NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of the Business
Synergy CHC Corp. (“Synergy”, “we”,
“us”, “our” or the “Company”) (formerly Synergy Strips Corp.) was incorporated on December
29, 2010 in Nevada under the name “Oro Capital Corporation.” On April 21, 2014, the Company changed its fiscal year
end from July 31 to December 31. On April 28, 2014, the Company changed its name to “Synergy Strips Corp.”. On August
5, 2015, the Company changed its name to “Synergy CHC Corp.”
The Company is a consumer health care company
that is in the process of building a portfolio of best-in-class consumer product brands. Synergy’s strategy is to grow its
portfolio both organically and by further acquisition.
Synergy is the sole owner of five subsidiaries:
Neuragen Corp., Breakthrough Products, Inc., NomadChoice Pty Ltd., Synergy CHC Inc., and Sneaky Vaunt Corp., and the results have
been consolidated in these statements.
Note 2 – Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying consolidated financial statements
have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).
All amounts referred to in the notes to the
consolidated financial statements are in United States Dollars ($) unless stated otherwise.
The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts
of expenses during the reporting period. Actual results could differ from those estimates. At December 31, 2016 and 2015 significant
estimates included are assumptions about collection of accounts receivable, useful life of fixed and intangible assets, impairment
analysis of goodwill and intangible assets, estimates used in the fair value calculation of stock based compensation, beneficial
conversion feature and derivative liability on warrants using Black-Scholes Model.
Cash and Cash Equivalents
The Company considers all cash on hand and
in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities
of three months or less, when purchased, to be cash and cash equivalents. As of December 31, 2016 and 2015 the Company had no cash
equivalents. The Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation
(FDIC) in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this
risk by placing its cash deposits with major financial institutions. At December 31, 2016 and 2015, the uninsured balances amounted
to$2,038,985 and $3,453,290, respectively.
Capitalization of Fixed Assets
The Company capitalizes expenditures related
to property and equipment, subject to a minimum rule, that have a useful life greater than one year for: (1) assets purchased;
(2) existing assets that are replaced, improved or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions
of new assets, additions, replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance
and repair costs, including any planned major maintenance activities, are expensed as incurred.
Revenue Recognition
The Company recognizes revenue in accordance
with the Financial Accounting Standards Board’s (“FASB”), Accounting Standards Codification (“ASC”)
605, Revenue Recognition (“ASC 605”). ASC 605 requires that four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred and/or service has been performed; (3) the selling
price is fixed and determinable; and (4) collectability is reasonably assured. The Company believes that these criteria are satisfied
upon shipment from its fulfillment centers. Certain of our distributors may also perform a separate function as a co-packer on
our behalf. In such cases, ownership of and title to our products that are co-packed on our behalf by those co-packers who are
also distributors, passes to such distributors when we are notified by them that they have taken transfer or possession of the
relevant portion of our finished goods. Freight billed to customers is presented as revenues, and the related freight costs are
presented as cost of goods sold. Cancelled orders are refunded if not already dispatched, refunds are only paid if stock is damaged
in transit, discounts are only offered with specific promotions and orders will be refilled if lost in transit.
Accounts receivable
Accounts receivable are generally unsecured.
The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s
evaluation of collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management
concludes that likelihood of collection is remote. Any future recoveries are applied against the allowance for doubtful accounts.
As of December 31, 2016 and 2015, allowance for doubtful accounts was $0 and $121,291, respectively.
Advertising Expense
The Company expenses marketing, promotions
and advertising costs as incurred. Such costs are included in selling and marketing expense in the accompanying consolidated statements
of operations.
Research and Development
Costs incurred in connection with the development
of new products and processing methods are charged to general and administrative expenses as incurred.
Income Taxes
The Company utilizes FASBASC 740, “Income
Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities
are determined based on the difference between the tax basis of assets and liabilities and their financial reporting amounts based
on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.
A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
The Company generated a deferred tax asset
through net operating loss carry-forward. However, a valuation allowance of 100% has been established due to the uncertainty of
the Company’s realization of the net operating loss carry forward prior to its expiration.
NomadChoice Pty Ltd, the Company’s wholly-owned
subsidiary is subject to income taxes in the jurisdictions in which it operates. Significant judgment is required in determining
the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for
which the ultimate tax determination is uncertain. The company recognizes liabilities for anticipated tax audit issues based on
the Company’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying
amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made.
Net Earnings (Loss) Per Common Share
The Company computes earnings per share under
ASC subtopic 260-10, Earnings Per Share. Basic earnings (loss) per share is computed by dividing the net income (loss) attributable
to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator)
during the reporting periods. Diluted loss per share is computed by increasing the denominator by the weighted average number of
additional shares that could have been outstanding from securities convertible into common stock (using the “treasury stock”
method), unless their effect on net loss per share is anti-dilutive. As of December 31, 2016 and 2015, options to purchase 6,300,000
and 5,000,000 shares of common stock, respectively, were outstanding. As of December 31, 2016 and 2015, warrants to purchase 1,000,000
and 9,132,002 shares of common stock, respectively, were outstanding. These potential shares were excluded from the shares used
to calculate diluted loss per share as their inclusion would reduce net loss per share.
Going Concern
The Company’s consolidated financial
statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation
of liabilities in the normal course of business. The Company had an accumulated deficit at December 31, 2016 of $9,366,000.
The Company had a working capital deficit of $4,944,587 as of December 31, 2016. During the year ended December 31, 2016,
the Company incurred net loss of $796,161. Due to acquisitions during 2015 of revenue-producing products, the Company believes
it has established an ongoing source of revenue that is sufficient to cover its operating costs and has income from operations
of $2,933,585. The ability of the Company to continue as a going concern is dependent on the Company continuing to execute
the sales of their products.
Due to acquisitions during 2015 of revenue-producing
products, the Company believes it has established an ongoing source of revenue that is sufficient to cover its operating costs.
Management’s plans to continue as a going concern include raising additional capital through borrowing and/or sales of equity
and debt securities. However, management cannot provide any assurances that the Company will be successful in accomplishing any
of its plans.
The ability of the Company to continue as a
going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually
secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as a going concern.
Fair Value Measurements
The Company measures and discloses the fair
value of assets and liabilities required to be carried at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures.
ASC 820 defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement disclosure.
ASC 825 defines fair value as the price that
would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded
at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions
that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk
of nonperformance. ASC 825 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. ASC 825 establishes three levels of inputs that may be used
to measure fair value:
Level 1 - Quoted prices for identical assets
or liabilities in active markets to which we have access at the measurement date.
Level 2 - Inputs other than quoted prices within
Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for the asset
or liability.
The determination of where assets and liabilities
fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
As of December 31, 2016, the Company has determined
that there were no assets or liabilities measured at fair value.
Inventory
Inventory consists of raw materials, components
and finished goods. The Company’s inventory is stated at the lower of cost (FIFO cost basis) or market. Finished goods include
the cost of labor to assemble the items.
Stock-Based Compensation
ASC 718, “Compensation – Stock
Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services
are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments
such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee
stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized
over the period during which an employee is required to provide services in exchange for the award, known as the requisite service
period (usually the vesting period).
The Company accounts for stock-based compensation
issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity – Based Payments to
Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever
is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based
payment transaction is determined at the earlier of performance commitment date or performance completion date.
Intangible Assets with Indefinite Lives
We evaluate the recoverability of intangible
assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate
that impairment exists. All of our intangible assets are subject to amortization except intellectual property of $1,450,000 acquired
as part of Asset Purchase Agreement entered into with Factor Nutrition LLC on January 22, 2015. As of December 31, 2016 and 2015,
our qualitative analysis of intangible assets with indefinite lives did not indicate any impairment.
Long-lived Assets
Long-lived assets include equipment and intangible
assets other than those with indefinite lives. We assess the carrying value of our long-lived asset groups when indicators of impairment
exist and recognize an impairment loss when the carrying amount of a long-lived asset is not recoverable when compared to undiscounted
cash flows expected to result from the use and eventual disposition of the asset.
Indicators of impairment include significant
underperformance relative to historical or projected future operating results, significant changes in our use of the assets or
in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When
indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying
value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected, net, undiscounted
cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically a discounted
cash flow analysis, and an impairment charge is recorded for the excess of carrying value over fair value. As of December 31, 2015,
our qualitative analysis of long-lived assets did not indicate any impairment. However, as of December 31, 2016 our review of intangible
assets related to one of our subsidiaries did indicate that the carrying amount of the asset may not be recoverable. During the
year ended December 31, 2016, the Company fully impaired related intangible assets and charged to operations impairment loss of
$193,750.
Goodwill
An asset purchase is accounted for under the
purchase method of accounting. Under that method, assets and liabilities of the business acquired are recorded at their estimated
fair values as of the date of the acquisition, with any excess of the cost of the acquisition over the estimated fair value of
the net tangible and intangible assets acquired recorded as goodwill. As of December 31, 2015 our qualitative analysis of goodwill
did not indicate any impairment. However, as of December 31, 2016, our review of Goodwill related to one of our subsidiaries did
indicate that the carrying amount of the asset may not be recoverable. During the year ended December 31, 2016, the Company fully
impaired related goodwill and charged to operations impairment loss of $1,983,160.
Foreign
Currency Translation
The functional
currency of one of the Company’s foreign subsidiaries (Nomadchoice Pty Ltd.) is the U.S. Dollar. The Company’s subsidiary
maintains its record using local currency (Australian Dollar). All monetary assets and liabilities of foreign subsidiaries were
translated into U.S. Dollars at fiscal year-end exchange rates, non-monetary assets and liabilities of foreign subsidiaries were
translated into U.S. Dollars at transaction day exchange rates.
Income
and expense items related to non-monetary items were translated at exchange rates prevailing during the transaction date and other
incomes and expenses were translated using average exchange rate for the period. The resulting translation adjustments, net of
income taxes, were recorded in statements of operations as remeasurement gain or loss on translation of foreign subsidiary.
The functional currency of the Company’s
other foreign subsidiary (Synergy CHC Inc.) is the Canadian Dollar (CAD). The Company’s foreign subsidiary maintains its
records using local currency (CAD). All assets and liabilities of the foreign subsidiary were translated into U.S. Dollars at period
end exchange rates and stockholders’equity is translated at the historical rates. Income and expense items were translated
using average exchange rate for the period. The resulting translation adjustments, net of income taxes, are reported as other comprehensive
income and accumulated other comprehensive income in the stockholder’s equity in accordance with ASC 220 – Comprehensive
Income.
Translation gains and losses that arise from
exchange rate fluctuations from transactions denominated in a currency other than the functional currency are translated into either
Australian Dollars or Canadian Dollars, as the case may be, at the rate on the date of the transaction and included in the results
of operations as incurred.
