Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Mar. 28, 2018 | Jun. 30, 2017 | |
Document And Entity Information | |||
Entity Registrant Name | Youngevity International, Inc. | ||
Entity Central Index Key | 1,569,329 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2017 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Common Stock, Shares Outstanding | 19,728,772 | ||
Entity Public Float | $ 32,806,560 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,017 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Current Assets: | ||
Cash and cash equivalents | $ 673 | $ 869 |
Accounts receivable, due from factoring company | 0 | 1,078 |
Accounts receivable, trade | 4,314 | 1,071 |
Income taxes receivable | 106 | 311 |
Inventory | 22,073 | 21,492 |
Prepaid expenses and other current assets | 3,999 | 3,087 |
Total current assets | 31,165 | 27,908 |
Property and equipment, net | 13,707 | 14,006 |
Deferred tax assets, long-term | 286 | 2,857 |
Intangible assets, net | 20,908 | 14,914 |
Goodwill | 6,323 | 6,323 |
Total | 72,389 | 66,008 |
Current Liabilities: | ||
Accounts payable | 11,728 | 8,174 |
Accrued distributor compensation | 4,277 | 4,163 |
Accrued expenses | 5,437 | 3,701 |
Deferred revenues | 3,386 | 1,870 |
Line of credit | 3,808 | 0 |
Other current liabilities | 1,144 | 2,389 |
Capital lease payable, current portion | 983 | 821 |
Notes payable, current portion | 176 | 219 |
Convertible notes payable, current portion (Note 5) | 2,828 | 0 |
Warrant derivative liability | 3,365 | 3,345 |
Contingent acquisition debt, current portion | 587 | 628 |
Total current liabilities | 37,719 | 25,310 |
Capital lease payable, net of current portion | 694 | 1,569 |
Notes payable, net of current portion | 4,372 | 4,431 |
Convertible notes payable, net of debt discount | 8,336 | 8,327 |
Contingent acquisition debt, net of current portion | 13,817 | 7,373 |
Total liabilities | 64,938 | 47,010 |
Commitments and contingencies, Note 9 | ||
Stockholder's Equity: | ||
Convertible Preferred Stock, $0.001 par value: 5,000,000 shares authorized; 161,135 shares issued and outstanding at December 31, 2017 and December 31, 2016 | 0 | 0 |
Common Stock, $0.001 par value: 50,000,000 shares authorized; 19,723,285 and 19,634,345 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively | 20 | 20 |
Additional paid-in capital | 171,405 | 170,212 |
Accumulated deficit | (163,693) | (151,016) |
Accumulated other comprehensive loss | (281) | (218) |
Total stockholders’ equity | 7,451 | 18,998 |
Total Liabilities and Stockholders’ Equity | $ 72,389 | $ 66,008 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Dec. 31, 2017 | Dec. 31, 2016 |
Equity: | ||
Convertible Preferred Stock, par value | $ 0.001 | $ 0.001 |
Convertible Preferred Stock, shares authorized | 5,000,000 | 5,000,000 |
Convertible Preferred Stock, shares issued | 161,135 | 161,135 |
Convertible Preferred Stock, shares outstanding | 161,135 | 161,135 |
Common Stock, par value | $ 0.001 | $ 0.001 |
Common Stock, shares authorized | 50,000,000 | 50,000,000 |
Common Stock, shares issued | 19,723,285 | 19,634,345 |
Common Stock, shares outstanding | 19,723,285 | 19,634,345 |
Consolidated Statements of Inco
Consolidated Statements of Income - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Consolidated Statements Of Income | ||
Revenues | $ 165,696 | $ 162,667 |
Cost of revenues | 70,131 | 64,530 |
Gross profit | 95,565 | 98,137 |
Operating expenses | ||
Distributor compensation | 65,856 | 67,148 |
Sales and marketing | 13,708 | 10,413 |
General and administrative | 21,883 | 18,061 |
Total operating expenses | 101,447 | 95,622 |
Operating (loss) income | (5,882) | 2,515 |
Interest expense, net | (5,785) | (4,474) |
Extinguishment loss on debt | (308) | 0 |
Change in fair value of warrant derivative liability | 2,025 | 1,371 |
Total other expense | (4,068) | (3,103) |
Net loss before income taxes | (9,950) | (588) |
Income tax provision (benefit) | 2,727 | (190) |
Net loss | (12,677) | (398) |
Preferred stock dividends | (12) | (12) |
Net loss available to common stockholders | $ (12,689) | $ (410) |
Net loss per share, basic | $ (0.65) | $ (0.02) |
Weighted average shares outstanding, basic | 19,672,445 | 19,632,086 |
Net loss per share, diluted | $ (0.68) | $ (0.05) |
Weighted average shares outstanding, diluted | 19,751,892 | 19,806,133 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Consolidated Statements Of Comprehensive Income | ||
Net loss | $ (12,677) | $ (398) |
Foreign currency translation | (63) | 108 |
Total other comprehensive (income) loss | (63) | 108 |
Comprehensive loss | $ (12,740) | $ (290) |
Consolidated Statements of Stoc
Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands | Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders' Equity | Total |
Beginning Balance, Shares at Dec. 31, 2015 | 161,135 | 19,628,567 | |||||
Beginning Balance, Amount at Dec. 31, 2015 | $ 0 | $ 20 | $ 169,805 | $ (326) | $ (150,618) | $ 18,881 | |
Net loss | (398) | (398) | |||||
Foreign currency translation adjustment | 108 | 108 | |||||
Issuance of common stock pursuant to the exercise of warrants, shares | 1,963 | ||||||
Issuance of common stock pursuant to the exercise of warrants, amount | 10 | 10 | |||||
Issuance of common stock pursuant to the exercise of stock options, shares | 5,100 | ||||||
Issuance of common stock pursuant to the exercise of stock options, amount | 20 | 20 | |||||
Issuance of common stock for services, shares | 5,000 | ||||||
Issuance of common stock for services, amount | 30 | 30 | |||||
Repurchase of common stock, shares | (6,285) | ||||||
Repurchase of common stock, amount | (36) | (36) | |||||
Dividends on preferred stock | (12) | (12) | |||||
Stock based compensation expense | 395 | 395 | |||||
Ending Balance, Shares at Dec. 31, 2016 | 161,135 | 19,634,345 | |||||
Ending Balance, Amount at Dec. 31, 2016 | $ 0 | $ 20 | 170,212 | (218) | (151,016) | 18,998 | |
Net loss | (12,677) | (12,677) | |||||
Foreign currency translation adjustment | (63) | (63) | |||||
Issuance of common stock pursuant to the exercise of warrants, shares | 21,875 | ||||||
Issuance of common stock pursuant to the exercise of warrants, amount | 28 | 28 | |||||
Issuance of common stock pursuant to the exercise of stock options, shares | 6,885 | ||||||
Issuance of common stock for services, shares | 37,500 | ||||||
Issuance of common stock for services, amount | 200 | 200 | |||||
Dividends on preferred stock | (12) | (12) | |||||
Stock based compensation expense | 654 | 654 | |||||
Common Stock issued related to debt financing, shares | 22,680 | ||||||
Common Stock issued related to debt financing, amount | 106 | $ 106 | |||||
Deferred tax liability associated with beneficial conversion feature associated with Convertible Notes Payable | (124) | (124) | |||||
Fair value warrant issuance | 341 | 341 | |||||
Ending Balance, Shares at Dec. 31, 2017 | 161,135 | 19,723,285 | |||||
Ending Balance, Amount at Dec. 31, 2017 | $ 0 | $ 20 | $ 171,405 | $ (281) | $ (163,693) | $ 7,451 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Cash Flows from Operating Activities: | ||
Net loss | $ (12,677) | $ (398) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||
Depreciation and amortization | 4,338 | 3,862 |
Stock based compensation expense | 654 | 395 |
Amortization of debt discounts and issuance costs | 1,777 | 1,541 |
Amortization of prepaid advisory fees | 56 | 58 |
Stock issuance for services | 200 | 30 |
Stock issuance related to debt financing | 106 | |
Issuance cost related to debt financing | 125 | |
Change in fair value of warrant derivative liability | (1,895) | (1,371) |
Change in fair value of embedded conversion feature | (130) | 0 |
Expenses allocated to profit sharing agreement | (195) | (698) |
Change in fair value of contingent acquisition debt | (1,664) | (1,462) |
Fair value of warrants | 341 | 0 |
Extinguishment loss on debt | 308 | 0 |
Deferred income taxes | 2,447 | (325) |
Changes in operating assets and liabilities, net of effect from business combinations: | ||
Accounts receivable | (2,165) | (525) |
Inventory | (581) | (3,515) |
Prepaid expenses and other current assets | (968) | (733) |
Income taxes receivable | 205 | (138) |
Accounts payable | 3,554 | 1,159 |
Accrued distributor compensation | 114 | (60) |
Deferred revenues | 1,516 | (710) |
Accrued expenses and other liabilities | 1,761 | 1,063 |
Net Cash Used in Operating Activities | (2,773) | (1,827) |
Cash Flows from Investing Activities: | ||
Acquisitions, net of cash acquired | (52) | (48) |
Purchases of property and equipment | (930) | (1,397) |
Net Cash Used in Investing Activities | (982) | (1,445) |
Cash Flows from Financing Activities: | ||
Proceeds from the exercise of stock options and warrants, net | 28 | 30 |
Proceeds from factoring company, net | 1,558 | 833 |
Proceeds from line of credit, net | 960 | 0 |
Proceeds from issuance of convertible notes, net of offering costs | 2,720 | 0 |
Proceeds (payments) of capital leases | (962) | 557 |
Payments of notes payable, net | (220) | (453) |
Payments of contingent acquisition debt | (462) | (773) |
Repurchase of common stock | 0 | (36) |
Net Cash Provided by Financing Activities | 3,622 | 158 |
Foreign Currency Effect on Cash and Cash Equivalents | (63) | 108 |
Net decrease in cash and cash equivalents | (196) | (3,006) |
Cash and Cash Equivalents, Beginning of year | 869 | 3,875 |
Cash and Cash Equivalents, End of year | 673 | 869 |
Supplemental Disclosures of Cash Flow Information | ||
Interest | 3,922 | 2,966 |
Income taxes | 168 | 181 |
Supplemental Disclosures of Non-cash Investing and Financing Activities | ||
Purchases of property and equipment funded by capital leases and accounts payable agreements | 378 | 1,582 |
Acquisitions of net assets in exchange for contingent acquisition debt (see Note 2) | 8,724 | 3,604 |
Fair value of the warrants issued in connection with financing recorded as a derivative (see Note 6) | 2,344 | 0 |
Conversion of Factoring Agreement to Line of Credit – Crestmark | $ 2,847 | $ 0 |
Basis of Presentation and Descr
Basis of Presentation and Description of Business | 12 Months Ended |
Dec. 31, 2017 | |
Fair estimated value of warrants | |
Basis of Presentation and Description of Business | Nature of Business Youngevity International, Inc. (the “Company”), founded in 1996, develops and distributes health and nutrition related products through its global independent direct selling network, also known as multi-level marketing, and sells coffee products to commercial customers. The Company operates in two business segments, its direct selling segment where products are offered through a global distribution network of preferred customers and distributors and its commercial coffee segment where products are sold directly to businesses. In the following text, the terms “we,” “our,” and “us” may refer, as the context requires, to the Company or collectively to the Company and its subsidiaries. The Company operates through the following domestic wholly-owned subsidiaries: AL Global Corporation, which operates its direct selling networks, CLR Roasters, LLC (“CLR”), its commercial coffee business, 2400 Boswell LLC, MK Collaborative LLC, Youngevity Global LLC and the wholly-owned foreign subsidiaries Youngevity Australia Pty. Ltd., Youngevity NZ, Ltd., Siles Plantation Family Group S.A. (“Siles”), located in Nicaragua, Youngevity Mexico S.A. de CV, Youngevity Israel, Ltd., Youngevity Russia, LLC, Youngevity Colombia S.A.S, Youngevity International Singapore Pte. Ltd., 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. Reverse Stock Split On June 5, 2017, the Company filed a certificate to amend its Articles of Incorporation to effect a reverse split on a one-for-twenty basis (the “Reverse Split”), whereby, every twenty shares of the Company’s common stock, par value $0.001 per share (the “Common Stock or “common stock”), were exchanged for one share of its common stock. The Reverse Split became effective on June 7, 2017. The Common Stock began trading on a reverse split basis at the market opening on June 8, 2017. All common stock share and per share amounts have been adjusted to reflect retrospective application of the Reverse Split. NASDAQ Listing Effective June 21, 2017, the Common Stock began trading on the NASDAQ Stock Market LLC’s NASDAQ Capital Market, under the symbol “YGYI”. Prior to the Company’s uplisting to the NASDAQ, the Company’s common stock had been traded on the OTCQX market. Summary of Significant Accounting Policies A summary of the Company’s significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows: Basis of Presentation The Company consolidates all majority owned subsidiaries, investments in entities in which the Company has controlling influence and variable interest entities where it has been determined to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to conform to the current year presentations including the Company’s adoption of Accounting Standards Update (“ASU”) 2015-17 pertaining to the presentation of deferred tax assets and liabilities as noncurrent with retrospective application effective January 1, 2017. This resulted in a reclassification from deferred tax assets current to deferred tax assets, long-term deferred tax assets, net long-term As previously reported on the Annual Report on Form 10-K/A for the year ended December 31, 2016 filed with the Securities and Exchange Commission on August 14, 2017, the Company restated the Consolidated Statement of Cash Flows for the year ended December 31, 2016 previously filed by the Company in its annual report on Form 10-K for the same period. This was due to an error in the presentation of cash flow activity under the Company’s factoring facility. This annual report for the year ended December 31, 2017 reflects the restated numbers for the year ended December 31, 2016. Segment Information The Company has two reporting segments: direct selling and commercial coffee. 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 a coffee roasting and distribution company specializing in gourmet coffee. The determination that the Company has two reportable segments is based upon the guidance set forth in Accounting Standards Codification (“ASC”) Topic 280, “Segment Reporting.” Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense for each reporting period. Estimates are used in accounting for, among other things, allowances for doubtful accounts, deferred taxes, and related valuation allowances, fair value of derivative liabilities, uncertain tax positions, loss contingencies, fair value of awards granted under our stock based compensation plan, fair value of assets and liabilities acquired in business combinations, capital leases, asset impairments, estimates of future cash flows used to evaluate impairments, useful lives of property, equipment and intangible assets, fair 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 operating losses during the year ended December 31, 2017 of $5,882,000, compared to operating income in the prior year of $2,515,000. The losses in the current year were primarily due to lower than anticipated revenues, increases in legal fees related to its ongoing litigation, distributor events and sales and marketing costs. Net cash used in operating activities was $2,773,000 in the current year. The Company does not currently believe that its existing cash resources are sufficient to meet the Company’s anticipated needs over the next twelve months 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 will need to significantly reduce its expenses from current levels. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company believes that legal fees will decrease in the future from the levels spent in the current year. The Company has been reimbursed from its insurance company for certain legal fees already incurred and anticipates further reimbursements in 2018. The Company expects costs related to distributor events will decrease next year from current year levels as its costs in the current year were unusually high due to the twentieth anniversary convention held in Dallas in August and events held at the beginning of the year to stabilize the sales force due to the departure of the previous president and high-level sales management and distributors. The Company anticipates revenues to start growing again and it intends to make necessary cost reductions related to international operations that are not performing and also reduce expenses. The Company is also considering multiple alternatives including, but not limited to, additional equity financings and debt financings. On February 14, 2018, the Company commenced its offering to sell up to $10 million of the Company’s Series B Convertible Preferred Stock on a best effort basis without any minimum offering amount. The Offering terminated on March 30, 2018. The Series B Convertible Preferred Stock pays cumulative dividends 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. The Series B Convertible Preferred Stock ranks senior to the Company’s outstanding Series A Convertible Preferred Stock and the Company’s common stock par value $0.001 with respect to dividend rights and rights upon liquidation, dissolution or winding up. Each holder of Series B Convertible Preferred Stock received a credit towards our merchandise equal to ten percent (10%) of the amount of their investment up to a maximum credit of $1,000. Holders of the Series B Convertible Preferred Stock have limited voting rights. Each share of Series B 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 shares of common stock and automatically converts into two shares of Common Stock on its two-year anniversary of issuance. The offering price of the Series B Convertible Preferred Stock was $9.50 per share. On March 30, 2018, the Company completed its best efforts Offering of Series B Convertible Preferred Stock, pursuant to which the Company sold381,173 shares of Series B Convertible Preferred Stock at an offering price of $9.50 per share and received gross proceeds in aggregate amount of $3,621,143. The net proceeds to the Company from Offering were $3,328,761 after deducting commissions and Offering expenses of the selling agent payable by the Company. The shares of Series B Convertible Preferred Stock issued in the 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 Company’s best effort Offering of Series B Convertible Preferred Stock, the 2017 Notes in the principal amount of $7,254,349 automatically converted into 1,577,033 shares of common stock. On November 16, 2017, CLR entered into a new Loan and Security Agreement (“Agreement”) with Crestmark Bank (“Crestmark”) which amended and restated the original Factoring Agreement dated February 12, 2010 with Crestmark and subsequent agreement amendments thereto. CLR is provided with a line of credit related to accounts receivables resulting from sales of certain products and includes borrowings to be advanced against acceptable eligible inventory related to CLR. Effective December 29, 2017, CLR entered into a First Amendment to the Agreement, to include an increase in the maximum overall borrowing to $6,250,000 (the, “Loan”). The Loan amount 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 (i) above (iii) the lesser of $250,000 or eligible inventory or 75% of certain specific inventory identified within the Agreement. The Agreement contains certain financial and nonfinancial covenants for which the Company must comply to maintain its borrowing availability and avoid penalties. 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. 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. 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. Derivative Financial Instruments The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency. The Company reviews the terms of convertible debt and equity instruments it issues to determine whether there are derivative instruments, including an embedded conversion option that is required to be bifurcated and accounted for separately as a derivative financial instrument. In circumstances where a host instrument contains more than one embedded derivative instrument, including a conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. Also, in connection with the sale of convertible debt and equity instruments, the Company may issue freestanding warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. Derivative instruments are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds allocated to the convertible host instruments are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method. Accounts Receivable Accounts receivable are recorded net of an allowance for doubtful accounts. Accounts receivable are considered delinquent when the due date on the invoice has passed. The Company records its allowance for doubtful accounts based upon its assessment of various factors including past experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers’ ability to pay. Accounts receivable are written off against the allowance for doubtful accounts when all collection efforts by the Company have been unsuccessful. As of December 31, 2017, the Company’s allowance for doubtful accounts associated with CLR outstanding receivables is $10,000. Inventory 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. The Company records an inventory reserve for estimated excess and obsolete inventory based upon historical turnover, market conditions and assumptions about future demand for its products. When applicable, expiration dates of certain inventory items with a definite life are taken into consideration. Inventories consist of the following (in thousands): December 31, 2017 2016 Finished goods $ 10,994 $ 11,550 Raw materials 12,143 11,006 Total inventory 23,137 22,556 Reserve for excess and obsolete (1,064 ) (1,064 ) Inventory, net $ 22,073 $ 21,492 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. Deferred Issuance Costs Deferred issuance costs include warrant issuance costs and debt discounts of approximately $4,040,000 and $3,611,000, as of December 31, 2017 and 2016, respectively, are associated with our 2017, 2015 and 2014 Private Placement transactions and are included with convertible notes payable on the Company's consolidated balance sheets. Deferred issuance costs related to our private placement offerings are amortized over the life of the notes to interest expense. See Note 5, below. Plantation Costs The Company’s commercial coffee segment includes the results of Siles, which is a 500-acre coffee plantation and a dry-processing facility located on 26 acres located in Matagalpa, Nicaragua. Siles is a wholly-owned subsidiary of CLR, and the results of CLR include the depreciation and amortization of capitalized costs, development and maintenance and harvesting costs of Siles. In accordance with GAAP plantation maintenance and harvesting costs for commercially producing coffee farms are charged against earnings when sold. Deferred harvest costs accumulate throughout the year and are expensed over the remainder of the year as the coffee is sold. The difference between actual harvest costs incurred and the amount of harvest costs recognized as expense is recorded as either an increase or decrease in deferred harvest costs, which is reported as an asset and included with prepaid expenses and other current assets in the consolidated balance sheets. Once the harvest is complete, the harvest costs are then recognized as the inventory value. Costs associated with the 2017 harvest as of December 31, 2016 totaled approximately $452,000. In April 2017, the Company completed the 2017 harvest in Nicaragua and approximately $552,000 of deferred harvest costs were reclassified as inventory. Costs associated with the 2018 harvest as of December 31, 2017 total approximately $400,000. The 2018 harvest is expected to be completed during the Company’s second quarter of 2018. The remaining inventory from our previously harvested coffee as of December 31, 2017 and as of December 31, 2016 is $334,000 and $112,000, respectively. Property and Equipment Property and equipment are recorded at historical cost. