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Good day and welcome to the Youngevity Third Quarter 2019 Shareholder and Update Conference Call. [Operator Instructions] During this call, we will be making forward-looking statements regarding Youngevity's current expectations and projections about future events. Generally, the forward-looking statements can be identified by terminology such as may, should, expect, anticipate, intends, plans, believes, estimates and similar expressions. These statements are based upon current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties, including those set forth in Youngevity's filings with the SEC, many of which are difficult to predict. No forward-looking statements can be guaranteed, and actual results may differ materially from such statements. The information on this call is provided only as of the date of this call, and Youngevity undertakes no obligation to update any forward-looking statements contained on this conference call on account of new information, future events or otherwise, except as required by law. Please note that this event is being recorded. I would now like to turn the call over to Mr. Steve Wallach, CEO. Please go ahead, sir.
Thank you. Hello, everyone. I want to welcome all of you to the Youngevity International shareholders' call. Speakers on the call today are myself and our President and CFO of Youngevity, Dave Briskie; and the Executive Vice President of Khrysos Industries, Josh Carmona. We will cover the following topics today. We will highlight the 2019 Q3 results. We will discuss the progress in our commercial hemp segment. We will provide a brief update on our direct selling segment as well. And we will wrap up with the coffee segment. What I'd like to do now is bring our CFO and President, Dave Briskie, onto the call.
Thank you. I'd like to welcome all the shareholders and our investors onto the call. Thank you for making time today to jump on and listen to our shareholder update call. First of all, I want to start with -- this is Q3 2019 update call. I want to start off with the balance sheet highlights. First of all, we finished with cash and cash equivalents for the quarter ended September 30, 2019 with just under $7.3 million in cash versus $2.8 million at December 31, 2018. Our total assets finished the quarter at $141,185,000 of total assets at the end of quarter September 30, 2019, versus $75.9 million at December 31, 2018. Our total liabilities finished the quarter at $85 million at September 30, 2019, versus 52 point -- really just under $53 million at December 31, 2018. That gave us total stockholders' equity of $56,173,000 for the end of the quarter, and this is versus $22,975,000 at the end of December 2018, a $33.2 million improvement stockholder equity through the 9-month period. I'm going to cover the Q3 results, within the next few minutes, if not already, the press release should be out regarding our earnings, along with the 8-K and our subsequent filings. So all of the information that you would need is right there in our filings. So I encourage you to read it. I'm just going to cover Q3 really quickly so we can then get in to add some color for the quarter. Q3 2019 results, revenues for the third quarter ended September 30 decreased 13% to $34,017,000. This is compared to $39,082,000 for the 3-month period that ended September 30 of last year. Approximately 89% of our revenue was derived from the direct selling segment with approximately 10.5% of our revenue from our commercial coffee segment and approximately 0.5 point of revenue derived from our hemp segment. The direct selling segment revenues decreased by about $4 million or 11.7% to $30,256,000 in the current quarter as compared to $34,280,000 for the quarter ended September 30, '18. The decrease was primarily attributable to a decrease in the number of ordering customers, particularly offset by an increase in revenues from distributors due to an increase of our average order amount per distributor. In the commercial coffee segment, revenues decreased by $1,225,000 or 25.5% to $3,577,000 in this quarter as compared to $4.8 million for the quarter ended a year ago. The decrease was attributed to lower revenues of our green coffee and roasted coffee business. During the 3 months ended September 30, there were no revenues related to the new 2019 green coffee contract that began shipping in January of 2019 as the company had sold through pretty much the entire contract for green coffee purchased under the contract in the first half of 2019. For the 3 months ended September 30, 2019, the company's new commercial hemp segment recorded just under $200,000 in revenues for that quarter. The gross profit for the third quarter ended September 30 decreased by about 16.8% to $19,738,000 as compared to $23,712,000 for the 3 months period ended September 30. The gross profits in the direct selling segment decreased by 16.4% to $19.7 million from $23.6 million in the same period last year, primarily as a result of the decrease in revenues discussed above and an increase in inventory reserve expense that we encountered of $691,000. Gross profit as a percentage of revenues in the direct selling segment decreased to 65.3% for the 3 months ended September 30, 2019 compared 68.9% in the same period last year. This was predominantly due to the reserve that I mentioned of $691,000. Otherwise, gross profit as a percentage of sales pretty much remained the same for the segment. Gross profit in the commercial coffee segment decreased to a loss of $163,000 compared to a profit of $90,000 in the same period last