The accompanying notes are an integral
part of the Consolidated Financial Statements.
The accompanying notes are an integral
part of the Consolidated Financial Statements.
The accompanying notes are an integral
part of the Consolidated Financial Statements
The accompanying notes are an integral
part of the Consolidated Financial Statements.
Notes To Consolidated Financial Statements
(Unaudited)
Note 1 – Description of Business
True Nature Holding,
Inc. is executing on a business plan to acquire a series of businesses which specialize in compounding pharmacy activities, largely
direct to consumers, doctors and veterinary professionals. The Company completed its first acquisition of P3 Compounding in June
2016 and is pursuing a series of compounding pharmacy acquisitions.
True Nature Holding,
Inc. (the “Company”), previously known as Trunity Holdings, Inc., became a publicly-traded company through a reverse
merger with Brain Tree International, Inc., a Utah corporation (“BTI”). Trunity Holdings, Inc. was the parent company
of the prior educational business, named Trunity, Inc., which was formed on July 28, 2009 through the acquisition of certain intellectual
property by its three founders. On December 31, 2015, the Company completed the restructuring and spin-out of the educational business.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
- The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information, with the instructions to Form 10-Q and with Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion
of management, these consolidated financial statements contain all normal recurring adjustments considered necessary for a fair
presentation of the Company’s financial position at June 30, 2016, the results of operations for the three months and six
months ended June 30, 2016 and 2015, and cash flows for the three months and six months ended June 30, 2016 and 2015. The results
for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year.
These statements should be read in conjunction with the Company’s audited consolidated financial statements and management’s
discussion and analysis included in the Company’s annual report on Form 10-K for the year ended December 31, 2015. In
addition, refer to Note 5 regarding the spin-out of the educational business and related discontinued operations classification
pertaining to the fiscal 2015 period. Common stock share and per share amounts in these financial statements have been retroactively
adjusted for the effects of a 1 for 101 reverse stock split that occurred in January 2016.
Use of Estimates
-
The preparation of these financial statements requires our management to make estimates and assumptions about future events
that affect the amounts reported in the financial statements and related notes. Future events and their effects cannot be determined
with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment.
Per Share Data
- Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the year.
Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding plus common
stock equivalents (if dilutive) related to warrants, options and convertible instruments.
The Company has
excluded all common equivalent shares outstanding for warrants, options and convertible instruments to purchase common stock from
the calculation of diluted net loss per share because all such securities are antidilutive for the periods presented. As of June
30, 2016, the Company had 142,652 warrants, 1,067,879 options, 135,037 potential shares which may be issued resulting from
the provisions of convertible notes, respectively. As of June 30, 2015, the Company had 77,640 warrants, 67,483 options, 316,721
potential shares which may be issued resulting from the provisions of convertible notes, respectively.
Accounts Receivable
-
The accounts receivable balance primarily includes amounts due from customers the Company has invoiced or from third-party
providers (e.g., insurance companies and governmental agencies), but for which payment has not been received. Accounts receivable
are stated at the invoiced amount and are unsecured and require no collateral. Charges to bad debt are based on both historical
write-offs and specifically identified receivables.
TRUE NATURE HOLDING, INC.
Notes To Consolidated Financial Statements
(Unaudited)
Note 2 – Summary of Significant Accounting Policies-
Continued
Inventories -
Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. The Company evaluates
the carrying value of inventories on a regular basis, based on the price expected to be obtained for products in their respective
markets compared with historical cost. In addition, the Company also regularly evaluates its inventories for excess quantities
and obsolescence (expiration), taking into account such factors as historical and anticipated future sales or use in production
compared to quantities on hand and the remaining shelf life of products and active pharmaceutical ingredients on hand. Write-downs
of inventories are considered to be permanent reductions in the cost basis of inventories.
Property and
Equipment, net -
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed generally
on a straight-line basis over the estimated useful lives of the assets. The cost of leasehold improvements are amortized either
over the life of the improvement or the lease term, whichever is shorter. Significant improvements are capitalized and disposed
or replaced property is written off. Maintenance and repairs are charged to expense in the period they are incurred. When items
of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts, and
any gain or loss is included in earnings.
Business Combinations
-
The Company accounts for business combinations by recognizing the assets acquired, liabilities assumed, contractual contingencies,
and contingent consideration at their fair values on the acquisition date. The purchase price allocation process requires management
to make significant estimates and assumptions, especially with respect to intangible assets, estimated contingent consideration
payments and pre-acquisition contingencies. Examples of critical estimates in valuing certain of the intangible assets the Company
has acquired or may acquire in the future include but are not limited to future expected cash flows from product sales, support
agreements, consulting contracts, other customer contracts; and discount rates utilized in valuation estimates.
