Acquisitions and Business Combinations

12 Months Ended

Dec. 31, 2015

Fair estimated value of warrants

Acquisitions and Business Combinations

During 2015 and 2014, the Company entered into eight acquisitions, which are detailed below. The acquisitions were conducted in an effort to expand the Company’s distributor network, enhance and expand its product portfolio, and diversify its product mix.  As such, the major purpose for all of the business combinations was to increase revenue and profitability.  The acquisitions were structured as asset purchases which resulted in the recognition of certain intangible assets. 

2015 Acquisitions

Paws Group, LLC

On July 1, 2015, the Company acquired certain assets of Paws Group, LLC, (“PAWS”) a direct-sales company for pet lovers that offers an exclusive pet boutique carrying treats for dogs and cats as well as grooming and bath products.  The purchase price consisted of a maximum aggregate purchase price of $150,000. The Company agreed to pay initial cash payment of approximately $61,000, for which the Company received certain inventories, the initial cash payment was applied against and reduce the maximum aggregate purchase price.

The contingent consideration’s estimated fair value at the date of acquisition was $125,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.

The Company recorded a preliminary fair value of a customer relations intangible asset of $125,000 and is being amortized over its estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.

The revenue impact from the PAWS acquisition, included in the consolidated statement of operations for the year ended December 2015 was approximately $98,000. 

The pro-forma effect assuming the business combination with PAWS discussed above had occurred at the beginning of the Company’s fiscal year for 2015 are not presented as the information was not available.

Mialisia & Co., LLC

On June 1, 2015, the Company acquired certain assets of Mialisia & Co., LLC, (“Mialisia”) a direct-sales jewelry company that specializes in interchangeable jewelry. As a result of this business combination, the Company’s distributors and customers have access to the unique line of Mialisia’s patent-pending “VersaStyle™” jewelry and Mialisia’s distributors and customers will gain access to products offered by the Company. The purchase price consisted of a maximum aggregate purchase price of $1,900,000. The Company agreed to pay an initial cash payment of $118,988, for which the Company received certain inventories, the initial cash payment was applied against and reduce the maximum aggregate purchase price.

The Company has agreed to pay Mialisia a monthly payment equal to seven (7%) of all gross sales revenue generated by the Mialisia distributor organization in accordance with the asset purchase agreement, regardless of products being sold and pay five (5%) royalty on Mialisia product revenue until the earlier of the date that is fifteen (15) years from the closing date or such time as the Company has paid aggregate cash payment equal to $1,781,012. All payments of Mialisia distributor revenue will be applied against and reduce the maximum aggregate purchase price;  however if the aggregate gross sales revenue generated by the Mialisia distributor organization, for a twelve (12) months period following the closing date does not equal or exceed $1,900,000 then the maximum aggregate purchase price will be reduced by the difference of the $1,900,000 and the average distributor revenue for a twelve (12) month period: provided, however, that in no event will the maximum aggregate purchase price be reduced below $1,650,000.

The contingent consideration’s estimated fair value at the date of acquisition was $700,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.

The assets acquired were recorded at estimated fair values as of the date of the acquisition. The fair values of the acquired assets have not been finalized pending further information that may impact the valuation of certain assets or liabilities. The preliminary purchase price allocation for Mialisia is as follows (in thousands):

Distributor organization	$	350
Customer-related intangible		200
Trademarks and trade name		150
Total purchase price	$	700

The preliminary fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.

The Company expects to finalize the valuation within one (1) year from the acquisition date.

The revenue impact from the Mialisia acquisition, included in the consolidated statement of operations for the year ended December 2015 was approximately $754,000.

The pro-forma effect assuming the business combination with Mialisia discussed above had occurred at the beginning of the Company’s fiscal year for 2015 are not presented as the information was not available. 

JD Premium LLC

On March 4, 2015, the Company acquired certain assets of JD Premium, LLC (“JD Premium”) a dietary supplement company. As a result of this business combination, the Company’s distributors and customers have access to JD Premium’s unique line of products and JD Premium’s distributors and clients gain access to products offered by the Company. The purchase price consisted of a maximum aggregate purchase price of $500,000. The Company made an initial cash payment of $50,000 for the purchase of certain inventories, which has been applied against and reduce the maximum aggregate purchase price.

The Company has agreed to pay JD Premium a monthly payment equal to seven (7%) of all gross sales revenue generated by the JD Premium distributor organization in accordance with the asset purchase agreement, regardless of products being sold and pay five (5%) royalty on JD Premium product revenue until the earlier of the date that is fifteen (15) years from the closing date or such time as the Company has paid aggregate cash payment equal to $450,000. All payments of JD Premium distributor revenue will be applied against and reduce the maximum aggregate purchase price;  however if the aggregate gross sales revenue generated by the JD Premium distributor organization, effective April 4, 2015 for a twenty-four (24) months period does not equal or exceed $500,000 then the maximum aggregate purchase price will be reduced by the difference of the $500,000 and the average annual distributor revenue; provided, however, that in no event will the maximum aggregate purchase price be reduced below $300,000.