year. The decrease in the gross profit in the commercial coffee segment was primarily due to the decrease in the revenues discussed above in the green coffee segment. Gross profit in the commercial hemp segment was $152,000. Overall, gross profit as a percentage of revenues decreased to 58% compared to 60.7% in the same period last year, primarily due to the decrease in revenues discussed above and the increase in inventory reserve at an expense of $691,000. So operating expenses increased 12.3% to $28.2 million as compared to $25.1 million for the 3 months ended period September 30, predominantly due to the new selling segment Khrysos Industries, our commercial hemp enterprise. The distributor compensation paid to our independent distributors in the direct selling segment decreased by 13% to $13.1 million from $15.07 million for the 3 months ended December -- or sorry, September 30, 2018. This is primarily as a result of the decrease in revenues. Total sales and marketing expenses increased 11.9% to $4,432,000 from $3,962,000 for the 3 months ended September 30, 2018. In the direct selling segment, sales and marketing expenses increased by 7% to $4,009,000 in the current quarter from $3,747,000 for the same period last year, primarily due to increase in convention costs, partially offset by lower marketing costs in general. In the commercial coffee segment, sales and marketing expenses increased by $40,000 to $255,000 in the current quarter compared to $215,000 in the same period last year. Primarily due to an increase in advertise and compensation expenses, sales and marketing expenses was $168,000 in the commercial hemp segment. Total general and administrative expenses increased 174.8% to $10,663,000 in the current quarter from $3,880,000 for the same period last year. In the direct selling segment, general and administrative expenses increased by 114.3% to $6,615,000 in the current quarter from $3,087,000 for the same period last year. This increase was primarily due to an increase in legal, accounting, computer expense, noncash equity-based compensation expense of $1,476,000, which was partially offset by a decrease in intangible amortization expense of $171,000. In addition to the contingent liability revaluation adjustment in the current quarter was a reduction in expense of $478,000 compared to a reduction in expense of $2.6 million for the same period last year. In the commercial coffee segment, general and administrative expenses cost increased by $1,126,000 or 142% to $1,919,000 in the current quarter compared to $793,000 in the same period last year. This was primarily due to an increase in wages, warehouse, storage cost and profit-sharing expense of $863,000 compared to a profit-sharing benefit of $247,000 in the same period just a year ago. General and administrative expenses was $2,129,000 in the commercial hemp segment, mostly related to wages, supply, general office and selling expenses. For the 3 months ended September 30, 2018, our direct selling segment recorded a loss on the impairment of intangible assets related to our acquisition of BeautiControl, whereby the underlying intangible assets were impaired and recorded a loss on impairment of intangible assets of approximately $2.2 million. Other expenses for the third quarter ended September 30, 2019 decreased by $7,417,000 to other income of $472,000 as compared to other expense of $6,945,000 million for the 3 months ended September 30, '18. The net interest expense decreased by $298,000 to $1,109,000 for the 3 months ended September 30, 2019, compared to $1,407,000 for the same period a year ago. Change in the fair value of derivative liabilities increased by $7,995,000 to $2,457,000 in the other income for the 3 months ended September 30, 2019, compared to $5,538,000 in other expenses for the same period in the prior year. And we also recorded a noncash loss on modification of warrants of $876,000 in the current quarter. Net loss for the third quarter ended September 30 was $7.8 million as compared to a net loss of $8.4 million for the 3 months ended September 30, 2018. The reason for the decrease in the net loss when compared to prior year was due to a decrease in total other expenses of $7.417 million and the increase in the income tax benefit of $192,000 0offset by an increase in operating loss of $7,073,000. Earnings before interest, income tax, depreciation and amortization, EBITDA, as adjusted to remove the effect of equity-based compensation expense, the loss on impairment of intangible assets, the loss on modification of warrants and the change in fair value of warrant derivatives or adjusted EBITDA, decreased to negative $4.4 million for the quarter ended September 30, 2019 compared to $2,670,000 in the same period last year. For the nine-month period, revenue was up -- is up 14%. As you know, this is primarily driven by the commercial coffee segment, which had the strong sales increase in Q1 and Q2. This is a seasonably low period for the coffee business as it is for the direct selling business as well. So that the green coffee distribution business is essentially closed, although there will be revenues to a more modest degree as we finish Q4. I'd like to continue now with the discussion on Khrysos Industries. Obviously, we've made significant investments into that new division of the company, which we acquired last February. It's a new reporting segment for our company. This is the second quarter that we're actually reporting on the commercial hemp enterprise. So I'd like to bring our executive VP of Khrysos Industry, Joshua Carmona, on to the call. Josh?