Unanticipated events
and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally,
any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including
changes from events after the acquisition date, such as changes in our estimates of relevant revenue or other targets, will be
recognized in earnings in the period of the estimated fair value change. A change in fair value of the acquisition-related contingent
consideration or the occurrence of events that cause results to differ from our estimates or assumptions could have a material
effect on the consolidated financial position, statements of operations or cash flows in the period of the change in the estimate.
Goodwill and
Intangible Assets -
Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities
assumed. The Company accounts for goodwill and intangibles under ASC Topic 350, Intangibles – Goodwill and Other, which does
not permit amortization, but requires the Company to test goodwill and other indefinite-lived assets for impairment annually or
whenever events or circumstances indicate impairment may exist.
Recently Issued
Accounting Standards
-In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09,
Revenue
from Contracts with Customers
. This updated guidance supersedes the current revenue recognition guidance, including industry-specific
guidance. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to
depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. The updated guidance is effective for interim and annual periods beginning
after December 15, 2016, and early adoption is not permitted. In
July 2015, the FASB decided to delay the effective date of ASU 2014-09 until December 15, 2017. The FASB also agreed to allow entities
to choose to adopt the standard as of the original effective date. The Company is currently evaluating which transition method
it will adopt and the expected impact of the updated guidance, but does not believe the adoption of the updated guidance will have
a significant impact on its consolidated financial statements.
TRUE NATURE HOLDING, INC.
Notes To Consolidated Financial Statements
(Unaudited)
Note 2 – Summary of Significant Accounting Policies-Continued
In July 2015,
the FASB issued ASU No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
, requiring that
inventory be measured at the lower of cost and net realizable value. Net realizable value is defined as estimated selling price
in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective
for annual periods beginning on or after December 15, 2016, including interim periods within those annual periods. The Company
is currently evaluating the impact, if any, that the adoption of this guidance will have on its financial position, results of
operations, cash flows and/or disclosures.
In August 2014,
the FASB issued new accounting guidance which defines management’s responsibility to assess an entity’s ability to
continue as a going concern, and to provide related footnote disclosures in certain circumstances. This guidance will be effective
for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15,
2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously
been issued. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its
consolidated financial statements.
In February 2016,
the FASB issued ASU 2016-02,
Leases
, which requires the lease rights and obligations arising from lease contracts,
including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. ASU 2016-02 is effective
for reporting periods beginning after December 15, 2018 with early adoption permitted. While the Company is still evaluating ASU
2016-02, the Company expects the adoption of ASU 2016-02 to have a material effect on the Company’s consolidated balance
sheets and results of operations due to the recognition of the lease rights and obligations as assets and liabilities. The Company
does not expect ASU 2016-02 to have a material effect on the Company’s cash flows.
In March 2016,
the FASB issued ASU 2016-09,
Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting
, which addresses certain aspects of accounting for share-based payment award transactions. This guidance will be
effective in the first quarter of fiscal year 2017 and early adoption is permitted. The Company is currently evaluating the impact
that this guidance will have on its consolidated financial statements.
Note 3 – Recent Developments
On April 4, 2016
the Company entered into a non-binding letter of intent to acquire Cherokee Compounding Pharmacy in Holly Springs, Georgia, a
suburb of Atlanta. The agreement calls for purchase consideration of approximately $450,000. Payment will be split between cash
and the issuance of common stock. The final allocation of each of these will be determined prior to closing, which is expected
to occur in third quarter 2016. The letter of intent is not a definitive agreement, and the Company expects to execute
a definitive agreement at closing.
On May 20, 2016
the Company entered into a non-binding letter of intent to acquire Innovation Compounding, Inc. (“Innovation”) in
Kennesaw, Georgia. The Company incurred $30,000 of expenses related to a fee for a “no-shop” provision, in addition
to other customary expenses associated with the due diligence process. Management has determined not to pursue this acquisition
further at this time.
TRUE NATURE HOLDING, INC.
Notes To Consolidated Financial Statements
(Unaudited)
Note 4 – Financial Condition
and Going Concern
As of June 30, 2016,
the Company had cash on hand of $20,571 and current liabilities of $1,063,295 and has incurred a loss from operations. True Nature
Holding’s principal operations is the acquisition of compounding pharmacy companies. The Company’s activities are subject
to significant risks and uncertainties, including failing to secure additional funding to execute its business plan.