The contingent consideration’s estimated fair value at the date of acquisition was $195,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.

The assets acquired were recorded at estimated fair values as of the date of the acquisition. The fair values of the acquired assets have not been finalized pending further information that may impact the valuation of certain assets or liabilities. The preliminary purchase price allocation for JD Premium is as follows (in thousands):

Distributor organization	$	110
Customer-related intangible		85
Total purchase price	$	195

The preliminary fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.

The Company expects to finalize the valuation within one (1) year from the acquisition date.

The revenue impact from the JD Premium acquisition, included in the consolidated statement of operations for the year ended December 2015 was approximately $102,000.

The pro-forma effect assuming the business combination with JD Premium discussed above had occurred at the beginning of 2015 is not presented as the information would not be significant to a user of the consolidated financial statements. 

Sta-Natural, LLC

On February 23, 2015, the Company acquired certain assets and assumed certain liabilities of Sta-Natural, LLC, (“Sta-Natural”) a dietary supplement company and provider of vitamins, minerals and supplements for families and their pets. As a result of this business combination, the Company’s distributors and customers have access to Sta-Natural’s unique line of products and Sta-Natural’s distributors and clients gain access to products offered by the Company. The purchase price consisted of a maximum aggregate purchase price of $500,000. The Company made an initial cash payment of $25,000 of which the Company also received certain inventories valued at $25,000, the initial cash payment was applied against and reduce the maximum aggregate purchase price.

The Company has agreed to pay Sta-Natural a monthly payment equal to eight (8%) of all gross sales revenue generated by the Sta-Natural distributor organization in accordance with the asset purchase agreement, regardless of products being sold and pay five (5%) royalty on Sta-Natural product revenue until the earlier of the date that is fifteen (15) years from the closing date or such time as the Company has paid aggregate cash payment equal to $450,000. All payments of Sta-Natural distributor revenue will be applied against and reduce the maximum aggregate purchase price;  however if the aggregate gross sales revenue generated by the Sta-Natural distributor organization, for a twelve (12) months period following the closing date does not equal or exceed $500,000 then the maximum aggregate purchase price will be reduced by the difference of the $500,000 and the average distributor revenue for a twelve (12) month period: provided, however, that in no event will the maximum aggregate purchase price be reduced below $300,000.

The contingent consideration’s estimated fair value at the date of acquisition was $285,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.

The final purchase price allocation for Sta-Natural is as follows (in thousands):

Distributor organization	$	140
Customer-related intangible		110
Trademarks and trade name		60
Initial cash payment		(25	)
Total purchase price	$	285

The fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of ten (10) years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.

The revenue impact from the Sta-Natural acquisition, included in the consolidated statement of operations for the year ended December 2015 was approximately $691,000.

The pro-forma effect assuming the business combination with Sta-Natural discussed above had occurred at the beginning of the current period is not presented as the information was not available. 

2014 Acquisitions

Restart Your Life, LLC

On October 1, 2014, the Company acquired certain assets and assumed certain liabilities of Restart Your Life, LLC, (“Restart Your Life”) a dietary supplement company and provider of immune system support products and therapeutic skin lotions. As a result of this business combination, the Company’s distributors and customers will have access to Restart Your Life’s unique line of products and Restart Your Life’s distributors and clients will gain access to products offered by the Company. The purchase price consisted of a maximum aggregate purchase price of $1,492,000, of which the Company has agreed to assume liabilities of approximately $250,000. The Company has agreed to pay Restart Your Life a monthly payment equal to ten (10%) of all gross sales revenue generated by the Restart Your Life distributor organization, regardless of products being sold and pay five (5%) royalty on Restart Your Life product revenue until the earlier of the date that is ten (10) years from the closing date or such time as the Company has paid aggregate cash payment equal to $1,242,000. All payments of Restart Your Life distributor revenue will be applied against and reduce the maximum aggregate purchase price;  however if the aggregate gross sales revenue generated by the Restart Your Life distributor organization, for a thirteen (13) months period following the closing date does not equal or exceed $1,492,000 then the maximum aggregate purchase price will be reduced by the difference of the $1,492,000 and the thirteen months revenue; provided that in no event will the maximum aggregate purchase price be reduced below $892,441.

The contingent consideration’s estimated fair value at the date of acquisition was $650,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.

The Company finalized the purchase accounting in 2015 and determined that the initial purchase price should be increased from $650,000 by approximately $75,000.

The final purchase price allocation for Restart Your Life (in thousands) is as follows:

Trademarks and trade name	$	165
Customer-related intangible		375
Distributor organization		435
Accrued expenses		(250	)
Total purchase price	$	725

The fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of (10) ten years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.