Thank you, David. It's a pleasure, once again, to speak to all of our shareholders for the very first time. As you all know, I am the Executive Vice President of Khrysos Industry. I oversee production, sales and marketing amongst some other subtasks, but the majority of my time, I spent -- we've been spending is on this transition from our previous facility to this newly acquired facility. As you all know, on our last shareholder call, at the end of Q2, we were focused on rolling out our decentralized hub-and-spoke model for post-processing with multiple extraction facilities, particularly one on the west coast in Oregon. That has gone phenomenally well. And shortly after we closed our deals with our partners on the West Coast, in our extraction sites, we were -- we had the opportunity of acquiring or renting a facility in Orlando, Florida, which was our 82,000 square-foot facility, which was previously a Nephron facility, which spent most of its time producing albuterol and micro devices for nebulizers -- for the nebulizer business. This facility has given us the ability to focus on increasing our production with 1 central facility from a post-processing perspective, which allows us to be competitive in the new landscape as of December 20 of 2018, whereby the Farm Bill was -- basically made CBD legal at a federal level and de-schedulized that cannabinoid or that set of cannabinoids. Unfortunately, the Food and Drug Administration has not issued their final rulings on how they're going to regulate industry. They've promised to have some clarity by the end of the year on how they're going to regulate the space. But it seems like they're going down the path of the herbal products arena, and we are trying to capitalize on being one of the few companies that will be ready to engage with the FDA in a positive way to be able to build Youngevity into our business, no pun intended, within the hemp business. As part of that, we've done a lot of improvements to the facility to try to retrofit and increase our production capacity, including a 1,600-amp power delivery to one of our unclassified spaces in our production facility. We have all the power we need, but we need to move that power, and we've already done that, which gives us the ability to increase our production in distillation with our stainless steel distillation systems. We've completed our construction of our C1D1 explosion-proof rooms so that we can increase by threefold our production of isolate crystals. We've upgraded our isolate reactors as well from 150-liter to 2 150-liter reactor units, giving us the ability to produce 6x the amount of isolate we can produce today. And within the next 2 weeks, we'll be able to process 4,000 kilos of input material per month, and eventually an 8,000-kilo in our short-term production plant maximum capacity. We've increased our bath bombs capacity to about 1,000 bath bombs per day. And within 2 weeks, we'll be able to complete the installation of our automated filling lines for our tinctures and the installation of a gel -- of a newly acquired gel cap machine so that we can also produce gel caps as well. We'll have -- the gel caps will have a production capacity of 28,000 units per hour and 20,000 tinctures per day on the fill line. Our fixed assets production inventory will be complete -- our fixed assets production inventory will be completed for cGMP, which is one of the certifications that we're working on as well. APM Services Inc. is a company that we've retained to deliver our ERP system, which was the ERP system at this facility with Nephron in the past. That should be completed by Q1 of 2020. The infrastructure portion of that is being completed as we speak, locking down our firewalls, VPN tunnels, our on-premise active directory deployment are all going to be completed by Q4, end of Q4 2019. Our IP fixed assets inventory and systems documentation will be completed by Q4 2019 as well as our toner and analysis for all of our WIP, or work-in-process production labeling system that goes in tune with our APM Services technology system as well. And we will have our Spiceworks helpdesk system in place by the end of Q4 2019 also. The certifications we are working on right now to be able to outperform our competitors with regards to the quality, not only the quality of the material, but the quality of the deliverable as well is -- and comply with the regulatory situations or the landscape here in Florida and across the U.S. is one -- number one, our hemp seed handling license. We have a 45-acre tract of land in Mascotte where we have -- we need to start our analysis and development of our culturing protocols. And we've acquired our heed -- our hemp seed handling license issued by the State of Florida in the month of November. We're going to be working -- we've also acquired our food establishment permit for the state of Florida, and we will be upgrading that to a hemp food manufacturing facility, which is in the works right now in the State of Florida as the State of Florida is going -- is writing their new regulation, which they hope to be completed by the end of the year. Unfortunately, Florida has only released their hemp seed license program. We are in -- we are probably one of the first companies that will acquire any and all of the other hemp food manufacturing licenses as we're just stepping on their toes as they're releasing regulatory standards. Our federal food manufacturing license will be in place by the end of December as well. Having said that, one of our biggest focus is our cGMP certification. We've retained cGMP consultants as well as full-time staff to be able to hit this head-on, and we expect to be cGMP-recognized for the U.S. by the end of the first quarter in 2020. We have performed GAAP analysis on that and so we feel comfortable with that date. We're in the process of performing our EU cGMP certification as well, and we should have that EU cGMP certification by the middle of Q2 2020. This will give us the ability to deliver CBD products to Europe and multiple countries in Europe with the proper requirements needed by that type of customer. Our ISO 9000 2015 quality management systems certification should also be completed by the end of Q2 in 2020. We're working on an industry standard, which is called the