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ý
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the fiscal period ended March 31, 2016
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or
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¨
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from to
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Florida
(State or other jurisdiction of
incorporation or organization)
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98-0534701
(I.R.S Employer
Identification No.)
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2950 North Harwood Street, 22nd Floor, Dallas, Texas
(Address of principal executive offices)
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75201
(Zip Code)
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a
smaller reporting company)
|
Smaller reporting company
x
|
|
|
|
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Item 1.
|
|
|
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||
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||
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||
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Item 2.
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Item 3.
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Item 4.
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||
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Item 1.
|
||
Item 1A.
|
||
Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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||
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||
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Index to Exhibits
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|
(in thousands, except share and per share data)
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March 31, 2016
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|
December 31, 2015
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||||
Assets
|
|
|
|
|
|
|
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Current assets:
|
|
|
|
|
|
|
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Cash and cash equivalents
|
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$
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3,187
|
|
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$
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6,482
|
|
Marketable securities
|
|
2,968
|
|
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5,306
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|
||
Accounts receivable, net
|
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5,616
|
|
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4,828
|
|
||
Inventory, net
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20,771
|
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|
20,799
|
|
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Other current assets
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4,714
|
|
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2,302
|
|
||
Total current assets
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37,256
|
|
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39,717
|
|
||
Assets held for sale
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1,043
|
|
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1,111
|
|
||
Restricted cash
|
|
—
|
|
|
2,857
|
|
||
Sale leaseback security deposit
|
|
4,414
|
|
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4,414
|
|
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Property, plant and equipment, net
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|
5,025
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|
|
5,387
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|
||
Property under capital leases, net
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14,353
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|
|
14,654
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|
||
Goodwill
|
|
5,206
|
|
|
5,427
|
|
||
Intangibles, net
|
|
8,344
|
|
|
8,801
|
|
||
Other assets
|
|
135
|
|
|
137
|
|
||
Total assets
|
|
$
|
75,776
|
|
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$
|
82,505
|
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Liabilities and stockholders’ equity
|
|
|
|
|
|
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Current liabilities:
|
|
|
|
|
|
|
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Accounts payable
|
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$
|
15,244
|
|
|
$
|
15,937
|
|
Related party payables
|
|
1,571
|
|
|
1,605
|
|
||
Accrued commissions
|
|
3,794
|
|
|
3,033
|
|
||
Accrued liabilities
|
|
9,033
|
|
|
7,303
|
|
||
Deferred revenue
|
|
1,858
|
|
|
2,307
|
|
||
Taxes payable
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5,133
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|
|
4,830
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|
||
Current portion of long-term debt
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6,260
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|
|
3,048
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|
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Other current liabilities
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589
|
|
|
776
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|
||
Total current liabilities
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43,482
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|
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38,839
|
|
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Deferred tax liability
|
|
749
|
|
|
744
|
|
||
Long-term debt, less current portion
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9,096
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|
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12,784
|
|
||
Capital lease obligation, less current portion
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16,235
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16,332
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|
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Other long-term liabilities
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2,887
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|
|
2,864
|
|
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Total liabilities
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72,449
|
|
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71,563
|
|
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Commitments and contingencies (Note 12)
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|
|
|
|
|
|
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Stockholders’ equity:
|
|
|
|
|
|
|
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Preferred stock, par value $0.001 per share, 500,000 authorized-0-issued and outstanding
|
|
—
|
|
|
—
|
|
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Common stock, par value $0.0001 per share, 250,000,000 shares authorized; 35,785,324 and 35,718,279 shares issued and outstanding, at March 31, 2016 and at December 31, 2015 respectively
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4
|
|
|
4
|
|
||
Additional paid-in capital
|
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58,905
|
|
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58,837
|
|
||
Accumulated other comprehensive loss
|
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(539
|
)
|
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(586
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)
|
||
Accumulated deficit
|
|
(52,021
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)
|
|
(45,253
|
)
|
||
Total stockholders’ equity attributable to JRjr33, Inc.
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6,349
|
|
|
13,002
|
|
||
Stockholders’ equity attributable to noncontrolling interest
|
|
(3,022
|
)
|
|
(2,060
|
)
|
||
Total stockholders’ equity
|
|
3,327
|
|
|
10,942
|
|
||
Total liabilities and stockholders’ equity
|
|
$
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75,776
|
|
|
$
|
82,505
|
|
|
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Three Months Ended March 31,
|
||||||
(in thousands, except share and per common share data)
|
|
2016
|
|
2015
|
||||
Revenue
|
|
$
|
36,075
|
|
|
$
|
19,878
|
|
Program costs and discounts
|
|
(5,902
|
)
|
|
(2,571
|
)
|
||
Net revenues
|
|
30,173
|
|
|
17,307
|
|
||
Costs of sales
|
|
10,452
|
|
|
5,189
|
|
||
Gross profit
|
|
19,721
|
|
|
12,118
|
|
||
Commissions and incentives
|
|
9,431
|
|
|
6,501
|
|
||
Selling expense
|
|
4,522
|
|
|
2,310
|
|
||
General and administrative expense
|
|
11,773
|
|
|
8,433
|
|
||
Share based compensation expense
|
|
—
|
|
|
(1,167
|
)
|
||
Depreciation and amortization
|
|
671
|
|
|
279
|
|
||
Gain on sale of assets
|
|
(42
|
)
|
|
(43
|
)
|
||
Impairment of goodwill
|
|
191
|
|
|
—
|
|
||
Operating loss
|
|
(6,825
|
)
|
|
(4,195
|
)
|
||
Gain on sale of marketable securities
|
|
(3
|
)
|
|
(192
|
)
|
||
Interest expense, net
|
|
832
|
|
|
599
|
|
||
Loss before income tax provision
|
|
(7,654
|
)
|
|
(4,602
|
)
|
||
Income tax provision
|
|
77
|
|
|
191
|
|
||
Net loss
|
|
(7,731
|
)
|
|
(4,793
|
)
|
||
Net loss attributable to non-controlling interest
|
|
963
|
|
|
670
|
|
||
Net loss attributable to JRjr33, Inc.
