|9 Months Ended|
Sep. 30, 2019
|Business Combinations [Abstract]|
|Business Acquisitions||BUSINESS ACQUISITIONS
Pollen Gear LLC
Effective January 14, 2019, the Company acquired a 100% interest in Pollen Gear LLC (“Pollen Gear”) in exchange for an aggregate four percent (4.0%) equity interest in the Company. As consideration for the transaction, the Company issued its Class B units, which, as described below in “Note 14—Stockholders’ Equity / Members’ Deficit,” were contingently redeemable by the holder. Pollen Gear has been consolidated in the Company’s consolidated financial statements commencing on January 14, 2019, the date of acquisition. The Pollen Gear acquisition was accounted for as a business combination under the acquisition method under ASC Topic 805, Business Combinations. The following table summarizes the purchase price allocation and the estimated fair value of the net assets acquired and liabilities assumed at the date of acquisition.
At January 14, 2019, the Operating Company had accounts payable to Pollen Gear of approximately $0.6 million and Pollen Gear had accounts receivable for the corresponding amount from the Operating Company. Furthermore, at the date of acquisition, the Company had vendor deposits with Pollen Gear of approximately $1.7 million, and Pollen Gear had customer deposits for the corresponding amount due to the Operating Company. Both the vendor deposits and accounts payable recorded by the Company and the corresponding customer deposits and accounts receivable recorded by Pollen Gear approximated fair value. As a result of the business acquisition, the preexisting relationship between the Operating Company and Pollen Gear was effectively settled. No gain or loss was recognized on this settlement.
Effective September 30, 2019, the Company acquired a 100% interest in Conscious Wholesale, a leading European wholesaler and retailer of consumption accessories, vaporizers, and other high-quality products. As consideration for the transaction, the Company expects to pay $5,867, which consists of $2,876 in cash, $1,438 in Class A common stock, and $1,553 of contingent consideration, payable in a combination of cash and Class A common stock. The contingent consideration arrangement requires the Company to make contingent payments based on the achievement of certain operational and financial performance targets for the year ending December 31, 2020, as set forth in the acquisition agreement. The Company estimated the fair value of the contingent consideration by using a Monte Carlo simulation that includes significant unobservable inputs such as the risk-free rate, risk-adjusted discount rate, the volatility of the underlying financial metrics and projected financial forecast of the acquired business over the earn-out period.
The Conscious Wholesale acquisition was accounted for as a business combination under the acquisition method under ASC Topic 805, Business Combinations. The following table summarizes the preliminary purchase price allocation and the estimated fair value of the net assets acquired and liabilities assumed at the date of acquisition. The purchase price allocation for Conscious Wholesale is preliminary pending completion of the fair value analysis of the acquired assets and liabilities:
The initial accounting for this business combination is incomplete and thus the amounts recognized in the financial statements for the business combination have been determined only provisionally. The initial accounting is incomplete primarily due to the timing of the closing of the acquisition relative to the timing of the issuance of our financial statements for the third quarter of 2019. The assignment of goodwill recognized from this business combination to reporting units has also not yet been completed as of the date of these financial statements.
Pro Forma Financial Information
The following unaudited pro forma financial information represents the combined results for the Company, Pollen Gear, and Conscious Wholesale for the three and nine months ended September 30, 2019 and 2018 as if Pollen Gear and Conscious Wholesale had been acquired on January 1, 2018, and their results had been included in the consolidated results of the Company beginning on that date:
The pro forma amounts have been calculated after applying the Company’s accounting policies to the financial statements of Pollen Gear and Conscious Wholesale and adjusting the combined results of the Company, Pollen Gear, and Conscious Wholesale (a) to remove Pollen Gear and Conscious Wholesale product sales to the Company and to remove the cost incurred by the Company related to products purchased from Pollen Gear and Conscious Wholesale prior to the acquisition, (b) to reflect the increased amortization expense that would have been charged assuming intangible assets identified in the acquisition of Pollen Gear and Conscious Wholesale had been recorded on January 1, 2018, and (c) to remove the transaction costs incurred by the Company related to the acquisition of Conscious Wholesale.
The impact of the Pollen Gear and Conscious Wholesale acquisitions on the actual results reported by the company in subsequent periods may differ significantly from that reflected in this pro forma information for a number of reasons, including but not limited to, non-achievement of the expected synergies from these combinations and changes in the regulatory environment. As a result, the pro forma information is not necessarily indicative of what the Company's financial condition or results of operations would have been had the acquisitions been completed on the applicable dates of this pro forma financial information. In addition, the pro forma financial information does not purport to project the future financial condition and results of operations of the Company.
The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef