to ~~a profit-sharing benefit of $223,000 in~~the same period last year.

In the commercial hemp segment, general and administrative costs for the three months ended September 30, 2020 decreased 8.4% to $1,950,000 from $2,129,000 for the same period last year. ~~General~~The decrease was primarily due to lower salaries, professional fees, and ~~administrative expense was $530,000 in the commercial hemp segment, mostly~~legal fees, partially offset by higher costs related to ~~wages, supplies and general office costs.~~

equity-based compensation for services of $325,000.

Operating ~~Income (Loss)~~

Loss

For the three months ended ~~March 31,~~September 30, 2020 and 2019, ~~the Company reported an~~our operating loss ~~of $11,941,000~~was $4,662,000 and $8,479,000, respectively. The decrease in our operating loss was primarily attributed to lower operating expenses.

Other Income (Expense), net

For the three months ended September 30, 2020, net other expense was $557,000 as compared to ~~an operating~~net other income of ~~$24,000~~$472,000 for the three months ended ~~March 31, 2018. This~~September 30, 2019. The change was ~~primarily~~ due to the increase of $12,966,000 in non-cash and equity-based compensation expense discussed above. Excluding the increase in equity-based compensation expense, the Company would have reported an operating income of $1,025,000 in the current quarter.

~~Total Other Expense~~

For the three months ended March 31, 2019, total other expense decreased by $2,061,000 to $21,000 as compared to other expense of $2,082,000 for the three months ended March 31, 2018. Total other expense includes net interest expense, the change in the fair value of derivative liabilities, partially offset by lower net interest expense and ~~extinguishment~~the loss on ~~debt.~~

the modification of warrants recorded in 2019.

Net interest expense decreased ~~by $205,000~~$451,000 for the three months ended ~~March 31, 2019~~September 30, 2020 to ~~$1,507,000,~~$658,000, compared to ~~$1,712,000~~$1,109,000 for the three months ended ~~March 31, 2018.~~

~~Change~~September 30, 2019. Interest income for the three months ended September 30, 2020 and 2019 was $116,000 and $54,000, respectively.

Other income from the change in the fair value of derivative liabilities ~~increased by $774,000~~decreased $2,356,000 for the three months ended ~~March 31, 2019~~September 30, 2020 to ~~$1,486,000 in other income~~$101,000 compared to ~~$712,000~~$2,457,000 for the three months ended ~~March 31, 2018.~~September 30, 2019. 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 Company’s derivative liabilities. As such, we expect future changes in the fair value of the warrants and may vary significantly from period to ~~period (see~~period. (See Notes 8 & 9 to the condensed consolidated financial statements).

~~For~~

We recorded a non-cash loss on warrants of $876,000 for the three months ended ~~March 31, 2018, we recorded a non-cash extinguishment loss on debt of $1,082,000~~September 30, 2019 as a result of ~~the triggering~~modification of the ~~automatic conversion~~warrant terms of ~~the 2017 Notes associated with our July 2017 Private Placement~~certain holders of 2014 warrants and preferred warrants to include additional shares of restricted common ~~stock. This loss represented the difference between the carrying value~~stock we issued as an inducement fee to upon exercise of the 2017 Notes and embedded conversion feature and the fair value of the shares that were issued. The fair value of the shares issued were based on the stock price on the date of the conversion. There was no loss on debt extinguishment in the current quarter.their warrants. (See Note 8,10 to the condensed consolidated financial statements).

-53-

~~-50-~~

Table of Contents

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the effective date of the change. ~~We have determined~~At December 31, 2019, we evaluated the realizability of the deferred tax asset, based upon achieved and estimated future results and through consideration of all positive and negative evidences and have determined that it is more likely than not that the deferred tax assets ~~are~~will not ~~more likely than not to~~ be realized. A valuation allowance remains on the U.S., state and foreign tax attributes that are likely to expire before realization. ~~We have~~At December 31, 2019, we had approximately ~~$146,000~~$75,000 in ~~AMT~~ refundable credits, and ~~we expect~~it expects that ~~$73,000~~a substantial portion will be refunded ~~in 2019.~~between 2020 and 2021. As such, we do not have a valuation allowance relating to the refundable AMT credit carryforward. We ~~have~~ recognized an income tax ~~expense~~benefit of ~~$298,000~~$147,000 which is our estimated federal, state and foreign income tax ~~expense~~benefit for the three months ended ~~March 31, 2019.~~September 30, 2020. The difference between the effective tax rate and the federal statutory rate of 21% is due to the permanent differences, change in valuation allowance, state taxes (net of federal benefit), and foreign tax rate differential.

Net Loss

For the three months ended ~~March 31,~~September 30, 2020 and 2019, the Company reported a net loss of ~~$12,260,000 as compared to net loss of $2,308,000 for the three months ended March 31, 2018.~~$5,072,000 and $7,874,000, respectively. The primary reason for the ~~increase~~decrease in net loss when compared to the prior period was due to the decrease in operating expenses.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

Revenues

For the nine months ended September 30, 2020, our revenues decreased 9.1% to approximately $102,525,000 as compared to $112,789,000 for the nine months ended September 30, 2019. During the nine months ended September 30, 2020, we derived 90.5% of our revenue from our direct selling sales, 8.5% of our revenue from our commercial coffee sales and approximately 1.0% from our hemp segment.

For the nine months ended September 30, 2020, direct selling segment revenues decreased by approximately $3,050,000 or 3.2% to $92,750,000 as compared to $95,800,000 for the nine months ended September 30, 2019. The decrease was primarily attributed to the continued impact of COVID-19 that has disrupted various supply chains affecting product availability and the year-over-year decline in the number of distributors resulting from the Company’s inability to hold distributor events and training.

For the nine months ended September 30, 2020, commercial coffee segment revenues decreased by $7,689,000 or 46.7% to $8,775,000 as compared to $16,464,000 for the nine months ended September 30, 2019. The decrease in revenue was attributed to decreases in milling and processing services of $5,881,000, roasted coffee of $1,535,000 and processed green coffee of $273,000 in the nine months ended September 30, 2020 compared to the same period last year. The decrease in milling and processing services reflects the Company’s strategic shift in moving from mill processing revenues, primarily billed to H&H Export, to sales of green coffee, primarily sold to Rothfos.

For the nine months ended September 30, 2020, commercial hemp segment revenues increased by $475,000 to $1,000,000 as compared to $525,000 for the nine months ended September 30, 2019, which represented a partially nine months of revenues. The increase was primarily attributed to higher sales of the hemp product lines and tolling services.

-54-

Table of Contents

The following table summarizes our revenue by segment (in thousands):

	Nine Months Ended September 30,
	2020			2019			Percentage Change
Direct selling	$	92,750		$	95,800			(3.2	)%
As a % of Revenue		90.5	%		84.9	%		5.6	%
Processed green coffee		773			1,046			(26.1	)%
As a % of Segment Revenue		8.8	%		6.4	%		2.4	%
Milling and processing services		535			6,416			(91.7	)%
As a % of Segment Revenue		6.1	%		39.0	%		(32.9	)%
Roasted coffee and other		7,467			9,002			(17.1	)%
As a % of Segment Revenue		85.1	%		54.7	%		30.4	%
Commercial coffee		8,775			16,464			(46.7	)%
As a % of Revenue		8.5	%		14.6	%		(6.0	)%
Commercial hemp		1,000			525			90.5	%
As a % of Revenue		1.0	%		0.5	%		0.5	%
Total Revenues	$	102,525		$	112,789			(9.1	)%

Cost of Revenues

For the nine months ended September 30, 2020, cost of revenues increased approximately 6.0% to $42,938,000 as compared to $40,522,000 for the nine months ended September 30, 2019.

The direct selling segment cost of revenues increased 0.9% to approximately $31,325,000 as compared to $31,056,000 for the nine months ended September 30, 2019.

The commercial coffee segment cost of revenues increased 9.8% to approximately $9,962,000 as compared to $9,071,000 for the nine months ended September 30, 2019, primarily attributable to the shift away from revenue for milling and processing services in 2020 when compared to 2019. As revenue for milling services does not contain a cost of goods sold component, the shift in revenue away from milling and processing services increased our cost of revenue year-over-year. Cost of revenues for processed green coffee for the nine months ended September 30, 2020 increased $1,919,000 to $1,595,000 compared the nine months ended September 30, 2019. Cost of revenues for roasted coffee for the nine months ended September 30, 2020 decreased 10.9% to $8,367,000 compared to $9,395,000 during the nine months ended September 30, 2019.

The commercial hemp segment cost of revenues increased to approximately $1,651,000 as compared to $395,000 for the nine months ended September 30, 2019, which represented a partial nine months of cost of revenues. The increase was primarily attributable to higher manufacturing consulting fees, direct labor costs, and supply and material costs.

Gross Profit (Loss)

For the nine months ended September 30, 2020, gross profit decreased 17.5% to approximately $59,587,000 as compared to $72,267,000 for the nine months ended September 30, 2019. Gross profit as a percentage of revenues for the nine months ended September 30, 2020 and 2019 was 58.1% and 64.1%, respectively.

Gross profit in the direct selling segment decreased 5.1% to approximately $61,425,000 from $64,744,000 for the nine months ended September 30, 2019 primarily as a result of the lower revenues. Gross profit as a percentage of revenues for the nine months ended September 30, 2020 and 2019 was 66.2% and 67.6%, respectively.

Gross loss in the commercial coffee segment was approximately $1,187,000 compared to gross profit of $7,393,000 for the nine months ended September 30, 2019. Gross loss as a percentage of revenues for the nine months ended September 30, 2020 was 13.5%. Gross profit as a percentage of revenues for the nine months ended September 30, 2019 was 44.9%. The decrease in gross profit in the commercial coffee segment was primarily due to the decrease of $5,881,000 in revenue from the processing and milling of unprocessed green coffee that in turn drove lower gross profit results year-over-year combined with the year-over-year change in roasted coffee sales and cost of goods sold that increased negative gross profit by $507,000, as well as the changes in revenue and cost of goods sold from processed green coffee sales that generated a year-over-year increase in negative gross profit of approximately $2,192,000.

