Acquisitions, Dispositions and Other Transactions

Kleeneze

On March 24, 2015, we completed the acquisition of Kleeneze Limited (“Kleeneze”), a direct-to-consumer business based in the United Kingdom. Kleeneze offers a wide variety of cleaning, health, beauty, home, outdoor and other products to customers across the United Kingdom and Ireland. We believe that with the experience our executive team has in the direct to consumer business, we could run the business in a profitable, efficient manner. Also, the acquisition gives us a significant footprint in the UK and provides the Company with access to the rest of the European market.

Pursuant to the terms of a Share Purchase Agreement with Findel Plc (“Findel”), the Company purchased 100% of the shares of Kleeneze from Findel for total consideration of $5.1 million. The consideration included $3.0 million of senior secured debt provided by HSBC Bank PLC, which has a term of two years and an interest rate per annum of 0.60% over the Bank of England Base Rate as published from time to time (an interest rate of approximately 1.1% at the time of the purchase). The remaining $2.1 million of consideration consisted of cash. Approximately $1.9 million in cash was acquired by the Company as part of the transaction at closing.

The Kleeneze acquisition was accounted for under the acquisition method of accounting. The assets acquired and liabilities assumed by the Company were recognized at their fair value at the acquisition date. The Company incurred approximately, $113,000 of acquisition-related costs, all of which were expensed and included in general and administrative expenses on the consolidated statements of operations and comprehensive loss.

The following summary represents the second preliminary fair value of Kleeneze as of the acquisition date, March 24, 2015. This is significantly adjusted from the second quarter 2015 preliminary fair values estimated due to completion of the purchase price allocation, which remains open subject to finalization which is expected in the fourth quarter of 2015, that occurred in September 2015. As a result of the purchase price allocation, we have recognized a preliminary bargain purchase gain of approximately $2.8 million. Although this gain had not been reported in a Form 10-Q filed previously in 2015, this gain is recognized as of March 31, 2015. Therefore, this gain is reflected in the nine months ended September 30, 2015 Statement of Operations, but it is not reflected in the three months ended September 30, 2015 Statement of Operations.



	(in thousands)
Consideration	$	5,100
Amounts recognized for assets acquired and liabilities assumed:
Current assets	12,163
Other long-term assets	619
Identifiable intangible assets	2,239
Current liabilities	(6,353		)
Other long-term liabilities ^(a)	(750		)
Net assets acquired	7,918

Gain on acquisition of Kleeneze	$	(2,819	)
^(a)The other long-term liabilities includes $750,000 of deferred tax liability generated as part of the acquisition. This deferred tax liability was directly offset against the gain on the acquisition.

As part of the purchase price allocation, the Company has determined that the identifiable intangible assets are trade name and distributor agreements. The Company valued these intangible assets using the Discounted Cash Flow Method. The Intangible assets are determined to have an indefinite useful life, and therefore, amortization of the intangible assets is not applicable. The trade name has an indefinite useful life and not subject to amortization. The distributor agreements are being amortized over 5 years in accordance with historical turnover of distributors at approximately 20% attrition per year.

As can be seen in the above table, the Company realized a $3.6 million gain on the acquisition of Kleeneze, which was recorded to "Gain on acquisition" in the Condensed Consolidated Statement of Operations. The transaction resulted in a gain primarily due to the significantly low purchase price, which is a result of the continual declines in revenues and operating profits Kleeneze had seen prior to the acquisition.

Pro-forma Consolidated Statement of Operations

The following unaudited pro-forma financial information presents the Company's consolidated financial results for the three and nine months ended September 30, 2015 and 2014 as if the acquisition had occurred as of January 1, 2014 (in thousands, except per share data):



	Nine Months Ended September 30,
	2015			2014
Operations
Revenues	$	104,727		$	121,874
Net loss	(13,581		)	(14,926		)
Net loss attributable to CVSL Inc.	(10,646		)	(12,201		)
Loss per common share attributable to CVSL Inc., basic and diluted	$	(0.32	)	$	(0.25	)

Notes to Pro-forma Unaudited Condensed Consolidated Financial Statement

These pro-forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations that actually would have resulted had the acquisition been effective at the beginning of the respective periods and are not necessarily representative of future results. The pro-forma results include the following adjustments:


•	Losses were incurred as a result of the write down of intercompany receivables in the amount of $33.1 million that were forgiven prior to and in accordance with the transaction. As these losses were direct and one-time events related specifically to the acquisition, we have excluded these items from the pro-forma financials above;


•	The pro-forma results above exclude $113,000 in transaction costs.