|
|
$
|
(6,768
|
)
|
|
$
|
(4,123
|
)
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
||
Weighted average common shares outstanding
|
|
35,781,030
|
|
|
29,668,069
|
|
||
Loss per common share attributable to JRjr33, Inc., basic and diluted
|
|
$
|
(0.19
|
)
|
|
$
|
(0.14
|
)
|
|
|
Three Months Ended March 31,
|
||||||
(in thousands)
|
|
2016
|
|
2015
|
||||
Net loss before allocation to non-controlling interests
|
|
$
|
(7,731
|
)
|
|
$
|
(4,793
|
)
|
Other comprehensive gain (loss):
|
|
|
|
|
|
|
||
Foreign currency translation adjustment gain
|
|
46
|
|
|
174
|
|
||
Unrealized gain (loss) on marketable securities
|
|
|
|
|
||||
Unrealized holding gain arising during the period
|
|
3
|
|
|
7
|
|
||
Reclassification of other comprehensive income included in net loss
|
|
—
|
|
|
(199
|
)
|
||
Other comprehensive gain (loss), before tax
|
|
49
|
|
|
(18
|
)
|
||
Tax provision (benefit) on other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
||
Other comprehensive gain (loss) before allocation to non-controlling interests
|
|
49
|
|
|
(18
|
)
|
||
|
|
|
|
|
||||
Comprehensive loss before allocation to non-controlling interests
|
|
$
|
(7,682
|
)
|
|
$
|
(4,811
|
)
|
Less: Comprehensive loss attributable to non-controlling interests
|
|
963
|
|
|
670
|
|
||
Comprehensive loss attributable to JRjr33, Inc.
|
|
$
|
(6,719
|
)
|
|
$
|
(4,141
|
)
|
|
|
Three Months Ended March 31,
|
||||||
(in thousands)
|
|
2016
|
|
2015
|
||||
Operating activities:
|
|
|
|
|
|
|
||
Net loss
|
|
$
|
(7,731
|
)
|
|
$
|
(4,793
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities, net of effect of business acquisitions:
|
|
|
|
|
|
|
||
Depreciation and amortization
|
|
812
|
|
|
420
|
|
||
Gain on sale of marketable securities
|
|
(3
|
)
|
|
(192
|
)
|
||
Share based compensation expense
|
|
—
|
|
|
(1,167
|
)
|
||
Non-cash compensation
|
|
658
|
|
|
101
|
|
||
Provision for doubtful accounts
|
|
234
|
|
|
11
|
|
||
Gain on sale of assets
|
|
(42
|
)
|
|
(43
|
)
|
||
Deferred income tax
|
|
31
|
|
|
34
|
|
||
Impairment of goodwill
|
|
191
|
|
|
—
|
|
||
Amortization of debt discount
|
|
194
|
|
|
—
|
|
||
Deferred rent amortization
|
|
72
|
|
|
—
|
|
||
Changes in certain assets and liabilities:
|
|
|
|
|
|
|
||
Accounts receivable
|
|
(771
|
)
|
|
(467
|
)
|
||
Inventory
|
|
(565
|
)
|
|
588
|
|
||
Other current assets
|
|
311
|
|
|
303
|
|
||
Accounts payable
|
|
(344
|
)
|
|
725
|
|
||
Related party payables
|
|
(34
|
)
|
|
1,164
|
|
||
Accrued commissions
|
|
764
|
|
|
734
|
|
||
Accrued liabilities
|
|
1,239
|
|
|
129
|
|
||
Deferred revenue
|
|
(467
|
)
|
|
(876
|
)
|
||
Taxes payable
|
|
414
|
|
|
150
|
|
||
Other liabilities
|
|
(185
|
)
|
|
(500
|
)
|
||
Net cash used in operating activities
|
|
(5,222
|
)
|
|
(3,679
|
)
|
||
Investing activities:
|
|
|
|
|
|
|
||
Capital expenditures
|
|
(33
|
)
|
|
(316
|
)
|
||
Proceeds from the sale of property, plant and equipment
|
|
68
|
|
|
28
|
|
||
Purchases of marketable securities
|
|
—
|
|
|
(18,876
|
)
|
||
Proceeds from sales of marketable securities
|
|
2,344
|
|
|
10,185
|
|
||
Deposit of restricted cash collateral
|
|
—
|
|
|
(3,000
|
)
|
||
Acquisitions, net of cash purchased
|
|
—
|
|
|
(3,135
|
)
|
||
Net cash (used in) provided by investing activities
|
|
2,379
|
|
|
(15,114
|
)
|
||
Financing activities:
|
|
|
|
|
|
|
||
Borrowings on long-term debt
|
|
—
|
|
|
2,978
|
|
||
Payments on long-term debt
|
|
(425
|
)
|
|
(247
|
)
|
||
Stock issuances
|
|
63
|
|
|
18,360
|
|
||
Net cash (used in) provided by financing activities
|
|
(362
|
)
|
|
21,091
|
|
||
Effect of exchange rate changes on cash and cash equivalents
|
|
(90
|
)
|
|
228
|
|
||
Increase (decrease) in cash and cash equivalents
|
|
(3,295
|
)
|
|
2,526
|
|
||
Cash and cash equivalents at beginning of period
|
|
6,482
|
|
|
2,606
|
|
||
Cash and cash equivalents at end of period
|
|
$
|
3,187
|
|
|
$
|
5,132
|
|
|
|
|
|
|
||||
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
||
Cash paid during the period for:
|
|
|
|
|
|
|
||
Interest
|
|
$
|
743
|
|
|
$
|
595
|
|
Buildings
|
7 to 40 years
|
Land improvements
|
3 to 25 years
|
Leasehold improvements
|
3 to 15 years
|
Equipment
|
3 to 25 years
|
Subsidiary
|
|
Functional Currency
|
|
Reporting Currency
|
The Longaberger Company
|
|
USD
|
|
USD
|
Uppercase Acquisition, Inc.