Gross loss in the commercial hemp segment was approximately $651,000 compared to gross profit of $130,000 for the nine months ended September 30, 2019, which represented a partial nine months of gross profit. Gross loss as a percentage of revenues for the nine months ended September 30, 2020 was 65.1%. Gross profit as a percentage of revenues for the nine months ended September 30, 2019 was 24.8%. The increase in the gross loss was primarily attributable to cost of goods sold increasing at a higher rate than revenues in 2020 compared to 2019.

-55-

Table of Contents

Below is a table of gross profit (loss) by segment (in thousands) and gross profit (loss) as a percentage of segment revenues:

	Nine Months Ended September 30,
	2020			2019			Percentage Change
Direct selling	$	61,425		$	64,744			(5.1	)%
Gross Profit % of Segment Revenues		66.2	%		67.6	%		(1.4	)%
Processed green coffee		(822	)		1,370			(160.0	)%
Gross Profit (Loss) % of Segment Revenues		(9.4	)%		8.3	%		(17.7	)%
Milling and processing services		535			6,416			(91.7	)%
Gross Profit % of Segment Revenues		6.1	%		39.0	%		(32.9	)%
Roasted coffee and other		(900	)		(393	)		129.0	%
Gross Loss % of Segment Revenues		(10.3	)%		(2.4	)%		(7.9	)%
Commercial coffee		(1,187	)		7,393			(116.1	)%
Gross Profit (Loss) % of Segment Revenues		(13.5	)%		44.9	%		(58.4	)%
Commercial hemp		(651	)		130			(600.8	)%
Gross Profit (Loss) % of Segment Revenues		(65.1	)%		24.8	%		(89.9	)%
Total	$	59,587		$	72,267			(17.5	)%
Gross Profit % of Revenues		58.1	%		64.1	%		(6.0	)%

Operating Expenses

For the nine months ended September 30, 2020, our operating expenses decreased 19.2% to approximately $74,778,000 as compared to $92,541,000 for the nine months ended September 30, 2019. The decrease included lower stock-based compensation and equity-based compensation for services of $11,567,000 and $2,850,000, respectively, in 2020 compared to 2019.

Distributor Compensation

For the nine months ended September 30, 2020, the distributor compensation paid to our independent distributors in the direct selling segment decreased 5.8% to approximately $40,044,000 from $42,509,000 for the nine months ended September 30, 2019. The decrease was primarily attributable to lower revenues. Distributor compensation as a percentage of direct selling revenues was 43.2% for the nine months ended September 30, 2020 as compared to 44.4% for the nine months ended September 30, 2019.

Sales and Marketing

For the nine months ended September 30, 2020, total sales and marketing expense decreased 16.4% to approximately $9,398,000 from $11,237,000 for the nine months ended September 30, 2019. The decrease included lower stock-based compensation of $471,000 in 2020 compared to 2019.

In the direct selling segment, sales and marketing expense for the nine months ended September 30, 2020 decreased 16.1% to approximately $8,565,000 from $10,213,000 for the same period last year. The decrease included lower stock-based compensation of $471,000 in 2020 compared to 2019. The remaining decrease was primarily due to decreases in expenses related to conventions and distributor events, wages and benefits related to temporary labor costs, partially offset by an increase in marketing expenses related to the rewards programs.

In the commercial coffee segment, sales and marketing expense for the nine months ended September 30, 2020 decreased 4.2% to approximately $778,000 from $812,000 for the same period last year. The decrease was primarily due to a decrease in marketing expenses.

In the commercial hemp segment, sales and marketing expense for the nine months ended September 30, 2020 decreased to approximately $56,000 from $212,000 for the same period last year, which represented a partial nine months of commercial hemp sales and marketing expense. The decrease was primarily due to reduced advertising and promotion expenses.

General and Administrative

For the nine months ended September 30, 2020, total general and administrative expense decreased 34.7% to approximately $25,336,000 from $38,795,000 for the nine months ended September 30, 2019. The decrease was primarily due to lower stock-based compensation and equity-based compensation for services of $11,096,000 and $2,850,000, respectively, in 2020 compared to 2019.

In the direct selling segment, general and administrative expense for the nine months ended September 30, 2020 decreased 41.3% to approximately $17,076,000 from $29,112,000 for the same period last year. The decrease was primarily due to lower stock-based compensation and equity-based compensation for services of $9,666,000 and $3,175,000, respectively, in 2020 compared to 2019. The remaining decrease was primarily the result of the year-over-year reduction in the change in the fair value of the contingent acquisition debt of $757,000 in 2020 compared to 2019, which reduced expenses.

In the commercial coffee segment, general and administrative expense for the nine months ended September 30, 2020 decreased 56.6% to $2,687,000 from $6,192,000 for the same period last year. The decrease included lower stock-based compensation of $1,430,000 in 2020 compared to 2019. Also contributing to the decrease was lower profit-sharing expense of $1,966,000 in the nine months ended September 30, 2020 compared to the same period last year.

In the commercial hemp segment, general and administrative expense for the nine months ended September 30, 2020 increased to $5,573,000 from $3,491,000 for the same period last year, which represented a partial nine months of general and administrative expense. The increase was primarily due to higher costs related to equity-based compensation for services of $325,000, salaries and professional fees.

-56-

Table of Contents

Operating Loss

For the nine months ended September 30, 2020, our operating loss was $15,191,000 as compared $20,274,000 for the nine months ended September 30, 2019. The decrease in our operating loss was primarily due to the lower revenue and lower stock and equity-based compensation expense.

Other Expense, net

For the nine months ended September 30, 2020, net other expense was approximately $375,000 as compared to $210,000 for the nine months ended September 30, 2019. The change was due to the change in the fair value of ~~$11,965,000,~~derivative liabilities, partially offset by lower net interest expense and ~~increase~~the loss on the modification of warrants recorded in 2019.

Net interest expense decreased $1,761,000 for the nine months ended September 30, 2020 to $1,917,000 compared to $3,678,000 for the nine months ended September 30, 2019. Interest income for the three months ended September 30, 2020 and 2019 was $343,000 and $156,000, respectively.

Other income from the change in the fair value of derivative liabilities decreased $2,802,000 for the nine months ended September 30, 2020 to $1,542,000 compared to $4,344,000 for the nine months ended September 30, 2019. 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 Company’s derivative liabilities. As such, we expect future changes in the fair value of the warrants and may vary significantly from period to period. (See Notes 8 & 9 to the condensed consolidated financial statements).

We recorded a non-cash loss on warrants of $876,000 for the nine months ended September 30, 2019 as a result of modification of the warrant terms of certain holders of 2014 warrants and preferred warrants to include additional shares of restricted common stock we issued as an inducement fee to upon exercise of their warrants. (See Note 10 to the condensed consolidated financial statements)

-57-

Table of Contents

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the effective date of the change. At December 31, 2019, we have evaluated the realizability of the deferred tax asset, based upon achieved and estimated future results and through consideration of all positive and negative evidences and have determined that it is more likely than not that the deferred tax assets will not be realized. A valuation allowance remains on the U.S. state and foreign tax attributes that are likely to expire before realization. At December 31, 2019, we had approximately $75,000 in refundable credits, and it expects that a substantial portion will be refunded between 2020 and 2021. As such, we do not have a valuation allowance relating to the refundable AMT credit carryforward. We recognized an income tax benefit of $163,000 which is our estimated federal, state and foreign income tax benefit for the nine months ended September 30, 2020. The difference between the effective tax rate and the federal statutory rate of 21% is due to the permanent differences, change in valuation allowance, state taxes (net of ~~$48,000, offset by~~federal benefit), and foreign tax rate differential.

Net Loss

For the ~~increase in other income~~nine months ended September 30, 2020, the Company reported a net loss of ~~$2,061,000.~~$15,403,000 as compared to $20,423,000 for the nine months ended September 30, 2019. The primary reason for the ~~increase~~decrease in ~~operating~~net loss when compared to the prior period was due to the ~~increase of $12,966,000 in non-cash~~lower revenue and lower stock and equity-based compensation expense.

Adjusted EBITDA

EBITDA (earnings before interest, income taxes, depreciation and amortization) as adjusted to remove the effect of stock-based compensation expense, equity-based compensation expense, amortization of debt discounts and issuance costs, the ~~non-cash~~gain on debt extinguishment, the loss on ~~extinguishment~~modification of ~~debt~~warrants, and the change in the fair value of the derivatives, or "Adjusted EBITDA," ~~increased 58.4% to $2,407,000~~was a loss of approximately $2,586,000 and $4,054,000 for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively, and was a loss of $8,423,000 for the nine months ended September 30, 2020 compared to ~~$1,520,000 in the same period~~earnings of $1,249,000 for the ~~prior year.~~

nine months ended September 30, 2019.

Management believes that Adjusted EBITDA, when viewed with our results under GAAP and the accompanying reconciliations, provides useful information about our period-over-period growth. Adjusted EBITDA is presented because management believes it provides additional information with respect to the performance of our fundamental business activities and is also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. We also rely on Adjusted EBITDA as a primary measure to review and assess the operating performance of our company and our management team.

Adjusted EBITDA is a non-GAAP financial measure. We calculate adjusted EBITDA by taking net income, and adding back the expenses related to interest, income taxes, depreciation, amortization, stock-based compensation expense, equity-based compensation expense for services, amortization of debt discount and issuance costs, the gain on debt extinguishment, the loss on modification of warrants, and the change in the fair value of the warrant derivative, as each of those elements are calculated in accordance with GAAP. Adjusted EBITDA should not be construed as a substitute for net income (loss) (as determined in accordance with GAAP) for the purpose of analyzing our operating performance or financial position, as Adjusted EBITDA is not defined by GAAP.