Concentrations
of Credit Risk
In the
normal course of business, the Company provides credit terms to its customers; however, collateral was not required. Accordingly,
the Company performed credit evaluations of its customers and maintained allowances for possible losses which, when realized, were
within the range of management’s expectations. From time to time, a higher concentration of credit risk existed on outstanding
accounts receivable for a select number of customers due to individual buying patterns.
Warehousing costs
Warehouse costs include all third party warehouse
rent fees and are charged to selling and marketing expenses as incurred. Any additional costs relating to assembly or special pack-outs
of the Company’s products are charged to cost of sales.
Product display costs
All displays manufactured and purchased by
the Company are for placement of product in retail stores. This also includes all costs for display execution and setup and retail
services are charged to cost of sales and expensed as incurred.
Warrant Derivative Liabilities
ASC 815 generally provides three criteria that,
if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded
derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the
hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value
under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur
and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument
subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be
conventional, as described.
A Black-Scholes-Merton option-pricing model,
with dilution effects, was utilized to estimate the fair value of the Warrant Derivative Liabilities as of November 12, 2015 and
December 31, 2015. As of December 23, 2016 the Warrant Derivative Liability was extinguished in conjunction with the issuance of
shares. This model is subject to the significant assumptions discussed below and requires the following key inputs with respect
to the Company and/or instrument:
Input
|
|
November 12, 2015
|
|
|
December 31, 2015
|
|
|
December 23, 2016
|
|
Stock Price
|
|
$
|
0.46
|
|
|
$
|
0.69
|
|
|
$
|
0.39
|
|
Exercise Price
|
|
$
|
0.49
|
|
|
$
|
0.49
|
|
|
$
|
0.49
|
|
Expected Life (in years)
|
|
|
10.0
|
|
|
|
9.75
|
|
|
|
8.92
|
|
Stock Volatility
|
|
|
157.56
|
%
|
|
|
152.07
|
|
|
|
143.15
|
%
|
Risk-Free Rate
|
|
|
2.32
|
%
|
|
|
2.27
|
|
|
|
2.55
|
%
|
Dividend Rate
|
|
|
0
|
%
|
|
|
0
|
|
|
|
0
|
%
|
Outstanding Shares of Common Stock
|
|
|
4,547,243
|
|
|
|
4,547,243
|
|
|
|
4,547,243
|
|
Cost of Sales
Cost of sales includes the purchase cost of
products sold and all costs associated with getting the products into the retail stores including buying and transportation costs.
Debt Issuance Costs
Debt issuance costs
consist primarily of arrangement fees, professional fees and legal fees. These costs are netted off with the related loan and are
being amortized to interest expense over the term of the related debt facilities.
Shipping Costs
Shipping and handling
costs billed to customers are recorded in sales. Shipping costs incurred by the company are recorded in selling and marketing expenses.
Related parties
Parties are considered
to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled
by, or are under common control with the Company. Related parties also include principal owners of the Company, its management,
members of the immediate families of principal owners of the Company and its management and other parties with which the Company
may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that
one of the transacting parties might be prevented from fully pursuing its own separate interests. All transactions with related
parties shall be recorded at fair value of the goods or services exchanged.
Segment Reporting
Segment
identification and selection is consistent with the management structure used by the Company’s chief operating decision maker
to evaluate performance and make decisions regarding resource allocation, as well as the materiality of financial results consistent
with that structure. Based on the Company’s management structure and method of internal reporting, the Company has one operating
segment. The Company’s chief operating decision maker does not review operating results on a disaggregated basis; rather,
the chief operating decision maker reviews operating results on an aggregate basis.
Reclassification
of Prior Period Presentation
Certain reclassifications
have been made to conform the prior period data to the current presentations. These reclassifications had no effect on the reported
results.
Recent Accounting Pronouncements
ASU 2016-18
In November 2016,
the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), which requires that restricted cash and restricted cash equivalents
be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown
on the statement of cash flows. The effective date for ASU 2016-18 is for fiscal years beginning after December 15, 2018, and interim
periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact
of adopting ASU 2016-18 on our consolidated financial statements.
ASU 2016-15
In August 2016, the
FASB issued AS 2016-15, Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and
cash payments are presented and classified in the statement of cash flows. The effective date for ASU 2016-15 is for fiscal years
beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is
permitted. We are currently evaluating the impact of adopting ASU 2016-18 on our consolidated financial statements.
ASU 2016-10
In April 2016, the
FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,
which provides further guidance on identifying performance obligations and improves the operability and understandability of licensing
implementation guidance. The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU
2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company
has not yet determined the impact of ASU 2016-10 on its consolidated financial statements.
ASU 2016-09
In March 2016, the
FASB issued ASU No. 2016-09, Compensation – Stock Compensation, or ASU No. 2016-09. The areas for simplification in this
update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments
in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.
Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any
adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects
early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits
are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified
retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which
the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer
withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring
recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected
term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits
on the statement of cash flows using either a prospective transition method or a retrospective transition method. We are currently
evaluating the impact of adopting ASU No. 2016-09 on our consolidated financial statements.
ASU 2016-08
In March 2016, the
FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue
Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent.
ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred
to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods
or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of
ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods
within those years. The Company has not yet determined the impact of ASU 2016-08 on its consolidated financial statements.
ASU 2016-01
In January 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01, which amends the guidance in U.S. GAAP
on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting
for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for
financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred
tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years
and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect
adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption
is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting
from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting
this guidance on its consolidated financial statements.
ASU 2015-17
In November 2015,
the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. Currently deferred taxes for each tax jurisdiction
are presented as a net current asset or liability and net noncurrent asset or liability on the balance sheet. To simplify the presentation,
the new guidance requires that deferred tax liabilities and assets for all jurisdictions along with any related valuation allowances
be classified as noncurrent in a classified statement of financial position. This guidance is effective for interim and annual
reporting periods beginning after December 15, 2016, and early adoption is permitted. The Company adopted this guidance in the
fourth quarter of the year ended December 31, 2015 on a retrospective basis. The adoption of this guidance did not have a material
impact on the Company’s consolidated financial statements., and did not have any effect on prior periods due to the full
valuation allowance against the Company’s net deferred tax assets.
ASU 2015-16
In September 2015, the FASB issued ASU 2015-16,
Simplifying the Accounting for Measurement –Period Adjustments. Changes to the accounting for measurement-period adjustments
relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts
of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the
balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer
may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition).
The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record
these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies
for periods beginning after December 15, 2015. Adoption of this new standard did not have any impact on the Company’s consolidated
financial statements.
ASU 2015-14
In August 2015, the FASB issued ASU No. 2015-14,
Revenue From Contracts With Customers (Topic 606). The amendments in this ASU defer the effective date of ASU 2014-09. Public business
entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim
reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning
after December 15, 2016, including interim reporting periods within that reporting period. We are still evaluating the effect of
the adoption of ASU 2014-09 on our consolidated financial statements.
ASU 2015-11
In July 2015, the FASB issued ASU No. 2015-11,
Simplifying the Measurement of Inventory (Topic 330). ASU 2015-11 simplifies the accounting for the valuation of all inventory
not accounted for using the last-in, first-out (“LIFO”) method by prescribing that inventory be valued at the lower
of cost and net realizable value. ASU 2015-11 is effective for financial statements issued for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2016 on a prospective basis. We do not expect the adoption of ASU 2015-11
to have a material effect on our consolidated financial statements.
ASU 2015-05
In April 2015, the FASB issued ASU 2015-05,
Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). ASU 2015-05 provides guidance regarding the accounting
for a customer’s fees paid in a cloud computing arrangement; specifically about whether a cloud computing arrangement includes
a software license, and if so, how to account for the software license. ASU 2015-05 is effective for public companies’ annual
periods, including interim periods within those fiscal years, beginning after December 15, 2015 on either a prospective or retrospective
basis. Early adoption is permitted. Adoption of this new standard did not have any impact on the Company’s consolidated financial
statements.
ASU 2015-07
In May 2015, the FASB issued ASU No. 2015-07,
Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or
Its Equivalent) This guidance eliminates the requirement to categorize investments within the fair value hierarchy if their fair
value is measured using the net asset value (“NAV”) per share practical expedient in the FASB’s fair value measurement
guidance. The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December
15, 2015. Adoption of this new standard did not have any impact on the Company’s consolidated financial statements
ASU 2015-03
In April 2015, the FASB issued Accounting Standards
Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt
Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented
in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The
recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments are
effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2015. The amendments are to be applied on a retrospective basis, wherein the balance sheet of each individual period presented
is adjusted to reflect the period-specific effects of applying the new guidance. The Company reclassified debt issuance cost of
$160,950 and $378,852 from other assets to liabilities and netted off with the related loans in the liabilities as of December
31, 2016 and 2015, respectively.
ASU 2015-02
In February 2015, the FASB issued ASU No. 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation
guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized
debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation
evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In
addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards
Codification and improves current U.S. GAAP by placing more emphasis on risk of loss when determining a controlling financial interest,
reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable
interest entity (“VIE”), and changing consolidation conclusions for companies in several industries that typically
make use of limited partnerships or VIEs. The ASU will be effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. Adoption of this new standard
did not have any impact on the Company’s consolidated financial statements.
ASU 2015-01
In January 2015, the FASB issued ASU No. 2015-01,
“Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating
the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the concept of extraordinary items. ASU 2015-01 is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity
may apply the amendments prospectively. Adoption of this new standard did not have any impact on the Company’s consolidated
financial statements.
ASU 2014-17
In November 2014, the FASB issued ASU No. 2014-17,
“Business Combinations (Topic 805): Pushdown Accounting.” This ASU provides an acquired entity with an option to apply
pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the
acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control
event occurs. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17
was effective on November 18, 2014. The adoption of ASU 2014-17 did not have any effect on our financial position, results of operations
or cash flows.
ASU 2014-16
In November 2014, the FASB issued ASU 2014-16,
“Derivatives and Hedging (Topic 815).” ASU 2014-16 addresses whether the host contract in a hybrid financial instrument
issued in the form of a share should be accounted for as debt or equity. ASU 2014-16 is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2015. We do not currently have issued, nor are we investors in,
hybrid financial instruments. Adoption of this new standard did not have any impact on the Company’s financial position,
results of operations or cash flows.
ASU 2014-15
In August 2014, the FASB issued ASU No. 2014-15
Presentation of Financial Statements-Going Concern. The amendments in this update apply to all reporting entities and require an
entity’s management, in connection with preparing financial statements for each annual and interim reporting period, to evaluate
whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability
to continue as a going concern within one year after the date that the financial statements are issued (or within one year after
the date that the financial statements are available to be issued when applicable). This ASU is effective for annual periods ending
after December 15, 2016. We adopted this standard for the year ended December 31, 2016. Based on the results of our analysis, no
additional disclosures were required.