|
|
USD
|
|
USD
|
CVSL TBT LLC
|
|
USD
|
|
USD
|
My Secret Kitchen, Ltd.
|
|
GBP
|
|
USD
|
Your Inspiration At Home Pty Ltd.
|
|
AUD
|
|
USD
|
Paperly, Inc.
|
|
USD
|
|
USD
|
Happenings Communications Group, Inc.
|
|
USD
|
|
USD
|
Agel Enterprises Inc.
|
|
USD
|
|
USD
|
Kleeneze Ltd.
|
|
GBP
|
|
USD
|
Betterware Ltd.
|
|
GBP
|
|
USD
|
|
Three Months Ended
|
||
|
March 31, 2015
|
||
Revenue
|
$
|
44,417
|
|
Net loss
|
(4,833
|
)
|
|
Net loss attributable to JRjr33, Inc.
|
(4,163
|
)
|
|
Loss per common share attributable to JRjr33, Inc., basic and diluted
|
$
|
(0.14
|
)
|
•
|
Losses were incurred by Kleeneze as a result of the write down of intercompany receivables in the amount of
$33.1 million
that were forgiven prior to and in accordance with the transaction. As these losses were direct and one-time events related specifically to the acquisition, the Company has excluded these items from the pro-forma results above; and
|
•
|
The pro-forma results above exclude transaction costs related to the
two
acquisitions that were expensed in
2015
.
|
|
Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
||||||||
Balance at December 31, 2015
|
|
|
|
|
|
|
|
||||||||
Mutual Funds
|
$
|
5,312
|
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
|
$
|
5,306
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at March 31, 2016
|
|
|
|
|
|
|
|
||||||||
Mutual Funds
|
$
|
2,971
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
2,968
|
|
|
March 31, 2016
|
|
December 31, 2015
|
||||
Raw material and supplies
|
$
|
2,603
|
|
|
$
|
3,165
|
|
Work in process
|
235
|
|
|
221
|
|
||
Finished goods
|
20,529
|
|
|
20,164
|
|
||
Inventory, gross
|
23,367
|
|
|
23,550
|
|
||
Inventory reserve
|
(2,596
|
)
|
|
(2,751
|
)
|
||
Inventory, net
|
$
|
20,771
|
|
|
$
|
20,799
|
|
|
March 31, 2016
|
|
December 31, 2015
|
||||
Balance as of beginning of period
|
$
|
1,111
|
|
|
$
|
—
|
|
Additions to held for sale
|
—
|
|
|
4,440
|
|
||
Realized gains (losses)
|
—
|
|
|
—
|
|
||
Impairment charge
|
—
|
|
|
(3,329
|
)
|
||
Sales and settlements, net
|
(68
|
)
|
|
—
|
|
||
Balance as of end of period
|
$
|
1,043
|
|
|
$
|
1,111
|
|
|
March 31, 2016
|
|
December 31, 2015
|
||||
Land and improvements
|
$
|
109
|
|
|
$
|
109
|
|
Buildings and improvements
|
2,473
|
|
|
2,472
|
|
||
Equipment
|
5,014
|
|
|
5,070
|
|
||
Construction in progress
|
1
|
|
|
—
|
|
||
Property, plant and equipment, gross
|
7,597
|
|
|
7,651
|
|
||
Less accumulated depreciation
|
(2,572
|
)
|
|
(2,264
|
)
|
||
Property, plant and equipment, net
|
$
|
5,025
|
|
|
$
|
5,387
|
|
Identifiable Intangible Assets
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount as of March 31, 2016
|
|
Weighted Average Amortization Period (in Years)
|
|||||||
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|||||||
Trade name and trademarks
|
$
|
5,485
|
|
|
$
|
—
|
|
|
$
|
5,485
|
|
|
—
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|||||||
Trade name and trademarks
|
3
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|||
Intellectual property
|
3,370
|
|
|
(511
|
)
|
|
2,859
|
|
|
4
|
|
|||
|
$
|
8,858
|
|
|
$
|
(514
|
)
|
|
$
|
8,344
|
|
|
4
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount as of December 31, 2015
|
|
Weighted Average Amortization Period (in Years)
|
|||||||
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|||||||
Trade name and trademarks
|
$
|
5,614
|
|
|
$
|
—
|
|
|
$
|
5,614
|
|
|
—
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|||
Trade name and trademarks
|
3
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|||
Intellectual property
|
3,534
|
|
|
(347
|
)
|
|
3,187
|
|
|
4
|
|
|||
|
$
|
9,151
|
|
|
$
|
(350
|
)
|
|
$
|
8,801
|
|
|
4
|
|