-58-

~~-51-~~

Table of Contents

A reconciliation of our adjusted EBITDA to net loss for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 ~~and 2018~~ is included in the table below (in thousands):

Three Months Ended
March 31,

2019

2018

Net loss
$(12,260)
$(2,308)
Add/Subtract:


Interest, net
  1,507
  1,712
Income tax provision
  298
  250
Depreciation
  475
  432
Amortization
  670
  827
EBITDA
  (9,310)
  913
Add/Subtract:


Equity-based compensation
  13,203
  237
Change in the fair value of derivatives
  (1,486)
  (712)
Extinguishment loss on debt
  -
  1,082
Adjusted EBITDA
$2,407
$1,520

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019

Net loss	$	(5,072	)	$	(7,874	)	$	(15,403	)	$	(20,423	)
Add/Subtract:
Interest, net		658			1,109			1,917			3.678
Income tax benefit		(147	)		(133	)		(163	)		(61	)
Depreciation		635			617			1,968			1,694
Amortization		600			1,249			1,840			2,505
EBITDA (loss)		(3,326	)		(5,032	)		(9,841	)		(12,607	)
Add/Subtract:
Stock-based compensation		252			661			777			12,418
Equity-based compensation for services		221			1,508			1,132			3,982
Amortization of debt discounts		392			390			1,099			924
Gain on debt extinguishment		(24	)		-			(48	)		-
Change in the fair value of warrant derivative		(101	)		(2,457	)		(1,542	)		(4,344	)
Loss on modification of warrants		-			876			-			876
Adjusted EBITDA (loss)	$	(2,586	)	$	(4,054	)	$	(8,423	)	$	1,249

Liquidity and Capital Resources

Sources of Liquidity

At ~~March 31, 2019~~September 30, 2020 we had cash and cash equivalents of approximately ~~$2,540,000~~$1,238,000 as compared to cash and cash equivalents of ~~$2,879,000~~$4,463,000 as of December 31, ~~2018.~~

2019.

Cash Flows

Cash used in operating activities. Net cash used in operating activities for the ~~three~~nine months ended ~~March 31, 2019~~September 30, 2020 was ~~$4,831,000~~$2,075,000 as compared to ~~net cash used in operating activities of $1,427,000~~$7,762,000 for the ~~three~~nine months ended ~~March 31, 2018.~~September 30, 2019. Net cash used in operating activities in 2020 consisted of a net loss of ~~$12,260,000 and $6,072,000~~15,403,000, partially offset by $7,623,000 in changes in operating assets and liabilities ~~partially~~and net non-cash operating expenses of $5,705,000. Net cash used in operating activities in 2019 consisted of a net loss of $20,423,000 and $5,726,000 in changes in operating assets and liabilities, offset by net non-cash operating expenses of ~~$13,501,000.~~

$18,387,000.

Net non-cash operating expenses in 2020 included ~~$1,145,000~~$3,808,000 in depreciation and amortization, ~~$11,344,000~~$777,000 in stock-based compensation expense, ~~$1,859,000~~$1,132,000 in ~~equity issuance for services, $199,000~~equity-based compensation expense, $1,099,000 in amortization of debt discounts, ~~$281,000~~$337,000 in ~~stock issuance cost related to true-up shares~~allowances for notes receivable, $101,000 in loss on disposal of property and ~~$159,000~~equipment, $200,000 in ~~increase~~loss on impairment of inventory, and $1,919,000 in ~~inventory reserves,~~non-cash operating expense, partially offset by ~~$1,486,000~~$1,542,000 related to the change in fair value of warrant derivative ~~liability.~~

liability, $1,640,000 related to the change in fair value of contingent acquisition debt, $324,000 for an allowance related to the over issuance of shares which was recorded as other receivable, $84,000 related to the decrease in inventory reserve, the decrease in the allowance for doubtful accounts of $30,000, and the gain on debt extinguishment of $48,000.

Net non-cash operating expenses in 2019 included $4,199,000 in depreciation and amortization, $12,418,000 in stock-based compensation expense, $924,000 in amortization of debt discounts and issuance costs, $3,982,000 in equity issuance costs, $889,000 in increase in inventory reserves, $281,000 in stock issuance cost related to true-up shares, $876,000 loss on warrant modification and $73,000 in deferred taxes, partially offset by $4,344,000 related to the change in fair value of warrant derivative liability and $911,000 related to the change in fair value of contingent acquisition debt.

Changes in operating assets and liabilities in 2020 were attributable to ~~decreases~~increases in working capital, primarily related to changes in inventory of $554,000, prepaid expenses and other current assets of $337,000 accounts payable of $336,000, accrued distributor compensation of $1,003,000, deferred revenues of $6,584,000 and accrued expenses and other liabilities of $982,000. Decreases in working capital primarily related to changes in accounts receivable of ~~$3,369,000,~~$111,000, other assets of $395,000, operating lease liabilities of $1,599,000, and other long-term liabilities of $68,000.

-59-

Table of Contents

Changes in operating assets and liabilities in 2019 were attributable to decreases in working capital related to changes in accounts receivable of $5,389,000, inventory of ~~$1,283,000,~~$958,000, prepaid expenses and other current assets of ~~$111,000,~~$1,411,000, accrued distributor compensation of $37,000, deferred revenues of ~~$44,000~~$307,000, and income taxes receivable of $233,000. Increases in working capital related to changes in accounts payable of $454,000 and accrued expenses and other liabilities of ~~$2,713,000. Increases in working capital primarily related to changes in accounts payable of $54,000 and accrued distributor compensation of $854,000.~~

$2,155,000.

Cashusedin investingactivities. Net cash used in investing activities for the ~~three~~nine months ended ~~March 31, 2019~~September 30, 2020 was ~~$2,716,000~~$3,515,000 as compared to ~~net cash used in investing activities of $156,000~~$6,102,000 for the ~~three~~nine months ended ~~March 31, 2018.~~September 30, 2019. Net cash used in investing activities in 2020 consisted of ~~$1,350,000~~$1,506,000 in payments made towards the construction of a large mill in Nicaragua ~~$500,000~~and the remaining represented other purchases of property and equipment.

Net cash used in investing activities in 2019 included $2,310,000 in payments made towards the construction of a large mill in Nicaragua, $1,000,000 in cash paid related to the acquisition of Khrysos, offset by cash acquired of $75,000 and $288,000 for the purchase of land for Khrysos. The remaining expenditures consisted of primarily leasehold improvements and other purchases of property and equipment.

Cashprovided by financingactivities. Net cash provided by financing activities ~~was $7,106,000~~ for the ~~three~~nine months ended ~~March 31, 2019~~September 30, 2020 was $2,883,000 as compared to ~~net~~$18,206,000 for the nine months ended September 30, 2019. Net cash provided by financing activities in 2020 consisted of ~~$3,762,000 for~~$3,923,000 of proceeds from short-term debt, $1,000,000 net proceeds from issuance of notes and $233,000 of net proceeds from the ~~three months ended March 31, 2018.~~

issuance of equity through our preferred stock offering, partially offset by $832,000 in payments related to capital lease financing obligations, $56,000 of net payments from the line of credit, $77,000 in payments to reduce notes payable, $25,000 in payments to convertible notes payable, $175,000 in payments related to contingent acquisition debt, and $1,108,000 in dividends paid.

Net cash provided by financing activities consisted of net proceeds of ~~$6,023,000~~$15,319,000 from issuance of equity and convertible notes, ~~$1,451,000~~$5,214,000 from the ~~issuance of common stock from the at-the-market offering including~~ exercise of stock options and warrants ~~net. Net proceeds~~and $102,000 from at the market issuance of shares, offset by $275,000 from net payments on line of credit, ~~of $176,000, offset by $35,000~~$108,000 in payments to reduce notes payable, ~~$128,000~~$568,000 in payments related to convertible notes payable, $333,000 in payments related to contingent acquisition debt, ~~$368,000~~$1,099,000 in payments related to capital lease financing obligations and ~~$11,000~~$46,000 in dividends paid.

~~-52-~~

Future Liquidity Needs

The accompanying condensed consolidated financial statements have been prepared and presented on a basis assuming we will continue as a going concern. We have sustained significant losses during the ~~three~~nine months ended ~~March 31, 2019~~September 30, 2020 of ~~$12,260,000~~$15,403,000 and ~~$2,308,000~~$20,423,000 for the ~~three~~nine months ended ~~March 31, 2018.~~September 30, 2019. Net cash used in operating activities was ~~$4,831,000~~$2,075,000 for the ~~three~~nine months ended ~~March 31, 2019~~September 30, 2020 compared to ~~net cash used in operating activities of $1,427,000~~$7,762,000 for the ~~three~~nine months ended ~~March 31, 2018.~~September 30, 2019. Our cash and cash equivalents totaled $1,238,000 at September 30, 2020. We do not currently believe that our existing cash resources are sufficient to meet our anticipated needs over the next twelve months from the date hereof. Based on our current cash levels and our current rate of cash requirements, we will need to raise additional capital and will need to further reduce our expenses from current levels. These factors raise substantial doubt about our ability to continue as a going concern.

~~During the quarter ended March 31, 2019,~~

Historically, we have financed our operations ~~did not generate sufficient cash to meet our operating needs and we supplemented the~~primarily through revenue generated from ~~operations~~sales of our products and the public and private sales of our securities and we expect to continue to seek to obtain required capital in a similar manner. We have spent, and expect to continue to spend, a substantial amount of funds in connection with ~~cash proceeds of debt and~~implementing our business strategy. Additionally, we may seek to access the public or private equity ~~offerings. We raised~~markets when conditions are favorable due to our long-term capital requirements. If we are unable to obtain additional capital ~~through equity and convertible notes offerings during the current quarter~~(which is not assured at this time), our long-term business plan may not be met, and we ~~entered into an At-the-Market Offering Agreement (the “ATM Agreement”) with The Benchmark Company, LLC (“Benchmark”), as sales agent, pursuant~~may not be able to ~~which the Company may sell from time~~fulfill our debt obligations. Our ability to ~~time, at its option, shares of its common stock, par value $0.001 per share,~~raise capital through ~~Benchmark, as sales agent (the “Sales Agent”), for~~ the sale of ~~up to $60,000,000 of shares~~securities may be limited by the rules of the ~~Company’s common stock.~~SEC and Nasdaq that place limits on the number and dollar amount of securities that may be sold. We do not have any commitments from third parties for funding. A failure otherwise to raise additional funds when needed in the future could result in us being unable to complete planned operations, or forced to delay, discontinue or curtail product development, forego sales and marketing efforts, and forego licensing in attractive business opportunities. There can be no assurances that we will be able to raise the funds needed on favorable terms, if at all.

