Acquisitions, Dispositions and Other Transactions

3 Months Ended

Mar. 31, 2013

Acquisitions, Dispositions and Other Transactions

Acquisitions, Dispositions and Other Transactions

(2) Acquisitions, Dispositions and Other Transactions

On March 18, 2013, the Company acquired a controlling interest in TLC, a direct-selling business based in Newark, Ohio.  The transaction resulted in the Company acquiring 64.6% of the voting stock and 51.7% of all the stock in TLC in return for a $6,500,000 convertible note and a $4,000,000 promissory note.  The Company incurred acquisition related costs of approximately $338 thousand recorded during the fourth quarter of 2012 and $138 thousand during the first quarter of 2013. The costs were recorded in selling, general and administrative expenses in the consolidated income statements.  The acquisition is being accounted for under the purchase method of accounting and as of March 18, 2013 TLC is a consolidated subsidiary of the Company.  The following summary represents the fair value of TLC’s balance sheet and is subject to change following managements’ final evaluation of the fair value assumptions.

Opening balance sheet:

	March 18, 2013
Assets
Current assets:
Cash and cash equivalents	$	84,062
Accounts receivable	259,602
Inventory	19,892,740
Prepaid expenses and other	1,074,420
Total current assets	21,310,824
Property, plant and equipment	28,469,390
Other assets	3,946,570
Total assets	$	53,726,784
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable - trade	$	6,383,107
Accounts payable - related party	—
Line of credit payable	9,319,612
Customer advanced payments	4,132,386
Current portion of long-term debt	354,390
Other current liabilities	3,962,045
Total current liabilities	24,151,540
Long-term debt	9,265,766
Total liabilities	33,417,306
Stockholders’ equity:
Stockholders’ equity attributable to CVSL	10,500,000
Stockholders’ equity attributable to noncontrolling interest	9,809,478
Total stockholders’ equity	20,309,478
Total liabilities and stockholders’ equity	$	53,726,784

The acquisition did not result in recognition of any intangible assets or goodwill.

TLC Results from Operations

The following table presents the operating results of TLC included in the Company’s consolidated statements of operations for the 13 day period beginning March 19, 2013 to March 31, 2013.

Gross sales	$	3,902,854
Program costs and discounts	(1,524,624		)
Net sales	2,378,230
Costs of sales	1,340,229
Gross profit	1,038,001
Selling, general and administrative	951,972
Operating profit	86,029
Interest expense, net	37,488
Net income	48,541
Net earnings attributable to noncontrolling interest	23,445
Net earnings attributed to CVSL	$	25,096

Pro forma Results

The following table presents the unaudited pro forma consolidated results as if the business combination occurred as of January 1, 2013 and 2012, respectively.  The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the acquisition taken place as of January 1, 2013 and 2012, respectively.

	Three months ended
	March 31, 2013*			March 31, 2012
Gross sales	$	20,141,952		$	24,002,207
Gross profit	5,133,580			4,519,011
Operating loss	(3,662,865		)	(3,260,583		)
Net loss	(4,149,395		)	(4,140,433		)
Net loss attributed to CVSL		(2,796,906	)		(2,135,269	)
Basic and diluted loss per share:
Weighted average common share outstanding		487,712,326			438,086,034
Net loss per share attributable to CVSL	$	(0.01	)	$	—

* Excludes purchase accounting adjustments.

Seasonality

TLC historically experiences seasonality in its revenues.  Generally, the best quarter for gross revenues is the fourth quarter, boosted by the traditional holiday shopping season and events such as Halloween and Thanksgiving.  The next best quarter is the third quarter, as historically, TLC generates renewed excitement among Home Consultants after the traditional Longaberger Bee sales meeting, held annually in late July, and the subsequent introduction of the Fall WishList catalog.  The chart below shows total gross revenue for TLC for the last four quarters.

(in millions)	Gross sales
Q2FY12	$	25.4
Q3FY12	26.9
Q4FY12	36.8
Q1FY13	19.9
Total	$	109.0