hemp authority manufacturer/processor certification. It seems to be something similar to the Good Housekeeping seal of approval, and this is catching on with a lot of the major players, such as Charlotte's Web and other companies in that category have adopted this certification. It's parallel to cGMP certification, and we are on track to have that in place by the end of Q1 2020 also. Our laboratory -- we have a third-party company that is called INX Laboratory Inc. They will have their 17025 2017 certification in place by the end of Q2 of 2020 as a response to the new USDA requirements with regards to testing at a federal level, which they are -- according to the USDA, it looks like they're going to require Federal testing rather than state testing as a standard, and they've invoked the 17205 standard for that. We have potential revenue for crude oil supply agreements and production contracts about to start being processed at the end of the harvest year. As I mentioned earlier, we had, and on our last call, we had a production, a partner farm. The Magu Maiden Farms, and their harvest is complete and in the process as we speak of drawing and extracting. The good news is that the harvest is about 2x to 3x the expected yield. So we expect to have more product to process, good quality product and we hope to have that in our post processing facility by the end of this quarter. The DJB, or the [ Don Bonnet ] industry's #1 contract, they've been push backed due to licensing issues, but they are on the right track at this time, and hope to have all of their licensing and facilities built up completed by the end of the first quarter of next year. Our finished ingredients contract, which totaled about $30 million in annual service, have been moved to the start ship date of this quarter. That's all I have for the stockholders today. Thank you very much for having me on this call. Steve, I'll turn the call back over to you.
Thanks, Josh. Obviously, the evolution of our commercial hemp enterprise is apparent as we anticipate becoming a leader in the commercial hemp space. We anticipate revenue production beginning from Khrysos in Q4 and expanding throughout 2020, as Josh was just telling us. And again, thank you, Josh, for that very thorough synopsis of what's going on. Obviously, the facility is impressive and all the work you guys are doing is definitely impressive as well. On the last quarter, we discussed that we would ramp up our acquisition model to drive revenue of our direct selling segment. As we entered November, we completed the acquisition of a company called BeneYOU which was like acquiring like 3 companies within 1 acquisition. This new acquisition, we acquired the, Avisae, [ M Networks ] and Jamberry brands based on our due diligence and current revenue production midway through November. We see this acquisition being our largest acquisition to date in terms of revenue production, and we anticipate new revenue production of between $13 million to $15 million on an annualized basis coming from this business combination. As with all our acquisitions in the direct selling space or segment, we are able to accomplish this with 0 dilution to shareholders and minimal cash investment, other than working capital, to drive the revenue growth. The database from this acquisition is intriguing as well, totaling over 3.5 million customers and distributors. We believe we can leverage this database to have a positive impact on revenue production and look to benefit from our cross-marketing opportunities and leveraging the various infrastructures and international footprints as well. We anticipate continuing this acquisition strategy as we move through 2020. In Q3, we saw strengthening sales taking place in our international markets versus Q3 of last year, for example, in the third quarter, we logged revenue growth in Canada, Colombia, Mexico, The Philippines, Taiwan and Japan. And just some of the notables, Colombia was up 90-plus percent; the Philippines, nearly 20%; Taiwan, in excess of 10%; and Japan, up in excess of -- well, nearly 20%. So in discussing the acquisition of -- well, we acquired new distributors or new -- we had new distributors join in Japan during this quarter, for example. And really, the revenue just started for this new group. And it really was because of the approval in Japan of our HempFX line for the market. The new selling group that I mentioned just targeted marketing our hemp line in September, so just 1 month of the Q. Obviously, we anticipate continued strong growth for this group. In fact, communications with them today, they are extremely bullish, and so it's exciting to see their excitement in growth. Lessening our dependency on the U.S. market has been a top priority, as we've talked about on these calls, and the main reason being that interest and diversification beyond the obvious is that the U.S. market is actually countercyclical when it comes to the direct selling space, and you may have heard that we're currently experiencing probably the strongest economy of our lifetime, and so that tends to have a drag on the direct selling space within the U.S. market. One of the additional things that impacted our revenue in Q3 was the unexpected loss of a major supplier of ours that we've used for more than 20 years for some of our unique liquid supplements, and so we've been busily working to replace that vendor, that supplier. And we anticipate by the end of Q4, that, that will be fully integrated or fully replaced for those unique products. Something additional that counterbalance that, I would say, was that we just completed our largest team challenge for our distributors and customers, which was in the month of October, with more than 4,000 new distributors and customers participating. And so that was exciting to see. And I guess, one last thing on the international markets. In 2017, 91% of our sales were -- in the direct selling space were in the USA versus 9% international. 2018, 84% was USA and 16% international. In 2019, so far through Q3, we've derived 80% from international markets and we anticipate seeing that really approach 20% for Q4. So definitely a lot going on in the direct selling space. And what I'd like to do now is bring Dave Briskie back on to provide some color on our coffee segment.