Amortization of Intangible Assets
|
|||
2016 (remaining portion)
|
$
|
544
|
|
2017
|
725
|
|
|
2018
|
725
|
|
|
2019
|
652
|
|
|
2020
|
98
|
|
|
Thereafter
|
115
|
|
|
Total amortization of intangible assets
|
$
|
2,859
|
|
Description
|
|
Interest rate
|
|
March 31, 2016
|
|
December 31, 2015
|
|||||
Convertible note—Dominion Capital
|
|
9.75
|
%
|
|
$
|
3,950
|
|
|
$
|
4,000
|
|
Unamortized debt discount, costs and fees of issuance—Dominion Capital
|
|
|
|
(822
|
)
|
|
(1,016
|
)
|
|||
Convertible notes—payable to former shareholders of Stanley House
|
|
2.00
|
%
|
|
5,297
|
|
|
5,502
|
|
||
Senior secured debt—HSBC Bank PLC
|
|
1.10
|
%
|
|
2,827
|
|
|
2,984
|
|
||
Promissory note—payable to former shareholder of TLC
|
|
2.63
|
%
|
|
2,908
|
|
|
3,003
|
|
||
Promissory note—Lega Enterprises, LLC (formerly Agel Enterprises, LLC)
|
|
5.00
|
%
|
|
931
|
|
|
1,043
|
|
||
Other miscellaneous notes
|
|
4.00
|
%
|
|
265
|
|
|
316
|
|
||
Total debt
|
|
|
|
|
15,356
|
|
|
15,832
|
|
||
Less current maturities
|
|
|
|
|
(6,260
|
)
|
|
(3,048
|
)
|
||
Long-term debt
|
|
|
|
|
$
|
9,096
|
|
|
$
|
12,784
|
|
2016 (remaining portion)
|
$
|
2,287
|
|
2017
|
8,789
|
|
|
2018
|
2,451
|
|
|
2019
|
412
|
|
|
2020
|
423
|
|
|
Thereafter
|
994
|
|
|
Total long-term debt including current maturities
|
$
|
15,356
|
|
2016 (remaining portion)
|
$
|
1,101
|
|
2017
|
1,535
|
|
|
2018
|
1,532
|
|
|
2019
|
1,527
|
|
|
2020
|
1,199
|
|
|
Thereafter
|
8,557
|
|
|
|
$
|
15,451
|
|
2016, remaining portion
|
$
|
1,946
|
|
2017
|
2,571
|
|
|
2018
|
2,623
|
|
|
2019
|
2,656
|
|
|
2020
|
2,634
|
|
|
Thereafter
|
25,701
|
|
|
Total minimum lease payments
|
38,131
|
|
|
Less amount representing interest
|
(21,702
|
)
|
|
Present value of minimum lease payments
|
$
|
16,429
|
|
|
March 31, 2016
|
|
December 31, 2015
|
||||
Recorded Amount
|
|
|
|
||||
Long-term debt, including current portion
|
$
|
15,356
|
|
|
$
|
15,832
|
|
Capital leases, including current portion
|
16,422
|
|
|
16,528
|
|
||
Total
|
$
|
31,778
|
|
|
32,360
|
|
|
|
|
|
|
||||
Fair Value
|
|
|
|
||||
Long-term debt, including current portion
|
$
|
14,272
|
|
|
$
|
14,024
|
|
Capital leases, including current portion
|
$
|
10,472
|
|
|
$
|
10,040
|
|
Total
|
$
|
24,744
|
|
|
$
|
24,064
|
|
|
March 31, 2016
|
|
December 31, 2015
|
||||
Stock Options
|
|
|
|
||||
Weighted average expected volatility
|
103
|
%
|
|
92
|
%
|
||
Weighted Average Term (in years)
|
10
|
|
|
10
|
|
||
Risk-free interest rate
|
2
|
%
|
|
2
|
%
|
||
Weighted average forfeiture rate
|
41
|
%
|
|
—
|
%
|
||
Weighted average fair value at date of grant
|
$
|
0.63
|
|
|
$
|
1.08
|
|
|
|
|
|
||||
Warrants
|
|
|
|
||||
Weighted average expected volatility
|
|
|
|
69
|
%
|
||
Weighted Average Term (in years)
|
|
|
|
2
|
|
||
Risk-free interest rate
|
|
|
|
2
|
%
|
||
Weighted average fair value at date of grant
|
|
|
|
$
|
1.24
|
|
|
|
|
Weighted Average
|
|||
|
Number
|
|
Exercise Price
Per Share |
|||
Outstanding as of December 31, 2015
|
1,100,000
|
|
|
$
|
1.27
|
|
Granted
|
1,160,000
|
|
|
1.11
|
|
|
Expired, forfeited, and revoked
|
(1,000,000
|
)
|
|
1.27
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
Outstanding as of March 31, 2016
|
1,260,000
|
|
|
1.12
|
|
|
Options exercisable as of March 31, 2016
|
25,000
|
|
|
1.23
|
|
|
Remaining unvested options outstanding and expected to vest
|
1,235,000
|
|
|
$
|
1.11
|
|
|
|
Foreign
Currency
Translation
|
|
Unrealized Gain
(Loss) on
Available-for-
Sale Securities
|
|
Total
Accumulated
Other
Comprehensive
Income (Loss)
|
||||||
Balance at December 31, 2014
|
|
$
|
128
|
|
|
$
|
193
|
|
|
$
|
321
|
|
Other comprehensive income (loss) before reclassifications
|
|
(706
|
)
|
|
—
|
|