In January 2022, we entered into the second amendment to the Crestmark loan and security agreement which reduced the maximum overall borrowing limit on the line of credit to $3,000,000. Under the second amendment to the Crestmark loan and security agreement, the line of credit may not exceed an amount which is the lesser of (a) $3,000,000 or (b) the sum of up (i) to 85% of the value of the eligible accounts; plus, (ii) the lesser of $1,000,000 or 50% of eligible inventory or 50% of the amount calculated in (i) above.

In February 2022, we received a notice of default related to the loan and security agreement from Crestmark Bank. The default includes our failure to provide quarterly financial statements for the quarters ended September 30, 2021 and December 31, 2021, as set forth in the loan agreement.

In April 2022, we entered into a forbearance agreement with Crestmark Bank. The agreement provides that Crestmark Bank agreed to forbear from collection action under the loan documents until the termination date of June 30, 2022, provided we are in compliance with the terms of the forbearance agreement. At the filing date of this Quarterly Report on Form 10-Q, we were not in compliance with the term of the forbearance agreement.

-60-

Table of Contents

H~~owever, despite such actions, we~~

We do not believe that our existing cash resources are sufficient to meet our anticipated needs over the next twelve months from the date ~~hereof~~.hereof. We are also considering additional alternatives, including, but not limited to equity financings and debt financings. Depending on market conditions, we cannot be sure that additional capital will be available when needed or that, if available, it will be obtained on terms favorable to us or to our stockholders.

~~We anticipate revenues to continue to grow and we intend to make necessary cost reductions and reduce non-essential expenses.~~

Failure to raise additional funds from the issuance of equity securities and failure to implement cost reductions could adversely affect our ability to operate as a going concern. There can be no assurance that any cost reductions implemented will correct our going concern issue. The financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements as of ~~March~~September 30, 2020.

Contractual Obligations

At September 30, 2020, our total purchase obligations are related to our commercial coffee segment and were approximately $1,507,000 compared to $4,219,000 at December 31, 2019.

~~Contractual Obligations~~

The decrease was primarily due to the end of contracts agreements.

There were no material changes from ~~those~~the other contractual obligations disclosed in our most recent annual report.

Critical Accounting ~~Policies~~

Estimates

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to our critical accounting ~~policies~~estimates which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~

2019.

Recent Accounting Pronouncements

Recent accounting pronouncements are disclosed in Note 1 to the accompanying condensed consolidated financial statements of this Quarterly Report on Form ~~10-Q/A.~~

~~-53-~~

10-Q.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

As a Smaller Reporting Company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 3 of Part I.

-61-

Table of Contents

ITEM 4. Controls and Procedures

~~(a) Evaluation of~~

Update on Prior Period Disclosure Controls and Procedures

~~Under the supervision~~ and ~~with the participation of~~Internal Control Over Financial Reporting

Commercial Coffee Segment

In April 2019, we filed our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of March 31, 2019, the end of the quarterly fiscal period covered by this quarterly report. Based on2018 Form 10-K disclosing that ~~evaluation, our Chief Executive Officer and Chief Financial Officer concluded that there was a material weakness in the Company’s internal control over financial reporting that was identified~~ during the fourth quarter of the year ended December 31, 2018, ~~and the first quarter of 2019~~we identified a material weakness (“2018 Material Weakness”) for ~~the~~our commercial coffee segment with respect to certain operations in Nicaragua, relating to not having proper processes and controls in place to require sufficient documentation of significant agreements and arrangements in accounting for significant ~~transactions~~transactions. During the preparation of our financial statements for the year ended December 31, 2019, we identified material weaknesses in our internal control over financial reporting associated with revenue recognition within the coffee segment. These material weaknesses resulted in restatements to our financial statements for the quarters ended March 31, 2019, June 30, 2019, and September 30, 2019 related to revenue recognition within our coffee segment were required, which we filed the restatements for all three quarters of 2019 in September 2021.

During 2019, management implemented a remediation plan that included updating our current policies and implementing procedures and controls over the documentation of significant agreements and arrangements with respect to certain operations ~~within~~in our commercial coffee segment.

~~Additionally,~~ This remediation plan was not fully in ~~conjunction with~~place and able to be tested for the nine months ended September 30, 2020, therefore we determined that the controls were not operating effectively for the nine months ended September 30, 2020. Management, therefore, has determined that these material weaknesses were not remediated and remained open at the time of this filing.

Commercial Hemp Segment

In February 2019, we completed the acquisition of Khrysos Global, detailed in Note 2 to the condensed consolidated financial statements. During our 2019 annual audit we determined that certain fixed assets acquired in the acquisition and the share price valuation for the common stock issued as consideration were not fairly valued at the closing date which resulted in a decrease to the net assets acquired including; a) $1,127,000 related to the certain fixed assets, and b) $1,351,000 related to a change in the fair value of common stock issuance resulting in an increase to goodwill of $2,478,000 acquired and an adjusted aggregate purchase price of $15,894,000. Our management concluded that ~~there was~~we have a material weakness in our control procedures related to acquisitions.

These material weaknesses resulted in restatements to our financial statements for the ~~Company’s~~quarters ended March 31, 2019, June 30, 2019, and September 30, 2019 related to the accounting for acquisitions within our commercial hemp segment, which we filed the restatements for all three quarters of 2019 in September 2021.

During 2020, management implemented a remediation plan that included updating our current policies and implementing procedures and controls over future acquisitions. Until the material weaknesses are remediated, and our associated disclosure controls and procedures improve, there is a risk that a material error could occur and not be detected.

Other

At the end of the second fiscal quarter 2020, we determined that the aggregate market value of our common stock held by non-affiliates was $24.9 million. This fell below the $60.0 million dollar threshold for an accelerated filer exiting the accelerated status and becoming a non-accelerated filer. As a result, we are not required to obtain an auditor’s attestation of management’s assessment of internal control over financial reporting ~~that was identified during the first quarter of 2019~~required under Sarbanes-Oxley Act Section 404(b) for the ~~commercial hemp segment relating~~year ending December 31, 2020.

(a)Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). With the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2020 based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control Integrated Framework (2013), and concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report, as a result of material weaknesses in our internal control over financial reporting which is discussed further below.

-62-

Table of Contents

Our management, including our Chief Executive Officer and Chief Financial Officer, has determined that due to the underlying critical lack of automated reporting systems, trained accounting and information technology personnel, control designs and effectiveness, management was unable to review the risk assessment and the design of the organization's internal control systems to establish a baseline for ongoing and separate evaluations that includes assessment of fraud risk, therefore management does not ~~having proper~~expect that our disclosure controls and procedures and our internal control processes will prevent all error and ~~controls in place in regard to accounting for significant transactions related to acquisitions.~~

all fraud.

Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this report and upon that discovery, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report ~~although we have made improvements,~~ our disclosure controls and procedures were ~~still~~ not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

~~(b) Changes~~

Management has assessed these deficiencies and has determined that these deficiencies individually and in ~~Internal Control Over Financial Reporting~~

~~Management’s Remediation Efforts~~

~~Commercial Coffee Segment~~

~~During~~aggregate led to material weaknesses. These material weaknesses led to material misstatements in our financial statements for the periods ending March 31, 2019, ~~annual review of internal controls, we reviewed revenues~~June 30, 2019 and September 30, 2019 related to the recognition of revenue within our commercial coffee segment ~~specifically~~and our commercial hemp segment. In order to consider these material weaknesses fully remediated, we believe additional time is needed to demonstrate sustainability as it relates to the 2019 green coffee sales program. We concluded that specific 2019 green coffee revenue recorded at gross should have been recorded at net which equates to processing revenue for milling “wet” green coffee and ~~which reflects the value~~revised controls. There were seven general categories of ~~the performance obligation to provide green coffee milling services. As a result, we did not have an adequate review process over revenue recognition which resulted in an error in our financial statements.~~

~~This represented a material weakness~~deficiencies in our internal control over financial reporting. ~~For the quarter ended March 31, 2019 we~~

Risk Assessment. We did not have ~~restated our Unaudited Condensed Consolidated Balance Sheet, Unaudited Condensed Consolidated Statement of Operations, Unaudited Condensed Consolidated Statements of Stockholders’ Equity,~~an effective risk assessment process that defined clear financial reporting objectives and ~~the Unaudited Condensed Consolidated Statement of Cash Flows.~~

~~The restatement corrected the error~~evaluated risks, including fraud risks, and risks resulting from changes in the ~~presentation~~external environment and business operations, at a sufficient level of ~~revenue activity related~~detail to identify all relevant risks of material misstatement across the ~~specific green coffee sales~~entity.

Deficiencies in the Overall Control Environment. We have not maintained an effective control environment to ~~properly reflect net revenue where applicable. To remediate~~provide reasonable assurance relating to operations, reporting, and compliance for the ~~issue,~~purpose of meeting the requirements set forth in the 2013 COSO Framework. More specifically, we did not have (a) adequate segregation of duties and oversight over material agreements and arrangements entered into by the Company (b) adequate information technology systems required to develop controls and oversight over our existing operations and most recent acquisitions (c) a sufficient number of personnel with an ~~additional review process~~appropriate level of US GAAP knowledge and experience to create the proper environment for ~~oversight and review of the revenue recognition policy to ensure revenue transactions are appropriately recorded. We will continue to assess the effectiveness of its~~effective internal control over financial reporting and ~~take steps~~ to ~~remediate any potentially material weaknesses expeditiously.~~

~~-54-~~

~~Commercial Hemp Segment~~

~~During our annual review~~ensure that (i) there were adequate processes for oversight, and (ii) there was accountability for the performance of internal control over financial reporting responsibilities.