Dispositions

On July 31, 2014, CVSL and our subsidiary TLC and CFI NNN Raiders, LLC. ("CFI"), entered into a Sale Leaseback Agreement (the "Sale Leaseback Agreement") pursuant to which TLC agreed to sell to CFI certain real estate owned by TLC and used by TLC in its manufacturing, distribution and showroom activities. The real estate described in the Sale Leaseback Agreement was purchased by CFI, for an aggregate purchase price of $15.8 million. A gain on sale of approximately $2.5 million was recorded associated with the sale. Because the transaction was part of a Sale Leaseback agreement that is being accounted for as a capital lease, the gain has been deferred and will be recognized over the fifteen (15) year life of the Sale Leaseback Agreement.

In 2015, CVSL disposed of various property at TLC. In the three months ended March 31, 2015, TLC sold land with a net carrying value of $29,110 for a sales price of $30,000. In the three months ended September 30, 2015, TLC sold land with a net carrying value of 246,081 for a sales price of 771,062, buildings with a net carrying value of $187,690 for a sales price of $161,397, and equipment with a net carrying value of zero for a sales price of $6,000. These 2015 property sales resulted in dispositions of property of $523,269 and a gain on sale of assets of $505,578.

Public Offering

On March 4, 2015 the Company closed an underwritten public offering of 6,667,000 shares of common stock and warrants to purchase up to an aggregate of 6,667,000 shares of common stock at a combined offering price of $3.00. CVSL granted the underwriters a 45-day option to purchase up to an additional 1,000,050 shares of common stock and/or warrants to purchase up to an aggregate of 1,000,050 shares of common stock to cover additional over-allotments and the underwriters. On March 4, 2015, the underwriters exercised a portion of the over-allotment option with respect to 113,200 warrants. No options were exercised as it relates to shares of common stock. The over-allotment option has expired and no additional shares of common stock or warrants were exercised. In addition, warrants for an additional 166,675 shares with the same terms mentioned previously were issued to CVSL’s underwriters per the terms of the Underwriting Agreement.

The warrants have a per share exercise price of $3.75, are exercisable immediately and will expire five years from the date of issuance. The exercise price of the warrant is subject to anti-dilutive adjustments (such as stock splits, stock dividends, recapitalizations or other similar events). There are no cash settlement alternatives associated with the warrant agreements that would require the Company to pay a holder of such warrant cash at exercise or at any other event. The fair value of the warrants is approximately $9.0 million as calculated using the Black Scholes model. In accordance with US GAAP, the Company has accounted for the warrants as equity instruments.

The Warrants will be exercisable at any time a registration statement registering the issuance of the shares of Common Stock underlying the Warrants under the Securities Act is effective and available for the issuance of such shares, or an exemption from registration under the Securities Act is available for the issuance of such shares, by payment in full in immediately available funds for the number of shares of Common Stock purchased upon such exercise. If a registration statement registering the issuance of the shares of Common Stock underlying the warrants under the Securities Act is not effective or available and an exemption from registration under the Securities Act is not available for the issuance of such shares, the holder may, in its sole discretion, elect to exercise the Warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of Common Stock determined according to the formula set forth in the Warrant.

A holder of Warrants will not have the right to exercise any portion of the Warrant if such exercise would result in the holder (together with its affiliates) beneficially owning in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, unless the holder provides at least 61 days' prior notice to the company. Inno event may the Warrant holder's ownership exceed 9.99%.

Possible Issuance of Additional Common Stock under Share Exchange Agreement

Under a certain Share Exchange Agreement with Rochon Capital, which was amended during the fourth quarter of 2014 (the "Amended Share Exchange Agreement") Rochon Capital has rights to be issued the 25,240,676 shares of our common stock (the "Second Tranche Parent Stock") upon the public announcement that a person or group of affiliated or associated persons has become an Acquiring Person (as defined below), or upon the commencement or announcement of a tender or exchange offer which would result in any person or group becoming an Acquiring Person. In such event, the Second Tranche Parent Stock will be issued to Rochon Capital, or a Permitted Transferee to whom the right has been transferred, within ten (10) days of its written request, which request shall be in its sole discretion. A person or group of affiliated or associated persons becomes an "Acquiring Person," thus triggering the issuance of the Second Tranche Parent Stock to Rochon Capital, or a Permitted Transferee to whom the right has been transferred, upon acquiring, subsequent to the date of the Amended Share Exchange Agreement, beneficial ownership of 15% or more of the shares of our common stock then outstanding. The term "Acquiring Person" shall not include (1) any person who acquires 15% or more of our shares of common stock in a transaction approved by John P. Rochon, (2) any affiliates of John P. Rochon or (3) any family members of John P. Rochon.

These shares were considered issued and outstanding until the amendment in the fourth quarter of 2014. The Company has presented pro forma earnings per share for the three and nine months ended September 30, 2014, which has the Second Tranche Parent Stock removed from the issued and outstanding shares. This pro forma earnings per share reflects comparable common shares issued and outstanding for the three and nine months ended September 30, 2015.