As a result of these
factors, there is substantial doubt about the ability of the Company to continue as a going concern. The Company’s continuance
is dependent on raising capital and generating revenues sufficient to sustain operations. The Company believes that the necessary
capital will be raised and has entered into discussions to do so with certain individuals and companies. However, as of the date
of these consolidated financial statements, no formal agreement exists.
The accompanying
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts or amounts classified as liabilities that might be necessary should the Company be forced to take any such actions.
Note 5 – Spin-Out and Discontinued
Operations
On December 31,
2015, the Company completed the restructuring and spin-out of its software educational business, resulting in True Nature Holding,
Inc. becoming purely focused on acquiring a series of compounding pharmacy businesses, largely direct to consumers, doctors and
veterinary professionals. The results of the operations associated with the spin-out company and Trunity Holdings, Inc., qualifies
as discontinued operations as of and for the three and six month periods ended June 30, 2015.
The results of
operations associated with discontinued operations were as follows:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30, 2015
|
|
June 30, 2015
|
Net Sales
|
|
$
|
66,458
|
|
|
$
|
185,137
|
|
Cost of sales
|
|
|
27,894
|
|
|
|
90,023
|
|
Gross Profit
|
|
|
38,564
|
|
|
|
95,114
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
186,950
|
|
|
|
381,649
|
|
Selling, general and administrative
|
|
|
232,596
|
|
|
|
484,862
|
|
Total operating expenses
|
|
|
419,546
|
|
|
|
866,511
|
|
|
|
|
|
|
|
|
|
|
Operating Loss from Discontinued Operations
|
|
|
(380,982
|
)
|
|
|
(771,397
|
)
|
|
|
|
|
|
|
|
|
|
Other Expense:
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(318,747
|
)
|
|
|
(550,802
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss from Discontinued Operations
|
|
$
|
(699,729
|
)
|
|
|
(1,322,199
|
)
|
Other Comprehensive Loss Net of Tax:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
14,082
|
|
|
|
12,807
|
|
Comprehensive Loss from Discontinued Operations
|
|
$
|
(685,647
|
)
|
|
$
|
(1,309,392
|
)
|
TRUE NATURE HOLDING,
INC.
Notes To Consolidated Financial Statements
(Unaudited)
Note 5 – Spin-Out and
Discontinued Operations (continued)
Our educational
business was fully disposed of in December 2015. As a result, there were no assets or liabilities of discontinued operations as
of December 31, 2015 or in subsequent periods.
Note 6 - Acquisition
On April 29, 2016,
subject to approval by the Georgia Board of Pharmacy, the Company entered into definitive documents to acquire P3 Compounding of
Georgia, LLC, (“P3”). P3 received Georgia Board of Pharmacy approval for the transaction at the end of June 2016 and
the transaction closed effective June 30, 2016. P3 is a full service compounding pharmacy with both sterile and non-sterile expertise
headquarter in Atlanta, Georgia. The medicines that P3 compounds include bio-identical hormone replacement therapy, transdermal
pain creams, wellness compounding, individualized and prescriptions. The transaction included the acquisition of identifiable assets,
customer listings and intellectual properties included in the P3’s library of specialized formulations.
As a result of the
acquisition, P3 is now a wholly owned subsidiary of the Company. The acquisition of P3 permits the Company to make and distribute
its patent-pending proprietary drug formulations and other novel pharmaceutical solutions through P3 and introduces the Company
to new geographic and compounded formulation markets.
The transaction
has been accounted for as a business combination and recorded as of June 30, 2016, therefore no revenues or net income have been
included in the Company’s consolidated financial statements for second quarter 2016.
The fair value of the consideration
paid pertaining to the acquisition of P3 was $851,150. Consideration for the transaction was structured as follows:
|
■
|
An interest-free note for $150,000 with no interest to be paid in full via wire transfer on the
maturity date of August 16, 2016;
|
|
|
|
|
■
|
$425,000 convertible note with a term of 12 months and a 6% interest rate, with the first installment
due June 1, 2016, and convertible into common stock of True Nature at a rate of $1.25 per share (which is 340,000 shares of common
stock), less a short-term financing for $14,350 that the Company provided to Integrity for working capital purposes;
|
|
|
|
|
■
|
A $425,000 convertible note with no interest, which automatically converted
340,000 shares of common stock with a fair value of $261,800 based on the closing price of the True Nature’s common stock
on June 30, 2016.
|
The notes
issued in conjunction with the purchase and the intellectual properties may be converted into restricted common stock at a rate
of $1.25 per share. The purchase includes all payables, receivables, cash on hand, inventory and all assets used in the operation
of the business.