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to operations over the estimated useful lives of the related assets. The straight-line method of depreciation and amortization is followed for financial statement purposes. Leasehold improvements are amortized over the shorter of the life of the respective lease or the useful life of the improvements. Estimated service lives range from 3 to 39 years. When such assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in operations in the period of disposal. The cost of normal maintenance and repairs is charged to expense as incurred. Significant expenditures that increase the useful life of an asset are capitalized and depreciated over the estimated useful life of the asset. Coffee trees, land improvements and equipment specifically related to the plantations are stated at cost, net of accumulated depreciation. Depreciation of coffee trees and other equipment is reported on a straight-line basis over the estimated useful lives of the assets (25 years for coffee trees, between 5 and 15 years for equipment and land improvements). Property and equipment are considered long-lived assets and are evaluated for impairment whenever events or changes in circumstances indicate their net book value may not be recoverable. Management has determined that no impairment of its property and equipment occurred as of December 31, 2017 or 2016. Property and equipment consist of the following (in thousands): December 31, 2017 2016 Building $ 3,879 $ 3,873 Leasehold improvements 2,779 2,532 Land 2,544 2,544 Land improvements 606 602 Producing coffee trees 553 553 Manufacturing equipment 5,022 4,570 Furniture and other equipment 1,707 1,580 Computer software 1,322 1,236 Computer equipment 767 699 Vehicles 225 103 Construction in process 1,986 1,859 21,390 20,151 Accumulated depreciation (7,683 ) (6,145 ) Total property and equipment $ 13,707 $ 14,006 Depreciation expense totaled approximately $1,556,000 and $1,518,000 for the years ended December 31, 2017 and 2016, respectively. 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. 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): December 31, 2017 December 31, 2016 Cost Accumulated Amortization Net Cost Accumulated Amortization Net Distributor organizations $ 16,204 $ 8,363 $ 7,841 $ 12,930 $ 7,162 $ 5,768 Trademarks and tradenames 7,779 1,229 6,550 5,394 815 4,579 Customer relationships 10,966 4,711 6,255 7,846 3,642 4,204 Internally developed software 720 458 262 720 357 363 Intangible assets $ 35,669 $ 14,761 $ 20,908 $ 26,890 $ 11,976 $ 14,914 Amortization expense related to intangible assets was approximately $2,782,000 and $2,344,000 for the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017, future expected amortization expense related to definite lived intangible assets for the next five years is as follows (in thousands): Years ending December 31, 2018 $ 3,050 2019 2,441 2020 2,352 2021 2,276 2022 2,252 As of December 31, 2017, the weighted-average remaining amortization period for intangibles assets was approximately 5.66 years. 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 December 31, 2017 and December 31, 2016, approximately $1,649,000 and $2,267,000, respectively, in trademarks from business combinations have been identified as having indefinite lives. During the year ended December 31, 2017, the Company considered the guidance of ASC 350 and concluded that certain intangible assets with indefinite lives should be changed to a definite life. As a result, the Company changed the classification of approximately $618,000 trademark/tradename intangible assets to a definite lived intangible asset. The Company has determined that no impairment occurred for its definite and indefinite lived intangible assets for the years ended December 31, 2017 and 2016. 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”, 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 operating segment, or a business one level below that operating segment (referred to as a component) if discrete financial information is prepared and regularly reviewed by management at the component level. The Company has determined that its reporting units for goodwill impairment testing are the Company’s reportable segments. As such, the Company analyzed its goodwill balances separately for the commercial coffee reporting unit and the direct selling reporting unit. The goodwill balance as of December 31, 2017 and December 31, 2016 was $6,323,000. The Company has determined that no impairment of its goodwill occurred for the years ended December 31, 2017 and 2016. Goodwill activity for the years ended December 31, 2017 and 2016 by reportable segment consists of the following (in thousands): Direct selling Commercial coffee Total Balance at December 31, 2015 $ 3,009 $ 3,314 $ 6,323 Goodwill recognized - - - Goodwill impaired - - - Balance at December 31, 2016 $ 3,009 $ 3,314 $ 6,323 Goodwill recognized - - - Goodwill impaired - - - Balance at December 31, 2017 $ 3,009 $ 3,314 $ 6,323 Revenue Recognition The Company recognizes revenue from product sales when the following four criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. The Company ships the majority of its direct selling segment products directly to the distributors primarily via UPS, USPS or FedEx and receives substantially all payments for these sales in the form of credit card transactions. The Company regularly monitors its use of credit card or merchant services to ensure that its financial risk related to credit quality and credit concentrations is actively managed. Revenue is recognized upon passage of title and risk of loss to customers when product is shipped from the fulfillment facility. The Company ships the majority of its coffee segment products via common carrier and invoices its customer for the products. Revenue is recognized when the title and risk of loss is passed to the customer under the terms of the shipping arrangement, typically, FOB shipping point. 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. Our distributors are required to pay a 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 our distributor website and a genealogy position with no down line distributors. Sales revenue and a reserve for estimated returns are recorded net of sales tax. Deferred Revenues and Costs As of December 31, 2017, and December 31, 2016, the balance in deferred revenues was approximately $3,386,000 and $1,870,000, respectively. Deferred revenue related to the Company’s direct selling segment is attributable to the Heritage Makers product line and also for future Company convention and distributor events. In addition, the Company recognizes deferred revenue from the commercial coffee segment. Deferred revenues related to Heritage Makers was approximately $1,882,000 and $1,662,000, as of December 31, 2017, and December 31, 2016, respectively. The deferred revenue represents Heritage Maker’s obligation for points purchased by customers that have not yet been redeemed for product. Cash received for points sold is recorded as deferred revenue. Revenue is recognized when customers redeem the points and the product is shipped. Deferred costs relate to Heritage Makers prepaid commissions that are recognized in expense at the time the related revenue is recognized. As of December 31, 2017 and December 31, 2016, the balance in deferred costs was approximately $433,000 and $415,000, respectively, and was included in prepaid expenses and current assets. Deferred revenues related to CLR as of December 31, 2017 is approximately $1,291,000 and represents deposits on customer orders that have not yet been completed and shipped. There was no related deferred revenue during the year ended December 31, 2016. Deferred revenues related to pre-enrollment in upcoming conventions and distributor events of approximately $213,000 and $208,000 as of December 31, 2017 and 2016, respectively, relate primarily to the Company’s 2018 and 2017 events. The Company does not recognize this revenue until the conventions occur. Product Return Policy All products, except food products and commercial coffee products are subject to a full refund within the first 30 days of receipt by the customer, subject to an advance return authorization procedure. Returned product must be in unopened resalable condition. Product returns as a percentage of our net sales have been approximately 1% of our monthly net sales over the last two years. As of December 31, 2017 and 2016 the Company has an allowance of $75,000 related to product returns. Commercial coffee products are returnable only if defective. Shipping and Handling Shipping and handling costs associated with inbound freight and freight to customers, including independent distributors, are included in cost of sales. Shipping and handling fees charged to customers are included in sales. Shipping expense was approximately $9,101,000 and $9,927,000 for the years ended December 31, 2017 and 2016, respectively. Distributor Compensation In the direct selling segment, the Company utilizes a network of independent distributors, each of whom has signed an agreement with the Company, enabling them to purchase products at wholesale prices, market products to customers, enroll new distributors for their down-line and earn compensation on product purchases made by those down-line distributors and customers. The payments made under the compensation plans are the only form of compensation paid to the distributors. Each product has a point value, which may or may not correlate to the wholesale selling price of a product. A distributor must qualify each month to participate in the compensation plan by making a specified amount of product purchases, achieving specified point levels. Once qualified, the distributor will receive payments based on a percentage of the point value of products sold by the distributor’s down-line. The payment percentage varies depending on the qualification level of the distributor and the number of levels of down-line distributors. There are also additional incentives paid upon achieving predefined activity and or down-line point value levels. There can be multiple levels of independent distributors earning incentives from the sales efforts of a single distributor. Due to the multi-layer independent sales approach, distributor incentives are a significant component of the Company’s cost structure. The Company accrues all distributor compensation expense in the month earned and pays the compensation the following month. Basic and Diluted Net Loss Per Share Basic loss per share is computed by dividing net loss attributable to co |
Acquisitions and Business Combi
Acquisitions and Business Combinations | 12 Months Ended |
Dec. 31, 2017 | |
Fair estimated value of warrants | |
Acquisitions and Business Combinations | During 2017 and 2016, the Company entered into five and four acquisitions, respectively, which are detailed below. The acquisitions were conducted in an effort to expand the Company’s distributor network, enhance and expand its product portfolio, and diversify its product mix. As such, the major purpose for all of the business combinations was to increase revenue and profitability. The acquisitions were structured as asset purchases which resulted in the recognition of certain intangible assets. 2017 Acquisitions BeautiControl, Inc. On December 13, 2017, the Company entered into an agreement with BeautiControl whereby the Company acquired certain assets of the BeautiControl cosmetic company. BeautiControl is a direct sales company specializing in cosmetics and skincare products. The Company is obligated to make monthly payments based on a percentage of the BeautiControl’s distributor revenue derived from sales of the Company’s products and a percentage of royalty revenue derived from sales of BeautiControl’s products until the earlier of the date that is twelve (12) years from the closing date or such time as the Company has paid to BeautiControl’s aggregate cash payments of the BeautiControl’s distributor revenue and royalty revenue equal to the maximum aggregate purchase price of $20,000,000. The contingent consideration’s estimated fair value at the date of acquisition was $2,625,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred. The assets acquired were recorded at estimated fair values as of the date of the acquisition. The fair values of the acquired assets have not been finalized pending further information that may impact the valuation of certain assets or liabilities. The Company did not acquire any inventory or assumed liabilities with this acquisition. The preliminary purchase price allocation is as follows (in thousands): Distributor organization $ 1,275 Customer-related intangible 765 Trademarks and trade name 585 Total purchase price $ 2,625 The preliminary fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized. The Company expects to finalize the valuations within one (1) year from the acquisition date. There was no revenue earned as of December 31, 2017 for the BeautiControl acquisition. The pro-forma effect assuming the business combination with BeautiControl discussed above had occurred at the beginning of the year is not presented as the information was not available. Future Global Vision, Inc. Effective November 6, 2017, the Company acquired certain assets and assumed certain liabilities of Future Global Vision, Inc., a direct selling company that offers a unique line of products that include a fuel additive for vehicles that improves the efficiency of the engine and reduces fuel consumption. In addition, Future Global Vision, Inc., offers a line of nutraceutical products designed to provide health benefits that the whole family can use. The Company is obligated to make monthly payments based on a percentage of the Future Global Vision, Inc., distributor revenue derived from sales of the Company’s products and a percentage of royalty revenue derived from sales of the Future Global Vision, Inc., products until the earlier of the date that is twelve (12) years from the closing date or such time as the Company has paid to Future Global Vision, Inc., aggregate cash payments of the Future Global Vision, Inc., distributor revenue and royalty revenue equal to the maximum aggregate purchase price of $1,800,000. The contingent consideration’s estimated fair value at the date of acquisition was $875,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred. The Company received approximately $53,000 of inventories and has agreed to pay for the inventory. This payment is applied to the maximum aggregate purchase price. The assets acquired were recorded at estimated fair values as of the date of the acquisition. The fair values of the acquired assets have not been finalized pending further information that may impact the valuation of certain assets or liabilities. The preliminary purchase price allocation is as follows (in thousands): Inventory $ 53 Distributor organization 425 Customer-related intangible 250 Trademarks and trade name 200 Accrued liabilities (53 ) Total purchase price $ 875 The preliminary fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized. The Company expects to finalize the valuations within one (1) year from the acquisition date. The revenue impact from the Future Global Vision, Inc., acquisition, included in the consolidated statements of operations for the year ended December 31, 2017 was approximately $63,000. The pro-forma effect assuming the business combination with Future Global Vision, Inc., discussed above had occurred at the beginning of the year is not presented as the information was not available. Sorvana International, LLC Effective July 1, 2017, the Company acquired certain assets and assumed certain liabilities of Sorvana International, LLC “Sorvana”. Sorvana was the result of the unification of the two companies FreeLife International, Inc. “FreeLife”, and L’dara. Sorvana offers a variety of products with the addition of the FreeLife and L’dara product lines. Sorvana offers an extensive line of health and wellness product solutions including healthy weight loss supplements, energy and performance products and skin care product lines as well as organic product options. As a result of this business combination, the Company’s distributors and customers will have access to Sorvana’s unique line of products and Sorvana’s distributors and clients will gain access to products offered by the Company. The Company is obligated to make monthly payments based on a percentage of the Sorvana distributor revenue derived from sales of the Company’s products and a percentage of royalty revenue derived from sales of Sorvana’s products until the earlier of the date that is twelve (12) years from the closing date or such time as the Company has paid to Sorvana aggregate cash payments of the Sorvana distributor revenue and royalty revenue equal to the maximum aggregate purchase price of $14,000,000. The Company received approximately $700,000 of inventories and has agreed to pay for the inventory. This payment is applied to the maximum aggregate purchase price. In addition, the Company assumed certain liabilities payable in the approximate amount of $68,000 which is not applied to the maximum aggregate purchase price. The contingent consideration’s estimated fair value at the date of acquisition was $4,247,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred. During the year ended December 31, 2017 the Company determined that the initial estimated fair value of the acquisition should be reduced by $1,105,000 from $4,247,000 to $3,142,000. The fair values of the acquired assets have not been finalized pending further information that may impact the valuation of certain assets or liabilities. The preliminary purchase price allocation is as follows (in thousands): Inventory $ 700 Distributor organization 910 Customer-related intangible 1,300 Trademarks and trade name 1,000 Accrued liabilities, inventory (700 ) Accrued liabilities, assumed liabilities (68 ) Total purchase price $ 3,142 The preliminary fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized. The Company expects to finalize the valuations within one (1) year from the acquisition date. The revenue impact from the Sorvana acquisition, included in the consolidated statements of operations for the year ended December 31, 2017 was approximately $3,891,000. The pro-forma effect assuming the business combination with Sorvana discussed above had occurred at the beginning of the year is not presented as the information was not available. BellaVita Group, LLC Effective March 1, 2017, the Company acquired certain assets of BellaVita Group, LLC “BellaVita” a direct sales company and producer of health and beauty products with locations and customers primarily in the Asian market. The Company is obligated to make monthly payments based on a percentage of the BellaVita distributor revenue derived from sales of the Company’s products and a percentage of royalty revenue derived from sales of BellaVita products until the earlier of the date that is twelve (12) years from the closing date or such time as the Company has paid to BellaVita aggregate cash payments of the BellaVita distributor revenue and royalty revenue equal to the maximum aggregate purchase price of $3,000,000. The Company assumed certain liabilities payable in the approximate amount of $100,000 and is applied to the maximum aggregate purchase price. The contingent consideration’s estimated fair value at the date of acquisition was $1,650,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred. During the year ended December 31, 2017 the Company determined that the initial estimated fair value of the acquisition should be increased by $156,000 from $1,650,000 to $1,806,000. The fair values of the acquired assets have not been finalized pending further information that may impact the valuation of certain assets or liabilities. The preliminary purchase price allocation is as follows (in thousands): Distributor organization $ 981 Customer-related intangible 525 Trademarks and trade name 400 Accrued liabilities (100 ) Total purchase price $ 1,806 The preliminary fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized. The Company expects to finalize the valuations within one (1) year from the acquisition date. The revenue impact from the BellaVita acquisition, included in the consolidated statements of operations for the year ended December 31, 2017 was approximately $2,390,000. The pro-forma effect assuming the business combination with BellaVita discussed above had occurred at the beginning of the year is not presented as the information was not available. Ricolife, LLC Effective March 1, 2017, the Company acquired certain assets of Ricolife, LLC “Ricolife” a direct sales company and producer of teas with health benefits contained within its tea formulas. The Company is obligated to make monthly payments based on a percentage of the Ricolife distributor revenue derived from sales of the Company’s products and a percentage of royalty revenue derived from sales of Ricolife products until the earlier of the date that is twelve (12) years from the closing date or such time as the Company has paid to Ricolife aggregate cash payments of the Ricolife distributor revenue and royalty revenue equal to the maximum aggregate purchase price of $1,700,000. The contingent consideration’s estimated fair value at the date of acquisition was $845,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred. The Company assumed certain liabilities payable in the approximate amount of $75,000 and is applied to the maximum aggregate purchase price. During the year ended December 31, 2017 the Company determined that the initial estimated fair value of the acquisition should be reduced by $372,000 from $845,000 to $473,000. The fair values of the acquired assets have not been finalized pending further information that may impact the valuation of certain assets or liabilities. The preliminary purchase price allocation is as follows (in thousands): Distributor organization $ 68 Customer-related intangible 280 Trademarks and trade name 200 Accrued liabilities (75 ) Total purchase price $ 473 The preliminary fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized. The Company expects to finalize the valuations within one (1) year from the acquisition date. The revenue impact from the Ricolife acquisition, included in the consolidated statements of operations for the year ended December 31, 2017 was approximately $896,000. The pro-forma effect assuming the business combination with Ricolife discussed above had occurred at the beginning of the year is not presented as the information was not available. 