|
(706
|
)
|
|||
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
(199
|
)
|
|
(199
|
)
|
|||
Transactions with non-controlling interests
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|||
Balance at December 31, 2015
|
|
(580
|
)
|
|
(6
|
)
|
|
(586
|
)
|
|||
Other comprehensive income (loss) before reclassifications
|
|
46
|
|
|
3
|
|
|
49
|
|
|||
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Transactions with non-controlling interests
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|||
Net other comprehensive loss at March 31, 2016
|
|
$
|
(536
|
)
|
|
$
|
(3
|
)
|
|
$
|
(539
|
)
|
|
March 31, 2016
|
|
December 31, 2015
|
||
Stock options
|
1,260,000
|
|
|
1,100,000
|
|
Warrants
|
50,000
|
|
|
50,000
|
|
Warrants issued in public offering
|
6,946,875
|
|
|
6,946,875
|
|
Convertible notes
|
375,000
|
|
|
375,000
|
|
Shares potentially issuable to Rochon Capital
|
25,240,676
|
|
|
25,240,676
|
|
Total
|
33,872,551
|
|
|
33,712,551
|
|
|
Gourmet Food
|
|
Home Décor
|
|
Nutritional and Wellness
|
|
Other
|
|
Consolidated
|
||||||||||
2016
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenue
|
$
|
2,927
|
|
|
$
|
26,654
|
|
|
$
|
6,266
|
|
|
$
|
228
|
|
|
$
|
36,075
|
|
Gross profit
|
1,497
|
|
|
13,116
|
|
|
4,969
|
|
|
139
|
|
|
19,721
|
|
|||||
Operating expenses
|
2,126
|
|
|
16,544
|
|
|
6,061
|
|
|
1,815
|
|
|
26,546
|
|
|||||
Gain on sale of marketable securities
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
|||||
Interest expense
|
1
|
|
|
568
|
|
|
16
|
|
|
247
|
|
|
832
|
|
|||||
Loss before income tax provision
|
$
|
(630
|
)
|
|
$
|
(3,996
|
)
|
|
$
|
(1,108
|
)
|
|
$
|
(1,920
|
)
|
|
$
|
(7,654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
2015
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Revenue
|
$
|
2,545
|
|
|
$
|
10,171
|
|
|
$
|
6,777
|
|
|
$
|
385
|
|
|
$
|
19,878
|
|
Gross profit
|
1,256
|
|
|
5,307
|
|
|
5,304
|
|
|
251
|
|
|
12,118
|
|
|||||
Operating expenses
|
1,826
|
|
|
6,512
|
|
|
5,834
|
|
|
2,141
|
|
|
16,313
|
|
|||||
Gain on sale of marketable securities
|
—
|
|
|
—
|
|
|
—
|
|
|
(192
|
)
|
|
(192
|
)
|
|||||
Interest expense
|
21
|
|
|
190
|
|
|
16
|
|
|
372
|
|
|
599
|
|
|||||
Loss before income tax provision
|
$
|
(591
|
)
|
|
$
|
(1,395
|
)
|
|
$
|
(546
|
)
|
|
$
|
(2,070
|
)
|
|
$
|
(4,602
|
)
|
|
|
March 31, 2016
|
|
December 31, 2015
|
||||
Gourmet food
|
|
$
|
1,965
|
|
|
$
|
2,324
|
|
Home décor
|
|
50,905
|
|
|
53,888
|
|
||
Nutritional and wellness
|
|
9,563
|
|
|
9,686
|
|
||
Other
|
|
13,343
|
|
|
16,607
|
|
||
Consolidated total assets
|
|
$
|
75,776
|
|
|
$
|
82,505
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
||||
Gourmet food
|
|
$
|
1,219
|
|
|
$
|
1,161
|
|
Home décor
|
|
2,049
|
|
|
2,137
|
|
||
Nutritional and wellness
|
|
1,938
|
|
|
1,938
|
|
||
Other
|
|
—
|
|
|
191
|
|
||
Consolidated goodwill
|
|
$
|
5,206
|
|
|
$
|
5,427
|
|
|
|
Quarter Ended
March 31, 2016 |
|
Quarter Ended
March 31, 2015 |
||||||||||
|
|
Revenue
|
|
Percent of Total
|
|
Revenue
|
|
Percent of Total
|
||||||
Gourmet food
|
|
$
|
2,927
|
|
|
8.1
|
%
|
|
$
|
2,545
|
|
|
12.8
|
%
|
Home décor
|
|
26,654
|
|
|
73.9
|
%
|
|
10,171
|
|
|
51.2
|
%
|
||
Nutritional and wellness
|
|
6,266
|
|
|
17.4
|
%
|
|
6,777
|
|
|
34.0
|
%
|
||
Other
|
|
228
|
|
|
0.6
|
%
|
|
385
|
|
|
1.9
|
%
|
||
Revenue
|
|
$
|
36,075
|
|
|
100.0
|
%
|
|
$
|
19,878
|
|
|
99.9
|
%
|
•
|
The gourmet food segment's revenue increased by
$382,000
, or
15%
for the
three months ended March 31, 2016
compared to the
three months ended March 31, 2015
. The increase in revenue was primarily driven by the growth in Canada and New Zealand; Your Inspiration at Home expanded into both markets in 2015.