In addition, Mr.
Casey Gaetano, a former owner of P3, received an employment contract with True Nature for 3 years as VP of Corporate Development,
at an annual salary of $125,000, plus normal benefits commensurate with other executives in the Company of equal stature. He also
receive in second quarter 2016, 125,000 shares of restricted at a value of $3.48 per share in exchange for becoming the Company’s
VP of Corporate Development.
TRUE NATURE HOLDING, INC.
Notes To Consolidated Financial Statements
(Unaudited)
Note 6 - Acquisition-Continued
Allocation of Consideration Transferred
The identifiable
assets acquired and liabilities assumed were recognized and measured as of the acquisition date based on their estimated fair values
as of June 30, 2016. The excess of the acquisition date fair value of consideration transferred over the estimated fair value of
the net tangible assets and intangible assets acquired was recorded as goodwill.
The following
table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date based on a fair
value acquisition price of $851,150 pertaining to the consideration provided.
Cash and cash equivalents
|
|
$
|
10,201
|
|
Accounts receivable
|
|
|
26,000
|
|
Inventories
|
|
|
111,668
|
|
Other current assets
|
|
|
20,706
|
|
Furniture and equipment
|
|
|
5,294
|
|
Customer list
|
|
|
151,273
|
|
Total identifiable assets acquired
|
|
|
325,142
|
|
Accounts payable and accrued expenses
|
|
|
35,422
|
|
Total liabilities assumed
|
|
|
35,422
|
|
Total identifiable assets less liabilities assumed
|
|
|
289,720
|
|
Goodwill
|
|
|
561,430
|
|
Net assets acquired
|
|
$
|
851,150
|
|
The fair value of
the transaction and related purchase price allocation was based on a third-party valuation obtained by the Company.
Intangible Assets-Customer Relationships
In determining
the fair value of the intangible assets, the Company considered, among other factors, the best use of the acquired assets, analyses
of historical financial performance of P3 and estimates of future performance of P3. The fair values of the identified intangible
assets related to P3’s customer relationships. Customer relationships were calculated using the income approach. The following
table sets forth the components of identified intangible assets associated with the P3 Acquisition and their estimated useful
lives.
|
|
Fair Value
|
|
Useful Life
|
Customer relationships
|
|
$
|
151,273
|
|
|
7 years
|
|
|
$
|
151,273
|
|
|
|
The Company determined
the useful lives of intangible assets based on the expected future cash flows and contractual life associated with the respective
assets. Customer relationships represent the expected future benefit from contracts and relationships which, at the date of acquisition,
were reasonably anticipated to continue given the history and operating practices of P3.
TRUE NATURE
HOLDING, INC.
Notes To Consolidated
Financial Statements
(Unaudited)
Note 6. Acquisition-Continued
Goodwill
Of the total estimated
purchase price for the P3 Acquisition, $561,430 was allocated to goodwill. Goodwill represents the excess of the purchase
price of the acquired business over the fair value of the underlying net tangible and intangible assets acquired. The
goodwill recorded resulting from the acquisition is expected to be deductible for income tax purposes.
Note 7 – Related Party Transactions
The Company’s
Chairman of the Board and CFO, Stephen Keaveney has a consulting agreement in the amount of $10,000 per month for professional
fees and was paid $10,000 and $26,000, respectively during the three and six months ending June 30, 2016. The Company’s
newly appointed CEO, James Driscoll has an employment agreement effective June 7, 2016 that will pay him a monthly salary in the
amount of $12,500 per month for remainder of 2016, $17,500 per month for the calendar year of 2017, $22,500 per month for the
calendar year of 2018 and $25,000 per month for the calendar year of 2019. No payments have been made to James Driscoll during
the three and six months ending June 30, 2016.
On January 25, 2016
board member William L. Ross and Jeffrey Cosman were each awarded 100,000 of shares of the Company in exchange for their services
as board members. On April 25, 2016 board member James Driscoll was awarded 100,000 of shares of the Company in exchange for his
services on the board and 1,000,000 non-qualified stock options for his position as CEO. On May 25, 2016, board member Phillip
Crone was awarded 100,000 of shares the Company in exchange for his services on the board.
In addition, a shareholder
of the Company has a consulting agreement in the amount of $10,000 per month for professional fees and was paid $1,395 and $18,645
during the three and six months ended June 30, 2016, respectively. As of December 31, 2015, $17,000 was classified as a prepaid
asset in the consolidated balance sheets related to the prepayment of consulting fees. No amounts were prepaid as of June 30, 2016.