2016 Acquisitions Legacy for Life, LLC On August 18, 2016, with an effective date of September 1, 2016 the Company entered into an agreement to acquire certain assets of Legacy for Life, LLC, an Oklahoma based direct-sales company and entered into an agreement to acquire the equity of two wholly owned subsidiaries of Legacy for Life, LLC; Legacy for Life Taiwan and Legacy for Life Limited (Hong Kong) collectively referred to as (“Legacy for Life”). Legacy for Life is a science-based direct seller of i26, a product made from the patented IgY Max formula or hyperimmune whole dried egg, which is the key ingredient in Legacy for Life products. Additionally, the Company has entered into an Ingredient Supply Agreement to market i26 worldwide. IgY Max promotes healthy gut flora and healthy digestion and was created by exposing a specially selected flock of chickens to natural elements from the human world, whereby the chickens develop immunity to these elements. In a highly patented process, these special eggs are harvested as a whole food and are processed as a whole food into i26 egg powder, an all-natural product. Nothing is added to the egg nor does any chemical extraction take place. As a result of this acquisition, the Company’s distributors and customers have access to the unique line of the Legacy for Life products and the Legacy for Life distributors and customers have gained access to products offered by the Company. The Company purchased certain inventories and assumed certain liabilities. The Company is obligated to make monthly payments based on a percentage of the Legacy for Life distributor revenue derived from sales of the Company’s products and a percentage of royalty revenue derived from sales of the Legacy for Life products until the earlier of the date that is fifteen (15) years from the closing date or such time as the Company has paid to Legacy for Life aggregate cash payments of Legacy for Life distributor revenue and royalty revenue equal to the maximum aggregate purchase price of $2,000,000. The contingent consideration’s estimated fair value at the date of acquisition was $825,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred. During the period ended September 30, 2017 the purchase accounting was finalized and the Company determined that the initial purchase price of $1,046,000 should be reduced by $92,000 to $954,000. The final purchase price allocation for the acquisition of Legacy for Life (in thousands) is as follows: Cash paid for the equity in Legacy for Life Taiwan and Legacy for Life Limited (Hong Kong) $ 26 Cash paid for inventory 195 Total cash consideration 221 Trademarks and trade name 185 Customer-related intangible 250 Distributor organization 298 Total intangible assets acquired, non-cash 733 Total purchase price $ 954 The fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized. The revenue impact from the Legacy for Life acquisition, included in the consolidated statement of operations for the years ended December 31, 2017 and 2016 was approximately $1,920,000 and $507,000, respectively. The pro-forma effect assuming the business combination with Legacy for Life discussed above had occurred at the beginning of 2016 is not presented as the information was not available. Nature’s Pearl Corporation On August 1, 2016, the Company entered into an agreement to acquire certain assets of Nature’s Pearl Corporation, (“Nature’s Pearl”) with an effective date of September 1, 2016. Nature’s Pearl is a direct-sales company that produces nutritional supplements and skin and personal care products using the muscadine grape grown in the southeastern region of the United States that are deemed to be rich in antioxidants. As a result of this acquisition, the Company’s distributors and customers have access to the unique line of Nature’s Pearl products and Nature’s Pearl distributors and customers have gained access to products offered by the Company. The Company is obligated to make monthly payments based on a percentage of Nature’s Pearl distributor revenue derived from sales of the Company’s products and a percentage of royalty revenue derived from sales of Nature’s Pearl products until the earlier of the date that is ten (10) years from the closing date or such time as the Company has paid to Nature’s Pearl aggregate cash payments of Nature’s Pearl distributor revenue and royalty revenue equal to the maximum aggregate purchase price of $15,000,000. The Company paid approximately $200,000 for certain inventories, which payment was applied against the maximum aggregate purchase price. The contingent consideration’s estimated fair value at the date of acquisition was $2,765,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred. During the year ended December 31, 2016, the Company determined that the initial estimated fair value of the acquisition should be reduced by $1,290,000 from the initial purchase price of $2,765,000 to $1,475,000. During the period ended September 30, 2017 the purchase accounting was finalized and the Company determined that the purchase price should be reduced by $266,000 to $1,209,000. The final purchase price allocation for the acquisition of Nature’s Pearl (in thousands) is as follows: Inventory $ 200 Distributor organization 559 Customer-related intangible 400 Trademarks and trade name 250 Accrued liabilities (200 ) Total purchase price $ 1,209 The fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized. The revenue impact from the Nature’s Pearl acquisition, included in the consolidated statement of operations for the years ended December 31, 2017 and 2016 was approximately $3,756,000 and $1,488,000, respectively. The pro-forma effect assuming the business combination with Nature’s Pearl discussed above had occurred at the beginning of 2016 is not presented as the information was not available. Renew Interest, LLC (SOZO Global, Inc.) On July 29, 2016, the Company acquired certain assets of Renew Interest, LLC (“Renew”) formerly owned by SOZO Global, Inc. (“SOZO”), a direct-sales company that produces nutritional supplements, skin and personal care products, weight loss products and coffee products. The SOZO brand of products contains CoffeeBerry a fruit extract known for its high level of antioxidant properties. As a result of this business combination, the Company’s distributors and customers have access to the unique line of the Renew products and Renew distributors and customers have gained access to products offered by the Company. The Company is obligated to make monthly payments based on a percentage of Renew distributor revenue derived from sales of the Company’s products and a percentage of royalty revenue until the earlier of the date that is twelve (12) years from the closing date or such time as the Company has paid to Renew, aggregate cash payments of Renew distributor revenue and revenue equal to the maximum aggregate purchase price of $2,500,000. The contingent consideration’s estimated fair value at the date of acquisition was $465,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred. The Company paid approximately $250,000 for certain inventories and $48,000 for assumed liabilities, which payment was applied to the maximum aggregate purchase price. During the period ended September 30, 2017 the purchase accounting was finalized and the Company determined that the initial purchase price should be reduced by $78,000 including the assumed liabilities of $48,000, from $465,000 to $387,000. The final purchase price allocation for the acquisition of Renew (in thousands) is as follows: Inventory $ 250 Distributor organization 170 Customer-related intangible 155 Trademarks and trade name 110 Accrued liabilities, inventory (250 ) Accrued liabilities, assumed liabilities (48 ) Total purchase price $ 387 The fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized. The revenue impact from the Renew acquisition, included in the consolidated statement of operations for the years ended December 31, 2017 and 2016 was approximately $920,000 and $432,000, respectively. The pro-forma effect assuming the business combination with Renew discussed above had occurred at the beginning of 2016 is not presented as the information was not available. South Hill Designs Inc. In January 2016, the Company acquired certain assets of South Hill Designs Inc., (“South Hill”) a direct-sales and proprietary jewelry company that sells customized lockets and charms. As a result of this business combination the Company’s distributors have access to South Hill’s customized products and the South Hill distributors and customers have gained access to products offered by the Company. The Company has agreed to pay South Hill a monthly royalty payment on all gross sales revenue generated by the South Hill distributor organization in accordance with this agreement, regardless of products being sold and a monthly royalty payment on South Hill product revenue for seven (7) years from the closing date. The contingent consideration’s estimated fair value at the date of acquisition was $2,650,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred. During the period ended December 31, 2016 the purchase accounting was finalized and the Company determined that the initial purchase price should be reduced by $1,811,000 from $2,650,000 to $839,000. The final purchase price allocation for the acquisition of South Hill (in thousands) is as follows: Distributor organization $ 396 Customer-related intangible 285 Trademarks and trade name 158 Total purchase price $ 839 The fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized. The revenue impact from the South Hill acquisition, included in the consolidated statement of operations for the years ended December 31, 2017 and 2016 was approximately $1,268,000 and $4,283,000, respectively. The pro-forma effect assuming the business combination with South Hill discussed above had occurred at the beginning of 2016 is not presented as the information was not available. |
Arrangements with Variable Inte
Arrangements with Variable Interest Entities and Related Party Transactions | 12 Months Ended |
Dec. 31, 2017 | |
Arrangements With Variable Interest Entities And Related Party Transactions | |
Arrangements with Variable Interest Entities and Related Party Transactions | The Company consolidates all variable interest entities in which it holds a variable interest and is the primary beneficiary of the entity. Generally, a variable interest entity (“VIE”) is a legal entity with one or more of the following characteristics: (a) the total at risk equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties; (b) as a group the holders of the equity investment at risk lack any one of the following characteristics: (i) the power, through voting or similar rights, to direct the activities of the entity that most significantly impact its economic performance, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) some equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is required to consolidate the VIE and is the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and (b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. In determining whether it is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE's economic performance and which party has the power to direct such activities; the amount and characteristics of Company's interests and other involvements in the VIE; the obligation or likelihood for the Company or other investors to provide financial support to the VIE; and the similarity with and significance to the business activities of Company and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of these VIEs and general market conditions. FDI Realty, LLC FDI Realty is the owner and lessor of the building previously occupied by the Company for its sales and marketing office in Windham, NH. In December 2015 the Company relocated its operations from the Windham office, to its corporate headquarters in Chula Vista, California. A former officer of the Company is the single member of FDI Realty. The Company is a co-guarantor of FDI Realty’s mortgages on the building. The Company determined that the fair value of the guarantees is not significant and therefore did not record a related liability. The first mortgage is due on August 13, 2018 and the second mortgage is due on August 13, 2028. The Company’s maximum exposure to loss as a result of its involvement with the unconsolidated VIE is approximately $1,706,000 and $1,806,000 as of December 31, 2017 and 2016, respectively. The Company may be subject to additional losses to the extent of any financial support that it voluntarily provides in the future. At December 31, 2017 and 2016, the Company held a variable interest in FDI Realty, for which the Company is not deemed to be the primary beneficiary. The Company has concluded, based on its qualitative consideration of the terminated lease agreement, and the role of the single member of FDI Realty, that the single member is the primary beneficiary of FDI Realty. In making these determinations, the Company considered that the single member conducts and manages the business of FDI Realty, is authorized to borrow funds on behalf of FDI Realty, is the sole person authorized and responsible for conducting the business of FDI Realty and is obligated to fund the obligations of FDI Realty. As a result of this determination, the financial position and results of operations of FDI Realty have not been included in the accompanying consolidated financial statements of the Company. Related Party Transactions Richard Renton Richard Renton is a member of the Board of Directors and owns and operates with his wife Roxanna Renton, Northwest Nutraceuticals, Inc., a supplier of certain inventory items sold by the Company. The Company made purchases of approximately $182,000 and $126,000 from Northwest Nutraceuticals Inc., for the years ended December 31, 2017 and 2016, respectively. In addition, Mr. Renton and his wife are distributors of the Company and the Renton’s were paid distributor commissions for the years ended December 31, 2017 and 2016 approximately $398,000 and $457,000 respectively. Hernandez, Hernandez, Export Y Company The Company’s coffee segment, CLR, is associated with Hernandez, Hernandez, Export Y Company (“H&H”), a Nicaragua company, through sourcing arrangements to procure Nicaraguan green coffee beans and in March 2014 as part of the Siles acquisition, CLR engaged the owners of H&H as employees to manage Siles. The Company made purchases of approximately $10,394,000 and $8,810,000 from this supplier for the years ended December 31, 2017 and 2016, respectively. In addition, CLR sold approximately $6,349,000 and $2,637,000 for the years ended December 31, 2017 and 2016, respectively, of green coffee beans to H&H Coffee Group Export, a Florida based company which is affiliated with H&H. In March 2017, the Company entered a settlement agreement and release with H&H Coffee Group Export pursuant to which it was agreed that $150,000 owed to H&H Coffee Group Export for services that had been rendered would be settled by the issuance of Common Stock. In May 2017, the Company issued to H&H Coffee Group Export 27,500 shares of Common Stock in accordance with this agreement. 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 December 31, 2017, the warrant remains outstanding. Carl Grover Mr. Carl Grover, is the beneficial owner of in excess of five percent (5%) of our outstanding common shares, is the sole beneficial owner of 2,354,492 shares of Common Stock. Mr. Grover owns a 2014 Note in the principal amount of $4,000,000 convertible into 571,428 shares of Common Stock and a 2014 Warrant exercisable for 782,602 shares of Common Stock. Mr. Grover also owns a 2015 Note in the principal amount of $3,000,000 convertible into 428,571 shares of Common Stock and a 2015 Warrant exercisable for 200,000 shares of Common Stock. Mr. Grover acquired two 2017 Notes in the aggregate principal amount of $5,162,273 convertible into 1,122,233 shares of Common and two 2017 Warrants exercisable for 735,030 shares of Common Stock in the 2017 Private Placement. He also owns 257,562 shares of Common Stock. On March 29, 2018, the Company completed its Series B Convertible Stock Offering, whereby in accordance with the terms of the 2017 Notes that the 2017 Notes would automatically convert upon the Company raising a minimum of $3,000,000 in subsequent offerings. See Note 12 below. Paul Sallwasser Mr. Paul Sallwasser is a member of the board directors and owns a 2014 Note in the principal amount of $75,000 convertible into 10,714 shares of Common Stock and a 2014 Warrant exercisable for 14,673 shares of Common Stock. Mr. Sallwasser acquired in the 2017 Private Placement a 2017 Note in the principal amount of $37,615 convertible into 8,177 shares of Common Stock and a 2017 Warrant exercisable for 5,719 shares of Common Stock. Mr. Sallwasser also acquired in the 2017 Private Placement in exchange for the 2015 Note he owned, 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. He also owns 58,129 shares of Common Stock and an option to purchase 5,000 shares of Common Stock that are immediately exercisable. On March 29, 2018, the Company completed its Series B Convertible Stock Offering, whereby in accordance with the terms of the 2017 Notes that the 2017 Notes would automatically convert upon the Company raising a minimum of $3,000,000 in subsequent offerings. See Note 12 below. 2400 Boswell LLC In March 2013, the Company acquired 2400 Boswell for approximately $4.6 million. 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 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 and bears interest at 5.0%. Additionally, the Company assumed a long-term mortgage of $3,625,000, payable over 25 years and has an initial interest rate of 5.75%. The interest rate is the prime rate plus 2.5%. The lender will adjust the interest rate on the first calendar day of each change period. The Company and its Chief Executive Officer are both co-guarantors of the mortgage. As of December 31, 2017, the balance on the long-term mortgage is approximately $3,289,000 and the balance on the promissory note is approximately $22,000. |
Notes Payable and Other Debt
Notes Payable and Other Debt | 12 Months Ended |
Dec. 31, 2017 | |
Notes Payable And Other Debt | |
Notes Payable and Other Debt | In August 2017, the Company completed a private placement and entered into Note Purchase Agreements with accredited investors pursuant to which the Company sold convertible notes in the aggregate principal amount of $3,054,000, that are convertible into shares of Common Stock. Concurrent with the 2017 private placement, three investors in the Company’s 2015 private placement, exchanged their notes purchased in that offering, in the aggregate principal amount of $4,200,349, accrued interest thereon. As of December 31, 2017, the aggregate principal amount of $7,254,000 remains outstanding. The Notes are due in July 2020 if the option to convert has not been exercised (see Note 5, below.) In November 2015, the Company completed a private placement and entered into Note Purchase Agreements with accredited investors pursuant to which the Company sold senior secured convertible notes in the aggregate principal amount of $7,187,500, that are convertible into shares of Common Stock. The remaining balance in the November 2015 note is $3,000,000 and is due in October 2018 if the option to convert has not been exercised (see Note 5, below.) In July 2014, the Company completed a private placement and entered into Note Purchase Agreements with accredited investors pursuant to which the Company sold senior secured convertible Notes in the aggregate principal amount of $4,750,000, that are convertible into shares of Common Stock. The Notes are due in September 2019 if the option to convert has not been exercised (see Note 5, below.) In March 2013, the Company acquired 2400 Boswell for approximately $4.6 million. 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 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 and bears interest at 5.0%. Additionally, the Company assumed a long-term mortgage of $3,625,000, payable over 25 years and has an initial interest rate of 5.75%. The interest rate is the prime rate plus 2.5%. The lender will adjust the interest rate on the first calendar day of each change period. The Company and its Chief Executive Officer are both co-guarantors of the mortgage. As of December 31, 2017, the balance on the long-term mortgage is approximately $3,289,000 and the balance on the promissory note is approximately $22,000. 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 installments during 2007, followed by monthly payments in the amount of 10% of the sales related to the acquired assets until the entire note balance is paid. The Company has imputed interest at the rate of 7% per annum. As of December 31, 2017 and 2016, the carrying value of the liability was approximately $1,113,000 and $1,156,000, respectively. The interest associated with the note for the years ended December 31, 2017 and 2016 was minimal. The Company’s other notes relate to loans for commercial vans at CLR in the amount of $123,000 as of December 31, 2017 which expire at various dates through 2023. The following summarizes the maturities of notes payable (including convertible notes payable) (in thousands): Years ending December 31, 2018 $ 3,176 2019 4,868 2020 7,419 2021 172 2022 177 Thereafter 3,740 Total $ 19,552 Capital Lease The Company leases certain manufacturing and operating equipment under non-cancelable capital leases. The total outstanding balance under the capital leases as of December 31, 2017 excluding interest was approximately $1,677,000, of which $983,000 will be paid in 2018 and the remaining balance of $694,000 will be paid through 2021. The following summarizes the maturities of capital leases (in thousands): Years ending December 31, 2018 $ 1,078 2019 573 2020 124 2021 31 2022 - Total 1,806 Amount representing interest (129 ) Present value of minimum lease payments 1,677 Less current portion (983 ) Long term portion $ 694 Depreciation expense related to the capitalized lease obligations was approximately $110,000 and $103,000 for the years ended December 31, 2017 and 2016, respectively. Line of Credit - Loan and Security Agreement CLR had a factoring agreement (“Factoring Agreement”) with Crestmark Bank (“Crestmark”) related to accounts receivable resulting from sales of certain products within our commercial coffee segment. Effective May 1, 2016, CLR entered into a third amendment to the Factoring Agreement. Under the terms of the third amendment, all new receivables assigned to Crestmark shall be “Client Risk Receivables” and no further credit approvals were to be provided by Crestmark. Additionally, the third amendment expanded the factoring facility to include advanced borrowings against eligible inventory up to 50% of landed cost of finished goods inventory that meet certain criteria, not to exceed the lesser of $1,000,000 or 85% of the value of the accounts receivables already advanced with a maximum overall borrowing of $3,000,000. Interest accrued on the outstanding balance and a factoring commission was charged for each invoice factored which is calculated as the greater of $5.00 or 0.75% to 0.875% of the gross invoice amount and was recorded as interest expense. In addition, the Company and our Company’s CEO, Mr. Wallach entered into a Guaranty and Security Agreement with Crestmark guaranteeing payments in the event that our commercial coffee segment CLR were to default. The third amendment was effective until February 1, 2019. 