ASU 2014-12
In June 2014, the FASB issued ASU No. 2014-12,
“Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide
That a Performance Target Could Be Achieved after the Requisite Service Period.” This ASU requires that a performance target
that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Adoption of this
new standard did not have any impact on the Company’s financial position, results of operations or cash flows.
ASU 2014-09
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 affects any entity using U.S. GAAP that either enters
into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless
those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). ASU 2014-09 is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We are still evaluating the
effect of the adoption of ASU 2014-09. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09
by one year for all entities and permits early adoption on a limited basis. ASU 2014-09 will be effective for the Company in the
first quarter of 2018, and early adoption permitted in the first quarter of 2017. We are still evaluating the effect of the adoption
of ASU 2014-09 on our consolidated financial statements.
ASU 2014-08
In April 2014, the FASB issued ASU No. 2014-08,
“Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 amends the definition for what types of
asset disposals are to be considered discontinued operations, as well as amending the required disclosures for discontinued operations
and assets held for sale. ASU 2014-08 is effective for fiscal years, and interim periods within those fiscal years, beginning on
or after December 15, 2014. The adoption of ASU 2014-08 did not have any effect on our financial position, results of operations
or cash flows.
There were various updates recently issued,
most of which represented technical corrections to the accounting literature or application to specific industries and are not
expected to a have a material impact on the Company’s condensed financial position, results of operations or cash flows.
Change in Fiscal Year End
On April 21, 2014, the Company’s board
of directors approved a change to the Company’s fiscal year end from July 31 to December 31 of each year.
Note 3 – Acquisitions
Asset Purchase Agreement with Factor Nutrition
Labs, LLC:
On January 22, 2015 (the “Closing Date”),
the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Factor Nutrition Labs, LLC, a
Delaware limited liability company (the “Seller”), Vita Partners, LLC, RPR Partners, LLC, and Thor Associates, Inc.
(each a “Principal Owner”). Pursuant to the Purchase Agreement, the Company purchased all of the assets of the Seller’s
line of business and products called FOCUS Factor (the product plus the business related to the product is collectively referred
to as the “Focus Factor Business”) and assumed the accounts payable and contractual obligations of the Focus Factor
Business for an aggregate purchase price of $6.0 million, with $4.5 million paid on the Closing Date, and $750,000 to be paid on
or before January 20, 2016 and an additional $750,000 to be paid on or before January 20, 2017.
Distribution Agreement
On January 22, 2015, the Company and Knight
entered into a Distribution, License and Supply Agreement (the “Distribution Agreement”), pursuant to which the Company
granted to Knight an exclusive license to commercialize FOCUSFactor, FOCUSFactor Kids and Synergy Strip and all improvements thereto
(together the “Licensed Products”) and appointed Knight as the exclusive distributor to offer to sell and sell the
Licensed Products in Canada, and, at Knight’s election, one or more of Israel, Russia, and Sub-Saharan Africa. The Distribution
Agreement provides that Knight may sublicense its rights or use sub-distributors under the Distribution Agreement on terms consistent
with the terms of the Distribution Agreement. During the term of the Distribution Agreement, Knight agrees to obtain from the Company
all its requirements for the Licensed Products and the Company agrees to supply the Licensed Products at its adjusted production
cost plus a designated percentage and any applicable taxes.
In the event of a long term inability by the
Company to supply Knight with the Licensed Products, Knight is entitled to require, among other remedies, the Company to grant
a Knight-designated third party a non-exclusive license to use all relevant intellectual property to manufacture and supply Knight
with the Licensed Products for commercialization in the Territory. The term of the Distribution Agreement runs until 15 years from
the date of the first commercial sale of a Licensed Product in Canada, and the Distribution Agreement will automatically renew
for successive 15-year periods unless either party provides the other with written notice of its intention not to renew (a “Non-Renewal
Notice”). The Company agrees that in the event it issues a Non-Renewal Notice, the Company will pay to Knight a non-renewal
fee equal to the net sales of the Licensed Products achieved by Knight in the Territory during the eight calendar quarters preceding
the date of such notice, plus all applicable taxes.
Distribution Option Agreement
In connection with the Loan Agreement, the
Company entered into a Product Distribution Option Agreement, dated January 22, 2015 (the “Option Agreement”), pursuant
to which the Company granted Knight the exclusive right to negotiate the exclusive distribution rights of any one or more of the
Company’s products, including products from the Focus Factor Business, for the territories of Canada, Russia, Sub-Saharan
Africa and Israel (the “Option”), pursuant to designated parameters. The Option Agreement is effective upon the date
of the Option Agreement, will run until January 31, 2045, and will automatically renew thereafter for successive five-year periods
unless either party provides a notice of termination prior to the Option Agreement’s expiration. If Knight does not exercise
the option then the Company is free to contract for distribution with other parties, but only on terms no less favorable than those
offered by Knight pursuant to the Option Agreement.
On December 3, 2015, we entered into an Amendment
to First Amendment Agreement (the “Second Amendment Agreement”) with Knight pursuant to which we agreed to grant distribution
rights to Knight for Breakthrough’s products. To satisfy this obligation, on December 3, 2015, we also entered into an Amendment
and Confirmation Agreement (the “Confirmation Agreement”) with Knight, Nomad and Breakthrough to amend the Distribution,
License and Supply Agreement dated January 22, 2015 (the “Distribution Agreement”) between us and Knight to grant to
Knight an exclusive license to commercialize any and all Nomad and Breakthrough products and appoint Knight as the exclusive distributor
to offer and sell those products in Canada, Israel, Romania, Russia and each of the countries within Sub-Saharan Africa, which
is the new “Territory” under the Distribution Agreement, as amended. Pursuant to the Second Amendment Agreement, Nomad
will buy all Flat Tummy Tea products within the Territory for direct to consumer sales exclusively from Knight and/or its affiliates
at cost of goods plus 60% of gross sales.
The Company has accounted for this transaction
under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price
is allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values based on the management’s
estimates as of the date of the acquisition. The Company expects to retain the services of independent valuation firm to determine
the fair value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the
acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded
on January 22, 2015. The preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on the
estimated fair values is as follows:
Assets
|
|
|
|
Accounts receivable
|
|
$
|
2,733,167
|
|
Inventory
|
|
|
67,113
|
|
Intellectual property
|
|
|
1,000,000
|
|
Non-compete provision
|
|
|
50,000
|
|
Non-solicitation provision
|
|
|
50,000
|
|
Intangible assets-Customer relationships
|
|
|
1,941,030
|
|
Goodwill
|
|
|
2,071,517
|
|
Liabilities
|
|
|
|
|
Accounts payable
|
|
|
(971,381
|
)
|
Accrued expenses
|
|
|
(941,446
|
)
|
|
|
$
|
6,000,000
|
|
During first quarter 2016 filing, the Company
has consulted with a valuation professional to assist in determining the fair value of the identifiable FOCUSfactor intangible
assets. As a result of this work, the Company has increased the amount allocated to the FOCUSfactor indefinite-lived brand and
patent by $450,000 and reduced the amount recorded to goodwill by an identical amount. This adjustment had no effect on the income
statement. The Company believes that the restated amount of $1,450,000 properly states the fair value of the FOCUSfactor brand
and patent.
The final allocation of the purchase price
to the assets acquired and liabilities assumed based on the independent valuation is as follows:
Assets
|
|
|
|
Accounts receivable
|
|
$
|
2,733,167
|
|
Inventory
|
|
|
67,113
|
|
Intellectual property
|
|
|
1,450,000
|
|
Non-compete provision
|
|
|
50,000
|
|
Non-solicitation provision
|
|
|
50,000
|
|
Intangible assets-Customer relationships
|
|
|
1,941,030
|
|
Goodwill
|
|
|
1,621,517
|
|
Liabilities
|
|
|
|
|
Accounts payable
|
|
|
(971,381
|
)
|
Accrued expenses
|
|
|
(941,446
|
)
|
|
|
$
|
6,000,000
|
|
The Customer relationships, the non-compete
and the non-solicitation provisions will be amortized over their estimated useful lives of 5 years. Intellectual property is not
amortized and will be tested for impairment. During the years ended December 31, 2016 and 2015, the Company charged to operations
amortization expense of $408,206 and $384,720, respectively.
The purchase price allocated to the acquisition
of the assets of Factor Nutrition Labs, LLC is made up as follows:
|
|
Amount
|
|
Cash payment made on January 22, 2015
|
|
$
|
4,500,000
|
|
Cash payment made on January 20, 2016
|
|
|
750,000
|
|
Cash payment to be made on January 20, 2017
|
|
|
750,000
|
|
Total
|
|
$
|
6,000,000
|
|
Asset Purchase Agreement with Knight Therapeutics
Inc.:
On June 26, 2015 (the “Closing Date”),
Neuragen Corp., a Delaware corporation (“Neuragen”) and our wholly owned subsidiary, entered into an Asset Purchase
Agreement (the “Purchase Agreement”) with Knight Therapeutics Inc., a Canadian corporation (“Knight Canada”).
Pursuant to the Purchase Agreement, Neuragen purchased the U.S. rights related to an innovative OTC product that helps relieve
pain caused by diabetic nerve damage (the “Purchased Assets”) for an aggregate purchase price of $1.2 million, with
(i) $250,000 paid on the Closing Date, (ii) $250,000 to be paid on or before June 30, 2016, (iii) $700,000 to be paid in quarterly
installments (beginning with the quarter ending September 30, 2015) equal to the greater of $12,500 or 5% of U.S. net sales, and
(iv) 2% of U.S. net sales of Neuragen for 60 months thereafter. The payment of such amounts is secured by a security interest in
certain assets, undertakings and property (“Collateral”) pursuant to the Security Agreement, which will be released
upon receipt of total payments of $1.2 million (collectively, “Total Consideration”). The Company has recorded present
value of future payments of $290,947 and $531,589 as of December 31, 2016 and 2015, respectively. The Company has recorded interest
expense of $59,358 and $37,372 for the years ended December 31, 2016 and 2015, respectively.
Security Agreement
On the Closing Date, Neuragen entered into
a Security Agreement with Knight Canada, pursuant to which Neuragen granted a lien and security interest to Knight Canada in Collateral
in connection with the Purchase Agreement.
The Security Agreement was made to secure the
payment of all indebtedness, obligations and liabilities of Neuragen of the Purchase Agreement, including all expenses and charges,
legal or otherwise, suffered or incurred by Knight Canada in collecting or enforcing such indebtedness of the Purchase Agreement.