Any amount owed
for services performed through June 30, 2016 and remain unpaid are recorded as accrued labilities on the consolidated balance sheets.
Note 8 – Debt
Convertible Promissory Notes
On March 18, 2016,
the Company issued a 12% Convertible Promissory Note (the “Convertible Note A”) in the principal amount of $60,000
to the Lender. Pursuant to the terms of the Convertible Note A, on the date thereof, the Company issued the Convertible Note A
to the Lender and, as consideration therefor, the Lender paid the Company in cash the full principal amount of the Convertible
Note A. Upon issuance the lender was awarded 15,000 restricted common shares as an origination fee which have certain registration
rights.
Pursuant to the
terms of the Convertible Note A, the Company is obligated to pay monthly installments of not less than $1,000 the first of each
month commencing the month following the execution of this note until its full maturity on September 16, 2016 at which time the
Company is obligated to repay the full principal amount of the Convertible Note A. The Convertible Note A is convertible by the
holder at any time into shares of the Company’s common stock at an effective conversion price of $1.00 and throughout the
duration of this Convertible Note the holder has the right to participate in any and other financing the Company may engage in
with the same terms and option as all other investors. The Company allocated the face value of the Convertible Note A to the shares
and the note based on relative fair values, and the amount allocated to the shares of $16,364 was recorded as a discount against
the note, with an offsetting entry to additional paid-in capital.
TRUE NATURE HOLDING, INC.
Notes To Consolidated Financial Statements
(Unaudited)
Note 8 – Debt-Continued
The beneficial conversion feature of
$16,364 was recorded as a debt discount with an offsetting entry to additional paid-in capital decreasing the note payable and
increasing debt discount. The debt discount is being amortized to interest expense over the term of the debt. As of June 30, 2016,
the carrying value of this Convertible Note A was $45,872 and accrued interest expense of $1,080. For the three
and six months ended June 30, 2016, debt discount amortization related to the Convertible Note A was $16,274 and $18,599, respectively
and its related interest expense was $1,820 and $2,080, respectively.
On May 19, 2016,
the Company issued a 10% Convertible Promissory Note (the “Convertible Note B”) in the principal amount of $100,000
to the Lender. Pursuant to the terms of the Convertible Note B, on the date thereof, the Company issued the Convertible Note B
to the Lender and, as consideration therefor, the Lender paid the Company in cash the full principal amount of the Convertible
Note B. Upon issuance the lender was awarded 66,666 warrants to purchase common stock of the Company at an exercise price of $2.50
for a term of twenty-four months.
Pursuant to the
terms of the Convertible Note B, the Company is obligated to repay the full principal amount of the Convertible Note B with any
unpaid interest upon the date of maturity, June 19, 2017. The Convertible Note B is convertible by the holder at any time into
shares of the Company’s common stock at an effective conversion price of $1.50 and throughout the duration of this Convertible
Note the holder has the right to participate in any and other financing the Company may engage in with the same terms and option
as all other investors. The Company allocated the face value of the Convertible Note B to the shares and the note based on relative
fair values, and the amount allocated to the shares of $39,887 was recorded as a discount against the note, with an offsetting
entry to additional paid-in capital. The beneficial conversion feature of $52,553 was recorded as a debt discount with an offsetting
entry to additional paid-in capital decreasing the note payable and increasing debt discount. The debt discount is being amortized
to interest expense over the term of the debt. As of June 30, 2016, the carrying value of this Convertible Note B was $29,090 and
accrued interest expense of $1,167. For the three and six months ended June 30, 2016, debt discount amortization related to the
Convertible Note B was $21,530 and its related interest expense was $1,167.
Short-term Loan
As a result of the
acquisition of P3 Compounding of Georgia, LLC the Company had a short-term loan with a loan agency for a principal amount of $52,000
for the purchase of future sales and credit card receivables of P3. Under the terms of the receivable purchase agreement, the Company
purchased an advance of $50,000 plus $2,000 for origination costs with a 10.5% daily interest rate to be repaid over 160 days at
a repayment amount of $451.75 per day. Upon maturity of the loan the total repayment amount will be $72,280. As of June 30, 2016,
the carrying value of this short term loan was $44,350. For the three and six months ended June 30, 2016, no interest expense related
to this loan was recorded in the Company’s consolidated financial statements as the effective date of acquisition was the
last day of the quarter.