Deficiencies in the Controls over Monitoring. We have not maintained effective controls ~~we concluded that our recording~~over monitoring to provide reasonable assurance relating to operations, reporting, and compliance for the purpose of meeting the ~~acquisition of Khrysos Global, Inc.,~~requirements set forth in the ~~commercial hemp segment,~~2013 COSO Framework. More specifically, ~~the valuation of certain fixed assets and the valuation of stock issued as consideration related to the acquisition was not appropriately fair valued. As a result,~~ we did not have adequate oversight processes and procedures that guide individuals in applying internal control and proper documentation to support reporting of certain transactions within the financial reporting and that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

Deficiencies pertaining to a lack of human resources within our finance and accounting functions. We have not maintained sufficient accounting personnel with the appropriate level of knowledge, experience and training commensurate with maintaining an ~~adequate review process or~~effective control environment, within the current operational environment, to meet the financial reporting requirements of a publicly traded company with international operations. We did not have a sufficient number of trained resources with assigned responsibility and accountability for the design, operation and documentation of internal control over financial reporting in accordance with the 2013 COSO Framework. The result of the lack of sufficient accounting personnel has led to us not having effective and codified accounting policies and procedures ~~over acquisitions resulting~~throughout our Company, including our subsidiaries, which can lead to inconsistent accounting treatment of transactions. The lack of sufficient personnel has also resulted in a ~~misstatement~~failure to maintain appropriate segregation of duties throughout the internal control over financial reporting process. We have had numerous instances where review and approval is performed by the same employee negating any monitoring or approval controls.

Deficiencies pertaining to the lack of controls or ineffectively designed controls impacting our financial ~~statements. This represented~~reporting. Our control design analysis and process walkthroughs disclosed a number of instances where review approvals were not sufficiently documented and retained, where established policies and procedures were not defined, and controls were not in place to adequately (i) address relevant risks, (ii) provide evidence of performance, (iii) provide appropriate segregation of duties, or (iv) operate at a level of precision to identify all potentially material ~~weakness~~errors.

Deficiencies related to information technology control design and operating effectiveness weaknesses. The Company did not have formalized information technology policies and procedures which could result in (1) unauthorized system access, (2) application changes being implemented without adequate reliability testing, and (3) over reliance on spreadsheet applications without quality control assurances.

Deficiencies related to failures in operating effectiveness of the internal control over financial reporting. Certain internal control procedures were developed or enhanced during the latter part of 2019. When testing occurred to confirm the effectiveness of the internal control over financial reporting, controls were not operating effectively. Insufficient time remained to remediate these material weaknesses prior to year-end.

-63-

Table of Contents

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of September 30, 2020, the end of the quarterly fiscal period covered by this quarterly report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that there were seven general categories of deficiencies in our internal control over financial ~~reporting. For~~reporting which individually and in aggregate lead to material weaknesses. Although no material misstatements or omissions in our financial statements or disclosures were identified, the quarter ended March 31, 2019 we have restated our Unaudited Condensed Consolidated Balance Sheet, the Unaudited Condensed Consolidated Statement of Stockholders’ Equity, and the Unaudited Condensed Consolidated Statement of Cash Flows.

The restatement corrected the error related to property and equipment, net, goodwill and shareholders’ equity. To remediate the issue, we have added an additional review process for oversight and review of the acquisition process to ensure acquisition transactions are appropriately recorded. We will continue to assess the effectiveness of its internal control over financial reporting and take steps to remediate any potentially material weaknesses ~~expeditiously.~~

~~During~~in internal controls could have resulted in material misstatements or omissions to our financial statements or disclosures.

The material weaknesses did not result in any adjustments in the current period ended September 30, 2020 ~~management implemented a remediation plan that included updating~~ or restatements of our ~~current policies~~audited and ~~implementing procedures and controls over future acquisitions. Until~~unaudited consolidated financial statements or disclosures for any prior period previously reported by us. However, until the material weaknesses are remediated, and our associated disclosure controls and procedures improve, there is a risk that a material error could occur and not be detected. In order to consider material weaknesses fully remediated, we believe additional time is needed to demonstrate sustainability as it relates to the revised controls.

(b)Changes in Internal Control Over Financial Reporting

Management’s Remediation Efforts

Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively. The remediation measures include or are expected to include the following:

●

Implementing or enhancing the Company’s infrastructure to ensure appropriate software and reporting tools are in place to ensure financial reporting systems and processes are reporting effectively. These efforts have been delayed due to the Company’s ability to secure timely financial resources to acquire and implement such improvements within its reporting software and tools.

●

Review and update, as necessary, documentation of relevant processes, policies and procedures, and design of relevant controls, with respect to the Company’s internal control over financial reporting. The Company identified during its 2019 and 2018 audits, deficiencies within its processes, policies and procedures. Implementation of the necessary changes required, as a result of these identified deficiencies, required to satisfy documentation requirements under Section 404 of the Sarbanes-Oxley Act has not occurred. For the nine months ended September 30, 2020, because these deficiencies have not been remediated, we did not conduct an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, therefore, we have determined that our disclosure controls and procedures were not effective as of September 30, 2020.

●

Seek to ensure that the Company’s internal control over financial reporting is properly designed, implemented, operating effectively, and appropriately documented by (i) enhancing the design of existing control activities and/or implementing additional control activities, as needed, (ii) monitoring the operating effectiveness of those controls, and (iii) ensuring that sufficient documentation exists to evidence the design, implementation, and operation of those controls.

●

Execute and monitor the remediation plan, with appropriate executive sponsorship and with the assistance of outside consultants, to enhance the Company’s internal control over financial reporting and accomplish the goals of the remediation as set forth above.

●

Continue to seek, train and retain individuals that have the appropriate skills and experience related to designing, operating and documenting internal controls.

We intend to adopt additional remediation measures related to the identified control deficiencies as necessary as well as to evaluate our internal controls on an ongoing basis in order to upgrade and enhance when appropriate. Our audit committee has taken an active role in reviewing and discussing the internal control deficiencies with our auditors and financial management. Our management and the audit committee will continue to actively monitor the implementation and effectiveness of the remediation efforts undertaken by our financial management. We believe that these actions will remediate material weaknesses. The material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

-64-

~~-55-~~

Table of Contents

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are from time to time, the subject of claims and suits arising out of matters related to our business. We are a party to litigation at the present time and may become party to litigation in the future. In general, litigation claims can be expensive, and time consuming to bring or defend against and could result in settlements or damages that could significantly affect financial results. It is not possible to predict the final resolution of the current litigation to which we are party to, and the impact of certain of these matters on our business, results of operations, and financial condition could be material. Regardless of the outcome, litigation has adversely impacted our business because of defense costs, diversion of management resources and other factors.

ITEM 1A. RISK FACTORS

Any investment in our common stock involves a high degree of risk. Investors should carefully consider the risks described in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on ~~April 15, 2019,~~June 25, 2021, and all of the information contained in our public filings before deciding whether to purchase our common stock. The following information and updates should be read in conjunction with the information disclosed in Part 1, Item 1A, “Risk Factors,” contained in our Annual Report on Form 10-K ~~as filed with~~for the ~~SEC on April 15,~~year ended December 31, 2019. Except as set forth below, there have been no material revisions to the “Risk Factors” as set forth in our Annual Report on Form 10-K for the year ended December 31, 2019.

We cannot assure you that our common stock and preferred stock will regain listing on the Nasdaq Capital Market.

On February 2, 2021, The Nasdaq Stock Market LLC removed our common stock and 9.75% Series D Cumulative Redeemable Perpetual Preferred Stock from listing on The Nasdaq Capital Market effective at the opening of the trading session on February 12, 2021. We had been notified of the Nasdaq staff determination to de-list our securities on September 29, 2020 and had appealed the determination to a Nasdaq Hearing Panel on October 6, 2020. On November 18, 2020, upon review of the information provided by us, the Hearing Panel determined to deny our request to remain listed on The Nasdaq Capital Market and notified us that trading in the Company securities would be suspended on November 20, 2020. The Nasdaq Listing Council did not call the matter for review and the staff determination to delist the Company which became final on January 4, 2021.

As a result of the delisting from the Nasdaq Capital Market, our common stock trades on the OTC Pink Market operated by OTC Markets. The delisting has depressed our stock price, substantially limited liquidity of our common stock and materially adversely affect our ability to raise capital on acceptable terms. Delisting from the Nasdaq Capital Market could also continue to have other negative results, including the potential loss of confidence by suppliers and employees, the loss of institutional investor interest and fewer business development opportunities.

Our ability to obtain future financing has been, and will continue to be impacted by our inability to file our SEC reports.

We have failed to file the Quarterly Report on Form 10-Q for the quarterly periods ending March 31, 2021 and 2022, June 30, 2021 and September 30, 2021 and our financial statements for fiscal year ended December 31, 2021. Our failure to provide current information about our financial condition has hindered our ability to raise additional capital as ~~filed~~many investors require current financial information in order to make an investment decision. Although there can be no assurance that once our SEC filings are current that we be able to raise capital, we anticipate having a difficult time raising capital until such time as we are current with ~~the~~our SEC ~~on April 15, 2019.~~

filings.

There is substantial risk about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

The accompanying condensed consolidated financial statements as of ~~March 31, 2019~~September 30, 2020 have been prepared and presented on a basis assuming we will continue as a going concern. ~~We have~~The Company has sustained significant losses during the ~~three~~nine months ended ~~March 31, 2019~~September 30, 2020 of ~~$12,260,000.~~$15,403,000. Net cash used in operating activities was ~~$4,831,000~~$2,075,000 for the ~~three~~nine months ended ~~March 31, 2019 compared to net cash used in operating activities of $1,427,000 for the three months ended March 31, 2018. We do~~September 30, 2020. The Company does not currently believe that its existing cash resources are sufficient to meet ~~our~~the Company’s anticipated needs over the next twelve months from the date hereof. Based on our current cash levels as of ~~March 31, 2019,~~September 30, 2020, our current rate of cash requirements, we will need to raise additional capital and we will need to significantly reduce our expenses from current levels to be able to continue as a going concern. There can be no assurance that we can raise capital upon favorable terms, if at all, or that we can significantly reduce our expenses.

