Here's a summary of transactions to consider if you plan to hold YGYI shares:
(1) Carl Grover lends $5 million to YGYI & CLR Coffee Roasters on December 13, 2018; YGYI agrees to repay Mr. Grover on December 12, 2020. See footnote #1 below from YGYI SEC filings.
(2) CLR Roasters lends $5 million to H&H Export in December 2018; H&H Export agrees to repay CLR no later than November 30, 2020. See footnote #2 below from YGYI SEC filings.
(3) On October 13, 2020, YGYI discloses that it must write down the value of its loan to H&H Export to $0. In other words, H&H Export will not pay CLR Roasters (YGYI) anything on November 30, 2020 and YGYI must recognize $5.3 million of losses on its income statement. See footnote #3 below from YGYI SEC filings.
(4) On December 12, 2020, YGYI owes Mr. Grover $5 mm principal + $800k interest. See footnote #4 below with simple interest calculation.
(5) YGYI has no cash to repay Mr. Grover and fails to find someone as insane as Mr. Grover to refinance his maturing note which is backed by green coffee in Nicaragua that's already written down to $0. What do you think happens next? See footnote #5 below.
FOOTNOTES:
(1) On December 13, 2018, CLR, entered into a Credit Agreement with Carl Grover (the “Credit Agreement”) pursuant to which CLR borrowed $5,000,000 from Mr. Grover and in exchange issued to him a $5,000,000 credit note (“Credit Note”) secured by its green coffee inventory under a Security Agreement, dated
December 13, 2018 (the “Security Agreement”), with Mr. Grover and CLR’s wholly-owned subsidiary, Siles, as guarantor, and Siles executed a separate Guaranty Agreement (“Guaranty”). The Credit Note accrues interest at eight percent (8%) per annum. All principal and accrued interest under the Credit Note is due and payable on December 12, 2020.
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(2) In December 2018, CLR advanced $5,000,000 to H&H Export to provide services in support of a 5-year contract for the sale and processing of 41 million pounds of green coffee beans on an annual basis. The services include providing hedging and financing opportunities to producers and delivering harvested coffee to the Company’s mills. On March 31, 2019, this advance was converted to a $5,000,000 loan agreement as a note receivable and bears interest at 9% per annum and is due and payable by H&H Export at the end of each year’s harvest season, but no later than October 31 for any harvest year. On October 31, 2019, CLR and H&H Export amended the March 31, 2019 agreement in terms of the maturity date, to all outstanding principal and interest shall be due and payable at the end of the 2020 harvest (or when the 2020 season’s harvest is exported and collected), but never to be later than November 30, 2020. The loan is secured by H&H Export’s hedging account with INTL FC Stone, trade receivables, green coffee inventory in the possession of H&H Export and all green coffee contracts. As of September 30, 2019, the $5,146,000 note receivable remains outstanding which includes accrued interest.
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(3) The Company also has recently determined that the value of the collateral underlying a promissory note, due November 2020, in the principal and interest amount of $5.3 million, from H&H has been impaired, resulting in an impairment allowance for $5.3 million. As a result, management believes it is more than likely that the Company will not collect the outstanding balance and interest due on the note receivable, and allowances for doubtful accounts should be recognized at December 31, 2019.
The Company has therefore recognized allowances for collectability against the remaining net trade account receivable, notes receivable and other receivables due from H&H for approximately $5.0 million, $5.3 million and $397,000, respectively. These amounts have been recorded as allowances for doubtful accounts at the end of December 31, 2019.
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(4) $5,000,000 * 8% = $400,000 * 2 = $800,000.
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(5) YGYI has no options other than to file bankruptcy.