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 with a line of credit related to accounts receivables resulting from sales of certain products and includes borrowings to be advanced against acceptable eligible inventory related to CLR. Effective December 29, 2017, CLR entered into a First Amendment to the Agreement, to include an increase in the maximum overall borrowing to $6,250,000 (the, “Loan”). The Loan amount 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 (i) above (iii) the lesser of $250,000 or eligible inventory or 75% of certain specific inventory identified within the Agreement. The Agreement contains certain financial and nonfinancial covenants for which the Company must comply to maintain its borrowing availability and avoid penalties. The outstanding principal balance of the Agreement will bear interest based upon a 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 will be a rate equal to the prime rate plus 2.50% with a floor of 6.75%. In addition, other fees expenses are incurred for the maintenance of the loan in accordance with the Agreement. Other fees may be incurred if in the event the minimum loan balance of $2,000,000 is not maintained. The Agreement is effective until November 16, 2020. The Company and our Company’s CEO, Mr. Wallach have entered into a Corporate Guaranty and Personal Guaranty, respectively, with Crestmark guaranteeing payments in the event that our commercial coffee segment CLR were to default. In addition, our President and Chief Financial Officer, Mr. Briskie personally entered into a Guaranty of Validity representing the Company’s financials so long as the indebtedness is owing to Crestmark, maintaining certain covenants and guarantees. We account for the sale of receivables that were factored under the previous Agreement as secured borrowings with the pledge of the subject inventories and receivables as well as all bank deposits as collateral, in accordance with the authoritative guidance for accounting for transfers and servicing of financial assets and extinguishments of liabilities. The caption “Accounts receivable, due from factoring company” on the accompanying consolidated balance sheets in the amount of approximately $1,078,000 as of December 31, 2016, reflects the related collateralized accounts. Our outstanding liability related to the Agreement was approximately $3,808,000 as of December 31, 2017. The liability associated with the Factoring Agreement as of December 31, 2016 was $1,290,000 and is included in other current liabilities on the consolidated balance sheets. 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 7 below.) The Company’s contingent acquisition debt as of December 31, 2017 is $14,404,000 and is attributable to debt associated with the Company’s direct selling segment. The Company’s contingent acquisition debt as of December 31, 2016 is $8,001,000 and is primarily attributable to debt associated with the Company’s direct selling segment which is $7,806,000 and $195,000 is debt associated with the Company’s coffee segment. |
Convertible Notes Payable
Convertible Notes Payable | 12 Months Ended |
Dec. 31, 2017 | |
Convertible Subordinated Debt [Abstract] | |
Convertible Notes Payable | Our total convertible notes payable as of December 31, 2017 and December 31, 2016, net of debt discount outstanding consisted of the amount set forth in the following table (in thousands): December 31, 2017 December 31, 2016 8% Convertible Notes due July and August 2019 (2014 Notes), principal $ 4,750 $ 4,750 Debt discounts (1,659 ) (2,707 ) Carrying value of 2014 Notes 3,091 2,043 8% Convertible Notes due October and November 2018 (2015 Notes), principal 3,000 7,188 Debt discounts (172 ) (904 ) Carrying value of 2015 Notes 2,828 6,284 8% Convertible Notes due July and August 2020 (2017 Notes), principal 7,254 - Fair value of bifurcated embedded conversion option of 2017 Notes 200 - Debt discounts (2,209 ) - Carrying value of 2017 Notes 5,245 - Total carrying value of convertible notes payable $ 11,164 $ 8,327 July 2014 Private Placement Between July 31, 2014 and September 10, 2014 the Company entered into Note Purchase Agreements (the “Note” or “Notes”) related to its private placement offering (“2014 Private Placement”) with seven accredited investors pursuant to which the Company raised aggregate gross proceeds of $4,750,000 and sold units consisting of five (5) year senior secured convertible Notes in the aggregate principal amount of $4,750,000 that are convertible into 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 Notes bear interest at a rate of eight percent (8%) per annum and interest is paid quarterly in arrears with all principal and unpaid interest due between July and September 2019. As of December 31, 2017 and December 31, 2016 the principal amount of $4,750,000 remains outstanding. The Company has the right to prepay the Notes at any time after the one-year anniversary date of 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 debt. Additionally, Stephan Wallach, the Company’s Chief Executive Officer, has also personally guaranteed the repayment of the Notes, subject to the terms of a Guaranty Agreement executed by him with the investors. 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. The Company recorded debt discounts of $4,750,000 related to the beneficial conversion feature of $1,053,000 and $3,697,000 related to the detachable warrants. The beneficial conversion feature discount and the detachable warrants discount are amortized to interest expense over the life of the Notes. As of December 31, 2017 and December 31, 2016 the remaining balance of the debt discounts is approximately $1,504,000 and $2,454,000, respectively. The quarterly amortization of the debt discounts is approximately $238,000 and is recorded as interest expense. With respect to the aggregate offering, the Company paid $490,000 in expenses including placement agent fees. The issuance costs are amortized to interest expense over the term of the Notes. As of December 31, 2017 and December 31, 2016 the remaining balance of the issuance costs is approximately $155,000 and $253,000, respectively. The quarterly amortization of the issuance costs is approximately $25,000 and is recorded as interest expense. Unamortized debt discounts and issuance costs are included with convertible notes payable, net of debt discount on the consolidated balance sheets. November 2015 Private Placement Between October 13, 2015 and November 25, 2015 the Company entered into Note Purchase Agreements (the “Note” or “Notes”) related to its private placement offering (“November 2015 Private Placement”) with three (3) accredited investors pursuant to which the Company raised cash proceeds of $3,187,500 in the offering and converted $4,000,000 of debt from the Company’s January 2015 Private Placement to this offering in consideration of the sale of aggregate units consisting of three-year senior secured convertible Notes in the aggregate principal amount of $7,187,500, convertible into 1,026,784 shares of Common Stock, at a conversion price of $7.00 per share, subject to adjustment as provided therein; and five-year Warrants exercisable to purchase 479,166 shares of the Company’s common stock at a price per share of $9.00. The Notes bear interest at a rate of eight percent (8%) per annum and interest is paid quarterly in arrears with all principal and unpaid interest due at maturity on October 12, 2018. In connection with the July 2017 Private Placement, three (3) investors from the November 2015 Private Placement, converted their 2015 Notes in the aggregate amount of $4,200,349 including principal and accrued interest thereon into new convertible notes for an equal principal amount in the 2017 Private Placement as discussed below. The remaining principal balance in the 2015 Note of $3,000,000 remains outstanding as of December 31, 2017. The Company accounted for the conversion of the notes as an extinguishment in accordance with ASC 470-20 and ASC 470-50. The Company recorded a non-cash extinguishment loss on debt of $308,000 during the year ended December 31, 2017 as a result of the conversion of $4,200,349 in notes including accrued interest to the three investors from the November 2015 Private Placement through issuance of a new July 2017 Note. This loss represents the difference between the reacquisition value of the new debt to the holders of the notes and the carrying amount of the holders’ extinguished debt. The Company recorded at issuance debt discounts associated with the 2015 Notes of $309,000 related to the beneficial conversion feature of $15,000 and $294,000 related to the detachable warrants. The beneficial conversion feature discount and the detachable warrants discount are amortized to interest expense over the life of the Notes. During the year ended December 31, 2017 the Company allocated approximately $75,000 for the remaining proportionate share of the unamortized debt discounts to the extinguished portion of the debt. As of December 31, 2017 and December 31, 2016 the remaining balances of the debt discounts is approximately $36,000 and $189,000 respectively. The quarterly amortization of the remaining debt discount is approximately $11,000 and is recorded as interest expense. With respect to the aggregate offering, the Company paid $786,000 in expenses including placement agent fees. The issuance costs are amortized to interest expense over the term of the Notes. During the year ended December 31, 2017 the Company allocated approximately $190,000 for the remaining proportionate share of the unamortized issuance costs to the extinguished portion of the debt. As of December 31, 2017 and December 31, 2016 the remaining balances of the issuance cost is approximately $92,000 and $480,000, respectively. The quarterly amortization of the remaining issuance costs is approximately $30,000 and is recorded as interest expense. In addition, the Company issued warrants to the placement agent in connection with the Notes which were valued at approximately $384,000. These warrants were not protected against down-round financing and accordingly, were classified as equity instruments and the corresponding deferred issuance costs are amortized over the term of the Notes. During the year ended December 31, 2017 the Company allocated approximately $93,000 for the remaining proportionate share of the unamortized issuance costs to the extinguished portion of the debt. As of December 31, 2017 and December 31, 2016, the remaining balance of the warrant issuance cost is approximately $45,000 and $235,000, respectively. The quarterly amortization of the remaining warrant issuance costs is approximately $15,000 and is recorded as interest expense. July 2017 Private Placement During July and August 2017, we engaged in the July 2017 Private Placement pursuant to which we offered for sale a minimum of $100,000 of units up to a maximum of $10,000,000 of units, with each unit (a “Unit”) consisting of: (i) a three (3) year convertible note in the principal amount of $25,000 initially convertible into shares of Common Stock, at $4.60 per share (subject to adjustment); and (ii) a Series D Warrant (the “Class D Warrant”), exercisable to purchase 50% of the number of shares issuable upon conversion of the 2017 Note at an exercise price equal to $5.56. During July and August 2017, the Company entered into note purchase agreements with accredited investors in a private placement offering (the “2017 Private Placement”) pursuant to which the Company sold notes in the aggregate principal amount of $3,054,000, convertible into 663,913 shares of the Company’s common stock, at a conversion price of $4.60 per share, subject to adjustment (the “2017 Notes), and three-year warrants to purchase 331,957 shares of the Company’s common stock at an exercise price of $5.56 (“2017 Warrants”), for gross cash proceeds of $3,054,000. In addition, concurrent with the 2017 Private Placement, three (3) investors in the Company’s November 2015 Private Placement, exchanged their notes purchased in that offering, in the aggregate amount of $4,200,349, including principal and accrued interest thereon, and warrants to purchase an aggregate of 279,166 shares of the Company’s common stock at $9.00 per share for 2017 Notes in the aggregate principal amount of $4,200,349, convertible into 1,577,033 shares of common stock at $4.60 per share and 2017 Warrants to purchase an aggregate of 638,625 shares of the Company’s common stock at $5.56 per share. The 2017 Notes mature on July 28, 2020 and bear interest at a rate of eight percent (8%) per annum. The Company has the right to prepay the 2017 Notes at any time after the one-year anniversary date of the issuance of the 2017 Notes at a rate equal to 110% of the then outstanding principal balance and accrued interest. The 2017 Notes automatically convert to common stock if, prior to the maturity date, the Company sells common stock, preferred stock or other equity-linked securities with aggregate gross proceeds of no less than $3,000,000 for the purpose of raising capital. The 2017 Notes provide for full ratchet price protection on the conversion price for a period of nine months after their issuance and subject to adjustments. The Company's use of the proceeds from the 2017 Private Placement was for working capital purposes. As of December 31, 2017 the aggregate principal amount of $7,254,000 remains outstanding. For twelve (12) months following the closing, the investors in the 2017 Private Placement have the right to participate in any future equity financings, subject to certain conditions. The Company paid a placement fee of $321,248, issued the placement agent three-year warrants to purchase 179,131 shares of the Company’s common stock at an exercise price of $5.56 per share, and issued the placement agent 22,680 shares of the Company’s common stock. Upon issuance of the 2017 Notes, the Company recognized an aggregate debt discount of approximately $2,565,000, resulting from the allocated portion of issuance costs to the 2017 Notes and to the allocation of offering proceeds to the separable warrant liabilities, and to the bifurcated embedded conversion feature option. See Notes 6 & 7 below. The Company recorded $1,931,000 of debt discounts which included an embedded conversion feature of $330,000 and $1,601,000 related to the detachable warrants. The embedded conversion feature discount and the detachable warrants discount are amortized to interest expense over the life of the Notes. During the year ended December 31, 2017 the Company recorded $268,000 of amortization related to the debt discounts. The quarterly amortization of the debt discounts is approximately $161,000. As of December 31, 2017 the remaining balance of the unamortized debt discount is approximately $1,663,000 With respect to the aggregate offering, the Company paid $634,000 in issuance costs. The issuance costs are amortized to interest expense over the term of the Notes. During the year ended December 31, 2017 the Company recorded $88,000 of amortization related to the issuance costs. The quarterly amortization of the issuance costs is approximately $53,000 and is recorded as interest expense. As of December 31, 2017 the remaining balance of the unamortized issuance cost is approximately $546,000. In connection with the 2017 Private Placement, the Company also entered into the “Registration Rights Agreement” with the investors in the 2017 Private Placement. The Registration Rights Agreement requires that the Company file a registration statement (the “Registration Statement”) with the Securities and Exchange Commission within ninety (90) days of the final closing date of the Private Placement for the resale by the investors of all of the shares of Common Stock underlying the senior convertible notes and warrants and all shares of Common Stock issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect thereto (the “Registrable Securities”) and that the Initial Registration Statement be declared effective by the SEC within 180 days of the final closing date of the 2017 Private Placement or if the registration statement is reviewed by the SEC 210 days after the final closing date of the 2017 Private Placement. Upon the occurrence of certain events (each an “Event”), the Company will be required to pay to the investors liquidated damages of 1.0% of their respective aggregate purchase price upon the date of the Event and then monthly thereafter until the Event is cured. In no event may the aggregate amount of liquidated damages payable to each of the investors exceed in the aggregate 10% of the aggregate purchase price paid by such investor for the Registrable Securities. The Registration Statement was declared effective on September 27, 2017. |
Derivative Liability
Derivative Liability | 12 Months Ended |
Dec. 31, 2017 | |
Derivative Liability | |
Derivative Liability | The Company recognizes and measures the warrants and the embedded conversion features issued in conjunction with our July 2017, November 2015, and July 2014 Private Placements in accordance with ASC Topic 815, Derivatives and Hedging Derivative liabilities are recorded at their estimated fair value (see Note 7, 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 warrant and embedded liability and revaluations have not had a cash impact on our working capital, liquidity or business operations. Warrants In July and August of 2017, the Company issued 1,149,712 three-year warrants to investors and the placement agent in the 2017 Private Placement. The exercise price of the warrants is protected against down-round financing throughout the term of the warrant. Pursuant to ASC Topic 815, the fair value of the warrants of approximately $2,334,000 was recorded as a derivative liability on the issuance dates. The estimated fair values of the warrants were computed at issuance using a Monte Carlo option pricing model, with the following assumptions: stock price volatility 63.32%, risk-free rate 1.51%, annual dividend yield 0% and expected life 3.0 years. The estimated fair value of the outstanding warrant liabilities was $3,365,000 and $3,345,000 as of December 31, 2017 and December 31, 2016, respectively. Increases or decreases in fair value of the derivative liability are included as a component of total other expense in the accompanying consolidated statements of operations for the respective period. The changes to the derivative liability for warrants resulted in a decrease of $1,895,000 and $1,371,000 for the years ended December 31, 2017 and 2016, respectively. The estimated fair value of the warrants was computed as of December 31, 2017 and 2016 using the Monte Carlo and the Black-Scholes option pricing models, using the following assumptions: December 31, 2017 December 31, 2016 Stock price volatility 61.06 % 60% - 65% Risk-free interest rates 1.96 % 1.34%-1.70% Annual dividend yield 0 % 0% Expected life 1.58 - 2.78 years 2.6-3.9 years In addition, management assessed the probabilities of future financing assumptions in the valuation models. Embedded Conversion Derivatives Upon issuance of the 2017 Notes, the Company recorded an embedded conversion option which was classified as a derivative of $330,000. The estimated fair value of the embedded conversion option was $200,000 as of December 31, 2017 and is a component of Convertible Notes Payable, net on the Company’s balance sheet. Increases or decreases in fair value of the embedded conversion option derivative are included as a component of total other expense in the accompanying consolidated statements of operations for the respective period. The change resulted in a decrease of $130,000 for the year ended December 31, 2017. The Company estimated the fair value of the embedded conversion option, as of the issuance date and as of December 31, 2017 using the Monte Carlo option pricing model using the following assumptions: Inputs December 31, 2017 Initial Valuation Stock price $4.13 $4.63-$4.73 Conversion price $4.60 $4.60 Stock price volatility 60.98%-61.31% 63.07%-63.32% Risk-free rate 1.9% 0.92%-0.94% Expected life 2.57-2.63 3.0 |
Fair Value of Financial Instrum
Fair Value of Financial Instruments | 12 Months Ended |
Dec. 31, 2017 | |
Fair estimated value of warrants | |
