Youngevity International, Inc. - Quarter Report: 2013 March (Form 10-Q)

---

---

[X]	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended MARCH 31, 2013

[   ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Delaware			90-0890517
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
2400 Boswell Road, Chula Vista, CA 91914
(Address of principal executive offices)		(Zip Code)

Large accelerated filer	[   ]	Accelerated filer	[   ]
Non-accelerated filer	[   ]	Smaller reporting company	[X]

 

		Page
PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of March 31, 2013 (unaudited) and December 31, 2012	1
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012 (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2013 and 2012 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012 (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Defaults Upon Senior Securities	18
Item 4.	Mine Safety Disclosures	18
Item 5.	Other Information	18
Item 6.	Exhibits	18
Signatures		19

 

 

		March 31, 2013				December 31, 2012
ASSETS		(Unaudited)
Current Assets:
Cash and cash equivalents		$	4,119			$	3,025
Accounts receivable, due from factoring company			940				836
Note receivable, related party			-				330
Inventory			4,944				4,675
Prepaid expenses and other current assets			621				430
Total current assets			10,624				9,296
Property and equipment, net			4,306				1,343
Intangible assets, net			8,735				9,114
Goodwill			5,154				5,154
		$	28,819			$	24,907
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable		$	2,323			$	2,144
Accrued distributor compensation			3,330				2,992
Accrued expenses			1,421				1,426
Other current liabilities			384				238
Capital lease payable, current portion			74				71
Notes payable, current portion			454				366
Contingent acquisition debt, current portion			554				619
Total current liabilities			8,540				7,856
Other liabilities			58				75
Capital lease payable, less current portion			81				101
Deferred tax liability			742				742
Notes payable, less current portion			5,039				1,189
Contingent acquisition debt, less current portion			4,975				5,065
Total liabilities			19,435				15,028
Commitments and contingencies
Equity:
AL International, Inc. stockholders' equity:
Convertible Preferred Stock, $0.001 par value: 100,000,000 shares authorized, 211,135 shares issued and outstanding at March 31, 2013 and December 31, 2012			-				-
Common Stock, $0.001 par value: 600,000,000 shares authorized; 389,294,348 and 389,599,848 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively			389				389
Note receivable for stock purchase			(2	)			(62	)
Additional paid-in capital			165,253				165,017
Accumulated deficit			(155,991	)			(155,266	)
Accumulated other comprehensive loss			(122	)			(123	)
Total AL International, Inc. stockholders' equity			9,527				9,955
Noncontrolling interest			(143	)			(76	)
Total equity			9,384				9,879
		$	28,819			$	24,907

See accompanying notes to condensed consolidated financial statements.

 

1.	Basis of Presentation

2.	Income Taxes

3.	Inventory and Cost of Sales

Inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. The Company records an inventory reserve for estimated excess and obsolete inventory based upon historical turnover, market conditions and assumptions about future demand for its products. When applicable, expiration dates of certain inventory items with a definite life are taken into consideration.

		As of
		March 31, 2013				December 31, 2012
Finished goods		$	3,671			$	3,213
Raw materials			1,659				1,828
			5,330				5,041
Reserve for excess and obsolete			(386	)			(366	)
Inventory, net		$	4,944			$	4,675

4.	Business Combinations

5.	Intangible Assets and Goodwill

 
         Intangible assets consist of the following (in thousands):

		March 31, 2013								December 31, 2012
		Gross Amount				Accumulated Amortization				Gross Amount				Accumulated Amortization
Distributor organizations		$	6,825			$	(3,399	)		$	6,825			$	(3,157	)
Trademarks			2,741				(78	)			2,741				(66	)
Customer relationships			3,500				(854	)			3,500				(729	)
Other			20				(20	)			20				(20	)
Intangible assets, net		$	13,086			$	(4,351	)		$	13,086			$	(3,972	)

 

 

 

6.	Stock Based Compensation

7.	Distributor Compensation

8.	Acquisition of  2400 Boswell, LLC

 

 

 

9.	Fair Value of Financial Instruments

Level 1 – Quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Unobservable inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability.

		Fair Value March 31, 2013
		Total				Level 1				Level 2				Level 3
Liabilities:
Contingent acquisition debt		$	5,529			$	-			$	-			$	5,529
Total liabilities		$	5,529			$	-			$	-			$	5,529
		Fair Value at December 31, 2012
		Total				Level 1				Level 2				Level 3
Liabilities:
Contingent acquisition debt		$	5,684			$	-			$	-			$	5,684
Total liabilities		$	5,684			$	-			$	-			$	5,684

 

10.	Earnings per share

 

11.

Equity

12.	Stock Option Plan

On May 16, 2012, the Company established the 2012 Stock Option Plan (“Plan”) authorizing the granting of options for up to 40,000,000 shares of Common Stock. The purpose of the Plan is to promote the long-term growth and profitability of the Company by (i) providing key people and consultants with incentives to improve stockholder value and to contribute to the growth and financial success of the Company and (ii) enabling the Company to attract, retain and reward the best available persons for positions of substantial responsibility. The Plan permits the granting of stock options, including non-qualified stock options and incentive stock options qualifying under Section 422 of the Code, in any combination (collectively, "Options").

