Stability Biologics, LLC (Tables)

12 Months Ended

Dec. 31, 2018

Discontinued Operations and Disposal Groups [Abstract]

Fair Value of Stock Consideration for Acquisition

The fair value of stock consideration was determined as set forth below:

Common Share Price at Closing on 1/13/2016		$	8.43
Multiplied by: Number of Common Shares Transferred to the Sellers		441.009
Indicated Value of Equity Consideration (on a Freely Tradable Interest Basis)		$	3,718
Less: Marketability Discount @ 10%	[a]	(371		)
Fair Value of Equity Consideration Transferred		$	3,347
[a] Shares transferred to the Sellers were restricted securities pursuant to Rule 144. As such, the Sellers were prevented from selling the shares until July 13, 2016. In addition, they were subject to contractual lockups which restricted sales for up to twelve months following the closing of the transaction.

Purchase Price Allocation

The actual purchase price has been allocated as follows (in thousands):

Cash paid at closing	$	6,000
Working capital adjustment	(481		)
Common stock issued (441,009 shares)	3,347
Assumed debt	1,771
Fair value of earn-out	17,450
Total fair value of purchase price	$	28,087
Net assets acquired:
Debt-free working capital	$	2,456
Other long-term assets	199
Property, plant and equipment	1,375
Deferred tax liability	(5,896		)
Subtotal	(1,866		)
Intangible assets:
Customer relationships	5,330
Patents and know-how	6,790
Trade names and trademarks	450
Non compete agreements	830
Licenses and permits	390
Subtotal	13,790
Goodwill	16,163
Total assets purchased	$	28,087
Working capital and other assets were composed of the following (in thousands):
Working capital
Cash	$	140
Prepaid Expenses and other current assets	100
Accounts receivable	2,001
Federal and state taxes receivable	28
Inventory	9,002
Accounts payable and accrued expenses	(8,815		)
Debt-free working capital	$	2,456
Current portion of long-term debt	$	(194	)
Long-term debt	(560		)
Line of Credit	(932		)
Shareholder loan	(85		)
Assumed debt	$	(1,771	)
Net working capital	$	685

Useful Lives of Intangible Assets Acquired

The intangible assets were assigned the following lives for amortization purposes:

	Estimated useful life (in years)
Intangible asset:
Customer relationships	12
Patents and know-how	20
Trade name and trademarks	Indefinite
Non compete agreements	4
Licenses and permits	2

Unaudited Pro Forma Information

Unaudited pro forma information for the twelve months ended December 31, 2016 (in thousands) is as follows:

	Year Ended December 31,
	2016
Revenue	$	233,986
Net income	$	1,318
Income per share, fully diluted	$	0.01

Summary of Assets Transferred and Consideration Received

A summary of the assets divested and consideration received follows (in thousands):

	Year ended
	December 31, 2017
Assets divested
Trade receivables	$	2,406
Inventories	3,455
Prepaid expenses and other assets	955
Goodwill (a)	227
Intangible assets	11,857
Property and equipment, net	1,446
Total assets divested	20,346
Liabilities divested
Accounts payable and accrued liabilities	3,488
Total liabilities divested	3,488
Total net assets divested	$	16,858
Transaction costs	400
Consideration received
Non-trade receivable (b)	150
Note receivable (c)	3,190
Intangible assets (d)	630
Extinguishment of earn out liability (e)	12,240
Total consideration received	$	16,210
Loss on sale	$	(1,048	)

(a) In accordance with ASC 350-20-35-52 when a portion of a reporting unit is disposed of, goodwill associated with that business shall be included in the carrying amount of the business in determining the gain on disposal. In accordance with ASC 350-20-35-53, the amount of goodwill to be included in that carrying amount shall be based on the relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained. Based on an estimated fair value of Stability LLC of $16.2 million representing a consideration received for the business compared to the fair value of business retained determined based on the market approach, approximately $0.2 million of the total goodwill of $20.2 million residing in the reporting unit was included in the carrying amount of the business sold.

(b) non-trade receivable represents a cash payment due within 60 days of closing.

(c) a promissory note issued by Stability LLC in the principal amount of $3.5 million in favor of the Company recognized at a discounted value of $3.2 million.

(d) a fair value of $0.5 million for the distributor agreements with Stability LLC and a fair value of $0.1 million for the non-compete agreements with the former stockholders of Stability Inc.

(e) a waiver by the former stockholders of Stability Inc. of all claims and rights to earn-out consideration, which was recorded as a liability at a fair value of $12.2 million immediately prior to the divestiture. The fair value of the earn-out liability was determined based on the income approach and includes the actual realized results of operations and expected future performance over the remaining earn-out period.