-65-

Table of Contents

Our failure to comply with the terms of our outstanding notes has resulted in a default under the terms of certain of the notes and, if uncured, it could potentially result in action against our pledged assets.

At the filing date of this Quarterly Report on Form 10-Q, we had outstanding an aggregate of $11,090,000 in principal amount of outstanding secured notes payable, which include $3,090,000 in principal amount of secured debt related to the balance of our 2019 PIPE Notes from our 2019 private placement. The 2019 PIPE Notes are secured by all of the equity we hold in KII. These PIPE Notes originally were due between February 2021 and July 2021. We ~~have identified material weaknesses in our internal controls, and we cannot provide assurances that this weakness will be effectively remediated or that additional material weaknesses will not occur~~amended the 2019 PIPE Notes with certain note holders of an aggregate of $2,440,000 in the ~~future.~~ principal amount to extend due dates to between February and March 2022. At the filing date of this Quarterly Report on Form 10-Q, the Company was in default of the terms of settlement set forth in the amendments. (See Note 13 to the condensed consolidated financial statements.)

In March 2019, we issued an aggregate $2,000,000 in principal amount of secured debt which related to two-year secured promissory notes (“2019 Promissory Notes”) which are secured by all of the equity we hold in KII. In February 2021, we entered into an amendment with the holders of these 2019 Promissory Notes, extending the maturity date to May 2022 and increasing the interest rate to 16% paid monthly until the notes are paid in full. As an inducement for the amendment to extend the maturity date, we issued each note holder 200,000 shares of our common stock. In addition, we issued one of the note holders a two-year warrant to purchase 150,000 shares of our common stock at a price per share of $1.00. At the filing date of this Quarterly Report on Form 10-Q, the Company was in default of the terms of settlement set forth in the amendments. (See Note 13 to the condensed consolidated financial statements.)

In March 2020, we issued $1,000,000 in principal amount of a nine-month senior secured promissory note related to our March 2020 private placement debt offering with Daniel Mangless, which is secured by a first priority lien granted by CLR in its rights under the pledge and security agreement, by and between H&H, H&H Export and CLR to receive certain payments. In April 2021, we entered into a settlement agreement with Mr. Mangless to include an agreed upon payment schedule of principal and interest payments and the issuance of 1,000,000 shares of our common stock. At the filing date of this Quarterly Report on Form 10-Q, the promissory note, including interest was paid, and the shares were issued in accordance with the terms of the settlement agreement. (See Note 13 to the condensed consolidated financial statements.)

In December 2018, CLR, entered into a credit agreement with one lender pursuant to which CLR borrowed $5,000,000 from Carl Grover and in exchange issued Mr. Grover a $5,000,000 credit note. In addition, Siles, as guarantor, executed a separate guaranty agreement. Stephan Wallach and Michelle Wallach, our Chief Operating Officer, pledged 1,500,000 shares of our common stock held by them to secure the credit note under a security agreement with Mr. Grover. The credit note matured in December 2020. At the filing date of this Quarterly Report on Form 10-Q, the balance remains outstanding; however, no formal demand for repayment had been made.

If we fail to comply with the terms of any of our ~~internal control over financial reporting~~outstanding debt, including the terms of any amendment or extension of such debt, the holders of the debt could declare a default under the notes or credit agreement and if the default were to remain uncured, and any secured creditors they would have the right to proceed against the collateral secured by the loans. Any action by secured creditors to proceed against CLR assets, KII equity or our ~~disclosure controls and procedures are not effective, we may not be able to accurately report~~other assets would likely have a serious disruptive effect on our financial results, prevent fraud, or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Due to errors in our financial statements for the three months ended March 31, 2019 we have restated our Unaudited Condensed Consolidated Balance Sheet, Unaudited Condensed Consolidated Statement of Operations, and the Unaudited Condensed Consolidated Statement of Cash Flows. We have commenced measures to remediate the identified material weaknesses in our internal controls: however, there can be no assurance that the weaknesses will be effectively remediated or that additional material weaknesses will not occur in the future.

~~-56-~~

business operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

All sales of our common stock that were not registered under the Securities Act of 1933, as amended (the “Securities Act”) have been previously disclosed in our filings with the Securities and Exchange ~~Commission except for the sales of unregistered securities set forth below during the three months ended March 31, 2019;~~

~~On March 10, 2019, we closed our second tranches of its 2019 January Private Placement debt offering~~Commission.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

In December 2018, CLR entered into a credit agreement with Carl Grover pursuant to which we entered into subscription agreements with thirteen (8) accredited investors that had a substantial pre-existing relationship with us pursuant to which we received aggregate gross proceeds of $540,000CLR borrowed $5,000,000 from ~~thirteen (8) accredited investors that had a substantial pre-existing relationship with us~~Mr. Grover and wein exchange issued to ~~such investors~~him a $5,000,000 credit note (the “Credit Note”). Mr. Grover was the sole beneficial owner of in excess of 5% of our outstanding common shares at September 30, 2020 and December 31, 2019. In addition, Siles Plantation Family Group S.A. (“Siles”), as guarantor, executed a separate guaranty agreement. The Credit Note is secured by CLR’s green coffee inventory, subordinate to certain debt owed to Crestmark Bank and pari passu with certain holders of notes issued by CLR to certain lenders in 2014. At both September 30, 2020 and December 31, 2019, the ~~aggregate~~outstanding principal ~~amount~~balance of ~~$540,000 and an aggregate of 10,800 shares of common stock.~~ the Credit Note was $5,000,000.

The ~~placement agent received 12,200 shares of common stock in aggregate for the first and second tranches. Each note matures 24 months after issuance, bears~~Credit Note accrues interest at a rate of ~~six percent (6%)~~8.00% per annum and is paid quarterly. The Credit Note contains customary events of default including our or Siles failure to pay its obligations, commencing bankruptcy or liquidation proceedings, and breach of representations and warranties. Upon the occurrence of an event of default, the unpaid balance of the principal amount of the Credit Note together with all accrued but unpaid interest thereon, may become, or may be declared to be, due and payable by Mr. Grover and shall bear interest from the due date until such amounts are paid at the rate of 10.00% per annum. WeIn connection with the credit agreement, we issued the securities in reliance on the exemption from registration provided for under Section 4(a)(2) of the Securities Act. We relied on this exemption from registration for private placements based in part on the representations made the investors with respect to ~~their status as accredited investors, as such term is defined in Rule 501(a) of the Securities Act.~~

~~On March 13, 2019, we determined that three of the investors of our August 2018 Private Placement became eligible~~Mr. Grover a four-year warrant to ~~receive additional~~purchase 250,000 shares of our common stock, ~~as it was referred~~exercisable at $6.82 per share, and a four-year warrant to ~~in their respective Purchase Agreement as True-up Shares. Total number of additional shares issued to those three investors is 44,599 shares of restricted shares of our common stock. We issued the~~purchase 250,000 shares of our common stock, ~~in reliance on~~exercisable at $7.82 per share.

In connection with the exemption from registration provided for under Section 4(a)(2) of the Securities Act. We relied on this exemption from registration for private placements based in part on the representations made the investors when they engaged in the August 2018 Private Placement with respect to their status as accredited investors, as such term is defined in Rule 501(a) of the Securities Act.

~~On March 18, 2019,~~Credit Note, we also entered into an advisory agreement with a ~~two-year Secured Promissory Note~~third party not affiliated with ~~two (2) accredited investors that had a substantial pre-existing relationship with us~~Mr. Grover, pursuant to which we ~~raised cash proceeds of $2,000,000~~agreed to pay to the advisor a 3.00% fee on the transaction with Mr. Grover and issued ~~20,000~~to the advisor’s designee a four-year warrant to purchase 50,000 shares of our common stock, ~~par value $0.001 for each $1,000,000 invested as well as for each $1,000,000 invested five-year warrants to purchase 20,000 shares of our common stock~~exercisable at ~~a price~~$6.33 per ~~share of $6.00.~~ ~~The notes pay interest at a rate of eight percent (8%) per annum~~share.

In December 2020, the Credit Note became payable and ~~interest is paid quarterly~~due in ~~arrears~~accordance with ~~all principal and unpaid interest~~its terms. CLR did not make the payment due atupon the maturity ~~on March 18, 2021.~~ ~~We issued the securities in reliance on the exemption from registration provided for under Section 4(a)(2)~~date of the ~~Securities Act. We relied~~Credit Note. At the filing date of this Quarterly Report on ~~this exemption from registration for private placements based~~Form 10-Q, the Company was in ~~part on the representations made the investors with respect to their status as accredited investors, as such term is defined in Rule 501(a)~~default of the ~~Securities Act.~~

~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~

~~None.~~

terms of settlement of the Credit Note and the Credit Note remains outstanding; however no formal demand for repayment has been made.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

-66-

Table of Contents

ITEM 5. OTHER INFORMATION

None.