August 2014 Convertible Debentures (Series C)
In fiscal 2015,
all debentures issued by Trunity Holdings, Inc. to fund the former educational business were eligible to participate in a debt
conversion; however, one debenture holder that was issued a Series C Convertible Debenture (the “Series C Debenture”)
in August 2014 with an aggregate face value of $100,000 in exchange for the cancellation of Series B Convertible Debentures with
a carrying value of $110,833 did not convert. The Series C Debenture accrues interest at an annual rate of 10%, matured on October
31, 2015, and is convertible into the Company’s common stock at a conversion rate of $20.20 per share. The holders of the
Series C Debenture also received warrants to acquire 4,950 shares post-split of common stock for an exercise price of $20.20 per
share, exercisable over five years. The former educational business in fiscal 2014 allocated the face value of the Series C Debenture
to the warrants and the debentures based on its relative fair values, and allocated to the warrants, which was recorded as a discount
against the Series C Debenture, with an offsetting entry to additional paid-in capital. The discount was fully expensed in fiscal
2014 upon execution of the new debentures. As of June 30, 2016, the carrying value of this Series C Debenture was $110,833 and
accrued interest expense of $19,950. For the three and six months ended June 30, 2016, interest expense related to the Debenture
was $3,325 and $6,613, respectively.
TRUE NATURE HOLDING, INC.
Notes To Consolidated Financial Statements
(Unaudited)
Note 8 – Debt-Continued
November 2014 Convertible Debentures
(Series D)
In fiscal 2015, all debentures issued
by Trunity Holdings, Inc. to fund the former educational business were eligible to participate in a debt conversion however one
debenture holder that was issued a Series D Convertible Debenture (the “Series D Debenture”) in November 2014 with
an aggregate face value of $10,000 in exchange for the cancellation of Series B Convertible Debenture with a carrying value of
$11,334 that did not participate in the debt conversion restructuring. The Series D Debenture accrues interest at an annual rate
of 12%, matured on October 31, 2015, and is convertible into the Company’s common stock at a conversion rate of $16.67 per
share. The holders of the Series D Debenture also received warrants to acquire 495 shares post-split of common stock for an exercise
price of $20.20 per share, exercisable over five years. The former educational business in fiscal 2014 allocated the face value
of the Series D Debenture to the warrants and the debentures based on their relative fair values, and allocated to the warrants,
which was recorded as a discount against the Series D Debenture, with an offsetting entry to additional paid-in capital. The discount
was fully expensed in fiscal 2014 upon execution of the new debentures. As of June 30, 2016, the carrying value of the Series
D Debenture was $11,334 and accrued interest expense of $2,267. For the three and six months ended June 30, 2016, interest
expense related to the Debenture was $340 and $686, respectively.
Note 9 – Stockholders’
Deficit
Sale of Common
Stock
– During the six months ended June 30, 2016, the Company raised gross proceeds of $60,000 through the sale of 120,000 shares
of common stock to accredited investors in private placement transactions at a price of $0.50 per share. The Company incurred $9,000
of securities issuance costs representing commissions paid to broker-dealers who assisted with these transactions.
Shares for Consulting
Services and Board Members
– During the six months ended June 30, 2016, in connection with services rendered, the Company
issued 410,000 restricted shares of the Company’s common stock at values of $2.90, $1.45 and $0.90 per share in exchange
for financial consulting and legal services conducted on behalf of the Company. In addition, in connection with services rendered
for board members, the Company issued 400,000 restricted shares of the Company’s common stock at values of $1.45, $2.02 and
$2.35 per share in exchange for their services conducted on behalf of the Company. The issuance of these shares were recorded at
the fair value of the shares at the date of issuance.
Shares for Employee
– During the six months ended June 30, 2016, in connection with employment contract, the Company issued 125,000 restricted
shares of the Company’s common stock at a value of $3.48 per share in exchange for Casey Gaetano becoming the Company’s
VP of Corporate Development.
Shares
issued for convertible note payable
– As discussed in Note 8, during the six months ended June 30, 2016, in
connection with conversion of a six-month convertible promissory note, the Company issued 15,000 shares of the
Company’s common stock with a fair value of $16,363 that was allocated based on the relative fair value of the note and
associated shares.
Debt beneficial
conversion feature for convertible note payable
– During the six months ended June 30, 2016, the Company raised gross
proceeds of $160,000 pursuant to two Convertible Notes Payable (“Notes”) that allocated the face value of the Note
to the shares and debt based on their relative fair values and, resulted in the recording of beneficial conversion features totaling
$108,804 as a discount against the Notes, with an offsetting entry to additional paid-in capital. The discount is being amortized
into interest expense over the term of the Notes.