The Security Agreement includes customary events
of default, including but not limited to: payment defaults; Neuragen becoming insolvent or entering into bankruptcy; or if any
contemplated security ceases to be a valid and perfected first-priority security interest that is not remedied within fifteen business
days by Neuragen. Upon the occurrence of an event of default and during the continuation thereof, the principal amount of the outstanding
Total Consideration will bear a default interest rate of an additional 10% per annum.
The acquisition was treated as an acquisition
of assets as the transaction involved the acquisition of a brand and a license agreement. The allocation of the purchase price
to the assets acquired and liabilities assumed based on the estimated fair values is as follows:
Assets
|
|
|
|
|
Accounts receivable
|
|
$
|
58,054
|
|
Inventory
|
|
|
204,925
|
|
Intangible property
|
|
|
100,000
|
|
License agreement
|
|
|
606,553
|
|
Liabilities
|
|
|
|
|
Accounts payable
|
|
|
(51,795
|
)
|
Accrued expenses
|
|
|
(148,520
|
)
|
|
|
$
|
769,217
|
|
The intangible property and license agreement
will be amortized over their estimated useful lives of 5 years. During the year ended December 31, 2016 and 2015, the Company charged
to operations amortization expense of $141,311 and $70,655, respectively.
Contribution Agreement with Hand MD Corp.:
On August 18, 2015 (the “Closing Date”),
we entered into a Contribution Agreement with Hand MD Corp., a Delaware corporation, whereby we contributed to Hand MD Corp. 2,142,857
shares of our common stock in exchange for 50% of Hand MD Corp.’s outstanding capital securities valued at $0.70 per share.
Simultaneously, Hand MD, LLC, a California limited liability company, entered into a Contribution Agreement with Hand MD Corp.,
the principal owners of Hand MD, LLC, and us whereby Hand MD LLC contributed to Hand MD Corp. all of its right, title and interest
in its intellectual property associated with skincare, nail care and nail polish products (the “Hand MD Business”)
in exchange for the other 50% of Hand MD Corp.’s outstanding capital securities. In the Contribution Agreement among Hand
MD Corp., Hand MD, LLC, the principal owners of Hand MD, LLC and us, Hand MD, LLC and its principal owners agreed to not compete
or solicit customers or employees for five years. As part of the transaction, we also purchased from Hand MD Corp. all inventory
related to the Hand MD Business for approximately $106,000. The Company has recorded 50% of the present value of future royalty
payments of $313,752 and $258,897 as of December 31, 2016 and 2015, respectively.
We also entered into a license agreement with
Hand MD Corp. on August 18, 2015, whereby we acquired the exclusive worldwide license to commercialize Hand MD Corp. skincare products
and all improvements thereto. The license runs in perpetuity unless earlier terminated. We will pay Hand MD Corp. a royalty of
5% of the net sales price of product sold, transferred or otherwise disposed of by us, as well as 5% of any amount we receive from
sublicensees, subject to a minimum royalty of $250,000 in the second year of the license and $500,000 in the third year of the
license, after which the minimum royalty terminates. We are solely responsible for any regulatory and intellectual property filings,
including those necessary to maintain regulatory approvals for the licensed products. Either we or Hand MD Corp. can terminate
the agreement in the event of bankruptcy or insolvency of the other party, or the uncured material breach of the agreement by the
other party. Upon termination we would be entitled to sell any inventory of licensed product in the normal course of business and
consistent with sales of licensed product during the term of the agreement.
The Contribution Agreements and the License
Agreement contain customary representations and warranties and covenants by the respective parties.
We also entered into a Consulting Agreement
on August 18, 2015, with Kara Harshbarger, the co-founder of Hand MD, LLC, pursuant to which she will provide marketing and sales
related services. We will pay Ms. Harshbarger $10,000 a month for one year unless the Consulting Agreement is terminated earlier
by either party. If we terminate the Consulting Agreement without cause, we will be obligated to pay the remaining term of the
Agreement. Ms. Harshbarger agreed not to compete with us in the United States in any marketing or sales of skincare, nail polish
and nail care products during the term of the Consulting Agreement and for 12 months after its termination. Ms. Harshbarger also
agreed not to solicit customers or employees for the same period.
The acquisition was treated as an acquisition
of assets as the transaction involved the acquisition of a brand and a license agreement. The allocation of the purchase price
to the assets acquired and liabilities assumed based on the estimated fair values is as follows:
Assets
|
|
|
|
|
Intangible property
|
|
$
|
100,000
|
|
License agreement
|
|
|
1,670,675
|
|
Liabilities
|
|
|
-
|
|
Royalty payable
|
|
|
(258,897
|
)
|
Others
|
|
|
(11,778
|
)
|
|
|
$
|
1,500,000
|
|
The intangible property and license agreement
will be amortized over their estimated useful lives of 5 years. During the years ended December 31, 2016 and 2015, the Company
charged to operations amortization expense of $354,135 and $118,045, respectively.
Stock Purchase Agreement with Breakthrough
Products, Inc.:
On November 12, 2015 (the “UrgentRx Closing
Date”), we entered into a Stock Purchase Agreement (the “UrgentRx SPA”) with Breakthrough Products, Inc., a Delaware
corporation (the “Company”), URX ACQUISITION TRUST, a Delaware statutory trust, (the “Trust”), Jordan Eisenberg,
the chief executive officer and a shareholder of the Company (“Eisenberg”), and the other shareholders of the Company
(Eisenberg and such other shareholders collectively referred to as the “UrgentRx Sellers”) for the purchase of all
the issued and outstanding capital stock of the Company for 6,000,000 shares of our common stock (“UrgentRx Equity Consideration”).
In addition to the UrgentRx Equity Consideration,
we have agreed to pay a royalty to the Trust, for the benefit of the UrgentRx Sellers, equal to 5% of gross sales of the UrgentRx
(as defined below) following the first $5,000,000 in gross sales by the UrgentRx Products, on a quarterly basis for a period of
seven years from the UrgentRx Closing Date.
The Company is engaged in the business of developing
and selling medications for headache, heart burn, allergy attack, ache and pain, and upset stomach in the form of powders (“UrgentRx”).
Following the UrgentRx Closing Date, we discovered
certain liabilities and obligations of Breakthrough that required an adjustment to the UrgentRx Equity Consideration and the royalty
payments.
On December 17, 2015, we entered into a Settlement
and Release Agreement (the “Settlement Agreement”) with the UrgentRx Sellers, the Trust, on its own behalf and as the
representative of the UrgentRx Sellers, David T. Leyrer, Michael Valentino, Ron Fugate, and Randall Kaplan (collectively with Leyrer,
Valentino, Fugate, the “Former Directors”) to resolve the post-closing liabilities. Pursuant to the terms of the Settlement
Agreement, 3,000,000 shares of the Equity Consideration were returned by the Trust to us and our obligation to pay royalties to
the Trust was reduced from seven years to five years. The Settlement Agreement further contained mutual releases among us, the
UrgentRx Sellers, and the Former Directors, with limited exceptions. Additionally, we issued a three-year warrant to the Trust
with a $5.00 per share exercise price. We may redeem the warrant at a price of $0.001 per share if our common stock is traded on
the OTCBB or on a national securities exchange, and the per share closing sale price of our common stock equals or exceeds the
exercise price for a period of 90 consecutive calendar days. In the event of a reorganization or reclassification of our capital
stock, the merger or consolidation of our company into another entity or the sale or transfer of all or substantially all of our
assets, the warrant will terminate if not exercised prior to the date of such event.
The Company has accounted for this transaction
under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price
is allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values based on the management’s
estimates as of the date of the acquisition. The Company expects to retain the services of independent valuation firm to determine
the fair value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the
acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded
on November 12, 2015. The preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on
the estimated fair values is as follows:
Assets
|
|
|
|
|
Cash
|
|
$
|
2,298,619
|
|
Accounts receivable
|
|
|
(68,976
|
)
|
Inventory
|
|
|
234,709
|
|
Prepaid expenses
|
|
|
57,569
|
|
Intellectual property
|
|
|
100,000
|
|
Non-compete provision
|
|
|
50,000
|
|
Goodwill
|
|
|
3,253,160
|
|
Liabilities
|
|
|
|
|
Accounts payable
|
|
|
(741,822
|
)
|
Accrued expenses
|
|
|
(2,202,848
|
)
|
|
|
$
|
2,980,411
|
|
The preliminary purchase price allocated to
the acquisition of the assets of UrgentRx is made up as follows:
|
|
Amount
|
|
Stock payment
|
|
$
|
2,550,000
|
|
Stock warrants issued
|
|
|
430,411
|
|
Total
|
|
$
|
2,980,411
|
|
During second quarter 2016 filing, the Company
has consulted with a valuation professional to assist in determining the fair value of the identifiable Breakthrough Products,
Inc.’s intangible assets. As a result of this work, the Company has increased the amount allocated to the UrgentRx patent
by $150,000, decreased the amount allocated to a Non-Compete agreement by $50,000 and reduced the amount recorded to goodwill by
the identical amounts. In addition, it was determined that an incorrect stock price was used to calculate the purchase price of
the transaction. As a result of this determination, the Company decreased Additional Paid In Capital and Goodwill by $1,170,000.
These adjustments had no effect on the income statement. The Company believes that these restated amounts properly state the fair
value of the Breakthrough Products, Inc. transaction.
The final allocation of the purchase price
to the assets acquired and liabilities assumed based on the independent valuation is as follows:
Assets
|
|
|
|
|
Cash
|
|
$
|
2,298,619
|
|
Accounts receivable
|
|
|
(68,976
|
)
|
Inventory
|
|
|
234,709
|
|
Prepaid expenses
|
|
|
57,569
|
|
Intellectual property
|
|
|
250,000
|
|
Non-compete provision
|
|
|
-
|
|
Goodwill
|
|
|
1,983,160
|
|
Liabilities
|
|
|
|
|
Accounts Payable
|
|
|
(741,822
|
)
|
Accrued Expenses
|
|
|
(2,202,848
|
)
|
|
|
$
|
1,810,411
|
|
The Intellectual property will be amortized
over its estimated useful live of 5 years and the non-compete provision will be amortized over its term of 3 years. During the
years ended December 31, 2016 and 2015, the Company charged to operations amortization expense of $51,667 and $4,583, respectively.
As of December 31, 2016 our review of intangible
assets and Goodwill related to UrgentRx did indicate that the carrying amount of these assets may not be recoverable. It was determined
that the net balance of $193,750 of intangible assets and $1,983,160 of Goodwill would be fully impaired and accordingly the Company
recorded impairment loss of $2,176,910 during the year ended December 31, 2016.
