Acquisitions, Dispositions and Other Transactions

3 Months Ended

Mar. 31, 2014

Acquisitions, Dispositions and Other Transactions

Acquisitions, Dispositions and Other Transactions

(2) Acquisitions, Dispositions and Other Transactions

Uppercase Living

On March 14, 2014, UAI acquired substantially all the assets of Uppercase Living, LLC, a direct seller of an extensive line of customizable vinyl expressions for display on walls. We assumed certain liabilities and agreed to issue 254,490 shares of our common stock, par value $0.0001 (“Common Stock”) to the seller at a fair value of $96,706 on the acquisition date. We have also agreed to deliver 323,897 shares of our common stock at a fair value of $123,081 to an escrow account for up to 24 months that will be issued to the seller upon remediation of certain close conditions.  Since we did not deliver the shares of our Common Stock until April 2014, we recorded a payable as of the acquisition date totaling $219,787.  We also agreed to pay the seller three subsequent contingent payments equal to 10% of Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) for each of the years ending 2014 to 2016 approximately $123,080 of which is recorded in other long-term liabilities in the opening balance sheet.  Goodwill arising from the transaction totaled $469,065.

Opening balance sheet for Uppercase Living acquisition on March 14, 2014

The following summary represents the fair value of UAI as of the acquisition date and is subject to change following management’s final evaluation of the fair value assumptions.

	UAI
Assets
Current assets:
Cash and cash equivalents	$	2,000
Accounts receivable	1,742
Inventory	96,497
Total current assets	100,239
Property, plant and equipment	23,230
Goodwill	469,065
Other assets	16,366
Total assets	$	608,900
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable—trade	$	267,337
Accrued commissions	79,003
Deferred revenue	28,399
Other current liabilities	96,706
Total current liabilities	471,445
Other long-term liabilities	137,455
Total liabilities	608,900
Stockholders’ equity	—
Total stockholders’ equity	—
Total liabilities and stockholders’ equity	$	608,900

Dispositions

During the quarter ended March 31, 2014, TLC sold an industrial building at ECO Business Park in Frazeysburg, Ohio for gross proceeds of $1,333,857.  Gain on sale of the asset was $271,970 that is an offset to selling, general and administrative expenses in the consolidated statements of operations.

The Longaberger Company

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 acquisition was accounted for under the purchase method of accounting and TLC is a consolidated subsidiary of the Company.

Opening balance sheets for The Longaberger Company acquisition on March 18, 2013

The following summary represents the fair value of TLC as of the acquisition date.

	TLC
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
Deferred revenue	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 stockholders’	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	$	3,998,530
Program costs and discounts	(1,031,970		)
Net sales	2,966,560
Costs of sales	1,370,120
Gross profit	1,596,440
Commissions and incentives	604,404
Selling, general and administrative	906,007
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

Possible Issuance of Additional Common Stock under Share Exchange Agreement

On August 24, 2012 we entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with HCG and Rochon Capital Partners, Ltd. (“Rochon Capital”). Under the Share Exchange Agreement, in exchange for all of the capital stock of HCG, we issued 438,086,034 shares of our restricted common stock to Rochon Capital (the “Initial Share Exchange”). The shares of our Common Stock received by Rochon Capital totaled approximately 90% of our issued and outstanding stock at the time of issuance. The Initial Share Exchange was completed on September 25, 2012 and resulted in a change in control and HCG becoming our wholly-owned subsidiary.

Under the Share Exchange Agreement, Rochon Capital also purchased and has the right to an additional 504,813,514 shares of Common Stock (the “Additional Shares”). The second closing of the transactions and the issuance of the Additional Shares contemplated by the Share Exchange Agreement (the “Second Tranche Closing”) was to occur on the date that was the later of: (i) the 20 th calendar day following the date on which we first mailed an Information Statement to our shareholders; (ii) the date the Financial Industry Regulatory Authority (“FINRA”) approved the Amendment; or (iii) the first business day following the satisfaction or waiver of all other conditions and obligations of the parties to consummate the transactions contemplated by the Share Exchange Agreement, or on such other date and at such other time as the parties may mutually determine.

On April 12, 2013, we filed Articles of Amendment to its Articles of Incorporation with the Florida Secretary of State to effect: (i) an increase in the number of authorized shares of the Corporation’s common stock from 490,000,000 to 5,000,000,000 shares (the “Increase”) and (ii) a change in the name of the Corporation to CVSL Inc. (the “Name Change”) on May 27, 2013. The Company’s shareholders holding a majority of its outstanding shares of common stock approved the Increase and the Name Change and the Articles of Amendment (the “Amendment”) effecting such transactions.

However, at the time of the filing of the Amendment, Rochon Capital and CVSL each determined that it was not in the best interests of CVSL to consummate the Second Tranche Closing and the issuance of the Additional Shares at that time. As a result, the Share Exchange Agreement was amended on April 10, 2013 to provide that, among other things, the Second Tranche Closing will occur on the date specified in a written notice provided by Rochon Capital, which date shall not be prior to the 20 th calendar day following the date on which we first mailed our Information Statement to our shareholders and the date the FINRA approves the Amendment.

The amendment to the Share Exchange Agreement also (a) clarifies and redefines the number of shares that are to be issued at the Second Tranche Closing as 504,813,514 shares of our Common Stock, or any portion thereof provided for in the notice from Rochon Capital and (b) modifies the date tied to certain restrictions set forth in Section 7.08 of the Share Exchange Agreement, since the Second Tranche Closing Date cannot be determined at this time. We have the ability to issue the Additional Shares to Rochon Capital, as agreed to in the Share Exchange Agreement, as amended, upon our receipt of written notice from Rochon Capital.