~~-57-~~

ITEM 6. EXHIBITS

The following exhibits are filed as part of this Report:

EXHIBIT INDEX

Exhibit No.		Exhibit
~~1.1~~3.1		~~At the Market Offering Agreement dated January 7, 2019, by and between Youngevity International, Inc. and The Benchmark Company, LLC incorporated~~ Certificate of Incorporation Dated July 15, 2011 (Incorporated by reference to the ~~Current Report on~~Company’s Form ~~8-K filed with the Securities and Exchange Commission on January 7, 2019 (File~~10-12G, File No. ~~001-38116)~~
~~4.1~~		~~Form of Investor Warrant incorporated by reference to the Current Report on Form 8-K~~000-54900, filed with the Securities and Exchange Commission on February 12, ~~2019 (File No. 001-38116)~~2013)
~~4.2~~3.2		~~Form of Contingent Warrant incorporated~~ Bylaws (Incorporated by reference to the ~~Current Report on~~Company’s Form ~~8-K~~10-12G, File No. 000-54900, filed with the Securities and Exchange Commission on February 12, ~~2019 (File No. 001-38116)~~2013)
~~4.3~~3.3		~~Form~~ Certificate of ~~Contingent Warrant #2 incorporated~~Amendment to the Certificate of Incorporation dated June 5, 2017 (Incorporated by reference to the ~~Current Report on~~Company’s Form 8-K, File No. 000-54900, filed with the Securities and Exchange Commission on ~~February 12, 2019 (File No. 001-38116)~~June 7, 2017)
~~4.4~~3.4		~~Form~~ Certificate of 6%Designations for Series B Convertible ~~Notes incorporated~~Preferred Stock (Incorporated by reference to the ~~Current Report on~~Company’s Form 8-K, File No. 001-38116, filed with the Securities and Exchange Commission on ~~February 15, 2019 (File No. 001-38116)~~March 8, 2018)
~~4.5~~3.5		~~Second Amended~~ Certificate of Correction to Certificate of Designation of Powers, Preferences and ~~Restated 2012~~Rights of Series B Convertible Preferred Stock ~~Option Plan incorporated~~(Incorporated by reference to the ~~Definitive Information Statement on Schedule 14C~~Company’s Form 8-K, File No. 001-38116, filed with the Securities and Exchange Commission on ~~January~~March 16, ~~2019 (File No. 001-38116~~2018)
~~10.2~~3.6		~~Exclusive Agreement with Icelandic Water Holdings hf. dated January 10, 2019 incorporated~~ Certificate of Designations for Series C Convertible Preferred Stock (Incorporated by reference to the ~~Current Report on~~Company’s Form 8-K, File No. 001-38116, filed with the Securities and Exchange Commission on ~~January 11, 2019(File No. 001-38116)~~August 21, 2018)
~~10.3~~3.7		~~CLR Siles Mill Construction Agreement dated January 15, 2019 incorporated~~ Certificate of Amendment to the Certificate of Incorporation (Incorporated by reference to the ~~Current Report on~~Company’s Form 8-K, File No. 001-38116, filed with the Securities and Exchange Commission on ~~January 15, 2019 (File No. 001-38116)~~October 4, 2018)
~~10.4~~3.8		~~Securities Purchase Agreement dated February 6, 2019, with Daniel Mangless incorporated~~ Certificate of Designations, Rights and Preferences of the 9.75% Series D Cumulative Redeemable Perpetual Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, File No. 000-54900, filed with the Securities and Exchange Commission on ~~February 12, 2019 (File No. 001-38116)~~September 24, 2019)
~~10.5~~3.9		~~Asset~~ Certificate of Increase to the Certificate of Designations, Rights and ~~Equity Purchase Agreement by and between Youngevity International, Inc., Khrysos Industries, Inc., Khrysos Global, Inc., INX Holdings, LLC, Leigh Dundore and Dwayne Dundore incorporated~~Preferences of the 9.75%Series D Cumulative Redeemable Perpetual Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, File No. 000-54900, filed with the Securities and Exchange Commission on ~~February 12, 2019 (File No. 001-38116)~~December 19, 2019)
~~10.6~~31.1		Form of Subscription Agreement to purchase 6% Convertible Notes incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 15, 2019 (File No. 001-38116)
~~10.7~~		Security Agreement between Youngevity International, Inc. and investors incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 15, 2019 (File No. 001-38116)
~~31.1~~*		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. *
31.2*		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. *
32.1*		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. *
32.2*		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		Inline XBRL Instance ~~Document~~Document–the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document *
101.SCH		Inline XBRL Taxonomy Extension Schema Document *
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document *
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document *
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*	Filed herewith

-67-

*Filed herewith.

~~-58-~~

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	YOUNGEVITY INTERNATIONAL INC.
	(Registrant)

Date: ~~September 13, 2021~~June 22, 2022	/s/ Stephan Wallach
	Stephan Wallach
	Chief Executive Officer
	(Principal Executive Officer)


Date: ~~September 13, 2021~~June 22, 2022	/s/ William Thompson
	William Thompson
	Chief Financial Officer
	(Principal Financial Officer)

~~-59-~~-68-

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	~~[X]~~ ☒	Smaller reporting company	~~[X]~~ ☒
		Emerging growth company	~~[ ]~~ ☐

		Page
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of ~~March 31, 2019~~September 30, 2020 (unaudited) & December 31, ~~2018~~2019	1
	Condensed Consolidated Statements of Operations for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 ~~and 2018~~ (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 ~~and 2018~~ (unaudited)	3
	Condensed Consolidated Statements of Stockholders' Equity ~~– Three~~for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 ~~and 2018~~ (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019 ~~and 2018~~ (unaudited)	6 8
	Notes to Condensed Consolidated Financial Statements (unaudited)	7 9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44 46
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54 61
Item 4.	Controls and Procedures	54 62

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	56 65
Item 1A.	Risk Factors	56 65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57 66
Item 3.	Defaults Upon Senior Securities	57 66
Item 4.	Mine Safety Disclosures	57 66
Item 5.	Other Information	57 67
Item 6.	Exhibits	58 67
Signatures		59 68

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

	As of
	March 31, 2019	December 31, 2018
ASSETS	(Unaudited) (Restated)*
Current Assets
Cash and cash equivalents	$2,540	$2,879
Accounts receivable trade (Note 1)	7,706	4,028
Income tax receivable	75	74
Inventory	24,164	21,776
Advances (Note 1)	-	5,000
Notes receivable	5,000	-
Prepaid expenses and other current assets	4,891	5,263
Total current assets	44,376	39,020

Property and equipment, net	19,729	15,105
Operating lease right-of-use assets	5,509	-
Deferred tax assets	148	148
Intangible assets, net	23,919	15,377
Goodwill	13,154	6,323
Other assets – notes receivable	949	-
Total assets	$ 107,784	$75,973

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable	$ 8,861	$8,478
Accrued distributor compensation	4,143	3,289
Accrued expenses	6,462	6,582
Deferred revenues	2,268	2,312
Line of credit	2,432	2,256
Other current liabilities	535	1,912
Operating lease liabilities, current portion	745	-
Finance lease liabilities, current portion	978	1,168
Notes payable, current portion	158	141
Convertible notes payable, current portion	681	647
Warrant derivative liability	5,369	9,216
Contingent acquisition debt, current portion	792	795
Total current liabilities	33,424	36,796

Operating lease liabilities, net of current portion	4,764	-
Finance lease liabilities, net of current portion	927	1,107
Notes payable, net of current portion	10,378	7,629
Convertible notes payable, net of current portion	1,981	-
Contingent acquisition debt, net of current portion	7,341	7,466
Total liabilities	58,815	52,998

Commitments and contingencies (Note 1)

Stockholders’ Equity
Preferred Stock, $0.001 par value: 5,000,000 shares authorized
Convertible Preferred Stock, Series A - 161,135 shares issued and outstanding at March 31, 2019 and December 31, 2018	-	-
Convertible Preferred Stock, Series B – 129,437 shares issued and outstanding at March 31, 2019 and December 31, 2018	-	-
Common Stock, $0.001 par value: 50,000,000 shares authorized; 28,890,671 and 25,760,708 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively	29	26
Additional paid-in capital	244,906	206,757
Accumulated deficit	(196,023)	(183,763)
Accumulated other comprehensive income (loss)	57	(45)
Total stockholders’ equity	48,969	22,975
Total Liabilities and Stockholders’ Equity	$ 107,784	$75,973

	Three Months Ended March 31,
	2019 (Unaudited)	2018
	(Restated)*
Revenues	$41,192	$42,994
Cost of revenues	14,343	17,982
Gross profit	26,849	25,012
Operating expenses
Distributor compensation	14,890	15,578
Sales and marketing	4,019	3,499
General and administrative	19,881	5,911
Total operating expenses	38,790	24,988
Income (loss) from Operations	(11,941)	24
Interest expense, net	(1,507)	(1,712)
Change in fair value of warrant derivative liability	1,486	712
Extinguishment loss on debt	-	(1,082)
Total other expense	(21)	(2,082)
Net loss before income taxes	(11,962)	(2,058)
Income tax provision	298	250
Net Loss	(12,260)	(2,308)
Preferred stock dividends	(14)	(3)
Net Loss Available to Common Stockholders	$(12,274)	$(2,311)

Net loss per share, basic	$(0.45)	$(0.12)
Net loss per share, diluted	$(0.49)	$(0.13)

Weighted average shares outstanding, basic	27,577,576	19,744,144
Weighted average shares outstanding, diluted	28,025,172	19,758,402

	Three Months Ended March 31,
	2019	2018

Net loss	$(12,260)	$(2,308)
Foreign currency translation	102	201
Total other comprehensive income	102	201
Comprehensive loss	$(12,158)	$(2,107)