The adjusted purchase price allocated to the
acquisition of the assets of UrgentRx is made up as follows:
|
|
Amount
|
|
Stock payment
|
|
$
|
1,380,000
|
|
Stock warrants issued
|
|
|
430,411
|
|
Total
|
|
$
|
1,810,411
|
|
Stock Purchase Agreement with TPR Investments
Pty Ltd:
On November 15, 2015 (the “Flat Tummy
Tea Closing Date”), we entered into a Stock Purchase Agreement (the “Flat Tummy Tea SPA”) with TPR Investments
Pty Ltd ACN 128 396 654 as trustee for Polmear Family Trust (the “Flat Tummy Tea Seller”), Timothy Polmear and Rebecca
Polmear and NomadChoice Pty Limited ACN 160 729 939 trading as Flat Tummy Tea, an Australian proprietary limited company (“NomadChoice”)
for the purchase of all the issued and outstanding capital stock of NomadChoice for $4,000,000 (AUD) in cash consideration (the
“Cash Consideration”) and 3,571,428 shares of our common stock (“Flat Tummy Tea Equity Consideration”).
In addition to the Cash Consideration and the
Flat Tummy Tea Equity Consideration, we have also agreed to pay the Flat Tummy Tea Seller certain earn-out payments of up to $3,500,000
(AUD) in aggregate upon certain EBITDA thresholds are met as of June 30, 2016, as described in the Flat Tummy Tea SPA. This earn-out
payment was distributed on March 4, 2016.
Flat Tummy Tea is engaged in the business of
developing, manufacturing, and selling herbal detox tea (“Flat Tummy Tea”).
The Company has accounted for this transaction
under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price
is allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values based on the management’s
estimates as of the date of the acquisition. The Company expects to retain the services of independent valuation firm to determine
the fair value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the
acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded
on November 1, 2015. The preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on the
estimated fair values is as follows:
Assets
|
|
|
|
|
Cash
|
|
$
|
1,584,642
|
|
Other receivable
|
|
|
30,684
|
|
Inventory
|
|
|
134,212
|
|
Prepaid expenses
|
|
|
141,070
|
|
Fixed assets, net
|
|
|
5,698
|
|
Intangible assets, Net
|
|
|
3,493
|
|
Blogger database
|
|
|
200,000
|
|
Customer database
|
|
|
500,000
|
|
Intellectual property
|
|
|
100,000
|
|
Non-compete provision
|
|
|
50,000
|
|
Goodwill
|
|
|
6,174,899
|
|
Liabilities
|
|
|
|
|
Accounts payable
|
|
|
(77,064
|
)
|
Accrued expenses
|
|
|
(56,224
|
)
|
Dividends payable
|
|
|
(1,177,152
|
)
|
Provision for income tax
|
|
|
(518,558
|
)
|
|
|
$
|
7,095,700
|
|
During second quarter 2016 filing, the Company
has consulted with a valuation professional to assist in determining the fair value of the identifiable NomadChoice’s intangible
assets. As a result of this work, the Company has increased the amount allocated to the Customer Database by $215,000, decreased
the amount allocated to Intellectual Property by $100,000 and decreased the amount allocated to the Blogger Database by $115,000.
These adjustments had no effect on the income statement. The Company believes that these restated amounts properly state the fair
value of the TPR Investments Pty Ltd. transaction.
The final allocation of the purchase price
to the assets acquired and liabilities assumed based on the independent valuation is as follows:
Assets
|
|
|
|
|
Cash
|
|
$
|
1,584,642
|
|
Other receivable
|
|
|
30,684
|
|
Inventory
|
|
|
134,212
|
|
Prepaid expenses
|
|
|
141,070
|
|
Fixed assets, net
|
|
|
5,698
|
|
Intangible assets, Net
|
|
|
3,493
|
|
Blogger database
|
|
|
85,000
|
|
Customer database
|
|
|
715,000
|
|
Intellectual property
|
|
|
-
|
|
Non-compete provision
|
|
|
50,000
|
|
Goodwill
|
|
|
6,174,899
|
|
Liabilities
|
|
|
|
|
Accounts payable
|
|
|
(77,064
|
)
|
Accrued expenses
|
|
|
(56,224
|
)
|
Dividends payable
|
|
|
(1,177,152
|
)
|
Provision for income tax
|
|
|
(518,558
|
)
|
|
|
$
|
7,095,700
|
|
The Blogger Database, Customer Database, Intellectual
property and non-compete provision will be amortized over its estimated useful lives of 5 years. During the years ended December
31, 2016 and 2015, the Company charged to operations amortization expense of $170,000 and $28,333, respectively.
The purchase price allocated to the acquisition
of the assets of NomadChoice is made up as follows:
|
|
Amount
|
|
Cash
|
|
$
|
2,848,800
|
|
Stock issued at closing
|
|
|
1,750,000
|
|
Earn-out payment
|
|
|
2,496,900
|
|
Total
|
|
$
|
7,095,700
|
|
Note 4 – Income Taxes
The Company utilizes FASBASC740, “Income
Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities
are determined based on the difference between the tax basis of assets and liabilities and their financial reporting amounts based
on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.
A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
The Company generated a deferred tax asset
through net operating loss carry-forwards. Based upon Management’s evaluation, a valuation allowance of 100% has been established
due to the uncertainty of the Company’s realization of the benefit derived from net operating loss carry-forwards.
Deferred income taxes arise from temporary
differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred
taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate.
Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or noncurrent
depending on the periods in which the temporary differences are expected to reverse. The Company does not have any uncertain tax
positions.
Income tax expense for the years ended December
31, 2016 and 2015 was $944,358 and $389,945, respectively, due to Foreign Income Tax relating to NomadChoice in Australia.
The table below summarizes the differences
between the U.S. statutory federal rate and the Company’s effective tax rate for the years ended December 31, 2016 and 2015:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
U.S. Statutory Rate
|
|
|
34
|
%
|
|
|
34
|
%
|
U.S. effective rate in excess of AU/CA rate
|
|
|
(1
|
)%
|
|
|
(1
|
)%
|
U.S. valuation allowance
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
Foreign Tax - Australia
|
|
|
638
|
%
|
|
|
6.8
|
%
|
Total provision for income taxes
|
|
|
637
|
%
|
|
|
5.8
|
%
|
The Company has deferred tax assets, which
have been fully reserved, as follows as of December 31, 2016 and 2015:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Deferred tax assets
|
|
$
|
12,950,124
|
|
|
$
|
11,460,536
|
|
Valuation allowance for deferred tax assets
|
|
|
(12,950,124
|
)
|
|
|
(11,460,536
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Taxes accrued and paid for the tax year December
31, 2016 are attributable to NomadChoice Pty, Ltd., the Company’s wholly-owned subsidiary and is subject to income taxes
in the jurisdiction in which it operates, Australia. Tax expense was $944,358 and $389,945 for 2016 and 2015, respectively. The
effective tax rate is attributable to the Company’s world wide income/(loss) as it relates to the income tax expense due
in Australia. Earnings in foreign subsidiaries are permanently reinvested and the Company does not have plans to pay a dividend
from such subsidiaries for the foreseeable future.
The Company also has net operating loss carryforwards
of approximately $32,720,733 and $25,137,583 included in the deferred tax asset table above for 2016 and 2015, respectively,
the majority attributable to the acquisition of Breakthrough Products, Inc. However, due to limitations of carryover attributes
and separate return limitation year rules, it is unlikely the company will benefit from the NOL’s and thus Management has
determined a 100% valuation reserved is required. Further, the Company has not completed an evaluation of the NOL’s attributable
to Breakthrough Products, Inc. at the date of this report.
The total deferred tax asset is calculated
by multiplying a domestic (US) 34 percent marginal tax rate for 2016 and 34 percent marginal tax rate for 2015 by the cumulative
Net Operating Loss Carryforwards (“NOL”).The Company currently has net operating loss carryforwards approximately
aggregating $32,720,733 and $33,707,458 for 2016 and 2015, respectively, which expire through 2035. The deferred tax asset
related to the NOL carryforwards Management has determined based on all the available information that a 100% Valuation reserve
is required.
For U.S. purposes, the Company has not completed
its evaluation of NOL utilization limitations under Internal Revenue Code, as amended (the “Code”) Section 382, change
of ownership rules. If the Company has had a change in ownership, the NOL’s would be limited as to the amount that could
be utilized each year, based on the Code.
Note 5 – Accounts Receivable
Accounts receivable, net of allowances for
sales returns and doubtful accounts, consisted of the following:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Trade accounts receivable
|
|
$
|
2,195,391
|
|
|
$
|
4,101,148
|
|
Less allowances
|
|
|
-
|
|
|
|
(121,291
|
)
|
Total accounts receivable, net
|
|
$
|
2,195,391
|
|
|
$
|
3,979,857
|
|
During the year ended December 31, 2016 and
2015, the Company charged $0 and $50,000, respectively to bad debt expense in setting up an allowance.
Note 6 – Prepaid Expenses
At December 31, 2016 and 2015, prepaid expenses
consisted of the following:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Advances for inventory
|
|
$
|
188,980
|
|
|
$
|
171,494
|
|
Media production
|
|
|
207,555
|
|
|
|
55,849
|
|
Insurance
|
|
|
70,392
|
|
|
|
54,519
|
|
Trade shows
|
|
|
46,700
|
|
|
|
45,700
|
|
Deposits
|
|
|
6,228
|
|
|
|
41,228
|
|
Consultants
|
|
|
15,000
|
|
|
|
24,000
|
|
Rent
|
|
|
15,452
|
|
|
|
16,216
|
|
Promotion - Bloggers
|
|
|
426,220
|
|
|
|
-
|
|
License agreement
|
|
|
258,333
|
|
|
|
-
|
|
Software subscriptions
|
|
|
88,782
|
|
|
|
-
|
|
Miscellaneous
|
|
|
24,960
|
|
|
|
13,428
|
|
Total
|
|
$
|
1,348,602
|
|
|
$
|
422,434
|
|
Note 7 – Concentration of Credit Risk
Cash and cash equivalents
The Company maintains its cash and cash equivalents
in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that at times may be in excess of the federally
insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions.
At December 31, 2016 and 2015, the uninsured balance amounted to $2,038,985 and $3,453,290, respectively.
Accounts receivable
As of December 31, 2016 and 2015, three customers
accounted for 91% and 93%, respectively of the Company’s accounts receivable.
Major customers
For the year ended December 31, 2016, three
customers accounted for approximately 34% of the Company’s net revenue. For the year ended December 31, 2015, three customers
accounted for approximately 73% of the Company’s net revenue. Substantially all of the Company’s business is with companies
in the United States.