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 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities recorded at fair value in the financial statements are categorized based upon the hierarchy of levels of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 – Unobservable inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability. The carrying amounts of the 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. In connection with the Company’s Private Placements, the Company issued warrants to purchase shares of its Common Stock and recorded embedded conversion features which are accounted for as derivative liabilities (see Note 6 above.) The estimated fair value of the derivatives 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 December 31, 2017 Total Level 1 Level 2 Level 3 Liabilities: Contingent acquisition debt, current portion $ 587 $ - $ - $ 587 Contingent acquisition debt, less current portion 13,817 - - 13,817 Warrant derivative liability 3,365 - - 3,365 Embedded conversion option derivative 200 - - 200 Total liabilities $ 17,969 $ - $ - $ 17,969 Fair Value at December 31, 2016 Total Level 1 Level 2 Level 3 Liabilities: Contingent acquisition debt, current portion $ 628 $ - $ - $ 628 Contingent acquisition debt, less current portion 7,373 - - 7,373 Warrant derivative liability 3,345 - - 3,345 Total liabilities $ 11,346 $ - $ - $ 11,346 The following table reflects the activity for the Company’s warrant derivative liability associated with the Company’s 2017, 2015 and 2014 Private Placements measured at fair value using Level 3 inputs (in thousands): Warrant Derivative Liability Balance at December 31, 2015 $ 4,716 Issuance - Adjustments to estimated fair value (1,371 ) Balance at December 31, 2016 3,345 Issuance 2,334 Adjustments to estimated fair value (1,895 ) Adjustment related to the extinguishment loss on exchange of warrants, 2015 Notes (Note 5) (419 ) Balance at December 31, 2017 $ 3,365 The following table reflects the activity for the Company’s embedded conversion feature derivative liability associated with the Company’s 2017 Private Placement Notes measured at fair value using Level 3 inputs (in thousands): Embedded Conversion Feature Derivative Liability Balance at December 31, 2016 $ - Issuance 330 Adjustment to estimated fair value (130 ) Balance at December 31, 2017 $ 200 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, 2015 $ 7,438 Level 3 liabilities acquired 3,604 Level 3 liabilities settled (773 ) Adjustments to liabilities included in earnings (1,462 ) Expenses allocated to profit sharing agreement (698 ) Adjustment to purchase price allocation (108 ) Balance at December 31, 2016 8,001 Level 3 liabilities acquired 9,657 Level 3 liabilities settled (462 ) Adjustments to liabilities included in earnings (1,664 ) Expenses allocated to profit sharing agreement (195 ) Adjustment to purchase price allocation (933 ) Balance at December 31, 2017 $ 14,404 The fair value of the contingent acquisition liabilities are evaluated each reporting period using projected revenues, discount rates, and projected timing of revenues. Projected contingent payment amounts are discounted back to the current period using a discount rate. Projected revenues are based on the 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 years ended December 31, 2017 and 2016, the net adjustment to the fair value of the contingent acquisition debt was a decrease of $1,664,000 and a decrease of $1,462,000, respectively. The weighted-average of the discount rates used was 18.4% and 18.2% as of December 31, 2017 and 2016, respectively. The projected year of payment ranges from 2018 to 2031. |
Stockholders_ Equity
Stockholders’ Equity | 12 Months Ended |
Dec. 31, 2017 | |
Fair estimated value of warrants | |
Stockholders' Equity | The Company’s Articles of Incorporation, as amended, authorize the issuance of two classes of stock to be designated “Common Stock” and “Preferred Stock”. Common Stock On May 31, 2017, the Board of Directors of the Company authorized a reverse stock split of the Company’s Common Stock in order to meet certain criteria in preparation for the Company’s uplisting on the NASDAQ Capital Market in June 2017. On June 5, 2017, the Company filed a certificate of amendment to the Company’s Articles of Incorporation with the Secretary of State of the State of Delaware to effect a one-for-twenty reverse stock split of the Company’s issued and outstanding common stock. As a result of the Reverse Split, every twenty shares of the Company issued and outstanding common stock were automatically combined and reclassified into one share of the Company’s common stock. The Reverse Split affected all issued and outstanding shares of common stock, as well as common stock underlying stock options, restricted stock units and warrants outstanding, and common stock equivalents issuable under convertible notes and preferred shares. No fractional shares were issued in connection with the Reverse Split. Stockholders who would otherwise hold a fractional share of common stock will receive cash payment for the fractional share. The Reverse Split became effective on June 7, 2017. All disclosures of shares and per share data in these consolidated financial statements and related notes have been retroactively adjusted to reflect the Reverse Split for all periods presented. In addition to the Reverse Split, the certificate of amendment to the certificate of incorporation also reduced the total number of authorized shares of common stock from 600,000,000 to 50,000,000. The total number of shares of stock which the Company has authority to issue is 50,000,000 shares of common stock, par value $.001 per share and 5,000,000 shares of preferred stock, par value $.001 per share, of which 161,135 shares have been designated as Series A convertible preferred stock, par value $.001 per share (“Series A Convertible Preferred”). As of December 31, 2017, and December 31, 2016 there were 19,723,285 and 19,634,345 shares of Common Stock outstanding, respectively. The holders of the Common Stock are entitled to one vote for each share held at all meetings of stockholders (and written actions in lieu of meetings). 2017 Private Placement As part of the 2017 Private Placement, the Company issued the placement agent 22,680 shares of Common Stock. (See Note 5 above). Convertible Preferred Stock The Company has 161,135 shares of Series A Convertible Preferred Stock outstanding as of December 31, 2017, and December 31, 2016 and accrued dividends of approximately $124,000 and $112,000, respectively. The holders of the Series A Convertible Preferred Stock are entitled to receive a cumulative dividend at a rate of 8.0% per year, payable annually either in cash or shares of the Company's Common Stock at the Company's election. Each share of Series A Convertible Preferred is convertible into Common Stock at a conversion rate of .10.The holders of Series A Convertible Preferred are entitled to receive payments upon liquidation, dissolution or winding up of the Company before any amount is paid to the holders of Common Stock. The holders of Series A Convertible Preferred have no voting rights, except as required by law. Repurchase of Common Stock On December 11, 2012, we 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 December 31, 2017 at a weighted-average cost of $5.30. There were no repurchases during the year ended December 31, 2017. We repurchased a total of 6,285 shares at a weighted-average cost of $5.60 per shares in 2016. The remaining number of shares authorized for repurchase under the plan as of December 31, 2017 is 553,406. Advisory Agreements ProActive Capital Resources Group, LLC. ProActive Capital As of December 31, 2017, the Company has issued 15,000 shares of restricted common stock in connection with this agreement and accrued for the estimated per share value on each subsequent six (6) month periods based on the price of Company’s common stock at each respective date. As of December 31, 2017, the Company has accrued for 10,000 shares of restricted stock that have been earned and not issued. The fair value of the shares to be issued are recorded as prepaid advisory fees and are included in prepaid expenses and other current assets on the Company’s consolidated balance sheets and is amortized on a pro-rata basis over the term of the respective periods. During the years ended December 31, 2017 and 2016, the Company recorded expense of approximately $56,000 and $58,000, respectively, in connection with amortization of the stock issuance. Warrants As of December 31, 2017, warrants to purchase 2,710,066 shares of the Company's common stock at prices ranging from $2.00 to $10.00 were outstanding. All warrants are exercisable as of December 31, 2017 and expire at various dates through November 2020 and have a weighted average remaining term of approximately 2.11 years and are included in the table below as of December 31, 2017. 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 of 2017, the Company cancelled the non-qualified stock option and issued a warrant agreement with the same terms. The fair value of the warrant was $232,000 and was recorded in general and administrative expense in the consolidated statements of operations. There was no financial impact to the change in the valuation related to the cancellation of the option and the issuance of the warrant. As of December 31, 2017, the warrant remains outstanding. In May 2017, the Company issued a warrant as compensation to an associated Youngevity distributor to purchase 37,500 shares of the Company’s Common Stock at a price of $2.00 with an expiration date of three years. During the year ended December 31, 2017, the warrant was exercised on a cashless basis based on the Company’s closing stock price of $4.66 and 21,875 shares of common stock were issued . The fair value of the warrant was $109,000 and was recorded in distributor compensation in the consolidated statements of operations. The Company uses the Black-Scholes option-pricing model (“Black-Scholes model”) to estimate the fair value of the warrants. A summary of the warrant activity for the years ended December 31, 2017 and 2016 is presented in the following table: Balance at December 31, 2015 2,083,722 Issued - Expired / cancelled (182,275 ) Exercised (2,062 ) Balance at December 31, 2016 1,899,385 Issued 1,262,212 Expired / cancelled (414,031 ) Exercised (37,500 ) Balance at December 31, 2017 2,710,066 Stock Options On May 16, 2012, the Company established the 2012 Stock Option Plan (“Plan”) authorizing the granting of options for up to 2,000,000 shares of Common Stock. On February 23, 2017, the Company’s board of directors received the approval of our stockholders, to amend the Plan to increase the number of shares of common stock available for grant and to expand the types of awards available for grant under the Plan. The amendment of the Plan increased the number of authorized shares of the Company’s common stock that may be delivered pursuant to awards granted during the life of the plan from 2,000,000 to 4,000,000 shares. 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 December 31, 2017, the Company had 1,884,197 shares of Common Stock available for issuance under the Plan. A summary of the Plan stock option activity for the years ended December 31, 2017 and 2016 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, 2015 1,175,544 $ 4.40 6.24 $ 2,044 Issued 639,612 5.40 Canceled/expired (149,067 ) 4.80 Exercised (5,125 ) 4.20 - Outstanding December 31, 2016 1,660,964 4.80 6.75 1,346 Issued 21,624 4.60 Canceled / expired (91,180 ) 4.39 Exercised (6,885 ) 4.28 - Outstanding December 31, 2017 1,584,523 $ 4.76 6.16 $ 126 Exercisable December 31, 2017 1,040,678 $ 4.58 4.92 $ 87 The weighted-average fair value per share of the granted options for the years ended December 31, 2017 and 2016 was approximately $2.90 and $3.00, respectively. Stock-based compensation expense related to stock options included in the consolidated statements of operations was charged as follows (in thousands): Years ended December 31, 2017 2016 Cost of revenues $ 14 $ 10 Distributor compensation 4 215 Sales and marketing 51 10 General and administrative 496 160 Total stock-based compensation related to stock options $ 565 $ 395 As of December 31, 2017, there was approximately $1,574,000 of total unrecognized compensation expense related to unvested stock options granted under the Plan. The expense is expected to be recognized over a weighted-average period of 3.54 years. Valuation Inputs The Company uses the Black-Scholes model to estimate the fair value of equity-based options. The use of a valuation model requires the Company to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on the historical volatility of the 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 expected life assumed at the date of the grant. The following were the factors used in the Black-Scholes model to calculate the compensation cost: Years ended December 31, 2017 2016 Dividend yield - - Stock price volatility 56% - 64 % 57% - 90 % Risk-free interest rate 1.22 - 2.06 % 0.71 - 2.25 % Expected life of options 1.0 - 5.61 years 2.6 - 6.5 years Restricted Stock Units On 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. Vesting occurs on the sixth-year anniversary of the grant date, over a six-year period, with 10% vesting on the third-year, 15% on the fourth-year, 50% on the fifth-year and 25% on the sixth-year anniversary of the vesting commencement date. There were no other grants during the year ended December 31, 2017. The fair value of each restricted stock units issued to employees is based on the closing price on the grant date of $4.53 and restricted stock units issued to consultants are revalued as they vest and is recognized as stock-based compensation expense over the vesting term of the award. Stock-based compensation expense included in sales and marketing was $9,000 and $80,000 was included in general and administration in the consolidated statements of operations for the year ended December 31, 2017. As of December 31, 2017, total unrecognized stock-based compensation expense related to restricted stock units to employees and consultants was approximately $2,098,000, which will be recognized over a weighted average period of 5.61 years. |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2017 | |
Commitments And Contingencies | |
Commitments and Contingencies | Credit Risk The Company maintains cash balances at various financial institutions primarily located in the United States. Accounts held at the United States 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 trade account 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 trade 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. Leases The Company leases its domestic and certain foreign facilities and other equipment under non-cancelable operating lease agreements, which expire at various dates through 2023. In addition to the minimum future lease commitments presented below, the leases generally require that the Company pay property taxes, insurance, maintenance and repair costs. Such expenses are not included in the operating lease amounts. At December 31, 2017, future minimum lease commitments are as follows (in thousands): 2018 $ 1,299 2019 936 2020 744 2021 585 2022 525 Thereafter 252 Total $ 4,341 Rent expense was approximately $1,413,000 and $1,558,000 for the years ended December 31, 2017 and 2016, respectively. In connection with the Company's 2011 acquisition of FDI, it assumed mortgage guarantee obligations made by FDI on the building previously housing our New Hampshire office. The balance of the mortgages is approximately $1,706,000 as of December 31, 2017 (see Note 3, above). The Company purchases its inventory from multiple third-party suppliers at competitive prices. The Company made purchases from three vendors, which individually comprised more than 10% of total purchases and in aggregate approximated 57% and 54% of total purchases for the years ended December 31, 2017 and 2016, respectively. 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 as of December 31, 2017, have minimum future purchase commitments of approximately $2,345,000, which are to be delivered in 2018. 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 fees can average approximately $0.01 per pound for every month of delay. To -date the Company has not incurred such fees. |
Income Taxes
Income Taxes | 12 Months Ended |
Dec. 31, 2017 | |
Fair estimated value of warrants | |
Income Taxes | The income tax provision contains the following components (in thousands): December 31, 2017 2016 Current Federal $ 135 $ 3 State 12 (18 ) Foreign 132 150 Total current 279 135 Deferred Federal $ 2,617 $ (304 ) State (156 ) (21 ) Foreign (13 ) - Total deferred 2,448 (325 ) Net income tax provision (benefit) $ 2,727 $ (190 ) Income before income taxes relating to non-U.S. operations were $130,000 and $590,000 in the years ended December 31, 2017 and 2016, respectively. The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income (loss) as a result of the following differences: December 31, 2017 2016 Income tax benefit at federal statutory rate $ (3,483 ) $ (206 ) Adjustments for tax effects of: Foreign rate differential (38 ) (35 ) State taxes, net (382 ) (112 ) Other nondeductible items 246 (50 ) Change in foreign entity tax status - (77 ) Rate change - 6 Tax reform rate change 2,022 - Deferred tax asset adjustment 95 (201 ) Change in valuation allowance 4,032 183 Foreign tax credit - 275 Undistributed foreign earnings - 17 Other 235 10 Net income tax provision (benefit) $ 2,727 $ (190 ) Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands): December 31, 2017 2016 Deferred tax assets: Amortizable assets $ 1,089 $ 1,117 Inventory 510 726 Accruals and reserves 155 222 Stock options 170 285 Net operating loss carry-forward 4,674 3,554 Credit carry-forward 305 309 Total deferred tax asset 6,903 6,213 Deferred tax liabilities: Prepaids (228 ) (383 ) Other (288 ) (608 ) Depreciable assets (168 ) (464 ) Total deferred tax liability (685 ) (1,455 ) Net deferred tax asset 6,219 4,758 Less valuation allowance (5,933 ) (1,901 ) Net deferred tax asset $ 286 $ 2,857 The Company has determined through consideration of all positive and negative evidence that the US deferred tax assets are not more likely than not to be realized. The Company recorded a valuation allowance in the US Federal tax jurisdiction for the year ended December 31, 2017. The Tax Cuts and Jobs Act ("TCJA") enacted in December 2017 repealed the corporate AMT for tax years beginning on or after January 1, 2018 and provides for existing AMT tax credit carryovers to be refunded beginning in 2018. The Company has approximately $272,000 in refundable credits, and it expects that a substantial portion will be refunded between 2018 and 2021. As such, the Company does not have a valuation allowance relating to the refundable AMT credit carryforward. A valuation allowance remains on the state and foreign tax attributes that are likely to expire before realization. The valuation allowance increased approximately $3,956,000 for the year ended December 31, 2017 and increased approximately $183,000 for the year ended December 31, 2016. At December 31, 2017, the Company had approximately $11,914,000 in federal net operating loss carryforwards, which begin to expire in 2029, and approximately $30,752,000 in net operating loss carryforwards from various states. The Company had approximately $1,862,000 in net operating losses in foreign jurisdictions. Pursuant to Internal Revenue Code ("IRC") Section 382, use of net operating loss and credit carryforwards may be limited if the Company experienced a cumulative change in ownership of greater than 50% in a moving three-year period. Ownership changes could impact the Company's ability to utilize the net operating loss and credit carryforwards remaining at an ownership change date. The Company has not completed a Section 382 study. There was no uncertain tax position related to federal, state and foreign reporting as of December 31, 2017. U.S. Tax Reform The TCJA reduces the U.S. federal corporate tax rate from 35% to 21% beginning in 2018, requires companies to pay a one-time transition tax on previously unremitted earnings of non-U.S. subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. The SEC staff issued Staff Accounting Bulletin (SAB) 118, which provides guidance on accounting for enactment effects of the TCJA. SAB 118 provides a measurement period of up to one year from the TCJA’s enactment date for companies to complete their accounting under ASC 740. In accordance with SAB 118, to the extent that a Company’s accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a Company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA. |
Segment and Geographical Inform
Segment and Geographical Information | 12 Months Ended |
Dec. 31, 2017 | |
Segment Reporting [Abstract] | |
Segment and Geographical Information | The Company is a leading omni-direct 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 two segments: the direct selling segment where products are offered through a global distribution network of preferred customers and distributors and the commercial coffee segment where roasted and green coffee bean products are sold directly to businesses. 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. The principal measures and factors the Company considered in determining the number of reportable segments were revenue, gross margin percentage, sales channel, customer type and competitive risks. In addition, each reporting segment has similar products and customers, similar methods of marketing and distribution and a similar regulatory environment. The accounting policies of the segments are consistent with those described in the summary of significant accounting policies. Segment revenue excludes intercompany revenue eliminated in the consolidation. The following tables present certain financial information for each segment (in thousands): Years ended December 31, 2017 2016 Revenues Direct selling $ 142,450 $ 145,418 Commercial coffee 23,246 17,249 Total revenues $ 165,696 $ 162,667 Gross profit Direct selling $ 95,379 $ 97,219 Commercial coffee 186 918 Total gross margin $ 95,565 $ 98,137 Operating income (loss) Direct selling $ (2,526 ) $ 4,564 Commercial coffee (3,356 ) (2,049 ) Total operating (loss) income $ (5,882 ) $ 2,515 Net (loss) income Direct selling $ (3,922 ) $ 1,894 Commercial coffee (8,755 ) (2,292 ) Total net loss $ (12,677 ) $ (398 ) Capital expenditures Direct selling $ 854 $ 1,922 Commercial coffee 449 903 Total capital expenditures $ 1,303 $ 2,825 December 31, 2017 2016 Total assets Direct selling $ 44,082 $ 40,127 Commercial coffee 28,307 25,881 Total assets $ 72,389 $ 66,008 Total tangible assets, net located outside the United States were approximately $5.3 million and $5.4 million as of December 31, 2017 and December 31, 2016, respectively. The Company conducts its operations primarily in the United States. For the years ended December 31, 2017 and 2016 approximately 12% and 9%, respectively, of the Company’s sales were derived from sales outside the United States. The following table displays revenues attributable to the geographic location of the customer (in thousands): Years ended December 31, 2017 2016 Revenues United States $ 146,206 $ 147,548 International 19,490 15,119 Total revenues $ 165,696 $ 162,667 |
Subsequent Events
Subsequent Events | 12 Months Ended |
