Acquisition of Activ Nutritional, LLC.

6 Months Ended

Jun. 30, 2021

Business Combination and Asset Acquisition [Abstract]

Acquisition of Activ Nutritional, LLC.

3. Acquisition of Activ Nutritional, LLC.

On June 1, 2021, the Company completed the acquisition of Activ. The acquisition was made pursuant to an equity purchase agreement dated May 18, 2021 between the Company, Adare Pharmaceuticals, Inc., (“Adare”), and Activ. The Company acquired all of the issued and outstanding equity of Activ from Adare for $26,000,000 in cash, subject to certain adjustments as provided in the equity purchase agreement.

Activ owns the Viactiv® line of supplement chews for bone health, immune health and other applications which are currently marketed through many of the nation’s largest retailers, including, among others, Walmart (retail and online), Target and Amazon. The Viactiv product lines are expected to become the Company’s most prominent product lines for the foreseeable future.

The Company utilized the acquisition method of accounting for the acquisition in accordance with ASC 805, Business Combinations. The Company allocated the purchase price to Activ’s tangible assets, identifiable intangible assets, and assumed liabilities at their estimated fair values as of the date of acquisition. The fair value of the intangible assets was estimated using the income approach, pursuant to which after-tax cash flows are discounted to present value based on projections and other available financial data. The cash flows were based on estimates used to value the acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model, as well as the weighted average cost of capital. The valuation assumptions took into consideration the Company’s estimates of customer attrition and revenue growth projections. The excess of the purchase price paid by the Company over the estimated fair value of identified tangible and intangible assets has been recorded as goodwill.

The following table summarizes the allocation of the fair value of the purchase consideration to the fair value of tangible assets, identifiable intangible assets, and assumed liabilities of Activ on the date of acquisition:

Fair value of consideration :
Purchase price, as adjusted, paid in cash	$	26,044,570
Allocation of the consideration to the fair value of assets acquired and liabilities assumed:
Cash	$	8,468
Accounts receivable		1,799,695
Inventories		613,063
Prepaids		49,025
Accounts payable		(313,731	)
Net tangible assets		2,156,520
Trade names and trademarks		9,200,000
Customer relationships		2,700,000
Net identifiable intangible assets		11,900,000
Goodwill		11,988,050
Fair value of net assets acquired	$	26,044,570

The Company consolidated Activ’s operations with the Company’s operations commencing June 1, 2021, the closing date of the transaction. Activ’s operations are included in the Company’s Clinical Nutrition segment. The amount of revenue and net income of Activ included in the Company’s consolidated statements of operations during the three months and six months ended June 30, 2021, was $1,049,803 and $231,288, respectively.

Acquisition-related transaction costs (e.g., legal, due diligence, valuation, investment banking and other professional fees) are not included as a component of consideration transferred, but were expensed as incurred. During the three months and six months ended June 30, 2021, the Company incurred approximately $2,104,000 of acquisition-related costs, which are included as a line item in the Company’s consolidated statements of operations.

Pro Forma Information

The following unaudited pro forma condensed consolidated statement of operations for the three months and six months ended June 30, 2021 and 2020 is presented as if the acquisition of Activ had occurred on January 1, 2020, after giving effect to certain pro forma adjustments. The pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had actually been consummated on January 1, 2020. These results are prepared in accordance with ASC 606.

	Unaudited Pro forma for the three months ended						Unaudited Pro forma for the six months ended
	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
Revenue	$	3,016,094		$	4,257,140		$	6,989,810		$	7,520,816
Net loss	$	(2,434,005	)	$	(815,869	)	$	(4,641,387	)	$	(5,282,721	)
Net loss per share-basic and diluted	$	(0.10	)	$	(0.06	)	$	(0.20	)	$	(0.38	)

Trade name and trademarks, and customer relationship intangible assets are being amortized over an estimated useful life of 10 years. The pro forma adjustments include a net increase in amortization expense to record amortization expense for the $11,900,000 of acquired net identifiable intangible assets, and an adjustment to present acquisition-related transaction costs and other one-time costs directly attributable to the acquisition as if they were incurred in the earliest period presented.