Major suppliers
For the year ended December 31, 2016 and 2015,
our products were made by the following suppliers:
FOCUSfactor
|
Atrium Innovations - Pittsburgh, PA
|
Vit-Best Nutrition, Inc. - Tustin, CA
|
Flat Tummy Tea
|
Caraway Tea Company, LLC - Highland, NY
|
-
|
Neuragen
|
C-Care, LLC - Linthicum Heights, MD
|
-
|
UrgentRx
|
Capstone Nutrition - Ogden, UT
|
-
|
Hand MD
|
HealthSpecialty - Santa Fe Springs, CA
|
|
It is the opinion of management that the products
can be produced by other manufacturers and the choice to utilize these suppliers is not a significant concentration.
Note 8 – Inventory
Inventory consists of finished goods, components
and raw materials. The Company’s inventory is stated at the lower of cost (FIFO cost basis) or market.
The carrying value of inventory consisted of
the following:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Finished goods
|
|
$
|
474,420
|
|
|
$
|
535,908
|
|
Components
|
|
|
431,241
|
|
|
|
115,340
|
|
Inventory in transit
|
|
|
104,500
|
|
|
|
-
|
|
Raw Materials
|
|
|
92,616
|
|
|
|
35,406
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
1,102,777
|
|
|
$
|
686,654
|
|
As of January 22, 2015, inventory was pledged
to Knight under the Loan Agreement (see note 12). As of December 31, 2016, $104,500 of the Company’s inventory was in transit.
Note 9 – Fixed Assets and Intangible
Assets
As of December 31, 2016 and 2015, fixed assets
and intangible assets consisted of the following:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
308,084
|
|
|
$
|
18,187
|
|
Less accumulated depreciation
|
|
|
(50,698
|
)
|
|
|
(6,170
|
)
|
Fixed assets, net
|
|
$
|
257,386
|
|
|
$
|
12,017
|
|
Depreciation expense for the years ended December
31, 2016 and 2015 was $44,480 and $1,513, respectively.
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
FOCUSfactor intellectual property
|
|
$
|
1,450,000
|
|
|
$
|
1,000,000
|
|
Intangible assets subject to amortization
|
|
|
5,373,017
|
|
|
|
5,521,751
|
|
Less accumulated amortization and impairment
|
|
|
(1677,583
|
)
|
|
|
(606,489
|
)
|
Intangible assets, net
|
|
$
|
5,145,434
|
|
|
$
|
5,915,262
|
|
Amortization expense for the years ended December
31, 2016 and 2015 was $1,126,298 and $606,489, respectively. Impairment of intangible assets for the years ended December 31, 2016
and 2015 was $193,750 and $0, respectively. These intangible assets were acquired through Asset Purchase Agreement and Stock Purchase
Agreements disclosed in Note 3.
The estimated aggregate amortization expense
over each of the next five years is as follows:
2017
|
|
$
|
1,074,650
|
|
2018
|
|
|
1,074,576
|
|
2019
|
|
|
1,074,311
|
|
2020
|
|
|
471,897
|
|
2021
|
|
|
-
|
|
Note 10 – Related Party Transactions
On April 2, 2014, the Company granted 1,000,000
options valued at approximately $282,000 to a company owned by Mr. Jack Ross, Chief Executive Officer of the Company (see note
15).
On October 31, 2014, the Company borrowed $100,000
through a promissory note bearing interest at 10% with a maturity date of October 31, 2015 from a company owned by Mr. Ross, the
Company’s Chief Executive Officer. During the year ended December 31, 2015, the note was converted into 400,000 shares of
the Company’s common stock.
The Company accrued and paid consulting fees
of $25,000 and $15,000 per month in 2016 and 2015, respectively, to a company owned by Mr. Jack Ross, Chief Executive Officer
of the Company. The Company expensed $481,215 and $180,000, respectively during 2016 and 2015 as consulting fees and bonuses,
and made payments totaling $481,215 and $486,958 towards services to an entity owned and controlled by an officer and shareholder
of the Company for the year ended December 31, 2016 and 2015. As of December 31, 2016 and 2015, the total outstanding balance
was $0.
On January 22, 2015, the Company entered into
a Loan Agreement with Knight Therapeutics (Barbados) Inc., a related party, for the purchase of the Focus Factor assets. At December
31, 2016 and 2015, the Company owed Knight $2,752,639 and $4,267,268, respectively, on this loan, net of discount (see Note 12).
On June 26, 2015, the Company entered into
a Security Agreement with Knight Therapeutics, Inc., through its wholly owned subsidiary Neuragen Corp., for the purchase of Knight
Therapeutics, Inc.’s assets. At December 31, 2016 and 2015, the Company owed Knight $625,000 and $925,000 in relation to
this agreement (see Note 12).
On August 18, 2015, the Company entered into
a Consulting Agreement with Kara Harshbarger, the co-founder of Hand MD, LLC, pursuant to which she will provide marketing and
sales related service. The Company will pay Ms. Harshbarger $10,000 a month for one year unless the Consulting Agreement is terminated
earlier by either party. Hand MD, LLC is a 50% owner in Hand MD Corp. The Company expensed $120,000 and $40,000 through payroll
for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015, the total outstanding balance was
$0.
On November 12, 2015, the Company entered into
a Loan Agreement with Knight Therapeutics (Barbados) Inc., a related party, for the purchase of NomadChoice Pty Limited and Breakthrough
Products, Inc. At December 31, 2016 and 2015, the Company owed Knight $3,680,162 and $3,571,314, respectively, on this loan, net
of discount (see Note 12).
On December 22, 2016, we issued to Knight Therapeutics
(Barbados) Inc., or Knight, 7,500,000 shares of our common stock in exchange for the cancellation of warrants to purchase an aggregate
of 8,132,002 shares of our common stock held by Knight, with per share purchase prices of $0.34 and $0.49, and the cancellation
of an option to purchase 1,000,000 shares of our common stock held by Knight, with an exercise price of $0.25 per share. As additional
consideration, Knight has agreed to purchase up to $2.0 million worth of our common stock if and when we undertake a common stock
equity financing, subject to certain terms and conditions.
At December 31, 2016 and 2015, NomadChoice
Pty Ltd. (subsidiary) of the Company owed Knight Therapeutics $87,678 and $71,573, respectively, in connection with a royalty distribution
agreement (see Note 3).
Note 11 – Accounts Payable and Accrued Liabilities
As of December 31, 2016 and 2015, accounts
payable and accrued liabilities consisted of the following:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Payroll
|
|
$
|
275,913
|
|
|
$
|
128,237
|
|
Legal fees
|
|
|
37,546
|
|
|
|
38,752
|
|
Manufacturers
|
|
|
1,459,460
|
|
|
|
1,527,333
|
|
Promotions
|
|
|
1,244,480
|
|
|
|
1,213,021
|
|
Returns allowance
|
|
|
860,126
|
|
|
|
1,128,133
|
|
Customers
|
|
|
401,594
|
|
|
|
411,033
|
|
Interest
|
|
|
31,079
|
|
|
|
110,754
|
|
Royalties
|
|
|
87,677
|
|
|
|
71,573
|
|
Warehousing
|
|
|
19,080
|
|
|
|
31,748
|
|
Others
|
|
|
141,964
|
|
|
|
371,518
|
|
Total
|
|
$
|
4,558,919
|
|
|
$
|
5,032,102
|
|
Note 12 – Notes Payable
The Company’s
loans payable at December 31, 2016 and 2015 are as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Loans payable
|
|
$
|
7,634,697
|
|
|
$
|
12,406,589
|
|
Unamortized debt discount
|
|
|
-
|
|
|
|
(2,536,419
|
)
|
Unamortized debt issuance cost
|
|
|
(163,549
|
)
|
|
|
(378,852
|
)
|
Total
|
|
|
7,471,148
|
|
|
|
9,491,319
|
|
Less: Current portion
|
|
|
(6,640,903
|
)
|
|
|
(3,775,669
|
)
|
Long-term portion
|
|
$
|
830,245
|
|
|
$
|
5,715,650
|
|
$6,000,000 January 22, 2015 Loan:
On January 22, 2015, the Company entered into
a Loan and Security Agreement (“Loan Agreement”) with Knight Therapeutics (Barbados) Inc. (“Knight”), pursuant
to which Knight agreed to loan the Company $6.0 million (the “Loan”), and which amount was borrowed at closing (the
“Financing”) for the purpose of acquiring the Focus Factor Business (defined below). At closing, the Company paid Knight
an origination fee of $120,000 and a work fee of $60,000 and also paid $40,000 of Knight’s expenses associated with the Loan.
The Loan bears interest at a rate of 15% per year; provided, however, that upon the occurrence of an equity or convertible equity
offering by the Company of at least $1.0 million, the interest rate will drop to 13% per year. Interest accrues quarterly and is
payable in arrears on March 31, June 30, September 30 and December 31 in each year, beginning on March 31, 2015.
All outstanding principal and accrued and unpaid
interest is due on the earliest to occur of either January 20, 2017 (the “Maturity Date”), or the date that Knight,
in its discretion, accelerates the Company’s obligations due to an event of default. The Company may extend the Maturity
Date for two successive additional 12-month periods if at March 31, 2016 and March 31, 2017, respectively, the Company’s
revenues exceed $13.0 million and its EBITDA exceeds $2.0 million for the respective 12-month period then ending. These covenants
were achieved, therefore the Company chose to extend the loan for the first 12-month period. Principal payments under the Loan
Agreement commenced on June 30, 2015 and continue quarterly as set forth on the Repayment Schedule to the Loan Agreement.
Subject to certain restrictions, the Company
may prepay the outstanding principal of the Loan (in whole but not in part) at any time if the Company pays a concurrent prepayment
fee equal to the greater of (i) the total unpaid annual interest that would have been payable during the year in which the prepayment
is made if the prepayment is made prior to the first anniversary of the closing, and (ii) $300,000. The Company’s obligations
under the Loan Agreement are secured by a first priority security interest in all present and future assets of the Company. The
Company also agreed to not pledge or otherwise encumber its intellectual property assets, subject to certain customary exceptions.
The Loan Agreement includes customary representations,
warranties, and affirmative and restrictive covenants, including covenants to attain and maintain certain financial metrics, and
to not merge or dispose of assets, acquire other businesses (except for businesses substantially similar or complementary to the
Company’s business and the aggregate consideration to be paid does not exceed $100,000) or make capital expenditures in excess
of $100,000 over the Company’s annual business plan in any year. The Loan Agreement also includes customary events of default,
including payment defaults, breaches of covenants, change of control and material adverse effect default. Upon the occurrence of
an event of default and during the continuation thereof, the principal amount of the Loan will bear a default interest rate of
an additional 5%.