Dec. 31, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Events | Series B Convertible Preferred Stock Offering On February 14, 2018, the Company commenced its offering to sell up to $10 million of the Company’s Series B Convertible Preferred Stock on a best effort basis without any minimum offering amount. The offering (the “Offering”) terminated on March 30, 2018. The Series B Convertible Preferred Stock pays cumulative dividends 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. The Series B Convertible Preferred Stock ranks senior to the Company’s outstanding Series A Convertible Preferred Stock and the Company’s common stock par value $0.001 (the "Common Stock") with respect to dividend rights and rights upon liquidation, dissolution or winding up. Each holder of Series B Convertible Preferred Stock received a credit towards our merchandise equal to ten percent (10%) of the amount of their investment up to a maximum credit of $1,000. Holders of the Series B Convertible Preferred Stock have limited voting rights. Each share of Series B 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 shares of common stock and automatically converts into two shares of Common Stock on its two-year anniversary of issuance. The offering price of the Series B Convertible Preferred Stock was $9.50 per share. On March 2, 2018 the Company’s board of directors designated 1,052,631 shares as Series B Convertible Preferred Stock, par value $.001 per share (“Series B Convertible Preferred Stock”). Offering Close On March 30, 2018, the Company completed its best efforts Offering of Series B Convertible Preferred Stock, pursuant to which the Company sold 381,173 shares of Series B Convertible Preferred Stock at an offering price of $9.50 per share and received gross proceeds in aggregate of $3,621,143. The net proceeds to the Company from Offering were $3,328,761 after deducting commissions and Offering expenses of the selling agent payable by the Company. The shares of Series B Convertible Preferred Stock issued in the 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 Company’s best effort Offering of Series B Convertible Preferred Stock, the 2017 Notes in the principal amount of $7,254,349 automatically converted into 1,577,033 shares of common stock. Tripoint Global Equities, LLC (“Tripoint”), acted as the selling agent for the Offering pursuant to the terms of a Selling Agency Agreement that was entered into on March 15, 2018, the form of which was filed as an exhibit to the Company’s registration statement on Form S-1, as amended (File No. 333-221847) (the “Registration Statement”). Under the Selling Agency Agreement, the Company paid TriPoint a fee of 4.0% of the gross proceeds of the Offering and agreed to reimburse TriPoint for up to $45,000 of its expenses. Amendments to Articles of Incorporation or Bylaws On March 2, 2018, the Company filed a Certificate of Designation of Powers, Preferences and Rights of Series B Convertible Preferred Stock with the Secretary of State of the State of Delaware (the “Certificate of Designation”). On March 14, 2018, the Company filed a Certificate of Correction to the Certificate of Designation to correct two typographical errors in the Certificate of Designation (the “Certificate of Correction”). Pursuant to the Certificate of Designation, the Company has agreed to pay cumulative dividends on 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. The Series B Convertible Preferred Stock ranks senior to the Company’s outstanding Series A Convertible Preferred Stock and the Common Stock with respect to dividend rights and rights upon liquidation, dissolution or winding up. Each holder of Series B Convertible Preferred Stock receives a credit towards the Company’s merchandise equal to ten percent (10%) of the amount of their investment up to a maximum credit of $1,000. Holders of the Series B Convertible Preferred Stock have limited voting rights. Each share of Series B 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. New Acquisitions Pursuant to an agreement dated March 1, 2018, the Company acquired certain assets of ViaViente. ViaViente is the distributor of The ViaViente Miracle, a highly-concentrated, energizing whole fruit puree blend that is rich in Anti-Oxidants and naturally-occurring vitamins and minerals. As a result of this business combination, the Company’s distributors and customers will have access to ViaViente’s unique line of products and ViaViente distributors and clients will gain access to products offered by the Company. The maximum consideration payable by the Company is $3,000,000, subject to adjustments. The Company will make monthly payments based on a percentage of ViaViente distributor revenue and royalty revenue until the earlier of the date that is five (5) years from the closing date or such time as the Company has paid ViaViente aggregate cash payments of ViaViente distributor revenue and royalty revenue equal to the maximum aggregate purchase price. The final purchase price allocation has not been determined as of the filing of this report. Pursuant to an agreement dated February 12, 2018, the Company acquired certain assets and assumed certain liabilities of Nature Direct. Nature Direct, a manufacturer and distributor of essential-oil based nontoxic cleaning and care products for personal, home and professional use. As a result of this business combination, the Company’s distributors and customers will have access to the Nature Direct unique line of products and Nature Direct distributors and clients will gain access to products offered by the Company. The maximum consideration payable by the Company is $2,600,000, subject to adjustments. The Company will make monthly payments based on a percentage of Nature Direct distributor revenue and royalty revenue until the earlier of the date that is twelve (12) years from the closing date or such time as the Company has paid Nature Direct aggregate cash payments of Nature Direct distributor revenue and royalty revenue equal to the maximum aggregate purchase price. The final purchase price allocation has not been determined as of the filing of this report. |
Basis of Presentation and Des20
Basis of Presentation and Description of Business (Policies) | 12 Months Ended |
Dec. 31, 2017 | |
Basis Of Presentation And Description Of Business Policies | |
Nature of Business | Youngevity International, Inc. (the “Company”), founded in 1996, develops and distributes health and nutrition related products through its global independent direct selling network, also known as multi-level marketing, and sells coffee products to commercial customers. The Company operates in two business segments, its direct selling segment where products are offered through a global distribution network of preferred customers and distributors and its commercial coffee segment where products are sold directly to businesses. In the following text, the terms “we,” “our,” and “us” may refer, as the context requires, to the Company or collectively to the Company and its subsidiaries. The Company operates through the following domestic wholly-owned subsidiaries: AL Global Corporation, which operates its direct selling networks, CLR Roasters, LLC (“CLR”), its commercial coffee business, 2400 Boswell LLC, MK Collaborative LLC, Youngevity Global LLC and the wholly-owned foreign subsidiaries Youngevity Australia Pty. Ltd., Youngevity NZ, Ltd., Siles Plantation Family Group S.A. (“Siles”), located in Nicaragua, Youngevity Mexico S.A. de CV, Youngevity Israel, Ltd., Youngevity Russia, LLC, Youngevity Colombia S.A.S, Youngevity International Singapore Pte. Ltd., 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. Reverse Stock Split On June 5, 2017, the Company filed a certificate to amend its Articles of Incorporation to effect a reverse split on a one-for-twenty basis (the “Reverse Split”), whereby, every twenty shares of the Company’s common stock, par value $0.001 per share (the “Common Stock or “common stock”), were exchanged for one share of its common stock. The Reverse Split became effective on June 7, 2017. The Common Stock began trading on a reverse split basis at the market opening on June 8, 2017. All common stock share and per share amounts have been adjusted to reflect retrospective application of the Reverse Split. NASDAQ Listing Effective June 21, 2017, the Common Stock began trading on the NASDAQ Stock Market LLC’s NASDAQ Capital Market, under the symbol “YGYI”. Prior to the Company’s uplisting to NASDAQ, the Company’s common stock had been traded on the OTCQX market. |
Basis of Presentation | The Company consolidates all majority owned subsidiaries, investments in entities in which the Company has controlling influence and variable interest entities where it has been determined to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to conform to the current year presentations including the Company’s adoption of Accounting Standards Update (“ASU”) 2015-17 pertaining to the presentation of deferred tax assets and liabilities as noncurrent with retrospective application effective January 1, 2017. This resulted in a reclassification from deferred tax assets current to deferred tax assets, long-term deferred tax assets, net long-term As previously reported on the Annual Report on Form 10-K/A for the year ended December 31, 2016 filed with the Securities and Exchange Commission on August 14, 2017, the Company restated the Consolidated Statement of Cash Flows for the year ended December 31, 2016 previously filed by the Company in its annual report on Form 10-K for the same period. This was due to an error in the presentation of cash flow activity under the Company’s factoring facility. This annual report for the year ended December 31, 2017 reflects the restated numbers for the year ended December 31, 2016. |
Segment Information | The Company has two reporting segments: direct selling and commercial coffee. 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 a coffee roasting and distribution company specializing in gourmet coffee. The determination that the Company has two reportable segments is based upon the guidance set forth in Accounting Standards Codification (“ASC”) Topic 280, “Segment Reporting.” |
Use of Estimates | The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense for each reporting period. Estimates are used in accounting for, among other things, allowances for doubtful accounts, deferred taxes, and related valuation allowances, fair value of derivative liabilities, uncertain tax positions, loss contingencies, fair value of awards granted under our stock based compensation plan, fair value of assets and liabilities acquired in business combinations, capital leases, asset impairments, estimates of future cash flows used to evaluate impairments, useful lives of property, equipment and intangible assets, fair value of contingent acquisition debt, inventory obsolescence, and sales returns. Actual results may differ from previously estimated amounts and such differences may be material to the consolidated financial statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected prospectively in the period they occur. |
Cash and Cash Equivalents | The Company considers only its monetary liquid assets with original maturities of three months or less as cash and cash equivalents. |
Liquidity | 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 operating losses during the year ended December 31, 2017 of $5,882,000, compared to operating income in the prior year of $2,515,000. The losses in the current year were primarily due to lower than anticipated revenues, increases in legal fees related to its ongoing litigation, distributor events and sales and marketing costs. Net cash used in operating activities was $2,773,000 in the current year. The Company does not currently believe that its existing cash resources are sufficient to meet the Company’s anticipated needs over the next twelve months 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 will need to significantly reduce its expenses from current levels. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company believes that legal fees will decrease in the future from the levels spent in the current year. The Company has been reimbursed from its insurance company for certain legal fees already incurred and anticipates further reimbursements in 2018. The Company expects costs related to distributor events will decrease next year from current year levels as its costs in the current year were unusually high due to the twentieth anniversary convention held in Dallas in August and events held at the beginning of the year to stabilize the sales force due to the departure of the previous president and high-level sales management and distributors. The Company anticipates revenues to start growing again and it intends to make necessary cost reductions related to international operations that are not performing and also reduce expenses. The Company is also considering multiple alternatives including, but not limited to, additional equity financings and debt financings. On February 14, 2018, the Company commenced its offering to sell up to $10 million of the Company’s Series B Convertible Preferred Stock on a best effort basis without any minimum offering amount. The Offering terminated on March 30, 2018. The Series B Convertible Preferred Stock pays cumulative dividends 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. The Series B Convertible Preferred Stock ranks senior to the Company’s outstanding Series A Convertible Preferred Stock and the Company’s common stock par value $0.001 with respect to dividend rights and rights upon liquidation, dissolution or winding up. Each holder of Series B Convertible Preferred Stock received a credit towards our merchandise equal to ten percent (10%) of the amount of their investment up to a maximum credit of $1,000. Holders of the Series B Convertible Preferred Stock have limited voting rights. Each share of Series B 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 shares of common stock and automatically converts into two shares of Common Stock on its two-year anniversary of issuance. The offering price of the Series B Convertible Preferred Stock was $9.50 per share. On March 30, 2018, the Company completed its best efforts Offering of Series B Convertible Preferred Stock, pursuant to which the Company sold381,173 shares of Series B Convertible Preferred Stock at an offering price of $9.50 per share and received gross proceeds in aggregate amount of $3,621,143. The net proceeds to the Company from Offering were $3,328,761 after deducting commissions and Offering expenses of the selling agent payable by the Company. The shares of Series B Convertible Preferred Stock issued in the 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 Company’s best effort Offering of Series B Convertible Preferred Stock, the 2017 Notes in the principal amount of $7,254,349 automatically converted into 1,577,033 shares of common stock. On November 16, 2017, CLR entered into a new Loan and Security Agreement (“Agreement”) with Crestmark Bank (“Crestmark”) which amended and restated the original Factoring Agreement dated February 12, 2010 with Crestmark and subsequent agreement amendments thereto. CLR is provided with a line of credit related to accounts receivables resulting from sales of certain products and includes borrowings to be advanced against acceptable eligible inventory related to CLR. Effective December 29, 2017, CLR entered into a First Amendment to the Agreement, to include an increase in the maximum overall borrowing to $6,250,000 (the, “Loan”). The Loan amount 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 (i) above (iii) the lesser of $250,000 or eligible inventory or 75% of certain specific inventory identified within the Agreement. The Agreement contains certain financial and nonfinancial covenants for which the Company must comply to maintain its borrowing availability and avoid penalties. 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. 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. |
Derivative Financial Instruments | The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency. The Company reviews the terms of convertible debt and equity instruments it issues to determine whether there are derivative instruments, including an embedded conversion option that is required to be bifurcated and accounted for separately as a derivative financial instrument. In circumstances where a host instrument contains more than one embedded derivative instrument, including a conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. Also, in connection with the sale of convertible debt and equity instruments, the Company may issue freestanding warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. Derivative instruments are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds allocated to the convertible host instruments are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method. |
Accounts Receivable | Accounts receivable are recorded net of an allowance for doubtful accounts. Accounts receivable are considered delinquent when the due date on the invoice has passed. The Company records its allowance for doubtful accounts based upon its assessment of various factors including past experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions and other factors that may affect customers’ ability to pay. Accounts receivable are written off against the allowance for doubtful accounts when all collection efforts by the Company have been unsuccessful. As of December 31, 2017, the Company’s allowance for doubtful accounts associated with CLR outstanding receivables is $10,000. |
Inventory and Cost of Sales | 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. The Company records an inventory reserve for estimated excess and obsolete inventory based upon historical turnover, market conditions and assumptions about future demand for its products. When applicable, expiration dates of certain inventory items with a definite life are taken into consideration. Inventories consist of the following (in thousands): December 31, 2017 2016 Finished goods $ 10,994 $ 11,550 Raw materials 12,143 11,006 Total inventory 23,137 22,556 Reserve for excess and obsolete (1,064 ) (1,064 ) Inventory, net $ 22,073 $ 21,492 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. |
Deferred Issuance Costs | Deferred issuance costs include warrant issuance costs and debt discounts of approximately $4,040,000 and $3,611,000, as of December 31, 2017 and 2016, respectively, are associated with our 2017, 2015 and 2014 Private Placement transactions and are included with convertible notes payable on the Company's consolidated balance sheets. Deferred issuance costs related to our private placement offerings are amortized over the life of the notes to interest expense. See Note 5, below. |
Plantation Costs | The Company’s commercial coffee segment includes the results of Siles, which is a 500-acre coffee plantation and a dry-processing facility located on 26 acres located in Matagalpa, Nicaragua. Siles is a wholly-owned subsidiary of CLR, and the results of CLR include the depreciation and amortization of capitalized costs, development and maintenance and harvesting costs of Siles. In accordance with GAAP plantation maintenance and harvesting costs for commercially producing coffee farms are charged against earnings when sold. Deferred harvest costs accumulate throughout the year and are expensed over the remainder of the year as the coffee is sold. The difference between actual harvest costs incurred and the amount of harvest costs recognized as expense is recorded as either an increase or decrease in deferred harvest costs, which is reported as an asset and included with prepaid expenses and other current assets in the consolidated balance sheets. Once the harvest is complete, the harvest costs are then recognized as the inventory value. Costs associated with the 2017 harvest as of December 31, 2016 totaled approximately $452,000. In April 2017, the Company completed the 2017 harvest in Nicaragua and approximately $552,000 of deferred harvest costs were reclassified as inventory. Costs associated with the 2018 harvest as of December 31, 2017 total approximately $400,000. The 2018 harvest is expected to be completed during the Company’s second quarter of 2018. The remaining inventory from our previously harvested coffee as of December 31, 2017 and as of December 31, 2016 is $334,000 and $112,000, respectively. |
Property and Equipment | Property and equipment are recorded at historical cost. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to operations over the estimated useful lives of the related assets. The straight-line method of depreciation and amortization is followed for financial statement purposes. Leasehold improvements are amortized over the shorter of the life of the respective lease or the useful life of the improvements. Estimated service lives range from 3 to 39 years. When such assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in operations in the period of disposal. The cost of normal maintenance and repairs is charged to expense as incurred. Significant expenditures that increase the useful life of an asset are capitalized and depreciated over the estimated useful life of the asset. Coffee trees, land improvements and equipment specifically related to the plantations are stated at cost, net of accumulated depreciation. Depreciation of coffee trees and other equipment is reported on a straight-line basis over the estimated useful lives of the assets (25 years for coffee trees, between 5 and 15 years for equipment and land improvements). Property and equipment are considered long-lived assets and are evaluated for impairment whenever events or changes in circumstances indicate their net book value may not be recoverable. Management has determined that no impairment of its property and equipment occurred as of December 31, 2017 or 2016. Property and equipment consist of the following (in thousands): December 31, 2017 2016 Building $ 3,879 $ 3,873 Leasehold improvements 2,779 2,532 Land 2,544 2,544 Land improvements 606 602 Producing coffee trees 553 553 Manufacturing equipment 5,022 4,570 Furniture and other equipment 1,707 1,580 Computer software 1,322 1,236 Computer equipment 767 699 Vehicles 225 103 Construction in process 1,986 1,859 21,390 20,151 Accumulated depreciation (7,683 ) (6,145 ) Total property and equipment $ 13,707 $ 14,006 Depreciation expense totaled approximately $1,556,000 and $1,518,000 for the years ended December 31, 2017 and 2016, respectively. |
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. |
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): December 31, 2017 December 31, 2016 Cost Accumulated Amortization Net Cost Accumulated Amortization Net Distributor organizations $ 16,204 $ 8,363 $ 7,841 $ 12,930 $ 7,162 $ 5,768 Trademarks and tradenames 7,779 1,229 6,550 5,394 815 4,579 Customer relationships 10,966 4,711 6,255 7,846 3,642 4,204 Internally developed software 720 458 262 720 357 363 Intangible assets $ 35,669 $ 14,761 $ 20,908 $ 26,890 $ 11,976 $ 14,914 Amortization expense related to intangible assets was approximately $2,782,000 and $2,344,000 for the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017, future expected amortization expense related to definite lived intangible assets for the next five years is as follows (in thousands): Years ending December 31, 2018 $ 3,050 2019 2,441 2020 2,352 2021 2,276 2022 2,252 As of December 31, 2017, the weighted-average remaining amortization period for intangibles assets was approximately 5.66 years. 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 December 31, 2017 and December 31, 2016, approximately $1,649,000 and $2,267,000, respectively, in trademarks from business combinations have been identified as having indefinite lives. During the year ended December 31, 2017, the Company considered the guidance of ASC 350 and concluded that certain intangible assets with indefinite lives should be changed to a definite life. As a result, the Company changed the classification of approximately $618,000 trademark/tradename intangible assets to a definite lived intangible asset. The Company has determined that no impairment occurred for its definite and indefinite lived intangible assets for the years ended December 31, 2017 and 2016. |