Thank you, Steve. Appreciate that. And thank you, Josh, as well. That was an awful lot of information to cover in that facility. I want to talk about a few things before I jump into the coffee space. First of all, Steve had mentioned that team challenge. That was actually done for the first time ever in all markets around the world, and we're seeing it have an impact in terms of the international markets really being able to participate in some of the programs in leveraging the resources that we have in the U.S. So it's good to see the international markets firming up for us. It's been a substantial investment for the company, and we need those international markets to deliver the promise of revenue. I think the Japan market that Steve mentioned is really exciting, and it's good to see the impact that HempFX as a brand can have in our other markets. Because of that particular line of products we picked up a very, very large distribution base focused on that industry. So I think we can see more of that type of opportunity take place in our other markets as everyone kind of scrambles to figure out what their position's going to be in hemp. And I don't think anyone is better-positioned, frankly, in terms of field-to-finish in the hemp space than Youngevity is. We were honored by the NASDAQ. NASDAQ, at the beginning of the year, selects just a handful of companies be a Fit Week company. We were selected because of the success of our Better Health Challenge, which is a health challenge that we had here at Youngevity that kicks off the weight loss season with better health. We've had some very, very strong results with that challenge, a lot of before and afters. And NASDAQ determined that we should be ringing their closing bells. So we'll ring the closing bell on January 7 as one of the Fit Week companies in New York. And we have a very, very big promotion around that better health challenge to drive more attendance, more participation, more customers, more distributors. And the reason why we ended up as a selected Fit Week company was because we were one of the few companies that have a diverse offering of weight loss programs so they weren't just unilaterally focused on the next hot thing, but overall wellness and weight loss. And so we're very, very proud of that and look forward to seeing this promotion gain steam. I want to talk a little bit before I get into coffee, but it has a lot to do with us leveraging our capabilities in coffee. Obviously, this year, the coffee business has a big turnaround where you saw that results in Q1 and Q2 and on an annual basis, the significant revenue increased, predominantly driven by our green coffee distribution business located in Nicaragua and the amount of revenue we're driving in bringing that business segment to profitability for the 2020 year. We were able to leverage what we've done with the government of Nicaragua as we worked with them and as we became a larger employer of their citizens, and we started to work within the government and discuss what we're doing in our commitment to hemp as an enterprise and our hemp enterprise in that country. And we announced this just a short while ago that we obtained an exclusive 10-year contract with the country of Nicaragua, with the governing bodies of Nicaragua, to be their exclusive supplier on the grow side. You may recall, we did do an evaluation in the grow end of the business, and we just decided that we would pivot our model into extraction post processing and finished goods processing rather than getting to grow because we thought there might be better opportunities in grow where we might be able to leverage some of our capabilities within the rest of our enterprise. And we were able to achieve that with the governments of Nicaragua. I think maybe many people don't understand how significant this is. Number one, I believe we may be the only company that literally has positioned ourselves now to be able to go from grow all the way to finished goods processing, and I think that's an unusual strategic advantage. Given the very, very competitive labor landscape in the country of Nicaragua, obviously, we know what we're doing there. We've got several hundred employees there where we harvest coffee. But this particular grow opportunity that we've obtained the exclusive for will be on our partner's land that we have. We have a long-term partnership with H&H export of Nicaragua. They happen to own 1,000 acres of land in the rice-growing area -- this is not in the coffee-growing area -- the rice-growing area of Nicaragua, more towards where tobacco grows. The reason why that is an area is really important in the grow of hemp is because hemp uses a lot of water, so we'll have no water issues there, and we can grow up to 1,000 acres on this particular property. We will start off more as a pilot program. Maybe an initial 75 to 100 acres will be our first go at this. Obviously, Josh talked earlier about seed production. So we'll take a look at that type of seed we're going to put it in this landscape. This climate is very, very interesting. We are seeing a minimum of 7 harvest -- or 4 harvest up to 7 harvest on this particular land. So we can do rolling harvest and keep planting and keep growing on a continual basis. Our plan is to move 1 of our 2-ton extraction units out to Nicaragua in this -- on this