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Arcadia Wellness Acquisition | 9 Months Ended
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Sep. 30, 2022
Arcadia Wellness Acquisition [Member] |
Business Acquisition [Line Items] |
Arcadia Wellness Acquisition | 6. Arcadia Wellness Acquisition On May 17, 2021, the Company’s wholly owned subsidiary Arcadia Wellness, acquired the assets of Eko, Lief, and Zola. The acquisition included consumer brands of bath and body care products such as Soul Spring, the CBD-infused botanical therapy brand, Saavy Naturals, a line of natural body care products and ProVault, a CBD-infused sports performance formula. Also included in the purchase was Zola, a coconut water sourced from Thailand. The acquisition was recorded as a business combination, in accordance with ASC 805. The purchase price consideration for the acquisition totaled an estimated $6.1 million, of which $4.0 million in cash and $2.1 million in the form of 827,401 shares of the Company’s common stock, was paid during the month of May 2021. The cash consideration paid for the acquisition was funded by cash on hand. Acquisition costs are not included as components of consideration transferred and instead are accounted for as expenses in the period in which the costs are incurred. The Company incurred costs related to the Arcadia Wellness acquisition of approximately $850,000 included in selling, general and administrative expenses in the Company's consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2021. The Company performed an allocation of purchase price as of the acquisition date based on management's estimates of fair value. The Company believes its estimates and assumptions are reasonable. The following table presents the allocation of the purchase price of the assets acquired at fair value at the acquisition date:
|  | Purchase Price Allocation |
Inventory |  | $ | 840 |
Prepaid and other current assets |  |  | 62 |
Fixed assets |  |  | 308 |
Deposits |  |  | 82 |
Customer list |  |  | 360 |
Trade names and trademarks |  |  | 2,900 |
Formulations |  |  | 260 |
Goodwill |  |  | 1,240 |
Total consideration allocated |  | $ | 6,052 |
The former shareholders of Eko, Lief, and Zola remain responsible for their pre-acquisition liabilities. In connection with the acquisition, the Company entered into a lease agreement for the use of offices, production equipment acquired, and storage warehouses. The lease was effective on May 17, 2021 and has a term of 3 years. For the period from January 1, 2022 to September 30, 2022, the Company recognized approximately $5.6 million of revenue and $1.3 million of net loss relating to Arcadia Wellness, which included charges related to the Radiance Beauty licensing agreement discussed below, as well as the amortization of acquired intangible assets. For the period from May 17, 2021 to December 31, 2021, the Company recognized approximately $4.3 million of revenue and $7.5 million of net loss relating to Arcadia Wellness, which included charges for the amortization of acquired intangible assets. Acquired intangible assets of $3.5 million include trade names and trademarks of $2.9 million (indefinite useful life), customer list of $360,000 (fifteen-year useful life) and formulations of $260,000 (ten-year useful life). For impairments related to the acquired intangible assets see Note 7. The total weighted average amortization period for the acquired intangibles is 12.9 years. The acquisition produced $1.2 million of goodwill, which was fully impaired during the year ended December 31, 2021, due to weakness in some of the newly acquired consumer product margins, combined with a volatile economic climate and higher than normal inflation. Goodwill arising from the Arcadia Wellness acquisition was not deductible for tax purposes. On July 8, 2022, the Company entered into a licensing agreement with Radiance Beauty. Under the terms of the licensing agreement, Radiance Beauty was granted an exclusive, transferable, sublicensable, perpetual, worldwide license to use the Saavy Naturals™ mark and to modify, manufacture, distribute, market and sell related products. In addition, as part of the licensing agreement, Radiance Beauty received the remaining accounts receivables and inventory balances after July 31, 2022, certain equipment, as well as three months of salaries in the amount of $355,000 and rent, maintenance and utilities in the amount of $19,000. Radiance Beauty is subleasing space from the Company and will pay the Company a 4% royalty of gross sales of products beginning January 1, 2023. During the nine months ended September 30, 2022, accounts receivables and inventories of $21,000 and $394,000, respectively, were written down. In addition, property and equipment and intangible assets were written down by $320,000 and $72,000, respectively, during the nine months ended September 30, 2022. Supplemental Pro-Forma Results of Operations (Unaudited) The following unaudited pro-forma condensed consolidated results of operations for the three and nine months ended September 30, 2022 and 2021, have been prepared as if the acquisition of Arcadia Wellness had occurred on January 1, 2021 and includes adjustments for amortization of intangibles, and the addition to basic and diluted weighted average number of shares outstanding.
|  | For the Three Months Ended September 30, |  |  | For the Nine Months Ended September 30, |
|  | 2022 (Pro forma) |  |  | 2021 (Pro forma) |  |  | 2022 (Pro forma) |  |  | 2021 (Pro forma) |
Total revenues |  | $ | 1,878 |  |  | $ | 2,376 |  |  | $ | 8,956 |  |  | $ | 6,892 |
Net loss |  |  | (2,877 | ) |  |  | (2,836 | ) |  |  | (11,284 | ) |  |  | (8,296 | )
Net loss attributable to common stockholders |  | $ | (2,867 | ) |  | $ | (2,175 | ) |  | $ | (11,132 | ) |  | $ | (7,109 | )
Weighted average shares - Basic and diluted |  |  | 24,552,543 |  |  |  | 22,175,423 |  |  |  | 22,984,816 |  |  |  | 21,286,380 |
Net loss per share attributable to common stockholders: |  |  |  |  |  |  |  |  |  |  |  |
Basic and diluted |  | $ | (0.12 | ) |  | $ | (0.10 | ) |  | $ | (0.48 | ) |  | $ | (0.33 | )

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