Acquisitions and Other Transactions

Betterware

On October 15, 2015, Trillium Pond AG, a corporation organized in Switzerland ("Trillium Pond,") wholly owned by a Swiss subsidiary (CVSL AG) of the Company, entered into and consummated a Share Purchase Agreement (the "SPA") with Robert Way and Andrew Lynton Cohen ("Sellers") pursuant to which Trillium Pond purchased from the Sellers all of the issued and outstanding share capital of Stanley House Distribution Limited ("Stanley House,") a company incorporated in England. Stanley House has one wholly owned subsidiary, Betterware.

Pursuant to the SPA, Trillium Pond purchased and acquired all 99,980 issued and outstanding shares of Stanley House common stock in exchange for payment to the Sellers of: (i) an aggregate cash payment of £1.0 million ($1.5 million at the time of purchase), the cash payments being funded from a portion of the cash acquired in the acquisition; (ii) convertible notes (the "Notes") in the aggregate principal amount of £3.7 million ($5.8 million at the time of purchase); and (iii) 976,184 shares of the Company’s common stock having a value on the date of issuance of $1.7 million. The shares of common stock issued to Mr. Way and Mr. Cohen under the SPA and issuable upon conversion of the Notes are subject to certain leak-out provisions, as set forth in a Lock-Up Agreement, that restricts the sale of stock under certain circumstances based upon the number of shares sold and the trading volume of the Company’s common stock.

The Notes mature after three (3) years and bear interest at a rate of two percent (2%) per annum, compounded annually and payable monthly. The Notes provide for aggregate cash payments of approximately (i) £10,222 ($16,000 at the time of purchase) on the 14th day of each of the 1-6 months after issuance; and (ii) £20,444 ($32,000 at the time of purchase) on the 14th day on each of the 7-36 months after issuance; provided, however that if certain milestones are not met part or all of the payment may be made at the option of the Company by the issuance of shares of the Company’s common stock instead of cash. In addition, the Notes provide for the payments in the aggregate amount of £1.0 million ($1.6 million at the time of purchase) at the Company’s election, in cash or shares of the Company’s common stock on each of the twelve, twenty four and thirty six month anniversary of the issuance date of the Notes. The Seller has the right upon a stock payment to cancel the portion of the Note subject to the stock issuance and forfeit such payment. The Notes may be prepaid in cash at any time.

The Betterware 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 $90,000, of acquisition-related costs, all of which were expensed and included in general and administrative expenses on the consolidated statements of operations.



	(in thousands)
Consideration	$	9,066
Amounts recognized for assets acquired and liabilities assumed:
Cash	640
Other current assets, including $1,624 of accounts receivable and $3,415 of inventory	6,933
Other long-term assets	1,129
Identifiable intangible assets	3,251
Current liabilities	(3,704		)
Other long-term liabilities	(618		)

Net assets acquired	7,631

Goodwill	$	1,435

Kleeneze

On March 24, 2015, the Company completed the acquisition of 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.

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 2.0 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 fair value of the identifiable assets acquired and liabilities assumed of approximately $8.7 million exceeded the fair value of the purchase price of the business of approximately $5.1 million. As a result, the recognition and measurement of identifiable assets acquired and liabilities assumed were reassessed. The Company concluded that the valuation procedures and resulting measures were appropriate. Accordingly, the acquisition has been accounted for as a bargain purchase. Accordingly, upon conclusion of the purchase price allocation in the third quarter of 2015, the Company realized a $3.6 million gain on the acquisition, which is recorded to "Gain on acquisition of a business" in the consolidated statements 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.

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 expense" on the consolidated statements of operations.



	(in thousands)
Consideration	$	5,100
Amounts recognized for assets acquired and liabilities assumed:
Current assets	12,208
Other long-term assets	764
Identifiable intangible assets	2,239
Current liabilities	(6,495		)

Net assets acquired	8,716

Gain on acquisition of Kleeneze	$	(3,616	)

Pro-forma Consolidated Statement of Operations

The following unaudited pro-forma financial information presents the Company's condensed financial results for the fiscal year ended December 31, 2015 as if the Betterware and Kleeneze acquisitions had occurred as of January 1, 2015 (in thousands, except per share data):



	Fiscal Year Ended
Results of Operations	December 31, 2015
Revenue	$	184,303
Net loss	(19,047		)
Net loss attributable to JRjr33, Inc.	(13,264		)
Loss per common share attributable to JRjr33, Inc., basic and diluted	$	(0.40	)

Notes to Pro-forma Consolidated Statements of Operations:

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 acquisitions been effective at the beginning of 2015 and are not necessarily representative of future results. The pro-forma results include the following adjustments:


•	Losses were incurred by Kleeneze as a result of the write down of inter-company 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, the Company has excluded these items from the pro-forma results above; and


•	The pro-forma results above exclude $203,000 in transaction costs, all of which were expensed during the year ended December 31, 2015, and are included in 'General and administrative expense' in the consolidated statement of operations.