 

 

		Number of  Shares				Weighted  Average  Exercise Price				Aggregate Intrinsic  Value  (in thousands)
Outstanding December 31, 2012			13,728,000			$	0.22			$	5
Granted			164,500				0.29
Exercised			-				-				-
Outstanding March 31, 2013			13,892,500				0.22				1,389
Exercisable March 31, 2013			8,292,500			$	0.22			$	829

Weighted								Weighted				Weighted
Average								Average				Average
Exercise Price				Options				Exercise Price				Remaining Life
Outstanding:
$	0.16 - $0.21				453,500			$	0.17				2.59
$	0.21 - $0.23				12,942,000			$	0.22				4.26
$	0.23 - $0.32				497,000			$	0.27				2.47
					13,892,500			$	0.22				4.14
Exercisable:
$	0.16 - $0.21				453,500			$	0.17				2.59
$	0.21 - $0.23				7,342,000			$	0.22				4.33
$	0.23 - $0.32				497,000			$	0.27				2.47
					8,292,500			$	0.22				4.13

 

13.	Factoring Agreement

14.	Segment and Geographical Information

 

 

	Three months ended March 31,
	2013				2012
Revenues
Direct selling		$	18,428			$	14,079
Commercial coffee			2,399				1,859
Total revenues		$	20,827			$	15,938
Gross margin
Direct selling		$	12,126			$	8,778
Commercial coffee			291				245
Total gross margin		$	12,417			$	9,023
Net income (loss)
Direct selling		$	1,125			$	(657	)
Commercial coffee			(132	)			(194	)
Total net income (loss)		$	993			$	(851	)
Capital expenditures
Direct selling		$	2,817			$	14
Commercial coffee			236				29
Total capital expenditures		$	3,053			$	43
	As of
		March 31, 2013				December 31, 2012
Total assets
Direct selling		$	21,546			$	17,403
Commercial coffee			7,273				7,504
Total assets		$	28,819			$	24,907

		Three months ended March 31,
		2013				2012
United States		$	19,255			$	14,661
International			1,572				1,277
Total revenues		$	20,827			$	15,938

 

A.

Overview

B.	Results of Operations

		For the three months ended March 31,								Percentage change
Segment		2013				2012
Direct selling		$	18,428			$	14,079				30.9	%
Commercial coffee			2,399				1,859				29.0	%
Total		$	20,827			$	15,938				30.7	%

 

		Gross Profit % For the three months ended March 31,
Segment		2013			2012
Direct selling			65.8	%	62.3	%
Commercial coffee			12.1	%	13.2	%
Combined			59.6	%	56.6	%

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the effective date of the change. As of March 31, 2013 we have recognized income tax expense of $198,000 which is our estimated federal and state income tax liability for the three months ended March 31, 2013. Realization of our deferred tax asset is dependent upon future earnings in specific tax jurisdictions, the timing and amount of which are uncertain. We continue to evaluate the realizability of the deferred tax asset, based upon achieved and estimated future results. If it is determined that it is more likely than not that the deferred tax asset will be realized, we will reverse all or a portion of the allowance as deemed appropriate. The difference between the effective rate of 16.6% and the Federal statutory rate of 35.0% is due to the change in our valuation allowance account, state income taxes (net of federal benefit), and certain permanent differences between our taxable and book income.

 

 

 
 

C.	Off-Balance Sheet Arrangements

D.	Customer Concentrations

(a)	Evaluation of Disclosure Controls and Procedures

 

 

(b)	Changes in Internal Control Over Financial Reporting

 

 

ISSUER PURCHASES OF EQUITY SECURITIES
Period ending March 31, 2013		Total Number of Shares Purchased (*)				Average Price Paid per Share				Total Number of Shares Purchases as Part of Publicly Announced Plans or Programs				Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 to January 31,  2013			188,500				0.17				188,500				14,736,500
February 1 to February 28, 2013			117,000				0.22				117,000				14,619,500
March 1 to March 31, 2013			-				-				-				14,619,500
Total			305,500				0.19				305,500				14,619,500

 

(*)

On December 11, 2012, the Company authorized a share repurchase program to repurchase up to 15 million of the Company's issued and outstanding common shares from time to time on the open market or via private transactions through block trades. This program, according to its terms, will expire on December 31, 2013 unless revoked earlier by the Board.

	AL INTERNATIONAL INC.
	(Registrant)
	/s/ Stephan Wallach
	Stephan Wallach
	Chief Executive Officer
	(Principal Executive Officer)
Date: May 15, 2013
	/s/ David Briskie
	David Briskie
	Chief Financial Officer
	(Principal Financial Officer)
Date: May 15, 2013

 

Exhibit No.		Exhibit
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document