In connection with the Loan Agreement, the
Company issued to Knight a warrant that entitled Knight to purchase 4,595,187 shares of common stock of the Company (“Common
Stock”) on or prior to close of business on January 30, 2015 (the “ST Warrant”). The aggregate exercise price
of the Common Stock under the ST Warrant is $1.00. Knight exercised the ST Warrant on January 22, 2015. Also in connection with
the Loan Agreement, the Company issued to Knight a warrant to purchase 3,584,759 shares of Common Stock on or prior to the close
of business of January 22, 2025 (the “LT Warrant”). The exercise price per share of the Common Stock under the LT Warrant
is $0.34. The LT Warrant provides for cashless exercise. The LT Warrant also provides that in the event the closing price of the
Common Stock remains above $1.00 for six consecutive months, Knight will forfeit the difference between the number of shares acquired
under the LT Warrant prior to 90 days after such six-month period, and 25% of the shares purchasable under the LT Warrant.
The beneficial conversion feature of the warrants
issued to the noteholders amounted to $1,952,953 (ST warrants) and $1,462,560 (LT warrants), respectively, and was recorded as
debt discount of the corresponding debt.
The Company recognized amortization of debt
discount of $1,952,953 (ST warrants) and $854,828 (LT warrants) during the year ended December 31, 2015. The Company recognized
amortization of debt discount of $607,732 (LT warrants) during the year ended December 31, 2016. Unamortized debt discount as of
December 31, 2015 amounted to $607,732. During 2016, this debt discount was fully expensed in conjunction with the cancellation
of all warrants and options held by Knight.
The Company also recorded deferred financing
costs of $289,045 with respect to the above loan. The Company recognized amortization of deferred financing costs of $92,976 and
$136,207 during the years ended December 31, 2016 and 2015, respectively. Unamortized debt issuance cost as of December 31, 2016
amounted to $59,861.
The Company recognized and paid interest expense
of $625,359 and $805,686 during the years ended December 31, 2016 and 2015, respectively. Accrued interest expense was $0 as of
both December 31, 2016 and 2015. Loan payable balance was $2,812,500 and $4,875,000 as of December 31, 2016 and 2015, respectively.
On December 22, 2016, we entered into Subscription
Agreement with Knight Therapeutics (Barbados) Inc., or Knight, and issued 7,500,000 shares of our common stock in exchange for
the cancellation of warrants to purchase an aggregate of 8,132,002 shares of our common stock held by Knight, with per share purchase
prices of $0.34 and $0.49, and the cancellation of an option to purchase 1,000,000 shares of our common stock held by Knight, with
an exercise price of $0.25 per share. As additional consideration, Knight has agreed to purchase up to $2.0 million worth of our
common stock if and when we undertake a common stock equity financing, subject to certain terms and conditions.
$1,500,000 January 22, 2015 Loan:
On January 22, 2015, the Company issued a 0%
promissory note in a principal amount of $1,500,000 in connection with an Asset Purchase Agreement (see note 1). The note has a
maturity date of January 20, 2017, with $750,000 to be paid on or before January 20, 2016 and an additional $750,000 to be paid
on or before January 20, 2017. Loan payable balance was $750,000 and $1,500,000 as of December 31, 2016 and 2015, respectively.
The loan was paid in full in January 2017.
$950,000 June 26, 2015 Security Agreement:
On June 26, 2015, the Company, through its
wholly owned subsidiary, Neuragen Corp. (“Neuragen”), issued a 0% promissory note in a principal amount of $950,000
in connection with an Asset Purchase Agreement (see note 1). The note requires $250,000 to be paid on or before June 30, 2016,
and $700,000 to be paid in quarterly installments (beginning with the quarter ending September 30, 2015) equal to the greater of
$12,500 or 5% of U.S. net sales, and 2% of U.S. net sales of Neuragen for 60 months thereafter. The payment of such amounts is
secured by a security interest in certain assets, undertakings and property (“Collateral”) pursuant to the Security
Agreement, which will be released upon receipt of total payments of $1.2 million.
The Company also recorded deferred financing
costs of $10,486 with respect to the above agreement. The Company recognized amortization of deferred financing costs of $5,243
and $2,643 during the years ended December 31, 2016 and 2015, respectively. Unamortized debt issuance cost as of December 31, 2016
amounted to $2,600. The Company recorded present value of future payments of $290,947 and $531,589 as of December 31, 2016 and
2015, respectively. The Company recorded interest expense of $59,358 and $37,372 for the year ended December 31, 2016 and 2015,
respectively.
$5,500,000 November 12, 2015 Loan:
On November 12, 2015, we entered into a First
Amendment to Loan Agreement (“First Amendment”) with Knight, pursuant to which Knight agreed to loan us an additional
$5.5 million, and which amount was borrowed at closing (the “Financing”) for the purpose of acquiring Breakthrough
Products, Inc. and NomadChoice Pty Limited through Stock Purchase Agreements. At closing, we paid Knight an origination fee of
$110,000 and a work fee of $55,000 and also paid $24,000 of Knight’s expenses associated with the Loan. The Loan bears interest
at a rate of 15% per year. The interest rate will decrease to 13% if we meet certain equity-fundraising targets. The New Loan Agreement
matures on November 11, 2017.
In connection with the New Loan Agreement,
we issued Knight a warrant that entitles Knight to purchase 5,550,625 shares of our common stock (“Knight Warrant Shares”)
representing approximately 6.5% of our fully diluted capital, which Knight exercised in full on November 12, 2015. Knight also
received a 10-year warrant entitling Knight to purchase up to 4,547,243 shares of our common stock at $0.49 per share (“Knight
Warrants”).
The beneficial conversion feature of the warrants
issued to the noteholders amounted to $2,553,287 (5,550,625 warrants) and $2,067,258 (4,547,243 warrants), respectively, and was
recorded as debt discount of the corresponding debt. For derivative liability calculation on 4,547,243 warrants, refer to Note
17.
The Company recognized amortization of debt
discount of $2,553,287 (5,550,625 warrants) and $138,571 (4,547,243 warrants) during the year ended December 31, 2015. The Company
recognized amortization of debt discount of $1,012,419 (4,547,243 warrants) during the year ended December 31, 2016 and remaining
balance of $916,267 was extinguished as part of the Subscription Agreement disclosed below. Unamortized debt discount as of December
31, 2015 amounted to $1,928,686. During 2016, this debt discount of $1,012,419 was expensed and $912,267 was extinguished in conjunction
with the cancellation of all warrants and options held by Knight.
The Company also recorded deferred financing
costs of $233,847 with respect to the above loan. The Company recognized amortization of deferred financing costs of $117,083 and
$15,675 during the years ended December 31, 2016 and 2015, respectively. Unamortized debt issuance cost as of December 31, 2016
amounted to $101,088.
The Company recognized interest expense of
$767,904 and $110,753 during the years ended December 31, 2016 and 2015, respectively. Accrued interest expense was $31,079 and
$110,753 as of December 31, 2016 and 2015, respectively. The principal balance outstanding at December 31, 2016 and 2015 was $3,781,250
and $5,500,000, respectively.
On December 22, 2016, we entered into Subscription
Agreement with Knight Therapeutics (Barbados) Inc., or Knight, and issued 7,500,000 shares of our common stock in exchange for
the cancellation of warrants to purchase an aggregate of 8,132,002 shares of our common stock held by Knight, with per share purchase
prices of $0.34 and $0.49, and the cancellation of an option to purchase 1,000,000 shares of our common stock held by Knight, with
an exercise price of $0.25 per share. As additional consideration, Knight has agreed to purchase up to $2.0 million worth of our
common stock if and when we undertake a common stock equity financing, subject to certain terms and conditions.
Note 13 – Stockholders’ Deficit
The total number of shares of all classes of
capital stock which the Company is authorized to issue is 75,000,000 shares of common stock with $0.00001 par value. On July 30,
2014, the Company’s board of directors approved an increase of the Company’s authorized common stock from 75,000,000
to 300,000,000 shares, which increase was approved by the Company’s shareholders and became effective on August 5, 2015.
On April 17, 2014, upon approval from FINRA,
the Company effected a 30 for 1 forward stock split by way of a stock dividend, of all of its issued and outstanding shares of
common stock (the “Stock Split”). The Stock Split did not affect the number of the Company’s authorized common
stock or its par value. All references in the accompanying consolidated financial statements and notes thereto have been retroactively
restated to reflect the stock split.
During the year ended December 31, 2015, the
Company issued 4,595,187 shares of its common stock upon exercise of the ST Warrant at an aggregate exercise price of $1.00 in
connection with the Loan Agreement (see note1).
During the year ended December 31, 2015, the
Company issued 5,550,625 shares of its common stock upon exercise of a Warrant at an aggregate exercise price of $1.00 in connection
with the Loan Agreement (see note1).
During the year ended December 31, 2015, the
Company issued 400,000 shares of its common stock to a note holder in a note conversion at $0.25 per share. At the time of conversion,
the note was valued at $100,000 for outstanding principal.
During the year ended December 31, 2015, the
Company issued 2,142,857 shares of its common stock valued at $0.70 per share in accordance with Contribution Agreement entered
into with Hand MD Corp. in exchange for 50% of Hand MD Corp.’s outstanding capital securities.
During the year ended December 31, 2015, the
Company issued 3,571,428 shares of its common stock valued at $0.35 per share in accordance with a stock purchase agreement entered
into with NomadChoice Pty Limited in exchange for 100% of NomadChoice Pty Limited’s outstanding capital securities.
During the year ended December 31, 2015, the
Company issued 3,000,000 shares of its common stock valued at $0.85 per share in accordance with a stock purchase agreement entered
into with Breakthrough Products, Inc. in exchange for 100% of Breakthrough Product Inc.’s outstanding capital securities.
During the year ended December 31, 2015, the
Company issued 40,000 shares of its common stock valued at $0.65 per share for cash.
During the year ended December 31, 2015, the
Company issued 292,857 shares of its common stock valued at $0.70 per share to settle accounts payable.
As of December 31, 2015, the Company committed
to issue common stock valued at $68,000 for services rendered. During 2016, 213,742 shares of the Company’s common stock
were issued valued at $0.32 per share.
During the year ended December 31, 2016, the
Company issued 71,248 shares of its common stock valued at $0.70 per share for services rendered.
During the year ended December 31, 2016, the
Company cancelled 713,767 shares of its common stock valued at $125,000 in conjunction with an agreement with a former shareholder.
The Company committed to issue 125,000 shares to former shareholders valued at $56,250 recorded as settlement expense during the
year. These shares were not issued as of the date of this Annual Report.
During the year ended December 31, 2016, the
Company issued 7,500,000 shares of its common stock valued at $1,456,492 in conjunction with an agreement to cancel all outstanding
stock warrants and options issued along with the loans payable.
As of December 31, 2016 and 2015, there were
88,764,357 and 81,692,954 shares of the Company’s common stock issued and outstanding, respectively.
Note 14 – Commitments and Contingencies
Litigation:
From time to time the Company may become a
party to litigation in the normal course of business. Management believes that there are no current legal matters that would have
a material effect on the Company’s financial position or results of operations.