|
•
|
The home décor segment's revenue increased by
$16.5 million
, or
162%
for the
three months ended March 31, 2016
compared to the prior year. Kleeneze and Betterware, both acquired in 2015, attributed to a revenue increase of $19.0 million compared to the prior year. The revenue at Longaberger declined $2.4 million, or 27% compared to the prior year. Longabeger's revenue has been declining since 2000 when it recorded revenue of over $1.0 billion. Over the years, Longaberger has tried to change its compensation plan and product categories to no avail. The Company believes that an aging sales force and a saturated market are currently the primary reasons for the decline.
|
•
|
The nutritional and wellness segment's revenue decreased by
$511,000
, or
8%
compared to the
three months ended March 31, 2015
. The decline is primarily driven by the negative impacts of foreign exchange in Agel’s key markets. Agel’s most collected currency, the Euro, depreciated 2% compared to the USD from
March 31, 2015
to
March 31, 2016
. In addition to a depreciating Euro, the Ruble in Russia, another key market, depreciated by 16% from
March 31, 2015
to
March 31, 2016
. The damaging effects of the appreciating USD was partially offset by the $217,000 revenue increase in Thailand.
|
•
|
For the quarter ended
March 31, 2016
and
March 31, 2015
, respectively, approximately
$28.2 million
or
78.1%
and
$9.1 million
or
45.9%
of our revenues were generated in international markets. The gourmet food and home décor were the segments that contributed most to the increase of revenue generated in international markets compared to the prior year.
|
|
|
Quarter Ended
March 31, 2016 |
|
Quarter Ended
March 31, 2015 |
||||||||||||||||
|
|
Gross Profit
|
|
Percent of Total
|
|
Percent of Revenue
|
|
Gross Profit
|
|
Percent of Total
|
|
Percent of Revenue
|
||||||||
Gourmet food
|
|
$
|
1,497
|
|
|
7.6
|
%
|
|
51.1
|
%
|
|
$
|
1,256
|
|
|
10.4
|
%
|
|
49.4
|
%
|
Home décor
|
|
13,116
|
|
|
66.5
|
%
|
|
49.2
|
%
|
|
5,307
|
|
|
43.8
|
%
|
|
52.2
|
%
|
||
Nutritional and wellness
|
|
4,969
|
|
|
25.2
|
%
|
|
79.3
|
%
|
|
5,304
|
|
|
43.8
|
%
|
|
78.3
|
%
|
||
Other
|
|
139
|
|
|
0.7
|
%
|
|
61.0
|
%
|
|
251
|
|
|
2.1
|
%
|
|
65.2
|
%
|
||
Gross profit
|
|
$
|
19,721
|
|
|
100.0
|
%
|
|
54.7
|
%
|
|
$
|
12,118
|
|
|
100.0
|
%
|
|
61.0
|
%
|
•
|
During the
three months ended March 31, 2016
, the gourmet food segment's gross profit increased by
$241,000
, or
19%
compared to the same period the prior year. Due to improved discounting practices at Your Inspiration at Home, the gross profit margin increased from
49%
in
2015
to
51%
in
2016
.
|
•
|
The home décor segment's gross profit improved by
$7.8 million
, or
147%
for the quarter ended
March 31, 2016
compared to the prior year mostly due to the acquisition of Kleeneze and Betterware. Due to the new acquisitions having lower gross profit margins, the gross profit margin for the home décor segment fell to
49%
compared to
52%
the prior year.
|
•
|
The nutritional and wellness segment's gross profit decreased by
$335,000
, or
6%
compared to the
three months ended March 31, 2015
. The gross profit margin was consistent with last year at
79%
for the
three months ended March 31, 2016
.
|
|
|
Quarter Ended
March 31, 2016 |
|
Quarter Ended
March 31, 2015 |
||||||||||
|
|
Operating Expenses
|
|
Percent of Total
|
|
Operating Expenses
|
|
Percent of Total
|
||||||
Gourmet food
|
|
$
|
2,126
|
|
|
8.0
|
%
|
|
$
|
1,826
|
|
|
11.2
|
%
|
Home décor
|
|
16,544
|
|
|
62.4
|
%
|
|
6,512
|
|
|
39.9
|
%
|
||
Nutritional and wellness
|
|
6,061
|
|
|
22.8
|
%
|
|
5,834
|
|
|
35.8
|
%
|
||
Other
|
|
1,815
|
|
|
6.8
|
%
|
|
2,141
|
|
|
13.1
|
%
|
||
Operating Expenses
|
|
$
|
26,546
|
|
|
100.0
|
%
|
|
$
|
16,313
|
|
|
100.0
|
%
|
•
|
The gourmet food segment's operating expenditures increased by
$300,000
, or
16%
compared to the prior year. Over the last year, the business had to be scaled with the revenue resulting in higher operating expenditures. In addition, the sales field earned more in commissions due to the products sold having a higher mark up as a result of less product discounting.
