HN ACQUISITION

12 Months Ended

Dec. 31, 2015

HN ACQUISITION [Abstract]

HN ACQUISITION

NOTE 4. HN ACQUISITION

In January 2014, we purchased all of the outstanding shares of HN for $2.0 million in cash ($1.8 million paid in January 2014 and $0.2 million payable upon the resolution of certain contingencies) and promissory notes in the face amount of $3.3 million, subject to working capital adjustments.  HN is an Irving, Texas-based formulator and co-packer of products targeted at customers in the direct marketing, internet sales and retail distribution markets.  HN serves the natural products, nutritional supplement and nutraceutical and functional food sectors.  We acquired HN as part of our strategy to vertically integrate our business in order to leverage our proprietary and patented technologies.  The acquisition has been accounted for as a business combination.  The results of HN’s operations are included in our consolidated financial statements beginning January 2, 2014, and are included in our USA segment.

In the first quarter of 2014, we incurred $0.3 million of acquisition-related costs which are included in selling, general and administrative expenses in the 2014 consolidated statement of operations.  The following table summarizes the aggregate purchase price allocation, the consideration transferred to acquire HN, as well as the amounts of identified assets acquired and liabilities assumed based on the estimated fair value as of the January 2, 2014, acquisition date (in thousands).

Cash	$	1,800
Cash holdback for contingencies		200
Convertible notes payable		2,785
Total fair value of consideration transferred		4,785
Financial assets, including acquired cash of $1,075		1,314
Inventories		1,109
Property		963
Identified intangible asset estimate		3,847
Deferred  income taxes, net		(1,529	)
Financial liabilities		(1,709	)
Net recognized amounts of identifiable assets acquired		3,995
Goodwill - USA segment	$	790

The fair value of trade receivables at January 2, 2014, was $0.1 million which equaled the gross amount receivable.  We assigned a $3.8 million value to a customer relationship intangible and we are amortizing that intangible over a three year period as follows: $1.7 million in 2014, $1.3 million in 2015 and $0.8 million in 2016.  In 2015, we recognized $1.3 million of amortization expense in the USA segment related to this intangible.