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”, 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 operating segment, or a business one level below that operating segment (referred to as a component) if discrete financial information is prepared and regularly reviewed by management at the component level. The Company has determined that its reporting units for goodwill impairment testing are the Company’s reportable segments. As such, the Company analyzed its goodwill balances separately for the commercial coffee reporting unit and the direct selling reporting unit. The goodwill balance as of December 31, 2017 and December 31, 2016 was $6,323,000. The Company has determined that no impairment of its goodwill occurred for the years ended December 31, 2017 and 2016. Goodwill activity for the years ended December 31, 2017 and 2016 by reportable segment consists of the following (in thousands): Direct selling Commercial coffee Total Balance at December 31, 2015 $ 3,009 $ 3,314 $ 6,323 Goodwill recognized - - - Goodwill impaired - - - Balance at December 31, 2016 $ 3,009 $ 3,314 $ 6,323 Goodwill recognized - - - Goodwill impaired - - - Balance at December 31, 2017 $ 3,009 $ 3,314 $ 6,323 |
Revenue Recognition | The Company recognizes revenue from product sales when the following four criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. The Company ships the majority of its direct selling segment products directly to the distributors primarily via UPS, USPS or FedEx and receives substantially all payments for these sales in the form of credit card transactions. The Company regularly monitors its use of credit card or merchant services to ensure that its financial risk related to credit quality and credit concentrations is actively managed. Revenue is recognized upon passage of title and risk of loss to customers when product is shipped from the fulfillment facility. The Company ships the majority of its coffee segment products via common carrier and invoices its customer for the products. Revenue is recognized when the title and risk of loss is passed to the customer under the terms of the shipping arrangement, typically, FOB shipping point. 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. Our distributors are required to pay a 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 our distributor website and a genealogy position with no down line distributors. Sales revenue and a reserve for estimated returns are recorded net of sales tax. |
Deferred Revenues and Costs | As of December 31, 2017, and December 31, 2016, the balance in deferred revenues was approximately $3,386,000 and $1,870,000, respectively. Deferred revenue related to the Company’s direct selling segment is attributable to the Heritage Makers product line and also for future Company convention and distributor events. In addition, the Company recognizes deferred revenue from the commercial coffee segment. Deferred revenues related to Heritage Makers was approximately $1,882,000 and $1,662,000, as of December 31, 2017, and December 31, 2016, respectively. The deferred revenue represents Heritage Maker’s obligation for points purchased by customers that have not yet been redeemed for product. Cash received for points sold is recorded as deferred revenue. Revenue is recognized when customers redeem the points and the product is shipped. Deferred costs relate to Heritage Makers prepaid commissions that are recognized in expense at the time the related revenue is recognized. As of December 31, 2017 and December 31, 2016, the balance in deferred costs was approximately $433,000 and $415,000, respectively, and was included in prepaid expenses and current assets. Deferred revenues related to CLR as of December 31, 2017 is approximately $1,291,000 and represents deposits on customer orders that have not yet been completed and shipped. There was no related deferred revenue during the year ended December 31, 2016. Deferred revenues related to pre-enrollment in upcoming conventions and distributor events of approximately $213,000 and $208,000 as of December 31, 2017 and 2016, respectively, relate primarily to the Company’s 2018 and 2017 events. The Company does not recognize this revenue until the conventions occur. |
Product Return Policy | All products, except food products and commercial coffee products are subject to a full refund within the first 30 days of receipt by the customer, subject to an advance return authorization procedure. Returned product must be in unopened resalable condition. Product returns as a percentage of our net sales have been approximately 1% of our monthly net sales over the last two years. As of December 31, 2017 and 2016 the Company has an allowance of $75,000 related to product returns. Commercial coffee products are returnable only if defective. |
Shipping and Handling | Shipping and handling costs associated with inbound freight and freight to customers, including independent distributors, are included in cost of sales. Shipping and handling fees charged to customers are included in sales. Shipping expense was approximately $9,101,000 and $9,927,000 for the years ended December 31, 2017 and 2016, respectively. |
Distributor Compensation | In the direct selling segment, the Company utilizes a network of independent distributors, each of whom has signed an agreement with the Company, enabling them to purchase products at wholesale prices, market products to customers, enroll new distributors for their down-line and earn compensation on product purchases made by those down-line distributors and customers. The payments made under the compensation plans are the only form of compensation paid to the distributors. Each product has a point value, which may or may not correlate to the wholesale selling price of a product. A distributor must qualify each month to participate in the compensation plan by making a specified amount of product purchases, achieving specified point levels. Once qualified, the distributor will receive payments based on a percentage of the point value of products sold by the distributor’s down-line. The payment percentage varies depending on the qualification level of the distributor and the number of levels of down-line distributors. There are also additional incentives paid upon achieving predefined activity and or down-line point value levels. There can be multiple levels of independent distributors earning incentives from the sales efforts of a single distributor. Due to the multi-layer independent sales approach, distributor incentives are a significant component of the Company’s cost structure. The Company accrues all distributor compensation expense in the month earned and pays the compensation the following month. |
Earnings 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 year ended December 31, 2017 were 6,565,529. For the year ended December 31, 2016, potentially dilutive securities were 4,353,023. Prior year diluted loss per share and the weighted average shares outstanding have been adjusted for the dilutive effect of the Company’s 2014 warrants. The impact of this change was not material. 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 years ended December 31, 2017 and 2016, the Company recorded net of tax gain of $667,000 and $629,000, respectively, on the valuation of the Warrant Derivative Liability which has a dilutive impact on loss per share. December 31, 2017 2016 Loss per Share - Basic Numerator for basic loss per share $ (12,689,000 ) $ (410,000 ) Denominator for basic loss per share 19,672,445 19,632,086 Loss per common share – basic $ (0.65 ) $ (0.02 ) Loss per Share - Diluted Numerator for basic loss per share $ (12,689,000 ) $ (410,000 ) Adjust: Fair value of dilutive warrants outstanding (667,000 ) (629,000 ) Numerator for dilutive loss per share $ (13,356,000 ) $ (1,039,000 ) Denominator for diluted loss per share 19,672,445 19,632,086 Plus: Incremental shares underlying “in the money” warrants outstanding 79,447 174,047 Denominator for diluted loss per share 19,751,892 19,806,133 Loss per common share - diluted $ (0.68 ) $ (0.05 ) |
Foreign Currency Translation | The financial position and results of operations of the Company’s foreign subsidiaries are measured using each foreign subsidiary’s local currency as the functional currency. Revenues and expenses of such subsidiaries have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders’ equity, unless there is a sale or complete liquidation of the underlying foreign investments. Translation gains or losses resulting from transactions in currencies other than the respective entities functional currency are included in the determination of income and are not considered significant to the Company for 2017 and 2016. |
Comprehensive Income (Loss) | Comprehensive income (loss) consists of net gains and losses affecting stockholders’ equity that, under generally accepted accounting principles are excluded from net income (loss). For the Company, the only items are the cumulative foreign currency translation and net income (loss). |
Income Taxes | The Company accounts for income taxes in accordance with ASC Topic 740, "Income Taxes," The Company is subject to income taxes in the United States and certain foreign jurisdictions. The calculation of the Company’s tax provision involves the application of complex tax laws and requires significant judgment and estimates. The Company evaluates the realizability of its deferred tax assets for each jurisdiction in which it operates at each reporting date and establishes a valuation allowance when it is more likely than not that all or a portion of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the same character and in the same jurisdiction. The Company considers all available positive and negative evidence in making this assessment, including, but not limited to, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. In circumstances where there is sufficient negative evidence indicating that deferred tax assets are not more likely than not realizable, the Company will establish a valuation allowance. The Company applies ASC Topic 740 “Accounting for Uncertainty in Income Taxes” |
Stock Based Compensation | The Company accounts for stock-based compensation in accordance with ASC Topic 718, “ Compensation – Stock Compensation,” The Company accounts for equity instruments issued to non-employees in accordance with authoritative guidance for equity-based payments to non-employees. Stock options issued to non-employees are accounted for at their estimated fair value, determined using the Black-Scholes option-pricing model. The fair value of options granted to non-employees is re-measured as they vest, and the resulting increase in value, if any, is recognized as expense during the period the related services are rendered. |
Other Income (Expense) | The Company records interest income, interest expense, and change in derivative liabilities, as well as other non-operating transactions, as other income (expense) on our consolidated statements of operations. |
Recently Issued Accounting Pronouncements | In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-02, Income Statement - Reporting Comprehensive Income In May 2017, the FASB issued ASU 2017-09, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. ASU 2017-09 will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company does not expect this new guidance to have a material impact on its consolidated financial statements. In July 2017, the FASB issued ASU 2017-11, Earnings Per Share In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, In March 2016, the FASB issued ASU No. 2016-09, Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. In January 2017, the FASBissued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment In October 2016, the FASB issued ASU 2016-17, Consolidation In February 2016, the FASB issued ASU 2016-02, Leases In November 2015, the FASB issued ASU 2015-17, Income Taxes In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory (Topic 330): Simplifying the Measurement of Inventory.” The amendments in ASU 2015-11 require an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using last-in, first out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of ASU No. 2015-11 did not have a significant impact on the Company’s consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) |
Basis of Presentation and Des21
Basis of Presentation and Description of Business (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Basis Of Presentation And Description Of Business Tables | |
Inventories | December 31, 2017 2016 Finished goods $ 10,994 $ 11,550 Raw materials 12,143 11,006 Total inventory 23,137 22,556 Reserve for excess and obsolete (1,064 ) (1,064 ) Inventory, net $ 22,073 $ 21,492 |
Property and equipment | December 31, 2017 2016 Building $ 3,879 $ 3,873 Leasehold improvements 2,779 2,532 Land 2,544 2,544 Land improvements 606 602 Producing coffee trees 553 553 Manufacturing equipment 5,022 4,570 Furniture and other equipment 1,707 1,580 Computer software 1,322 1,236 Computer equipment 767 699 Vehicles 225 103 Construction in process 1,986 1,859 21,390 20,151 Accumulated depreciation (7,683 ) (6,145 ) Total property and equipment $ 13,707 $ 14,006 |
Intangible Assets | December 31, 2017 December 31, 2016 Cost Accumulated Amortization Net Cost Accumulated Amortization Net Distributor organizations $ 16,204 $ 8,363 $ 7,841 $ 12,930 $ 7,162 $ 5,768 Trademarks and tradenames 7,779 1,229 6,550 5,394 815 4,579 Customer relationships 10,966 4,711 6,255 7,846 3,642 4,204 Internally developed software 720 458 262 720 357 363 Intangible assets $ 35,669 $ 14,761 $ 20,908 $ 26,890 $ 11,976 $ 14,914 |
Future expected amortization expense | Years ending December 31, 2018 $ 3,050 2019 2,441 2020 2,352 2021 2,276 2022 2,252 |
Goodwill | Direct selling Commercial coffee Total Balance at December 31, 2015 $ 3,009 $ 3,314 $ 6,323 Goodwill recognized - - - Goodwill impaired - - - Balance at December 31, 2016 $ 3,009 $ 3,314 $ 6,323 Goodwill recognized - - - Goodwill impaired - - - Balance at December 31, 2017 $ 3,009 $ 3,314 $ 6,323 |
Earnings per share | December 31, 2017 2016 Loss per Share - Basic Numerator for basic loss per share $ (12,689,000 ) $ (410,000 ) Denominator for basic loss per share 19,672,445 19,632,086 Loss per common share – basic $ (0.65 ) $ (0.02 ) Loss per Share - Diluted Numerator for basic loss per share $ (12,689,000 ) $ (410,000 ) Adjust: Fair value of dilutive warrants outstanding (667,000 ) (629,000 ) Numerator for dilutive loss per share $ (13,356,000 ) $ (1,039,000 ) Denominator for diluted loss per share 19,672,445 19,632,086 Plus: Incremental shares underlying “in the money” warrants outstanding 79,447 174,047 Denominator for diluted loss per share 19,751,892 19,806,133 Loss per common share - diluted $ (0.68 ) $ (0.05 ) |
Acquisitions and Business Com22
Acquisitions and Business Combinations (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
BeautiControl [Member] | |
Purchase price allocation | Distributor organization $ 1,275 Customer-related intangible 765 Trademarks and trade name 585 Total purchase price $ 2,625 |
Future Global Vision [Member] | |
Purchase price allocation | Inventory $ 53 Distributor organization 425 Customer-related intangible 250 Trademarks and trade name 200 Accrued liabilities (53 ) Total purchase price $ 875 |
Sorvana [Member] | |
Purchase price allocation | Inventory $ 700 Distributor organization 910 Customer-related intangible 1,300 Trademarks and trade name 1,000 Accrued liabilities, inventory (700 ) Accrued liabilities, assumed liabilities (68 ) Total purchase price $ 3,142 |
BellaVita [Member] | |
Purchase price allocation | Distributor organization $ 981 Customer-related intangible 525 Trademarks and trade name 400 Accrued liabilities (100 ) Total purchase price $ 1,806 |
Ricolife [Member] | |
Purchase price allocation | Distributor organization $ 68 Customer-related intangible 280 Trademarks and trade name 200 Accrued liabilities (75 ) Total purchase price $ 473 |
Legacy for Life [Member] | |
Purchase price allocation | Cash paid for the equity in Legacy for Life Taiwan and Legacy for Life Limited (Hong Kong) $ 26 Cash paid for inventory 195 Total cash consideration 221 Trademarks and trade name 185 Customer-related intangible 250 Distributor organization 298 Total intangible assets acquired, non-cash 733 Total purchase price $ 954 |
Nature's Pearl [Member] | |
Purchase price allocation | Inventory $ 200 Distributor organization 559 Customer-related intangible 400 Trademarks and trade name 250 Accrued liabilities (200 ) Total purchase price $ 1,209 |
Renew Interest [Member] | |
Purchase price allocation | Inventory $ 250 Distributor organization 170 Customer-related intangible 155 Trademarks and trade name 110 Accrued liabilities, inventory (250 ) Accrued liabilities, assumed liabilities (48 ) Total purchase price $ 387 |
South Hill Designs Inc [Member] | |
Purchase price allocation | Distributor organization $ 396 Customer-related intangible 285 Trademarks and trade name 158 Total purchase price $ 839 |
Notes Payable and Other Debt (T
Notes Payable and Other Debt (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Notes Payable And Other Debt Tables | |
Maturities of notes payable | Years ending December 31, 2018 $ 3,176 2019 4,868 2020 7,419 2021 172 2022 177 Thereafter 3,740 Total $ 19,552 |
Maturities of capital leases | Years ending December 31, 2018 $ 1,078 2019 573 2020 124 2021 31 2022 - Total 1,806 Amount representing interest (129 ) Present value of minimum lease payments 1,677 Less current portion (983 ) Long term portion $ 694 |
Convertible Notes Payable (Tabl
Convertible Notes Payable (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Convertible Subordinated Debt [Abstract] | |
Convertible notes | December 31, 2017 December 31, 2016 8% Convertible Notes due July and August 2019 (2014 Notes), principal $ 4,750 $ 4,750 Debt discounts (1,659 ) (2,707 ) Carrying value of 2014 Notes 3,091 2,043 8% Convertible Notes due October and November 2018 (2015 Notes), principal 3,000 7,188 Debt discounts (172 ) (904 ) Carrying value of 2015 Notes 2,828 6,284 8% Convertible Notes due July and August 2020 (2017 Notes), principal 7,254 - Fair value of bifurcated embedded conversion option of 2017 Notes 200 - Debt discounts (2,209 ) - Carrying value of 2017 Notes 5,245 - Total carrying value of convertible notes payable $ 11,164 $ 8,327 |
Derivative Liability (Tables)
Derivative Liability (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Derivative Liability Tables | |
Monte Carlo fair value of warrants | December 31, 2017 December 31, 2016 Stock price volatility 61.06 % 60% - 65% Risk-free interest rates 1.96 % 1.34%-1.70% Annual dividend yield 0 % 0% Expected life 1.58 - 2.78 years 2.6-3.9 years Inputs December 31, 2017 Initial Valuation Stock price $4.13 $4.63-$4.73 Conversion price $4.60 $4.60 Stock price volatility 60.98%-61.31% 63.07%-63.32% Risk-free rate 1.9% 0.92%-0.94% Expected life 2.57-2.63 3.0 |
Fair Value of Financial Instr26
Fair Value of Financial Instruments (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Fair Value Of Financial Instruments Tables | |
Fair value measurement within the three levels of value hierarchy | Fair Value at December 31, 2017 Total Level 1 Level 2 Level 3 Liabilities: Contingent acquisition debt, current portion $ 587 $ - $ - $ 587 Contingent acquisition debt, less current portion 13,817 - - 13,817 Warrant derivative liability 3,365 - - 3,365 Embedded conversion option derivative 200 - - 200 Total liabilities $ 17,969 $ - $ - $ 17,969 Fair Value at December 31, 2016 Total Level 1 Level 2 Level 3 Liabilities: Contingent acquisition debt, current portion $ 628 $ - $ - $ 628 Contingent acquisition debt, less current portion 7,373 - - 7,373 Warrant derivative liability 3,345 - - 3,345 Total liabilities $ 11,346 $ - $ - $ 11,346 |
Fair value of warrant derivative liability | Warrant Derivative Liability Balance at December 31, 2015 $ 4,716 Issuance - Adjustments to estimated fair value (1,371 ) Balance at December 31, 2016 3,345 Issuance 2,334 Adjustments to estimated fair value (1,895 ) Adjustment related to the extinguishment loss on exchange of warrants, 2015 Notes (Note 5) (419 ) Balance at December 31, 2017 $ 3,365 Embedded Conversion Feature Derivative Liability Balance at December 31, 2016 $ - Issuance 330 Adjustment to estimated fair value (130 ) Balance at December 31, 2017 $ 200 |
Contingent acquisition liabilities measured at fair value | Contingent Consideration Balance at December 31, 2015 $ 7,438 Level 3 liabilities acquired 3,604 Level 3 liabilities settled (773 ) Adjustments to liabilities included in earnings (1,462 ) Expenses allocated to profit sharing agreement (698 ) Adjustment to purchase price allocation (108 ) Balance at December 31, 2016 8,001 Level 3 liabilities acquired 9,657 Level 3 liabilities settled (462 ) Adjustments to liabilities included in earnings (1,664 ) Expenses allocated to profit sharing agreement (195 ) Adjustment to purchase price allocation (933 ) Balance at December 31, 2017 $ 14,404 |
Stockholders_ Equity (Tables)
Stockholders’ Equity (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Stockholders Equity Tables | |
Common stock warrant activity | Balance at December 31, 2015 2,083,722 Issued - Expired / cancelled (182,275 ) Exercised (2,062 ) Balance at December 31, 2016 1,899,385 Issued 1,262,212 Expired / cancelled (414,031 ) Exercised (37,500 ) Balance at December 31, 2017 2,710,066 |
Summary of Plan Options | Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contract Life (years) Aggregate Intrinsic Value (in thousands) Outstanding December 31, 2015 1,175,544 $ 4.40 6.24 $ 2,044 Issued 639,612 5.40 Canceled/expired (149,067 ) 4.80 Exercised (5,125 ) 4.20 - Outstanding December 31, 2016 1,660,964 4.80 6.75 1,346 Issued 21,624 4.60 Canceled / expired (91,180 ) 4.39 Exercised (6,885 ) 4.28 - Outstanding December 31, 2017 1,584,523 $ 4.76 6.16 $ 126 Exercisable December 31, 2017 1,040,678 $ 4.58 4.92 $ 87 |
Stock based compensation expense | Years ended December 31, 2017 2016 Cost of revenues $ 14 $ 10 Distributor compensation 4 215 Sales and marketing 51 10 General and administrative 496 160 Total stock-based compensation related to stock options $ 565 $ 395 |
Black Scholes compensation cost | Years ended December 31, 2017 2016 Dividend yield - - Stock price volatility 56% - 64 % 57% - 90 % Risk-free interest rate 1.22 - 2.06 % 0.71 - 2.25 % Expected life of options 1.0 - 5.61 years 2.6 - 6.5 years |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Commitments And Contingencies Tables | |