facility as our first 100 acres comes out of the ground. And really, our focus is going to be on oil extraction, so growing our own oil and using that oil then as a opportunity to generate revenue. We believe we will be in a position to move that oil to our processing center in Florida where we can do post-processing, but there is a very large interest in remediated oil in the countries, particularly of Europe, as they grow their hemp business, and in Asia, as we discussed, Japan, so there's certainly a very, very strong market to -- for crude oil as it relates to the hemp enterprise. So we're very excited about this opportunity in Nicaragua. We like the cost structure. We're able to do it at a very inexpensive cost structure by utilizing our partners, by using our management team down there, by having the land contributed by our partnership and utilizing our own -- leverage of our own Khrysos Industries extraction equipment to move our extraction equipment out on property where we'll begin our grow into 2020. So that puts us firmly in the grow business with very, very competitive advantage in terms of cost structure and labor to produce and harvest, so we're excited about that opportunity. That puts us now in a position where we'll be in the grow business and be able to do earn revenues and provide raw material from the grow side. It puts us firmly in our facility, our 82,000-square foot facility in the remediation business where we're able to remediate oil. And puts us firmly in the production of ingredients. So we've got oil, we've got isolate, we've got water-soluble isolate and distillates. And then also, as Josh touched on in the finished products business, where we focus on the 2 largest ends of finished products as it relates to hemp-derived nutrients, and that is in the tincture end of the business and in the gel cap end of the business. So literally, just like our coffee business is field-to-cup, our hemp enterprise now has all the pillars to be field-to-finish for that particular business segment. In terms of our roasted coffee business, I'm going to touch on really the roasted side of the business. Obviously, the green coffee business, we had a really nice 2019. And when we look at our green coffee business, we were $10,736,000 of revenue in the green coffee business in 2018. And in 2019 this year, we were about $38.6 million of revenue, a 260% increase. $27.9 million increase in green coffee sales. So we're very, very happy to see those contracts being delivered upon. I want to discuss a little bit, especially in this quarter, the stability of our roasted coffee business, and we're very, very focused on our own brands, and our own brands being that Josie's Java House brand, the Café La Rica espresso brand, and the newly acquired this year, Café Cachita espresso brand. We're seeing very nice growth across our platform within our own brands. In fact, our own branded sales this year versus last year on a 9-month versus 9-month is up 22% in terms of revenue production. The food service end of our business is also experiencing nice growth. We've been focused very, very hard on food service end of our business, and we're seeing good strong growth of 8% on our food service business. In terms of some individual customers, obviously, Walmart, a very, very important customer to us. We're having a 32% increase in our sales to Walmart, 2019 over 2018. We've added -- a couple of new accounts are expanding, I should say, existing accounts with SuperValu and Super Store Industries. The SuperValu and Super Store Industries sales have grown from $1,483,000 million in '18 to $2,163,000 million this year, or a 45% growth on those retailers. So really, starting to hit on all cylinders as it relates to our roasted coffee business. Based on these numbers that we're seeing, we expect to finish 2019 with sales up over 15% over last year, predominantly driven by our coffee revenue; and then an impact from the acquisition in our direct selling space that's taking place as we finish Q4; and then of course, as the revenue in our commercial hemp business starts to be created in Q4, as Josh touched upon. As we move into 2020, as discussed a number of times on this call, we expect significant revenue contribution coming from our hemp enterprise, and we expect continued growth coming from coffee as we expect that we're just at the beginning of growing that green coffee distribution business and we're starting to see signs of being able to having stabilized our direct selling business and by amping up our direct selling acquisition model to grow it. So we're looking at initial guidance for revenue growth for 2020 between $230 million and $260 million. We see that between 25% and 40% over a wearable finish in 2019. And we expect that we will be delivering growth from all segments. With that, I'm open to taking some questions if anybody would like to jump in and ask for questions. Our moderator can let you know how to do that in case you have forgotten.
[Operator Instructions] Our first question will come from Bill Sutherland of Benchmark Capital.
In the direct selling business in the quarter, the inventory reserve and then also the impairment, the customer impairment, a little color there. And then just kind of how should we think about going forward as far as the risk of that kind of issue in the future?