The revenue impact from the Restart Your Life acquisition, included in the consolidated statements of operations for the years ended December 2015 and 2014 was approximately $1,505,000 and $413,000, respectively.

The pro-forma effect assuming the business combination with Restart Your Life discussed above had occurred at the beginning of the Company’s fiscal year for 2014 are not presented as the information was not available. 

Good Herbs, Inc.

On April 28, 2014, the Company acquired certain assets and assumed certain liabilities of Good Herbs, Inc., (“Good Herbs”) a traditional natural herbal supplements company, whose primary sales channel has been targeted toward certified natural health professionals. As a result of this business combination, the Company’s distributors and customers have access to Good Herbs’ unique line of products and Good Herbs’ distributors and clients gained access to products offered by the Company. The purchase price consisted of a maximum purchase price of $1,900,000 of which approximately $120,000 was related to assumed liabilities. The Company has agreed to pay Good Herbs a monthly payment equal to five (5%) of all gross sales revenue generated by the Good Herbs’ distributor organization, regardless of products being sold within the Good Herbs’ distributor organization; provided, however, for the first six (6) months effective May 12, 2014 Good Herbs is to receive a minimum guaranteed payment of $20,000 per month which is to be applied to the maximum purchase price. In addition, the Company agreed to pay Good Herbs five percent (5%) of Good Herbs’ product sales generated outside the Good Herbs’ distributor organization. Payments are to be made monthly until the earlier of the date that is ten (10) years from the closing or until such time the Company has paid aggregate cash payments equal to $1,780,000; however if the aggregate gross sales revenue generated by the Good Herbs’ distributor organization, regardless of the products being sold, received by the Company for the fifteen (15) months period following the Closing Date does not equal or exceed $1,900,000 then the maximum aggregate purchase price will be reduced by the difference between $1,900,000 and the fifteen month revenue; provided that in no event will the maximum aggregate purchase price be reduced below $1,000,000. The contingent consideration’s preliminary fair value at the date of acquisition was $800,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.

The assets acquired and liabilities assumed were recorded at estimated fair values as of the date of the acquisition.

During the fourth quarter ended December 31, 2014 the purchase accounting was finalized and the Company determined that the initial purchase price should be reduced from $800,000, by approximately $270,000. The final purchase price allocation for Good Herbs (in thousands) is as follows:

Trademarks and trade name	$	150
Customer-related intangible		250
Distributor organization		250
Accrued expenses		(120	)
Total purchase price	$	530

The fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of (10) ten years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.

The revenue impact from the Good Herbs’ acquisition, included in the consolidated statements of operations for the years ended December 2015 and 2014 was approximately $1,410,000 and $333,000, respectively.

The pro-forma effect assuming the business combination with Good Herbs discussed above had occurred at the beginning of the Company’s fiscal year for 2014 are not presented as the information was not available. 

Beyond Organic, LLC

On May 1, 2014, the Company acquired certain assets and assumed certain liabilities of Beyond Organic, LLC, (“Beyond Organic”) a vertically integrated organic food and beverage company. The purchase price consisted of a maximum purchase price of $6,200,000 of which approximately $200,000 was related to assumed liabilities. The Company has agreed to pay Beyond Organic a monthly payment equal to ten (10%) of all gross sales revenue generated by the Beyond Organic distributor organization, regardless of products being sold within the Beyond Organic distributor organization; provided, however, for the first ten (10) months effective May 12, 2014 Beyond Organic is to receive a minimum guaranteed payment of $92,500 per month which is to be applied to the maximum purchase price. In addition, the Company agreed to pay Beyond Organic five percent (5%) of Beyond Organic product sales generated outside the Beyond Organic distributor organization. Payments are to be made monthly until the earlier of the date that is seven (7) years from the closing or until such time the Company has paid aggregate cash payments equal to $6,000,000. The contingent consideration’s estimated fair value at the date of acquisition was $3,100,000 as determined by management using a discounted cash flow methodology. The acquisition related costs, such as legal costs and other professional fees were minimal and expensed as incurred.

The assets acquired and liabilities assumed were recorded at their estimated fair values as of the date of the acquisition. The purchase price allocation for Beyond Organic (in thousands) is as follows:

Goodwill	$	300
Trademarks and trade name		300
Customer-related intangible		1,300
Distributor organization		1,400
Accrued expenses		(200	)
Total purchase price	$	3,100

The fair value of intangible assets acquired was determined through the use of a discounted cash flow methodology. The trademarks and trade name, customer-related intangible and distributor organization intangible are being amortized over their estimated useful life of (10) ten years using the straight-line method which is believed to approximate the time-line within which the economic benefit of the underlying intangible asset will be realized.