|
•
|
The home décor segment's operating expenditures increased by
$10.0 million
, or
154%
compared to the prior year in large part due to the acquisitions of Kleeneze and Betterware. $11.0 million of the increase is attributable to the acquisitions. The increase in operating expenditures is partially offset by the decrease of expenditures at Longaberger of approximately $830,000 related to cost reduction initiatives such as reducing payroll and general operating expenditures.
|
•
|
The nutritional and wellness segment's operating expenditures increased by
$227,000
, or
4%
compared to the prior year. The commissions, selling, and general and administrative expenses increased by $62,000 compared to the prior year. Non-cash items such as depreciation and amortization, resulted in a $166,000 increase in operating expenses compared to the prior year.
|
•
|
EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments such as debt or capital lease payments.
|
•
|
EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
|
•
|
EBITDA and Adjusted EBITDA do not consider the potentially dilutive impact of share-based compensation;
|
•
|
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
|
•
|
Adjusted EBITDA does not reflect acquisition-related costs; and
|
•
|
Other companies, including companies in our own industry, may calculate EBITDA and Adjusted EBITDA differently than the Company does, limiting its usefulness as a comparative measure.
|
|
Quarter Ended March 31,
|
||||||
|
2016
|
|
2015
|
||||
Net loss
|
$
|
(7,731
|
)
|
|
$
|
(4,793
|
)
|
Interest, net
|
832
|
|
|
599
|
|
||
Income tax expense
|
77
|
|
|
191
|
|
||
Depreciation and amortization
|
812
|
|
|
420
|
|
||
EBITDA (losses)
|
(6,010
|
)
|
|
(3,583
|
)
|
||
Capital market expenses
|
137
|
|
|
474
|
|
||
M&A expenses
|
393
|
|
|
331
|
|
||
M&A infrastructure expense
|
675
|
|
|
720
|
|
||
Other EBITDA Adjustments
|
149
|
|
|
(1,210
|
)
|
||
Adjusted EBITDA (losses)
|
$
|
(4,656
|
)
|
|
$
|
(3,268
|
)
|
|
Gourmet Food Products
|
|
Home Decor
|
|
Nutritional and Wellness
|
|
Other
|
|
Consolidated
|
||||||||||
Earnings (loss) before income tax provision
|
$
|
(629
|
)
|
|
$
|
(3,996
|
)
|
|
$
|
(1,108
|
)
|
|
$
|
(1,921
|
)
|
|
$
|
(7,654
|
)
|
Interest, net
|
1
|
|
|
568
|
|
|
16
|
|
|
247
|
|
|
832
|
|
|||||
Depreciation and amortization
|
3
|
|
|
639
|
|
|
32
|
|
|
138
|
|
|
812
|
|
|||||
EBITDA (losses)
|
(625
|
)
|
|
(2,789
|
)
|
|
(1,060
|
)
|
|
(1,536
|
)
|
|
(6,010
|
)
|
|||||
Capital market expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
137
|
|
|
137
|
|
|||||
M&A expenses
|
85
|
|
|
266
|
|
|
—
|
|
|
42
|
|
|
393
|
|
|||||
M&A infrastructure expense
|
—
|
|
|
—
|
|
|
—
|
|
|
675
|
|
|
675
|
|
|||||
Other EBITDA Adjustments
|
—
|
|
|
(47
|
)
|
|
(1
|
)
|
|
197
|
|
|
149
|
|
|||||
Adjusted EBITDA (losses)
|
$
|
(540
|
)
|
|
$
|
(2,570
|
)
|
|
$
|
(1,061
|
)
|
|
$
|
(485
|
)
|
|
$
|
(4,656
|
)
|
|
Gourmet Food Products
|
|
Home Decor
|
|
Nutritional and Wellness
|
|
Other
|
|
Consolidated
|
||||||||||
Loss before income tax provision
|
$
|
(590
|
)
|
|
$
|
(1,397
|
)
|
|
$
|
(546
|
)
|
|
$
|
(2,069
|
)
|
|
$
|
(4,602
|
)
|
Interest, net
|
21
|
|
|
190
|
|
|
16
|
|
|
372
|
|
|
599
|
|
|||||
Depreciation and amortization
|
—
|
|
|
895
|
|
|
(134
|
)
|
|
(341
|
)
|
|
420
|
|
|||||
EBITDA (losses)
|
(569
|
)
|
|
(312
|
)
|
|
(664
|
)
|
|
(2,038
|
)
|
|
(3,583
|
)
|
|||||
Capital market expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
474
|
|
|
474
|
|
|||||
M&A expenses
|
92
|
|
|
1
|
|
|
—
|
|
|
238
|
|
|
331
|
|
|||||
M&A infrastructure expense
|
—
|
|
|
—
|
|
|
—
|
|
|
720
|
|
|
720
|
|
|||||
Other EBITDA Adjustments
|
—
|
|
|
(319
|
)
|
|
(265
|
)
|
|
(626
|
)
|
|
(1,210
|
)
|
|||||
Adjusted EBITDA (losses)
|
$
|
(477
|
)
|
|
$
|
(630
|
)
|
|
$
|
(929
|
)
|
|
$
|
(1,232
|
)
|
|
$
|
(3,268
|
)
|
•
|
The gourmet food segment's EBITDA (losses)
increased
$56,000
from the prior year, or
10%
, to
$(625,000)
and the Adjusted EBITDA (losses)
increased
to
$(540,000)
, a change of
$63,000
, or
13%
. The worsening of the EBITDA (losses) and Adjusted EBITDA (losses) was a result of the change in losses mentioned above as well as a decrease in interest and depreciation of
$17,000
from prior year and a decrease of
$7,000
in M&A related expenses during the same time period for a total impact of
$24,000
on Adjusted EBITDA (losses) in the
three months ended March 31, 2016
.