	Series A Preferred Stock		Series B Preferred Stock		Common Stock		Additional Paid-in Capital	Accumulated Other Comprehensive	Accumulated	Total Stockholders' Equity
	Shares	Amount	Shares	Amount	Shares	Amount	(Restated)*	Loss	Deficit	(Restated)*
Balance at December 31, 2018	161,135	$-	129,437	$-	25,760,708	$26	$206,757	$(45)	$(183,763)	$22,975
Net loss	-	-	-	-	-	-	-	-	(12,260)	(12,260)
Foreign currency translation adjustment	-	-	-	-	-	-	-	102	-	102
Issuance of common stock from at-the-market offering and exercise of stock options and warrants, net	-	-	-	-	309,636	1	1,454	-	-	1,455
Issuance of common stock for services	-	-	-	-	75,000	-	417	-	-	417
Issuance of common stock in private offering, net of issuance costs	-	-	-	-	255,000	-	1,750	-	-	1,750
Issuance of common stock for acquisition of Khrysos	-	-	-	-	1,794,972	1	13,999	-	-	14,000
Issuance of common stock for debt financing, net of issuance costs	-	-	-	-	40,000	-	350	-	-	350
Issuance of common stock for true-up shares	-	-	-	-	44,599	-	281	-	-	281
Issuance of common stock for convertible note financing, net of issuance costs	-	-	-	-	61,000	-	293	-	-	293
Issuance of common stock related to purchase of land - H&H	-	-	-	-	153,846	-	1,200	-	-	1,200
Issuance of common stock related to purchase of trademark - H&H	-	-	-	-	100,000	-	750	-	-	750
Issuance of common stock related to advance for working capital (note receivable) net of settlement of debt	-	-	-	-	295,910	1	2,308	-	-	2,309
Release of warrant liability upon exercise of warrants	-	-	-	-	-	-	866	-	-	866
Release of warrant liability upon reclassification of liability to equity	-	-	-	-	-	-	1,494	-	-	1,494
Warrant issued upon vesting for services	-	-	-	-	-	-	1,656	-	-	1,656
Dividends on preferred stock	-	-	-	-	-	-	(14)	-	-	(14)
Stock based compensation expense	-	-	-	-	-	-	11,344	-	-	11,344
Balance at March 31, 2019	161,135	$-	129,437	$-	28,890,671	$29	$244,906	$57	$(196,023)	$48,969

	March 31, 2019
	Previously Reported	Adjustments	Restated
ASSETS
Current Assets
Cash and cash equivalents	$2,540	$-	$2,540
Accounts receivable, trade	21,629	(13,923)	7,706
Income tax receivable	75	-	75
Inventory	46,805	(22,641)	24,164
Notes receivable	5,000	-	5,000
Prepaid expenses and Other current assets	4,891	-	4,891
Total current assets	80,940	(36,564)	44,376

Property and equipment, net	20,856	(1,127)	19,729
Operating lease right-of-use assets	5,509	-	5,509
Deferred tax assets	148	-	148
Intangible assets, net	23,919	-	23,919
Goodwill	10,676	2,478	13,154
Other assets – notes receivable	949	-	949
Total assets	$142,997	$ (35,213)	$ 107,784

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable	$22,784	$ (13,923)	$ 8,861
Accrued distributor compensation	4,143	-	4,143
Accrued expenses	29,103	(22,641)	6,462
Deferred revenues	2,268	-	2,268
Line of credit	2,432	-	2,432
Other current liabilities	535	-	535
Operating lease liabilities, current portion	745	-	745
Finance lease liabilities, current portion	978	-	978
Notes payable, current portion	158	-	158
Convertible notes payable, current portion	681	-	681
Warrant derivative liability	5,369	-	5,369
Contingent acquisition debt, current portion	792	-	792
Total current liabilities	69,988	(36,564)	33,424

Operating lease liabilities, net of current portion	4,764	-	4,764
Finance lease liabilities, net of current portion	927	-	927
Notes payable, net of current portion	10,378	-	10,378
Convertible notes payable, net of current portion	1,981	-	1,981
Contingent acquisition debt, net of current portion	7,341	-	7,341
Total liabilities	95,379	(36,564)	58,815

Commitments and contingencies (Note 1)

Stockholders’ Equity
Preferred Stock, $0.001 par value: 5,000,000 shares authorized	-	-	-
Convertible Preferred Stock, Series A - 161,135 shares issued and outstanding at March 31, 2019 and December 31, 2018	-	-	-
Convertible Preferred Stock, Series B – 129,437 shares issued and outstanding at March 31, 2019 and December 31, 2018	-	-	-
Common Stock, $0.001 par value: 50,000,000 shares authorized; 28,890,671 and 25,760,708 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively	29	-	29
Additional paid-in capital	243,555	1,351	244,906
Accumulated deficit	(196,023)	-	(196,023)
Accumulated other comprehensive loss	57	-	57
Total stockholders’ equity	47,618	1,351	48,969
Total Liabilities and Stockholders’ Equity	$142,997	$ (35,213)	$ 107,784

	Three Months Ended March 31, 2019
	Previously Reported	Adjustments	Restated
Revenues	$56,300	$(15,108)	$41,192
Cost of revenues	29,451	(15,108)	14,343
Gross profit	26,849	-	26,849
Operating expenses
Distributor compensation	14,890	-	14,890
Sales and marketing	4,019	-	4,019
General and administrative	19,881	-	19,881
Total operating expenses	38,790	-	38,790
Loss from Operations	(11,941)	-	(11,941)
Interest expense, net	(1,507)	-	(1,507)
Change in fair value of warrant derivative liability	1,486	-	1,486
Total other expense, net	(21)	-	(21)
Net loss before income taxes	(11,962)	-	(11,962)
Income tax provision	298	-	298
Net loss	(12,260)	-	(12,260)
Preferred stock dividends	(14)	-	(14)
Net Loss Available to Common Stockholders	$(12,274)	$-	$(12,274)

Net loss per share, basic	$(0.45)	$-	$(0.45)
Net loss per share, diluted	$(0.49)	$-	$(0.49)

Weighted average shares outstanding, basic	27,577,576	-	27,577,576
Weighted average shares outstanding, diluted	28,025,172	-	28,025,172

	Operating Leases	Finance Leases
2019	$788	$1,086
2020	753	742
2021	688	204
2022	648	9
2023	889	3
Thereafter	3,139	-
Total lease payments	6,905	2,044
Less imputed interest	1,396	139
Present value of lease liabilities	$5,509	$1,905

	For the three months ended March 31,
	2019	2018
	(Restated)*
Direct selling	$33,420	$35,311
Commercial coffee:
Processed green coffee	100	4,985
Milling and processing services	4,826	-
Roasted coffee and other	2,779	2,698
Total commercial coffee	7,705	7,683
Commercial hemp	67	-
Total	$41,192	$42,994

	Consideration as Originally Reported	Adjustments	Consideration as Currently Reported
Present value of cash consideration	$1,894 $	$-	$1,894
Estimated fair value of common stock issued	12,649	1,351	14,000
Aggregate purchase price	$14,543	$1,351	$15,894

	Fair Value as Originally Reported	Adjustments	Fair Value as Currently Reported
Current assets	$636	$-	$636
Inventory	1,264	-	1,264
Property, plant and equipment	2,260	(1,127)	1,133
Trademarks and trade name	1,876	-	1,876
Customer-related intangible	5,629	-	5,629
Non-compete intangible	956	-	956
Goodwill	4,353	2,478	6,831
Current liabilities	(1,904)	-	(1,904)
Notes payable	(527)	-	(527)
Net assets acquired	$14,543	$1,351	$15,894

	March 31, 2019			December 31, 2018
	Cost	Accumulated Amortization	Net	Cost	Accumulated Amortization	Net
Distributor organizations	$14,559	$9,796	$4,763	$14,559	$9,575	$4,984
Trademarks and trade names	9,963	2,033	7,930	7,337	1,781	5,556
Customer relationships	16,028	5,895	10,133	10,398	5,723	4,675
Internally developed software	720	583	137	720	558	162
Non-compete agreement	956	-	956	-	-	-
Intangible assets	$42,226	$18,307	$23,919	$33,014	$17,637	$15,377

	March 31, 2019	December 31, 2018
Goodwill, commercial coffee	$3,314	$3,314
Goodwill, direct selling	3,009	3,009
Goodwill, commercial hemp	6,831	-
Total goodwill	$13,154	$6,323

	March 31, 2019 (unaudited)	December 31, 2018
8% Convertible Notes due July and August 2019 (2014 Notes), principal	$750	$750
Debt discounts	(69)	(103)
Carrying value of 2014 Notes	681	647
6% Convertible Notes due February and March 2021 (2019 PIPE Notes), principal	2,400	-
Debt discounts	(459)	-
Carrying value of 2019 PIPE Notes	1,941	-
Total carrying value of convertible notes payable	$2,622	$647

	Fair Value at March 31, 2019
	Total	Level 1	Level 2	Level 3
Liabilities:
Contingent acquisition debt, current portion	$792	$-	$-	$792
Contingent acquisition debt, less current portion	7,341	-	-	7,341
Warrant derivative liability	5,369	-	-	5,369
Total liabilities	$13,502	$-	$-	$13,502

	Fair Value at December 31,2018
	Total	Level 1	Level 2	Level 3
Liabilities:
Contingent acquisition debt, current portion	$795	$-	$-	$795
Contingent acquisition debt, less current portion	7,466	-	-	7,466
Warrant derivative liability	9,216	-	-	9,216
Total liabilities	$17,477	$-	$-	$17,477

	Number of Shares	Weighted Average Exercise Price	Weighted Average Remaining Contract Life (years)	Aggregate Intrinsic Value (in thousands)
Outstanding December 31, 2018	2,394,379	$4.45	6.94	$3,049
Issued	2,540,000	6.66
Canceled / expired	(37,275)	5.00
Exercised	(60,530)	4.46		-
Outstanding March 31, 2019	4,836,574	$5.61	8.35	$3,045
Exercisable March 31, 2019	3,723,870	$5.96	8.23	$1,617

	Three Months Ended March 31,
	2019 (unaudited)	2018
Revenues	(Restated)*
United States	$35,782	$37,393
International	5,410	5,601
Total revenues	$41,192	$42,994

	Three Months Ended March 31,
	2019	2018	Percentage Change (1)
	(Restated)*
Direct selling	$33,420	$35,311	(5.4)%
As a % of Revenue	81.1%	82.1%	(1.0)%
Commercial coffee:
Processed green coffee	100	4,985	(98.0)%
As a % of Segment Revenue	1.3%	64.9%	(63.6)%
Milling and processing services	4,826	-	N/A
As a % of Segment Revenue	62.6%	-%	N/A
Roasted coffee and other	2,779	2,698	3.0%
As a % of Segment Revenue	36.1%	35.1%	1.0%
Total commercial coffee	7,705	7,683	0.3%
As a % of Revenue	18.7%	17.9%	0.8%
Commercial hemp	67	-	N/A
As a % of Revenue	0.2%	-%	N/A
Total Revenues	$41,192	$42,994	(4.2)%