Future minimum lease commitments | 2018 $ 1,299 2019 936 2020 744 2021 585 2022 525 Thereafter 252 Total $ 4,341 |
Income Taxes (Tables)
Income Taxes (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Income Taxes Tables | |
Income tax provision components | December 31, 2017 2016 Current Federal $ 135 $ 3 State 12 (18 ) Foreign 132 150 Total current 279 135 Deferred Federal $ 2,617 $ (304 ) State (156 ) (21 ) Foreign (13 ) - Total deferred 2,448 (325 ) Net income tax provision (benefit) $ 2,727 $ (190 ) |
Statutory federal income tax rate difference | December 31, 2017 2016 Income tax benefit at federal statutory rate $ (3,483 ) $ (206 ) Adjustments for tax effects of: Foreign rate differential (38 ) (35 ) State taxes, net (382 ) (112 ) Other nondeductible items 246 (50 ) Change in foreign entity tax status - (77 ) Rate change - 6 Tax reform rate change 2,022 - Deferred tax asset adjustment 95 (201 ) Change in valuation allowance 4,032 183 Foreign tax credit - 275 Undistributed foreign earnings - 17 Other 235 10 Net income tax provision (benefit) $ 2,727 $ (190 ) |
Deferred tax assets and liabilities | December 31, 2017 2016 Deferred tax assets: Amortizable assets $ 1,089 $ 1,117 Inventory 510 726 Accruals and reserves 155 222 Stock options 170 285 Net operating loss carry-forward 4,674 3,554 Credit carry-forward 305 309 Total deferred tax asset 6,903 6,213 Deferred tax liabilities: Prepaids (228 ) (383 ) Other (288 ) (608 ) Depreciable assets (168 ) (464 ) Total deferred tax liability (685 ) (1,455 ) Net deferred tax asset 6,219 4,758 Less valuation allowance (5,933 ) (1,901 ) Net deferred tax asset $ 286 $ 2,857 |
Segment and Geographical Info30
Segment and Geographical Information (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Segment And Geographical Information Tables | |
Segment information revenue | Years ended December 31, 2017 2016 Revenues Direct selling $ 142,450 $ 145,418 Commercial coffee 23,246 17,249 Total revenues $ 165,696 $ 162,667 Gross profit Direct selling $ 95,379 $ 97,219 Commercial coffee 186 918 Total gross margin $ 95,565 $ 98,137 Operating income (loss) Direct selling $ (2,526 ) $ 4,564 Commercial coffee (3,356 ) (2,049 ) Total operating (loss) income $ (5,882 ) $ 2,515 Net (loss) income Direct selling $ (3,922 ) $ 1,894 Commercial coffee (8,755 ) (2,292 ) Total net loss $ (12,677 ) $ (398 ) Capital expenditures Direct selling $ 854 $ 1,922 Commercial coffee 449 903 Total capital expenditures $ 1,303 $ 2,825 |
Segment information assets | December 31, 2017 2016 Total assets Direct selling $ 44,082 $ 40,127 Commercial coffee 28,307 25,881 Total assets $ 72,389 $ 66,008 |
Segment information geographical | The following table displays revenues attributable to the geographic location of the customer (in thousands): Years ended December 31, 2017 2016 Revenues United States $ 146,206 $ 147,548 International 19,490 15,119 Total revenues $ 165,696 $ 162,667 |
Basis of Presentation and Des31
Basis of Presentation and Description of Business (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Basis Of Presentation And Description Of Business Details | ||
Finished goods | $ 10,994 | $ 11,550 |
Raw materials | 12,143 | 11,006 |
Total inventory | 23,137 | 22,556 |
Reserve for excess and obsolete | (1,064) | (1,064) |
Inventory, net | $ 22,073 | $ 21,492 |
Basis of Presentation and Des32
Basis of Presentation and Description of Business (Details 1) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Basis Of Presentation And Description Of Business Details 1 | ||
Beginning balance | $ 1,064 | $ 1,064 |
Ending balance | $ 1,064 | $ 1,064 |
Basis of Presentation and Des33
Basis of Presentation and Description of Business (Details 2) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Basis Of Presentation And Description Of Business Details 2 | ||
Building | $ 3,879 | $ 3,873 |
Leasehold improvements | 2,779 | 2,532 |
Land | 2,544 | 2,544 |
Land improvements | 606 | 602 |
Producing coffee trees | 553 | 553 |
Manufacturing equipment | 5,022 | 4,570 |
Furniture and other equipment | 1,707 | 1,580 |
Computer software | 1,322 | 1,236 |
Computer equipment | 767 | 699 |
Vehicles | 225 | 103 |
Construction in progress | 1,986 | 1,859 |
Property and equipment before depreciation | 21,390 | 20,151 |
Accumulated depreciation | (7,683) | (6,145) |
Total property and equipment | $ 13,707 | $ 14,006 |
Basis of Presentation and Des34
Basis of Presentation and Description of Business (Details 3) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Cost | $ 35,669 | $ 26,890 |
Accumulated Amortization | 14,761 | 11,976 |
Net | 20,908 | 14,914 |
Distributor Organizations [Member] | ||
Cost | 16,204 | 7,846 |
Accumulated Amortization | 8,363 | 3,642 |
Net | 7,841 | 4,204 |
Trademarks and Trade Names [Member] | ||
Cost | 7,779 | 12,930 |
Accumulated Amortization | 1,229 | 7,162 |
Net | 6,550 | 5,768 |
Customer Relationships [Member] | ||
Cost | 10,966 | 5,394 |
Accumulated Amortization | 4,711 | 815 |
Net | 6,255 | 4,579 |
Software Development [Member] | ||
Cost | 720 | 720 |
Accumulated Amortization | 458 | 357 |
Net | $ 262 | $ 363 |
Basis of Presentation and Des35
Basis of Presentation and Description of Business (Details 4) $ in Thousands | Dec. 31, 2017USD ($) |
Finite Lived Intangible Assets Future Amortization Expense | |
2,018 | $ 3,050 |
2,019 | 2,441 |
2,020 | 2,352 |
2,021 | 2,276 |
2,022 | $ 2,252 |
Basis of Presentation and Des36
Basis of Presentation and Description of Business (Details 5) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Balance at Beginning of Period | $ 6,323 | $ 6,323 |
Goodwill recognized | 0 | 0 |
Goodwill impaired | 0 | 0 |
Balance at End of Period | 6,323 | 6,323 |
Direct Selling [Member] | ||
Balance at Beginning of Period | 3,009 | 3,009 |
Goodwill recognized | 0 | 0 |
Goodwill impaired | 0 | 0 |
Balance at End of Period | 3,009 | 3,009 |
Commercial Coffee [Member] | ||
Balance at Beginning of Period | 3,314 | 3,314 |
Goodwill recognized | 0 | 0 |
Goodwill impaired | 0 | 0 |
Balance at End of Period | $ 3,314 | $ 3,314 |
Basis of Presentation and Des37
Basis of Presentation and Description of Business (Details 6) - USD ($) $ / shares in Units, $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Loss per Share - Basic | ||
Numerator for basic loss per share | $ (12,689,000) | $ (410,000) |
Denominator for basic loss per share | 19,672,445 | 19,632,086 |
Loss per common share – basic | $ (0.65) | $ (0.02) |
Loss per Share - Diluted | ||
Numerator for basic loss per share | $ (12,689,000) | $ (410,000) |
Adjust: Fair value of dilutive warrants outstanding | (667,000) | (629,000) |
Numerator for dilutive loss per share | $ (13,356,000) | $ (1,039,000) |
Denominator for diluted loss per share | 19,672,445 | 19,632,086 |
Plus: Incremental shares underlying “in the money” warrants outstanding | 79,447 | 174,047 |
Denominator for diluted loss per share | 19,751,892 | 19,806,133 |
Loss per common share - diluted | $ (0.68) | $ (0.05) |
Basis of Presentation and Des38
Basis of Presentation and Description of Business (Details Narrative) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Depreciation expense | $ 1,556 | $ 1,518 | |
Amortization expense related to intangible assets | $ 2,782 | 2,344 | |
Weighted average remaining amortization period for intangible assets | 5 years 7 months 28 days | ||
Trademarks from business combinations that have indefinite lives | $ 1,649 | 2,267 | |
Goodwill | 6,323 | 6,323 | $ 6,323 |
Deferred revenues | 3,386 | 1,870 | |
Shipping expense | $ 9,101 | $ 9,927 | |
Common stock equivalents anti-dilutive | 6,565,529 | 4,353,023 | |
Heritage Makers [Member] | |||
Deferred costs | $ 433 | $ 415 |
Acquisitions and Business Com39
Acquisitions and Business Combinations (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Accrued liabilities, assumed liabilities | $ 1,113 | $ 1,156 |
Legacy for Life [Member] | ||
Cash paid for the equity in Legacy for Life Taiwan and Legacy for Life Limited (Hong Kong) | 26 | |
Cash paid for inventory | 195 | |
Total cash consideration | 221 | |
Distributor organization | 298 | |
Customer-related intangible | 250 | |
Trademarks and trade name | 185 | |
Total intangible assets acquired, non-cash | 733 | |
Total purchase price | 954 | |
Nature's Pearl [Member] | ||
Inventory | 200 | |
Distributor organization | 559 | |
Customer-related intangible | 400 | |
Trademarks and trade name | 250 | |
Accrued liabilities, assumed liabilities | (200) | |
Total purchase price | 1,209 | |
Renew Interest [Member] | ||
Inventory | 250 | |
Distributor organization | 170 | |
Customer-related intangible | 155 | |
Trademarks and trade name | 110 | |
Accrued liabilities, inventory | (250) | |
Accrued liabilities, assumed liabilities | (48) | |
Total purchase price | 387 | |
South Hill [Member] | ||
Distributor organization | 396 | |
Customer-related intangible | 285 | |
Trademarks and trade name | 158 | |
Total purchase price | $ 839 |
Acquisitions and Business Com40
Acquisitions and Business Combinations (Details Narrative) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Revenue | $ 165,696 | $ 162,667 |
Arrangements with Variable In41
Arrangements with Variable Interest Entities and Related Party Transactions (Details Narrative) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Purchases made from Northwest Nutraceuticals, Inc. | $ 182 | $ 126 |
Purchases made from H&H | 398 | 457 |
FDI Realty LLC [Member] | ||
Maximum exposure to loss as a result of involvement with VIE | $ 1,706 | $ 1,806 |
Notes Payable and Other Debt (D
Notes Payable and Other Debt (Details) $ in Thousands | Dec. 31, 2017USD ($) |
Maturities of Notes Payable | |
2,018 | $ 3,176 |
2,019 | 4,868 |
2,020 | 7,419 |
2,021 | 172 |
2,022 | 177 |
Thereafter | 3,740 |
Total | $ 19,552 |
Notes Payable and Other Debt 43
Notes Payable and Other Debt (Details 1) $ in Thousands | Dec. 31, 2017USD ($) |
Maturities of capital leases: | |
2,018 | $ 1,078 |
2,019 | 573 |
2,020 | 124 |
2,021 | 31 |
2,022 | 0 |
Total | 1,806 |
Amount representing interest | (129) |
Present value of minimum lease payments | 1,677 |
Less current portion | (983) |
Long term portion | $ 694 |
Notes Payable and Other Debt 44
Notes Payable and Other Debt (Details Narrative) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Convertible notes | $ 11,164 | $ 8,327 |
Carrying value of liability | 1,113 | 1,156 |
Depreciation expense | 1,556 | 1,518 |
Accounts receivable, due from factoring company | 0 | 1,078 |
Contingent acquisition debt | 14,404 | 8,001 |
Capital Lease Obligations [Member] | ||
Depreciation expense | $ 110 | $ 103 |
Convertible Notes Payable (Deta
Convertible Notes Payable (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Total convertible notes payable, net of debt discount | $ 11,164 | $ 8,327 |
Convertible Notes Payable 1 [Member] | ||
Convertible notes issued | 4,750 | 4,750 |
Debt discounts | (1,659) | (2,707) |
Total convertible notes payable, net of debt discount | 3,091 | 2,043 |
Convertible Notes Payable 2 [Member] | ||
Convertible notes issued | 3,000 | 7,188 |
Debt discounts | (172) | (904) |
Total convertible notes payable, net of debt discount | 2,828 | 6,284 |
Convertible Notes Payable 3 [Member] | ||
Convertible notes issued | 7,254 | 0 |
Fair value of bifurcated embedded conversion option of 2017 Notes | 200 | 0 |
Debt discounts | (2,209) | 0 |
Total convertible notes payable, net of debt discount | $ 5,245 | $ 0 |
Convertible Notes Payable (De46
Convertible Notes Payable (Details Narrative) $ in Thousands | 12 Months Ended |
Dec. 31, 2017USD ($) | |
Aggregate principal amount of notes sold | $ 7,254 |
Convertible Notes Payable 1 [Member] | |
Aggregate principal amount of notes sold | 4,750 |
Convertible Notes Payable 2 [Member] | |
Aggregate principal amount of notes sold | 7,187 |
Convertible Notes Payable 3 [Member] | |
Aggregate principal amount of notes sold | $ 3,054 |
Derivative Liability (Details)
Derivative Liability (Details) - $ / shares | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Warrant [Member] | ||
Stock Price Volatility | 61.06% | |
Risk-free interest rate | 1.96% | |
Dividend yield | $ 0 | $ 0 |
Minimum [Member] | ||
Stock Price Volatility | 56.00% | 57.00% |
Risk-free interest rate | 1.22% | 0.71% |
Expected term | 1 year | 2 years 7 months 6 days |
Minimum [Member] | Warrant [Member] | ||
Stock Price Volatility | 60.00% | |
Risk-free interest rate | 1.34% | |
Expected term | 1 year 6 months 29 days | 2 years 7 months 6 days |
Maximum [Member] | ||
Stock Price Volatility | 64.00% | 90.00% |
Risk-free interest rate | 20.60% | 2.25% |
Expected term | 5 years 7 months 10 days | 6 years 6 months |
Maximum [Member] | Warrant [Member] | ||
Stock Price Volatility | 65.00% | |
Risk-free interest rate | 1.70% | |
Expected term | 2 years 9 months 11 days | 3 years 10 months 24 days |
Derivative Liability (Details N
Derivative Liability (Details Narrative) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Derivative Liability Details Narrative | ||
Change in fair value of warrant derivative liability | $ (1,895) | $ (1,371) |
Fair Value of the Outstanding Warrant Liabilities | $ 3,365 | $ 3,345 |
Fair Value of Financial Instr49
Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Liabilities: | ||
Contingent acquisition debt, current | $ 587 | $ 628 |
Contingent acquisition debt, noncurrent | 13,817 | 7,373 |
Embedded conversion option derivative | 200 | |
Total liabilities | 17,969 | 11,346 |
Level 1 [Member] | ||
Liabilities: | ||
Contingent acquisition debt, current | 0 | 0 |
Contingent acquisition debt, noncurrent | 0 | 0 |
Warrant derivative liability | 0 | 0 |
Embedded conversion option derivative | 0 | |
Total liabilities | 0 | 0 |
Level 2 [Member] | ||
Liabilities: | ||
Contingent acquisition debt, current | 0 | 0 |
Contingent acquisition debt, noncurrent | 0 | 0 |
Warrant derivative liability | 0 | 0 |
Embedded conversion option derivative | 0 | |
Total liabilities | 0 | 0 |
Level 3 [Member] | ||
Liabilities: | ||
Contingent acquisition debt, current | 587 | 628 |
Contingent acquisition debt, noncurrent | 13,817 | 7,373 |
Warrant derivative liability | 3,365 | 3,345 |
Embedded conversion option derivative | 200 | |
Total liabilities | $ 17,969 | $ 11,346 |
Fair Value of Financial Instr50
Fair Value of Financial Instruments (Details 1) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Warrant Derivative Liability | ||
Balance, beginning | $ 3,345 | $ 4,716 |
Issuance | 2,334 | 0 |
Adjustments to estimated fair value | (1,895) | (1,371) |
Adjustment related to the extinguishment loss on exchange of warrants, 2015 Notes (Note 5) | (419) | |
Balance, ending | 3,365 | 3,345 |
EmbeddedConversionFeatureDerivative | ||
Balance, beginning | 0 | |
Issuance | 330 | |
Adjustments to estimated fair value | (130) | |
Balance, ending | $ 200 | $ 0 |
Fair Value of Financial Instr51
Fair Value of Financial Instruments (Details 2) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Contingent acquisition liabilities | ||
Balance at Beginning of period | $ 8,001 | $ 7,438 |
Level 3 liabilities acquired | 9,657 | 3,604 |
Level 3 liabilities settled | (462) | (773) |
Adjustments to liabilities included in earnings | (1,664) | (1,462) |
Expenses allocated to profit sharing agreement | (195) | (698) |
Adjustment to purchase price allocation | (933) | (108) |
Balance at End of period | $ 14,404 | $ 8,001 |
Fair Value of Financial Instr52
Fair Value of Financial Instruments (Details Narrative) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Fair Value Of Financial Instruments Details Narrative | ||
Increase in fair value of contingent acquisition debt | $ 1,664 | $ (1,462) |
Weighted-average of the discount rates used | 18.40% | 18.20% |
Stockholders_ Equity (Details)
Stockholders’ Equity (Details) - shares | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Stockholders Equity Details | ||
Balance at beginning of period | 1,899,385 | 2,083,722 |
Granted | 1,262,212 | 0 |
Expired/cancelled | (414,031) | (182,275) |
Exercised | (37,500) | (2,062) |
Balance at end of period | 2,710,066 | 1,899,385 |
Stockholders_ Equity (Details 1
Stockholders’ Equity (Details 1) - USD ($) $ / shares in Units, $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Number of Shares | ||
Outstanding | 1,660,964 | 1,175,544 |
Granted | 21,624 | 639,612 |
Cancelled/expired | (91,180) | (149,067) |
Exercised | (6,885) | (5,125) |
Outstanding | 1,584,523 | 1,660,964 |
Exercisable | 1,040,678 | |
Weighted Average Exercise Price | ||
Outstanding | $ 4.8 | $ 4.4 |
Granted | 4.6 | 5.4 |
Cancelled/expired | 4.39 | 4.8 |
Exercised | 4.28 | 4.2 |
Outstanding | 4.76 | $ 4.8 |
Exercisable | $ 4.58 | |
Weighted Average Remaining Contract Life | ||
Outstanding | 6 years 1 month 28 days | 6 years 9 months |
Exercisable | 4 years 11 months 1 day | |
Aggregate Intrinsic Value | ||
Outstanding | $ 1,346 | $ 2,044 |
Exercised | 0 | 0 |
Outstanding | 126 | $ 1,346 |
Exercisable | $ 87 |
Stockholders_ Equity (Details 2
Stockholders’ Equity (Details 2) - $ / shares | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 |
Outstanding Options | 1,584,523 | 1,660,964 | 1,175,544 |
Weighted Average Price | $ 4.76 | $ 4.8 | $ 4.4 |
Exercisable Options | 1,040,678 | ||
Exercisable Weighted Average Price | $ 4.58 |
Stockholders_ Equity (Details 3
Stockholders’ Equity (Details 3) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Stock based compensation expense | $ 565 | $ 395 |
Cost of Revenues [Member] | ||
Stock based compensation expense | 14 | 10 |
Distributor Organizations [Member] | ||
Stock based compensation expense | 4 | 160 |
Selling And Marketing Expense [Member] | ||
Stock based compensation expense | 51 | 10 |
General and Administrative Expense [Member] | ||
Stock based compensation expense | $ 496 | $ 215 |
Stockholders_ Equity (Details 4
Stockholders’ Equity (Details 4) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Dividend yield | 0.00% | 0.00% |
Minimum [Member] | ||
Stock price volatility | 56.00% | 57.00% |
Risk-free interest rate | 1.22% | 0.71% |
Expected life of options | 1 year | 2 years 7 months 6 days |
Maximum [Member] | ||
Stock price volatility | 64.00% | 90.00% |
Risk-free interest rate | 20.60% | 2.25% |
Expected life of options | 5 years 7 months 10 days | 6 years 6 months |
Stockholders_ Equity (Details N
Stockholders’ Equity (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Preferred stock outstanding | 161,135 | 161,135 |
Accrued dividends | $ 124 | $ 112 |
Common shares outstanding | 19,723,285 | 19,634,345 |
Stock repurchase program, shares repurchased | 196,594 | 6,285 |
Stock repurchase program, shares repurchased price per share | $ 5.30 | $ 5.60 |
Remaining shares authorized for repurchase | 553,406 | |
Unrecognized compensation expense related to unvested share-based compensation arrangements | $ 1,574 |
Commitments and Contingencies59
Commitments and Contingencies (Details) $ in Thousands | Dec. 31, 2017USD ($) |
Operating leases | |
2,018 | $ 1,299 |
2,019 | 936 |
2,020 | 744 |
2,021 | 585 |
2,022 | 525 |
Thereafter | 252 |
Total | $ 4,341 |
Commitments and Contingencies60
Commitments and Contingencies (Detail Narratives) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Commitments And Contingencies Detail Narratives | ||
Rent expense | $ 1,413 | $ 1,558 |
Balance on mortgage | $ 1,706 | |
Concentration risk, sales revenue | 57.00% | 54.00% |
Minimum future purchase commitments | $ 2,345 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income Taxes Details | ||
Current Federal | $ 135 | $ 3 |
Current State | 12 | (18) |
Current Foreign | 132 | 150 |
Total Current | 279 | 135 |
Deferred Federal | 2,617 | (304) |
Deferred State | (156) | (21) |
Deferred Foreign | (13) | 0 |
Total Deferred | 2,448 | (325) |
Total | $ 2,727 | $ (190) |
Income Taxes (Details 1)
Income Taxes (Details 1) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income Taxes Details 1 | ||
Income tax benefit at federal statutory rate | $ (3,483) | $ (206) |
Foreign rate differential | (38) | (35) |
State taxes, net | (382) | (112) |
Other nondeductible items | 246 | (50) |
Change in foreign entity tax status | 0 | (77) |
Rate change | 0 | 6 |
Tax reform rate change | 2,022 | 0 |
Deferred tax asset adjustment | 95 | (201) |
Change in valuation allowance | 4,032 | 183 |
Foreign tax credit | 0 | 275 |
Undistributed foreign earnings | 0 | 17 |
Other | 235 | 10 |
Total | $ 2,727 | $ (190) |
Income Taxes (Details 2)
Income Taxes (Details 2) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Deferred tax assets: | ||
Amortizable assets | $ 1,089 | $ 1,117 |
Inventory | 510 | 726 |
Accruals and reserves | 155 | 222 |
Stock options | 170 | 285 |
Net operating loss carry-forward | 4,674 | 3,554 |
Credit carry-forward | 305 | 309 |
Total Deferred Tax Asset | 6,903 | 6,213 |
Deferred tax liabilities: | ||
Prepaids | (228) | (383) |
Other | (288) | (608) |
Depreciable assets | (168) | (464) |
Total deferred tax liability | (685) | (1,455) |
Net deferred tax asset | 6,219 | 4,758 |
Less valuation allowance | (5,933) | (1,901) |
Net deferred tax assets | $ 286 | $ 2,857 |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income Taxes Details Narrative | ||
Change in valuation allowance | $ 4,032 | $ 183 |
Federal net operating loss carryforwards | 11,914 | |
Net operating losses in foreign jurisdictions | $ 1,862 |
Segment and Geographical Info65
Segment and Geographical Information (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Revenues | $ 165,696 | $ 162,667 |
Gross profit | 95,565 | 98,137 |
Operating income (loss) | (5,882) | 2,515 |
Net income (loss) | (12,677) | (398) |
Capital expenditures | 1,303 | 2,825 |
Direct Selling [Member] | ||
Revenues | 142,450 | 145,418 |
Gross profit | 95,379 | 97,219 |
Operating income (loss) | (2,526) | 4,564 |
Net income (loss) | (3,922) | 1,894 |
Capital expenditures | 854 | 1,922 |
Commercial Coffee [Member] | ||
Revenues | 23,246 | 17,249 |
Gross profit | 186 | 918 |
Operating income (loss) | (3,356) | (2,049) |
Net income (loss) | (8,755) | (2,292) |
Capital expenditures | $ 449 | $ 903 |
Segment and Geographical Info66
Segment and Geographical Information (Details 1) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Total assets | $ 72,389 | $ 66,008 |
Direct Selling [Member] | ||
Total assets | 44,082 | 40,127 |
Commercial Coffee [Member] | ||
Total assets | $ 28,307 | $ 25,881 |
Segment and Geographical Info67
Segment and Geographical Information (Details 2) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Total revenues | $ 165,696 | $ 162,667 |
United States | ||
Total revenues | 146,206 | 147,548 |
International | ||
Total revenues | $ 19,490 | $ 15,119 |
Segment and Geographical Info68
Segment and Geographical Information (Details Narratives) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Segment And Geographical Information Details Narratives | ||
Tangible assets | $ 5,300 | $ 5,400 |