Goodwill of $300,000 was recognized as the excess of the purchase price over the acquisition-date fair value of net assets acquired. Goodwill is estimated to represent the synergistic values expected to be realized from the combination of the two businesses. The goodwill is expected to be deductible for tax purposes.

The revenue impact from the Beyond Organic acquisition, included in the consolidated statements of operations for the years ended December 2015 and 2014 was approximately $5,760,000 and $3,129,000, respectively.

The pro-forma effect assuming the business combination with Beyond Organic discussed above had occurred at the beginning of the Company’s fiscal year for 2014 are not presented as the information was not available.

Siles Plantation Family Group S.A. (Sociedad Anonima)

On May 13, 2014, the Company, through its wholly-owned subsidiary CLR Roasters, LLC (“CLR”), acquired the stock in the Siles Plantation Family Group S.A., a Nicaraguan entity.  The results of Siles are included in the consolidated financial statements of the Company from the date of acquisition. The transaction is being accounted for as a business combination.

The Siles Plantation Family Group S.A. is operated and managed by a husband and wife team who are also employees of Siles. The husband and wife team are Marisol Del Carmen Siles Orozco (“Orozco”) and Alain Piedra Hernandez (“Hernandez”) both Nicaraguan nationals and U.S. citizens. Orozco and Hernandez independently own and operate a coffee export company and maintain an export license; Hernandez, Hernandez Export Y Company (“H&H”). CLR has been associated with H&H through sourcing arrangements to procure Nicaraguan coffee. 

Concurrent with the acquisition of Siles, Siles acquired the assets of a dry-processing plant “La Pita”, a coffee plantation “El Paraiso” and has paid a deposit to purchase a second coffee plantation “El Paraisito” as follows:

1)  “La Pita”, a dry-processing plant sitting on approximately 26 acres of land is located in Matagalpa, Nicaragua.  The property includes buildings, structures, machinery and equipment, and furnishings and fixtures. The total purchase price was $1,904,840, of which CLR paid $1,050,000 and H&H paid $854,840. The purchase price allocation for La Pita (in thousands) is as follows:

Buildings and structures	$	832
Machinery and equipment		417
Customer relationships, intangible		367
Land		289
Total purchase price	$	1,905

2)  “El Paraiso”, a coffee plantation located in Matagalpa, Nicaragua, consisting of approximately 450 acres of land. The total purchase price was $1,400,000 of which CLR paid $1,050,000 and H&H paid $350,000. The purchase price allocation for El Paraiso (in thousands) is as follows:

Land	$	1,400
Total purchase price	$	1,400

 3)  Additionally, Siles has the desire to purchase “El Paraisito”, an approximate 450 acre plantation located adjacent to El Paraiso. The Company is currently in the process of completing final settlement of the purchase agreement. CLR and H&H has a deposit towards this purchase of $284,000 of which CLR paid $200,000 and H&H paid $84,000 and is recorded in prepaid expenses and other current assets on the Company’s consolidated balance sheets for the years ended December 31, 2015 and 2014.

In connection with the acquisition of Siles (La Pita and El Paraiso), the Company recognized a contingent liability of approximately $1,632,000 which is payable to H&H after certain working capital conditions are met and after CLR’s cash contributions for the acquisitions are fully paid.  

As an inducement to harvest the plantations and operate the dry-processing plant profitably, CLR and H&H entered into an Operating and Profit Sharing Agreement (“Agreement”).  In accordance with the Agreement, H&H shares equally (50%) in all profits and losses generated by Siles, and profits from any subsequent sale of the plantation, after profits are first distributed to CLR equal to the amount of CLR’s cash contributions for the acquisitions, then after profits are distributed to H&H in an amount equal to their cash contributions, and after certain other conditions are met. During the years ended December 31, 2015 and 2014 the Company recorded expenses allocated to the profit sharing Agreement of $528,000 and $211,000, respectively.

As of December 31, 2015 and 2014 the balance of contingent acquisition debt payable to H&H after the reduction of $528,000 and $211,000 from the allocation of 50% losses recognized in 2015 and 2014 is $894,000 and $1,421,000, respectively.

Revenue from the Siles Plantation includes service fees related to dry-processing and sales of plantation coffee were approximately $942,000 and $115,000 and is included in the consolidated statements of operations for the years ended December 31, 2015 and 2014, respectively.

Siles Family Plantation is a newly formed entity in 2014 and does not have historical financial statements related to 2014; therefore pro-forma disclosures have not been presented for 2014.

Financial Destination, Inc., FDI Management, Inc., and MoneyTrax, LLC (collectively referred to as “FDI”)

During the Company’s third quarter ended September 30, 2014, the Company entered into an amendment agreement related to our FDI business acquisition that was consummated in a prior year, which reduces the maximum amount that will be paid to the seller. This resulted in a reduction in the estimated fair value of the related contingent acquisition debt.