Stability Biologics, LLC

12 Months Ended

Dec. 31, 2019

Discontinued Operations and Disposal Groups [Abstract]

On January 13, 2016, the Company completed the acquisition of Stability Inc., a provider of human tissue products to surgeons, facilities, and distributors serving the surgical, spine, and orthopedic sectors of the healthcare industry. As a result of this transaction, the Company acquired all of the outstanding shares of Stability, Inc. in exchange for $6.0 million cash, $3.3 million (or 441,009 shares) of the Company’s common stock, par value $0.001 per share (“Common Stock”), and assumed debt of $1.8 million. Additional one-time costs incurred in connection with the transaction totaled $1.1 million and were included within selling, general and administrative expenses on the consolidated statements of operations. Contingent consideration might have been payable based on a formula determined by sales less certain expenses for the years 2016 and 2017. The contingent consideration was valued at $17.5 million as of January 13, 2016 and is shown in the schedule below as fair value of earn-out. The contingent consideration was classified as a liability.

On September 30, 2017, the Company completed its divestiture of Stability pursuant to the Membership Interest Purchase Agreement by and among the Company, Stability, each person that, as of January 13, 2016, was a stockholder of Stability Inc., a Florida corporation and a predecessor-in-interest to Stability, and Brian Martin, as stockholder representative.

A summary of the assets divested and consideration received follows (in thousands):



	Year ended
	December 31, 2017

Assets divested
Trade receivables	$	2,406
Inventories	3,455
Prepaid expenses and other assets	955
Goodwill (a)	227
Intangible assets	11,857
Property and equipment, net	1,446
Total assets divested	20,346

Liabilities divested
Accounts payable and accrued liabilities	3,488
Total liabilities divested	3,488

Total net assets divested	$	16,858

Transaction costs	400

Consideration received
Non-trade receivable (b)	150
Note receivable (c)	3,190
Intangible assets (d)	630
Extinguishment of earn out liability (e)	12,240
Total consideration received	$	16,210

Loss on sale	$	(1,048	)

(a) In accordance with ASC 350-20-35-52 when a portion of a reporting unit is disposed of, goodwill associated with that business shall be included in the carrying amount of the business in determining the gain on disposal. In accordance with ASC 350-20-35-53, the amount of goodwill to be included in that carrying amount shall be based on the relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained. Based on an estimated fair value of Stability of $16.2 million representing a consideration received for the business compared to the fair value of business retained determined based on the market approach, approximately $0.2 million of the total goodwill of $20.2 million residing in the reporting unit was included in the carrying amount of the business sold.

(b) non-trade receivable represents a cash payment due within 60 days of closing.

(c) a promissory note issued by Stability in the principal amount of $3.5 million in favor of the Company recognized at a discounted value of $3.2 million.

(d) a fair value of $0.5 million for the distributor agreements with Stability and a fair value of $0.1 million for the non-compete agreements with the former stockholders of Stability Inc.

(e) a waiver by the former stockholders of Stability Inc. of all claims and rights to earn-out consideration, which was recorded as a liability at a fair value of $12.2 million immediately prior to the divestiture. The fair value of the earn-out liability was determined based on the income approach and includes the actual realized results of operations and expected future performance over the remaining earn-out period.

The total loss on the Stability Divestiture of $0.5 million is comprised of a pretax book loss of $1.0 million and an associated tax benefit of $0.5 million.

The earn-out arrangement was classified as a liability on the Stability acquisition date of January 13, 2016 and remeasured at fair value each reporting period until the Stability was divested on September 30, 2017. A decrease in fair value of $3.6 million for the year ended December 31, 2017 was included in Selling, general and administration expenses on the consolidated statements of operations.