So the inventory reserve is about $681,000. We were looking at a reserve in really more the fashion end of the business, very little of the core business. And so that would be the jewelry and clothing end of our business is where we took a reserve. And I don't really see as needing to take a reserve going forward. We have been doing reserves on that end of the business. We're very careful about managing our inventory in the core end of the business or the nutritional end of the business, keeping an eye on expiry dates and so forth. So I think we're solid there. In terms of impairments, Bill, we did this deal, we mentioned it being BeautiControl. Their business had, from a customer base and distributor base, had dissolved, and we thought we could resurrect that brand, so we had a writeup. It was noncash, obviously. And then when we looked at, really, the ability to deliver revenue from that particular segment, we saw that without a firm and ordering customer and distributor base, it just really wasn't in the cards for us. So we took the -- it was impaired, and so we dealt with it as we should. We'll learned a lesson there. I mean, we have got -- we have had many businesses come to us that had -- have good, strong brands. We no longer pursue those types of opportunities. We make sure that we have good, strong distributors and customers and base that are currently buying and purchasing products. That's where the power of our model really works to good for us, as we can then cross-sell our other products and our other verticals to these active distributors and customers.
Okay. That makes sense. Maybe help us understand the coffee year-over-year comparison for the quarter with the revenue down. And you're -- obviously, you're saying you've had roasted growth. Was there some green coffee revenue in last year's third quarter?
Yes, there actually was green coffee revenue in last year's third quarter, if you recall. It's kind of interesting. I mean, this climate change and the effects its having. So last year, we announced very early harvest taking place, and so we had early green coffee to sell. And so we were up against some green coffee numbers. We pretty much build our contract as we anticipated doing in 2019, mostly filled early a little bit in '18 and the bulk of it in Q1 and Q2. And so those contracts are fulfilled. Interestingly enough, although we flowered at the same time this year out at plantation level, we're actually seeing a late harvest this year in the green coffee business. So coffee is literally now coming to us more in the normal time -- I guess I shouldn't call it late, I should call it back to normal. We assumed it would stay earlier based on the time of flowering, but that just was not the case or is not the case. So coffee is really just now starting to come onto our facilities in Nicaragua. So as these things shift back and forth, Q over Q type of comparisons are going to be something really need to pay attention to, and we really should focus on kind of the accumulation of year-to-date growth in that segment.
So you've alluded to more green coffee opportunity in 2020. Is that related to signing another pretty meaningful deal? Or what were you alluding to?
Well, we could have sold more coffee, the demand for coffee in the fact that there is a commodity exchange related to the commodity. So the key to coffee is really making sure you have access to the coffee. So we basically sold all the coffee that we were able to acquire last year. And this year, we feel like we can increase that based on some contracts we have in place and some business negotiations that we can acquire an additional 30% more coffee to market in this selling season. So obviously, with the additional coffee to sell, we're very confident we can move it either to our current growing list of customers or that we can move it to the exchange profitably.
Okay. That's good. That's good. And then last one, I'll have off, is the -- on the -- oh yes, back to direct marketing for a second. You have a lot of supplier for proprietary liquids that you're going to be replacing. So basically, we're talking about a stock out problem right now for business?
So Bill, it's Steve. A long-term supplier of ours that have produced some of our specific, some of our top-selling liquid products, which are really difficult to reproduce unexpectedly went out of business. They actually sold to somebody that was supposed to ramp up the business, and they wound up closing it in the process. So they say they intend to reopen it after moving the facility, but that left us without our key manufacturer for those particular products. Fortunately, we had a pretty diversified product range and suitable alternatives for most people. For instance, we have powder versions very similar to those core liquid products. But in the process, we've gone back to some of our existing large core manufacturers of various products, and certainly, we have liquids and have had liquids made by other companies as well, just not in these particular liquids. This supplier had been doing a great job for us for over 20 years, and so we saw really nothing in the cards that was going to change that until it did. And so we've been working day and night really with about 3 additional large manufacturers across the U.S. to replace these products. And at this point, we have sign off on virtually every one of them from an R&D and sample production standpoint. And some of them are back in process and manufacturing POs have been placed for some of the additional ones. And by the end of this year, we anticipate having everything back in stock. It did result in a significant out of stock of those core liquid products for an extended period of time.
So it will have some impact on the fourth quarter then?
Yes.
Our next question will come from Brian Frank of Ascendant Capital.
Dave, question for you regarding the new Nicaraguan operation. Other than the grow that we're going to work with up to 1,000 acres, was there an extraction piece as well? Because in the announcement, you talked about hemp oil extraction in Nicaragua from an exclusive standpoint.
Yes. So we -- so I kind of covered, and I know it can be confusing. So we will move one of our 2-ton systems to Nicaragua. It's about -- to get this thing up and running probably middle of next year, 2020. So we'll assemble 1 of our 2-tons systems and start off with that. So we'll move a 2-ton system out to our -- to these facilities at Nicaragua, and so not only will we grow, then we'll take the grow. We'll probably move our dryers out there as well. We do make dryers. I know that's not a talked-about end of the business, but obviously a critical piece. So obviously, you have to dry hemp. And then we'll begin the process it using 1 of our 2-ton systems and grow it. We'll grow our grow, and we'll grow our extraction capabilities as there's more hemp to harvest. We want to keep an eye on this. We do not want to go too fast in terms of putting hemp in the ground, just because the amount of number of harvest we can get in this climate is going to be very, very interesting. So yield per acre on an annual basis is going to exceed anything we've seen in the United States.