Operating leases
In April 2014, a subsidiary entered into an
extension of a non-cancellable operating lease for office space that expires on March 31, 2017. Rent expense under this lease for
the period from acquisition until December 31, 2015 was $8,923 per month less a $3,010 per month sublease through March 2017.
In December 2015, a subsidiary entered into
a non-cancellable operating lease for office space through November 2016. This lease was extended until April 2017. Rental payments
under this lease are $5,900 Australian dollars per month, which is approximately $4,480.
In December 2015, the Company entered into
a non-cancellable operating lease for office space through December 2016. Rental payments under this lease were $5,500 per month.
The following is a schedule by years of future
minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of
one year as of December 31, 2016:
Year ending December 31:
|
|
|
|
2017
|
|
$
|
35,659
|
|
|
|
|
|
|
Total
|
|
$
|
35,659
|
|
On December 8, 2014, a subsidiary entered into
a non-cancellable 36 month phone lease with an estimated cost of $894 a month.
The following is a schedule by years of future
minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of
one year as of December 31, 2016:
Year ending December 31:
|
|
|
|
2017
|
|
$
|
9,834
|
|
|
|
|
|
|
Total
|
|
$
|
9,834
|
|
Note 15 – Stock Options
On July 30, 2014, the Company’s board
of directors approved the Company’s 2014 Equity Incentive Plan and the reservation of 15,525,000 shares of common stock for
issuance under such plan. Such plan was approved by the Company’s shareholders and became effective on August 5, 2015.
On April 2, 2014, the Company granted 1,000,000
options with an exercise price of $0.25 per share to the Company owned by Mr. Jack Ross, Chief Executive Officer of the Company.
On December 14, 2015, the Company granted 1,000,000
options each with an exercise price of $0.25 per share to two Board Members of the Company.
On December 14, 2015, the Company granted 1,000,000
options each with an exercise price of $0.65 per share to two employees of the Company.
On December 14, 2015, the Company granted 1,000,000
options with an exercise price of $0.25 per share to a Board Observer of the Company. During 2016, these options were cancelled
in conjunction with the issuance of 7,500,000 shares and the cancellation of all outstanding options and warrants.
On February 18, 2016, the Company granted 300,000
options with an exercise price of $0.70 per share to an employee of the Company.
On April 18, 2016, the Company granted 500,000
options with an exercise price of $0.70 per share to an employee of the Company.
On July 4, 2016, the Company granted 500,000
options with an exercise price of $0.70 per share to an employee of the Company.
The following table summarizes the changes
in options outstanding and the related prices for the shares of the Company’s common stock issued to employees and consultants
under a stock option plan at December 31, 2016:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Exercise Prices ($)
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual Life
(Years)
|
|
|
Weighted
Average
Exercise
Price ($)
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price ($)
|
|
$
|
0.25 - $0.70
|
|
|
|
6,300,000
|
|
|
|
6.5
|
|
|
$
|
0.47
|
|
|
|
3,408,333
|
|
|
$
|
0.38
|
|
The stock option activity for the year ended
December 31, 2016 is as follows:
|
|
Options Outstanding
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at December 31, 2014
|
|
|
1,000,000
|
|
|
$
|
0.25
|
|
Granted
|
|
|
4,000,000
|
|
|
|
0.45
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired or canceled
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2015
|
|
|
5,000,000
|
|
|
$
|
0.41
|
|
Granted
|
|
|
2,300,000
|
|
|
|
0.50
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired or canceled
|
|
|
(1,000,000
|
)
|
|
|
(0.25
|
)
|
Outstanding at December 31, 2016
|
|
|
6,300,000
|
|
|
$
|
0.47
|
|
Stock-based compensation expense related to
vested options was $2,200,160 and $523,714 during the years ended December 31, 2016 and 2015, respectively. The Company determined
the value of share-based compensation for options vesting during the year ended December 31, 2015 using the Black-Scholes fair
value option-pricing model with the following weighted average assumptions: estimated fair value of Company’s common stock
of $0.74, risk-free interest rate of 2.23%, volatility of 154%, expected lives of 10 years, and dividend yield of 0%. The Company
determined the value of share-based compensation for options vesting during the year ended December 31, 2016 using the Black-Scholes
fair value option-pricing model with the following weighted average assumptions: estimated fair value of Company’s common
stock of $0.40-0.61, risk-free interest rate of 0.90-1.24%, volatility of 135-160%, expected lives of 3-6 years, and dividend yield
of 0%. Stock options outstanding as of December 31, 2016, as disclosed in the above table, have an intrinsic value of $780,000.
Note 16 – Stock Warrants
The following table summarizes the warrants
outstanding and the related prices for the shares of the Company’s common stock at December 31, 2016:
|
|
|
Warrants Outstanding
|
|
|
|
|
|
|
|
Warrants Exercisable
|
|
|
|
Exercise Prices ($)
|
|
|
Number Outstanding
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Weighted Average Exercise Price ($)
|
|
|
Number Exercisable
|
|
Weighted Average Exercise Price ($)
|
|
|
5.00
|
|
|
1,000,000
|
|
|
1.96
|
|
|
|
5.00
|
|
|
1,000,000
|
|
|
5.00
|
|
The warrant activity for the year ended December
31, 2016 is as follows:
|
|
Warrants Outstanding
|
|
|
Weighted Average Exercise Price
|
|
Outstanding at December 31, 2014
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
19,277,814
|
|
|
|
0.44
|
|
Exercised
|
|
|
(10,415,812
|
)
|
|
|
0.00000020
|
|
Expired or canceled
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2015
|
|
|
9,132,002
|
|
|
$
|
0.92
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired or canceled
|
|
|
(8,132,002
|
)
|
|
|
(0.42
|
)
|
Outstanding at December 31, 2016
|
|
|
1,000,000
|
|
|
$
|
5
|
|
Note 17 – Derivatives
The Company has incurred a liability for the
estimated fair value of a derivative warrant instrument. The estimated fair value of the derivative warrant instruments has been
calculated using the Black-Scholes fair value option-pricing model with key input variables provided by management, as of the issue
date, with the valuation offset against additional paid in capital, and at each reporting date, with changes in fair value recorded
as gains or losses on revaluation in non-operating income (expense).
The Company identified embedded derivatives
related to the warrants issued along with loan payable entered into in November 2015. These embedded derivatives included certain
conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the warrants and to adjust the fair value as of each subsequent balance sheet date.
At the inception of the warrants, the Company determined a fair value of $2,067,258 of the embedded derivative. The fair value
of the embedded derivative was determined using the Black-Scholes Model based on the following assumptions:
|
|
November 12, 2015
|
|
Risk-free interest rate
|
|
|
2.32
|
%
|
Expected remaining term
|
|
|
10 Years
|
|
Expected volatility
|
|
|
157.56
|
%
|
Dividend yield
|
|
|
0
|
%
|
The initial fair values of the embedded derivative
of $2,067,258 was allocated as a debt discount $2,067,258.
Fair value at December 31, 2015 was estimated
to be $3,096,179 and based on the following assumptions:
|
|
December 31, 2015
|
|
Risk-free interest rate
|
|
|
2.27
|
%
|
Expected remaining term
|
|
|
9.75 Years
|
|
Expected volatility
|
|
|
152.07
|
%
|
Dividend yield
|
|
|
0
|
%
|
During the year ended December 31, 2015, the
increase in the fair value of the warrant derivative liability of $1,028,921 was recorded as a loss on change in fair value of
derivative liability.
During the year ended December 31, 2016, the
decrease in the fair value of the warrant derivative liability of $1,380,600 was recorded as a gain on change in fair value of
derivative liability.
During December 2016, the Company cancelled
these warrants and issued 7,500,000 shares of common stock and accordingly warrant derivative liability was extinguished.
Fair value at December 23, 2016 when the warrants
were cancelled was estimated to be $1,715,579, based on the following assumptions:
|
|
December 23, 2016
|
|
Risk-free interest rate
|
|
|
2.55
|
%
|
Expected remaining term
|
|
|
8.92 Years
|
|
Expected volatility
|
|
|
143.15
|
%
|
Dividend yield
|
|
|
0
|
%
|
The following table summarizes the derivative
liabilities included in the balance sheet at December 31, 2016:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
|
|
|
Balance - December 31, 2015
|
|
$
|
3,096,179
|
|
Extinguishment of derivatives liabilities from cancellation of warrants
|
|
|
(1,715,579
|
)
|
Gain on change in fair value of the derivative liabilities
|
|
|
(1,380,600
|
)
|
Balance – December 31, 2016
|
|
$
|
-
|
|
Note 18 – Segments
Segment identification and selection is consistent
with the management structure used by the Company’s chief operating decision maker to evaluate performance and make decisions
regarding resource allocation, as well as the materiality of financial results consistent with that structure. Based on the Company’s
management structure and method of internal reporting, the Company has one operating segment. The Company’s chief operating
decision maker does not review operating results on a disaggregated basis; rather, the chief operating decision maker reviews operating
results on an aggregate basis.
Net sales attributed to customers in the United
States and foreign countries for the years ended December 31, 2016 and 2015 were as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
United States
|
|
$
|
32,010,018
|
|
|
$
|
13,129,753
|
|
Foreign countries
|
|
|
2,830,376
|
|
|
|
326,624
|
|
|
|
$
|
34,840,394
|
|
|
$
|
13,456,377
|
|
The Company’s net sales by product group
for the years ended December 31, 2016 and 2015 were as follows:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Nutraceuticals
|
|
$
|
33,877,529
|
|
|
$
|
13,030,006
|
|
Over the Counter
(OTC)
|
|
|
907,401
|
|
|
|
416,417
|
|
Cosmeceuticals
|
|
|
55,464
|
|
|
|
9,954
|
|
|
|
$
|
34,840,394
|
|
|
$
|
13,456,377
|
|
(1) Net sales for any other product group of
similar products are less than 10% of consolidated net sales.
Long-lived assets (net) attributable to operations
in the United States and foreign countries as of December 31, 2016 and 2015 were as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
United States
|
|
$
|
13,174,461
|
|
|
$
|
17,411,598
|
|
Foreign countries
|
|
|
21,599
|
|
|
|
12,081
|
|
|
|
$
|
13,196,060
|
|
|
$
|
17,423,679
|
|
Note 19 – Subsequent Events
Other than disclosed below, management evaluated
all activities of the Company through the issuance date of the Company’s consolidated financial statements and concluded
that no subsequent events have occurred that would require adjustments or disclosure into the consolidated financial statements.
During 2017, the Company paid the remaining
$750,000 on the loan to Factor Nutrition Labs, bringing the balance to $0. The Company also paid an additional $1,031,250 in principal
on the second loan to Knight Therapeutics.