|
•
|
For the
three months ended March 31, 2016
, the home décor segment's EBITDA (losses)
increased
$2.5 million
to
$(2.8) million
, compared to the prior year. The worsening of the EBITDA (losses) was a result of the decrease of earnings described above as well as the decrease in depreciation and amortization of
$256,000
compared to the
three months ended March 31, 2015
. The decrease in depreciation and amortization was offset by an increase in interest expense of
$378,000
compared to the same period in the prior year. Adjusted EBITDA (losses)
increased
to
$(2.6) million
for the
three months ended March 31, 2016
from
$(630,000)
for the
three months ended March 31, 2015
. The M&A expenses that occured as a result of a service level agreement with the prior owners of Kleeneze increased in
three months ended March 31, 2016
compared to the same period the prior year. The increase in M&A expenses combined with the increase in non-cash stock compensation has resulted in Adjusted EBITDA (losses) adjustments increasing
$537,000
compared to the same period in the prior year.
|
•
|
The nutritional and wellness segment's EBITDA (losses) and Adjusted EBITDA (losses)
increased
$396,000
and
$132,000
for the
three months ended March 31, 2016
, respectively. To offset the increased losses mentioned above, depreciation and amortization and non-cash stock compensation increased
$166,000
and
$264,000
, respectively, for the
three months ended March 31, 2016
.
|
•
|
Overall Control Environment
|
•
|
Sufficient Accounting Personnel
|
◦
|
Management estimates were not performed with the structure and rigor necessary to result in quality estimate that need for fairly presented financial information.
|
◦
|
Management missed a required Form 8-K/A filing requirement related to the acquisition of Kleeneze. Subsequently, the filing was made 8 months later.
|
◦
|
Management has made significant adjustments for material errors resulting from the review of the quarterly financial statements.
|
◦
|
Management has made significant adjustments for material errors resulting from the audit of the annual financial statements.
|
◦
|
Management has made significant disclosure remediation and adjustments to the financial statements resulting from the quarterly review and annual audits.
|
◦
|
The Company has incurred substantial delays in completing its audit and filing with the SEC of its 2015 Form 10-K, this Quarterly Report, and its June Form 10-Q.
|
◦
|
The Company has incurred breaches to covenants to its debt agreements due to the delays in missing its filing requirements.
|
•
|
Consolidation Process
|
•
|
Account Reconciliation
|
•
|
Deferred Revenue and Revenue
|
•
|
Inventory Management
|
•
|
Journal Entry Support
|
•
|
Complex Accounting Issues
|
•
|
Segregation of Duties
|
•
|
IT System Conversion Controls
|
•
|
IT Control Environment
|
•
|
continued concern on the part of customers, partners, investors, and employees about our financial condition and extended filing delay status, including potential loss of business opportunities;
|
•
|
additional significant time and expense required to complete our remaining filings and the process of maintaining the listing of our common stock on NYSE MKT beyond the significant time and expense the Company has already incurred in connection with our accounting review to date;
|
•
|
continued distraction of our senior management team and our board of directors as the Company works to complete our remaining filings;
|
•
|
limitations on our ability to raise capital and make acquisitions; and
|
•
|
general harm to reputation as a result of the foregoing.
|
Exhibit No.
|
|
Description
|
|
31.1
|
|
|
Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.**
|
31.2
|
|
|
Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.**
|
32.1
|
|
|
Certification pursuant to 18 U.S.C. Section 1350.**
|
32.2
|
|
|
Certification pursuant to 18 U.S.C. Section 1350.**
|
101.INS
|
|
|
Instance Document.**
|
101.SCH
|
|
|
XBRL Taxonomy Extension Schema Document.**
|
101.CAL
|
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.**
|
101.LAB
|
|
|
XBRL Taxonomy Extension Label Linkbase Document.**
|
101.PRE
|
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.**
|
101.DEF
|
|
|
XBRL Taxonomy Extension Definition Linkbase Document.**
|
|
|
|
|
|
**
|
Filed herewith
|
|
|
JRjr33, Inc.
|
|
|
|
(Registrant)
|
|
|
|
|
|
Date:
|
October 14, 2016
|
By:
|
/s/ John P. Rochon
|
|
|
|
|
|
|
|
John P. Rochon
|
|
|
|
Chief Executive Officer, President and Chairman
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
Date:
|
October 14, 2016
|
By:
|
/s/ Christopher L. Brooks
|
|
|
|
|
|
|
|
Christopher L. Brooks
|
|
|
|
Chief Financial Officer
|
|
|
|
(Principal Financial Officer and
|
|
|
|
Principal Accounting Officer)
|