UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q10-Q/A

 

 

 

(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Its Charter)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]  No [   ]  No [X] 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X]  No [   ]

 

If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [ ] 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [   ]  No [X]

 

TABLE OF CONTENTS

 

See accompanying notes to condensed consolidated financial statements. 

(In thousands, except share and per share amounts)

 

See accompanying notes to condensed consolidated financial statements.

 (In thousands)

See accompanying notes to condensed consolidated financial statements.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations.

The statements presented as of SeptemberJune 30, 20172019 and for the three and ninesix months ended SeptemberJune 30, 20172019 and 20162018 are unaudited. In the opinion of management, these financial statements reflect all normal recurring and other adjustments necessary for a fair presentation, and to make the financial statements not misleading. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Form 10-K/A10-K for the year ended December 31, 2016.2018, filed with the SEC on April 15, 2019. The results for interim periods are not necessarily indicative of the results for the entire year.

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

EffectiveDuring the six months ended 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.

 

The accompanying condensed 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 operatingnet losses forduring the ninesix months ended SeptemberJune 30, 20172019 and 2018 of $4,893,000, compared to operating income in the prior year of $3,263,000. The losses in the current year were primarily due to lower than anticipated revenues, increases in legal fees, distributor eventsapproximately $12,549,000 and sales and marketing costs.$2,922,000, respectively. Net cash used in operating activities was $1,783,000 inapproximately $5,381,000 and $1,676,000 for the current year.six months ended June 30, 2019 and 2018, respectively. The Company does not currently believe that its existing cash resources are sufficient to meet the Company’s anticipated needs over the next twelve 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 andand/or will need to significantlyfurther reduce its expenses from current levels to be ablelevels. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

On January 7, 2019, the Company entered into an At-the-Market Offering Agreement (the “ATM Agreement”) with The Benchmark Company, LLC (“Benchmark”), as sales agent, pursuant to which the Company may sell from time to time, at its option, shares of its common stock, par value $0.001 per share, through Benchmark, as sales agent (the “Sales Agent”), for the sale of up to $60,000,000 of shares of the Company’s common stock. The Company is not obligated to make any sales of common stock under the ATM Agreement and the Company is considering multiple alternatives, including, butcannot provide any assurances that it will issue any shares pursuant to the ATM Agreement. The Company will pay the Sales Agent 3.0% commission of the gross sales proceeds. In February 2019, the Company sold a total of 1,000 shares of common stock under the ATM Agreement for an aggregate purchase price of $6.6118 pursuant to the ATM Agreement. The Company did not limited to, additional equity financings and debt financings. use the ATM Agreement during the three months ended June 30, 2019.

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.

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

CLR made purchases from H&H of approximately $252,000 and $2,828,000 of green coffee for the three and ninesix months ended June 30, 2019, respectively, for use in the Company’s Miami roasting facilities. There were no purchases of green coffee from H&H to be sold to other third parties during the three and six months ended June 30, 2019.

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 it relates to a Sourcing and Supply Agreement with H&H. During the period ended September 30, 2017 7,506,283the 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 June 30, 2019, the warrant remains outstanding.

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

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for equity instruments issued to non-employees in accordance with authoritative guidance for equity based payments to non-employees. Stock options issued to non-employeesthose products or services. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for at their estimated fair value, determined usingas separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

The transaction price for all sales is based on the Black-Scholes option-pricing model. The fair valueprice reflected in the individual customer's contract or purchase order. Variable consideration has not been identified as a significant component of options granted to non-employees is re-measured as they vest, and the resulting increase in value, iftransaction price for any of our transactions.

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

The Company also charges fees to become a distributor, and earn a position in the network genealogy, which are recognized as revenue in the period received. The Company’s distributors are required to pay a one-time enrollment fee and receive a welcome kit specific to that country or region that consists of forms, policy and procedures, selling aids, access to the related services are rendered.

As of June 30, 2019 and December 31, 2018, the balance in deferred revenues was approximately $2,260,000 and $2,312,000, respectively. Deferred revenue related to the Company’s accounts receivable resulting from sales of certain products within its commercial coffee segment. Effective May 1, 2016, the Company entered into a third amendmentdirect selling segment is attributable to the factoring agreement (“Agreement”). Under the termsHeritage Makers product line and also for future Company convention and distributor events.

Deferred revenues related to Heritage Makers were approximately $2,065,000 and $2,153,000, as of the Agreement, all new receivables assigned to Crestmark shall be “Client Risk Receivables”June 30, 2019, and no further credit approvals will be providedDecember 31, 2018, respectively. The deferred revenue represents Heritage Maker’s obligation for points purchased by Crestmark. Additionally, the Agreement expands the factoring facility to include advanced borrowings against eligible inventory up to 50% of landed cost of finished goods inventorycustomers that meet certain criteria,have 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 accrues on the outstanding balance and a factoring commission is chargedyet been redeemed for each invoice factored which is calculated as the greater of $5.00 or 0.75% to 0.875% of the gross invoice amount andproduct. Cash received for points sold is recorded as interest expense. In addition,deferred revenue. Revenue is recognized when customers redeem the Companypoints and the Company’s CEO, Mr. Wallach have entered into a Guaranty and Security Agreement with Crestmark Bank guaranteeing payments in the event that CLR were to default. This Agreementproduct is effective until February 1, 2019.shipped.

The Company accounts forDeferred costs relate to Heritage Makers prepaid commissions that are recognized in expense at the sale of receivables under the Factoring Agreement as secured borrowings with a 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 condensed consolidated balance sheets in the amount of approximately $3,088,000 and $1,078,000 as of September 30, 2017 and December 31, 2016, respectively, reflectstime the related collateralized accounts.

Deferred revenues related to pre-enrollment in upcoming conventions and distributor events of approximately $173,000 and $159,000 as of June 30, 2019 and December 31, 2018, respectively, relate primarily to the condensed consolidated balance sheets.Company’s 2019 and 2018 events. The Company does not recognize this revenue until the conventions or distributor events occur.

Plantation Costs

 

The Company’s commercial coffee segment CLR includes the results of the Siles, Plantation Family Group (“Siles”), which is a 500 acre500-acre coffee plantation and (ii) a dry-processing facility located on 26 acres both located in Matagalpa, Nicaragua. Siles is a wholly-owned subsidiary of CLR, and the results of CLR include the depreciation and amortization of capitalized costs, development and maintenance and harvesting costs of Siles. In accordance with US generally accepted accounting principles (“GAAP”),GAAP, plantation maintenance and harvesting costs for commercially producing coffee farms are charged against earnings when sold. Deferred harvest costs accumulate and are capitalized throughout the year and are expensed over the remainder of the year as the coffee is sold. The difference between actual harvest costs incurred and the amount of harvest costs recognized as expense is recorded as either an increase or decrease in deferred harvest costs, which is reported as an asset and included with prepaid expenses and other current assets in the condensed consolidated balance sheets. Once the harvest is complete, the harvest cost iscosts are then recognized as the inventory value.

 

Income taxes for the interim periods are computed using the effective tax rates estimated to be applicable for the full fiscal year, as adjusted for any discrete taxable events that occur during the period.

The Company files income tax returns in the United States (“U.S.”) on a federal basis and in many U.S. state and foreign jurisdictions. Certain tax years remain open to examination by the major taxing jurisdictions to which the Company is subject.