TRUE NATURE HOLDING, INC.
Notes To Consolidated Financial Statements
(Unaudited)
Note 9 – Stockholders’
Deficit- Continued
Shares issued
for convertible note payable of acquisition of P3 Compounding of Georgia, LLC
- As part of the consideration for the acquisition
of P3 a convertible note in the amount of $425,000 was converted into common stock of the Company at price per share of $1.25 resulting
in the issuance of 340,000 shares of common stock.
Note 10 – Stock-Based Compensation
The Company has
two Employee, Director and Consultant Stock Option Plans that were not terminated as a result of the fiscal 2015 restructuring
of the Company and spin-out and have continued as part of the operations as detailed below.
In
fiscal 2015, the option pool pertaining to the 2009 Employee, Director and Consultant Stock Option Plan (the “2009 Plan”)
was adjusted for a 1 for 101 stock split due to the spin-out and restructuring plan, resulting in an authorized option pool of
18,152. Stock options typically vest over a three-year period and have a life of ten years from the date granted. As of June 30,
2016 there were 3,610 shares available for future awards under this plan.
In
fiscal 2015, the option pool pertaining to the 2012 Employee, Director and Consultant Stock Option Plan (the “2012 Plan”)
was adjusted for a 1 for 101 stock split due to the spin-out and restructuring plan, resulting in an authorized options pool of
74,257. Stock options typically vest over a three year period and have a life of ten years from the date granted. As of June 30,
2016, there were 45,673 shares available for future awards under this plan.
In
addition, there are approximately 24,753 in options outstanding that were issued to a former CEO of spin-out Company in fiscal
2014. These options issued are outside of the 2009 and 2012 Plans.
On
June 1, 2016 Jim Driscoll was granted for his position as Chief Executive Officer (CEO) of the Company options to purchase up to
1,000,000 shares of Common Stock outside of the Company’s 2009 and 2012 stock option plans (the “Option Agreement”).
These options covered 250,000 shares at an exercise price of $1.00 per share to be granted immediately and three additional tranches
of 250,000 shares each at an exercise price of $1.50, $2.00 and $2.50 per share, respectively. The remaining three tranches will
vest equally over the next three years with the first fully vesting on May 31, 2017 through May 31, 2019. The term of the options
will be for a period of five years and may be exercised at any time as to the vested shares.
During
the three and six months ended June 30, 2016, the Company recorded stock compensation expense related to the options granted
to Mr. Driscoll of $496,668 and has unrecognized stock expense of $1,040,793 to be recorded over the vesting period. The grant-date
fair value of options was estimated using the Black-Scholes option pricing model. The per share weighted average fair value of
stock options granted for Mr. Driscoll was a range of $1.35-$1.76 and was determined using the following assumptions: expected
price volatility is 80.39%, risk-free interest rate of 1.39%, zero expected dividend yield, and 4.0 years expected life of options.
The expected term of options granted is based on the simplified method in accordance with Securities and Exchange Commission Staff
Accounting Bulletin 107, and represents the period of time that options granted are expected to be outstanding. The Company makes
assumptions with respect to expected stock price volatility based on the average historical volatility of peers with similar attributes.
In addition, the Company determines the risk free rate by selecting the U.S. Treasury with maturities similar to the expected
terms of grants, quoted on an investment basis in effect at the time of grant for that business day.
As
of June 30, 2016, unrecognized stock compensation expense related to unvested stock options under all Plans was $1,041, 377. This
expense is expected to be recognized over the remaining weighted average vesting periods of the outstanding options of 1.92 years.
Total stock compensation expense recorded to selling, general and administrative
expenses on the consolidated statements of operations and comprehensive for the six month period ending June 30, 2016 related to
the all Plans and options that vested during the period was $508,634.
TRUE NATURE HOLDING, INC.