Right. So that I understand. So is it kind of similar to you've got the mom-and-pop coffee growers that come to you to process, right? Is it going to be the same thing? You have other farmers that are going to be growing hemp and they have to come through you for extraction? Is that what the deal is though?
It ultimately will be that. But given the amount of acreage we have available to our sales within our own partnership, it's going to be a while before we would open this up to other farmers. I mean, if you think about it, we scaled ourselves up to 1,000 acres which we have. You're talking about the ability to -- probably the equivalent of a 4,000 or 6,000 acres of harvest if we ever got that level. So we have pretty much significance under our own roof. If this thing really blows up in a much bigger way, then we would have the ability to work with other farmers.
Okay. And then from a cultivation standpoint, the crew that runs the farm in H&H, do they have experience in the grow of this product? And if not, you guys assume you're going to bring somebody over from the States?
Well, they have experience in rice, they have experience in tobacco and have experience in coffee. The rice and tobacco is more appropriate. But we consider ourselves at Khrysos we provide an awful lot of expertise in the grow end of the business and the -- having our ability to test products and so forth, that we feel like with their capabilities on the ag side and our capabilities on the hemp side combined, we can achieve great results.
Okay. And then a question that maybe Josh will answer. You talked about the [ Don Bonnet ] deal, and that was pushed off because they had some -- what was the word he used?
Permitting.
Permitting, yes. So when does that -- does that happen often? Like that was supposed to -- and so now, we're talking about start seeing revenues from that, what, second quarter?
Yes. So great question, Brian. I -- with regards to [ Don Bonnet ], the first part of your question was does it happen often? Yes, it does happen often in this industry. The landscape, we're less than a year into the legalization of the hemp as a product that can be grown and transported throughout the U.S. and exported across into other countries. So regulatory agencies have not caught up, and state are building out constraint and ways to, let's say, monetize or regulate the industry in either their state or the country itself. And things happen, what was good today is no longer good for tomorrow. An example of that would be in our Magu Maiden Farms grow. They had the ability to -- we originally wanted to try to see if we can do not only CO2, but to do ethanol extraction for the lower-quality hemp for the lower CBD quality part of the plant to extract. They were denied, their ability to extract ethanol on that facility. And it seems to be a growing trend in the state of Oregon. When ethanol used to be one of the top way or forms of extraction, it's now -- the cities and the states are starting to see the risks around call it butane and ethanol, and they're starting to be a little bit more restricting with regards to how they issue the licenses with regards to nonvolatile or volatile extraction. In the state of Arizona, where DJB Industries will be operating, they have -- they feel that they're going to get their ethanol approval, and it's to try and achieve that, you have to do more to get their licenses. So they're very close to getting that, and they should be in their facility by the end of the first quarter of next year ready to extract.
Okay. So at the end of the day, there's no -- is there a risk of losing that order, or just something pushed back until the permits are done?
That's a difficult question to answer. From our perspective, we feel confident that everything is going to happen according to the time line expressed, Brian.
Okay, great. And Dave, last question for you. Just regards to that new grocery chain that you've got with the coffee and CBD, can you just give me a little color on that? And I'll open it up for somebody else to ask.
We've -- I don't know if that was announced. It was announced way early. But we have been working pretty hard. I think you're referring to that Javalution brand. So Javalution is a hemp-derived brand. That brand actually is to market now. We finally got all of our testing dialed in the way we need to, and the Javalution brand is being marketed as we speak. And as we get uptake in certain suppliers and retailers, we'll go ahead and announce that if we're allowed to. In many cases, we're not, because the retailer asked us not to. But the Javalution brand is in stock at this point and is being sampled in a number of different retailers. And the HempFX line's coffee, we have a HempFX line of coffee, is actually on its way to the Youngevity distribution centers, filling them up where our direct selling points will begin selling HempFX line of coffee. And to my knowledge, it's the only hemp-derived coffee that actually test out into the cup. We've been told that numerous times by retailers and various people interested in this space. So we're very -- we're bullish on those 2 brands and the start shipping on both of them is really imminent. I think we're good. I appreciate everyone being on the call. All right. We're going to go ahead and close it out then. Thank you, everyone.
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