ACQUISITION OF ABACUS HEALTH

12 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

On June 11, 2020, the Company acquired all the issued and outstanding subordinate voting shares of Abacus Products, Inc. (“Abacus”).

Abacus develops, markets and sells over-the-counter (“OTC”) topical products combining active pharmaceutical ingredients with hemp extract. This acquisition provided the Company with growth opportunities in both topical and ingestible products in the CBD wellness category.

Abacus primarily sells its products under three brand names: CBDMedic™, CBD Clinic™, and Harmony Hemp. CBD Clinic™ is marketed to the professional practitioner market and sold exclusively to registered health practitioners such as chiropractors, acupuncturists, massage therapists, physical therapists, naturopaths, and osteopaths. CBDMedic™ is targeted to the consumer market. CBDMedic™ products are sold directly to consumers through retail outlets, health, and fitness locations, as well as through an e-commerce platform. Harmony Hemp is targeted to the consumer market. These products are sold through retail outlets as well as through an e-commerce platform. The acquisition of these brands substantially expanded the Company's topical offerings and presence in the key food and mass markets.

The acquisition closed on June 11, 2020 and, accordingly, the consolidated statements of operations and comprehensive loss include Abacus Health results of operations for the period from June 11, 2020 through December 31, 2020 and for the year ended December 31, 2021. Due to integration of Abacus Health into the Company’s systems as of July 1, 2020, at December 31, 2021 and 2020 it is not feasible for the Company to disaggregate the acquiree revenue, on an after discount and promotions basis, or the results of operations related thereto consolidated in the financial statements. If the acquisition had taken place as of January 1, 2020, revenue from continuing operations for the year ended December 31, 2020 would have been $99,341. Loss from continuing operations for the year ended December 31, 2020 would have been $(47,810). The aforementioned pro-forma amounts are unaudited.

As a result of the business combination, one-time acquisition costs of $3,897 were expensed as incurred during the year ended December 31, 2020.

Fair Value of Consideration

Pursuant to the terms of the arrangement agreement, for each Abacus subordinate voting share and other equity instruments, including outstanding stock options, warrants, SARs, and contingent consideration, each holder received a 0.85 equivalent replacement award of the Company’s respective security at the time of closing. To determine the portion of fair value of the replacement award that is part of purchase consideration, the Company measured both the fair value of the replacement award as the acquiree, Abacus, and the acquirer, the Company, as of the acquisition date. The Company attributed the portion of the fair value related to pre-combination service as purchase consideration and attributed the remaining fair value to remuneration for post-combination services based on any remaining service period. The Company’s fair values of the replacement awards were valued using the Black-Scholes option pricing model, with the following assumptions used in the model: expected volatility; expected term; risk-free interest rate and value of the underlying share. The resulting purchase consideration for replacement stock options, warrants, SARs, and contingent consideration is $7,251. A portion of the other equity instruments, SARs of $293 and certain warrants of $2,857, were determined to be liabilities based on the nature of the instruments. These liabilities are presented at their respective fair value as of December 31, 2021 and 2020 in the consolidated balance sheets. The Company transferred 18,456,302 Common shares and 3,884,986 other equity instruments.


The following table outlines the total consideration transferred:
Common shares	$	105,461
Other equity instruments	7,251
Total consideration transferred	$	112,712

The following table summarizes the assets acquired and liabilities assumed as of the acquisition date:
Cash	$	11,181
Accounts receivable and other receivables	2,264
Inventories	4,845
Intangible assets	23,400
Other current and long-term assets	3,653
Goodwill	76,039
	$	121,382
Accounts payable	4,687
Accrued liabilities	2,041
Current note payable	1,258
Other current and long-term liabilities	684
Total liabilities	$	8,670
Net assets acquired	$	112,712

The fair value of acquired inventories and intangible assets were determined using a forecasted cash flow approach with the assistance of a third-party valuation firm. Acquired inventories consist of substantially all finished goods.

Acquired intangible assets consist of a trade name and customer relationships. Fair value of the acquired customer relationships and trade name are $22,700 and $700, respectively. The Company assigned a ten-year useful life to both classes of acquired intangible assets.

The Company determined that Abacus Health’s carrying costs approximated fair value for all other acquired assets and assumed liabilities.

On February 10, 2020, one of the wholly-owned subsidiaries of Abacus US, Abacus Wellness, Inc., acquired the principal assets of two companies owning the Harmony Hemp brand. Pursuant to the terms of the asset purchase agreement, Abacus US, and therefore the Company, is obligated to pay the remaining purchase price payable for Harmony Hemp and deliver contingent equity compensation. The remaining purchase price payable as of December 31, 2021 and 2020 for Harmony Hemp acquired with the Abacus acquisition was $144 and $770, respectively, which is included in accrued and other current liabilities on the consolidated balance sheets.

Goodwill

The goodwill acquired from the Abacus acquisition was primarily attributable to expected synergies from future growth and potential monetization opportunities. See note 7, Goodwill and intangible assets, for further discussion.