Notes To Consolidated Financial Statements
(Unaudited)
Note 10 – Stock-Based
Compensation-Continued
A summary of
options issued, exercised and cancelled are as follows:
|
|
Shares
|
|
Weighted- Average Exercise Price ($)
|
|
Weighted- Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value ($)
|
Outstanding at December 31, 2015
|
|
|
|
67,879
|
|
|
$
|
21.40
|
|
|
|
7.17
|
|
|
|
—
|
|
Granted
|
|
|
|
1,000,000
|
|
|
|
1.75
|
|
|
|
5.00
|
|
|
|
—
|
|
Cancelled
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2016
|
|
|
|
1,067,879
|
|
|
$
|
3.00
|
|
|
|
5.22
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2016
|
|
|
|
354,911
|
|
|
$
|
4.99
|
|
|
|
4.95
|
|
|
|
—
|
|
Note 11 – Warrants to Purchase Common Stock
Subsequent
to the restructuring of the Company and the spin-out, the Company had warrants to purchase common stock outstanding that were
not terminated and have continued as part of the operations as detailed below. The warrants were adjusted for a 1 for 101 stock
split due to the spin-out and restructuring plan as authorized. All warrants outstanding as of June 30, 2016 are scheduled to
expire at various dates through 2019. A summary of warrants issued, exercised and expired are as follows:
|
|
Shares
|
|
Weighted- Average Exercise Price ($)
|
|
Weighted-
Average Remaining Contractual Term
|
Outstanding at December 31, 2015
|
|
|
|
78,462
|
|
|
$
|
29.55
|
|
|
|
3.43
|
|
Granted
|
|
|
|
66,666
|
|
|
|
2.50
|
|
|
|
2.00
|
|
Expired
|
|
|
|
(2,475
|
)
|
|
|
50.50
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2016
|
|
|
|
142,653
|
|
|
$
|
17.42
|
|
|
|
2.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2016
|
|
|
|
142,653
|
|
|
$
|
17.42
|
|
|
|
2.50
|
|
TRUE NATURE HOLDING, INC.
Notes To Consolidated Financial Statements
(Unaudited)
Note 12 – Commitments and Contingencies
Legal
National Council for Science and
the Environment, Inc. v. Trunity Holdings, Inc., Case No.. 2015 CA 009726 B, Superior Court for the District of Columbia, Civil
Division.
This action
was filed on December 16, 2015 by the National Council for Science and the Environment, Inc. (“NCSE”) in the
state court in the District of Columbia against Trunity Holdings, Inc. (“Trunity”) and alleges claims for Breach
of Contract. Acknowledgement of Indebtedness and Settlement Agreement and Quantum Meruit arising out of an agreement entered
into between NCSE and Trunity in 2014. The Complaint seeks damages in the amount of $177,270, inclusive of attorney’s
fees, costs and accrued interest, continuing interest in the amount of 12% per annum and attorney’s fees and costs of
collection relating to the case. The Company in its answer on January 27, 2016, denied the material allegations made by NCSE,
asserted a number of affirmative defenses and filed a counterclaim alleging claims for fraud, negligent misrepresentation,
breach of fiduciary duty, breach of contract and unjust enrichment. In its counterclaim, the Company will seek actual and
compensatory damages against NCSE that it believes exceed the amount sought by NCSE on its claims, pre-judgment interest,
punitive damages and all costs and expenses, including attorney’s fees, incurred by the Company in bringing its claims
against NCSE.
On February 19,
2016, NCSE filed a motion to dismiss the counterclaim, and the Company has filed its brief in the opposition to that motion. A
hearing is scheduled in 2016 on the motion. No discovery has been conducted by the parties yet, and no trial date has been set
by the court. We have recorded a liability as of June 30, 2016 based on our best estimate of the probable exposure pertaining to
the claim.
Note 13 – Subsequent Events
On July 6, 2016,
the Company appointed Gary Meyer to the newly created position of Director of Compliance, providing oversight to its compounding
pharmacy operations in the area of licensing, operational compliance and to interface with the appropriate regulatory bodies at
the state and federal level. He worked as a Pharmacist in Charge for CRC Pharmacy from Aug 2015 to July 2016, Physicians Rx
Pharmacy from April 2015 to July 2015, Dunwoody Pharmacy from 1995 to Feb 2015, Concord Pharmacy from 1992 to 1995 and Kroger Pharmacy
in 1992.
Mr. Meyer has a
bachelor’s of Science in Pharmacy from The University of Georgia. Mr. Meyer holds a Georgia Board of Pharmacy license 1989-
current, is a Past Board Member of the Pharmacy Franchise & Owners Association, a member of National Community Pharmacists
Association, a member of Georgia Pharmacy Association, Member of the International Academy of Compounding Pharmacists, Member
since 1995 of the Professional Compounding Centers of America, . He will report to the Company’s CEO, James Driscoll. As
part of his employment agreement he will receive 50,000 shares.
On August 2, 2016,
the Board of Directors approved the consulting agreement with Acorn Management for market awareness, which calls for monthly payments
starting at $7,500 per month and restricted common shares to be valued at $50,000 per month to be converted at fair value at month-end.