| Schedule of business combinations | (a) On July
1, 2015, the Company closed the acquisition of all the issued and outstanding shares of E Vapor Labs, a Florida based E-liquid
manufacturer. The Company purchased E Vapor Labs in order to procure an E-liquid manufacturing platform allowing the Company
to secure large private label contracts as well as manufacture its own brands going forward. The following summarizes the fair
value of the assets acquired, liabilities assumed and the consideration transferred at the acquisition date:
Assets acquired: Allocation Measurement Period Adjustments Final Allocation
Cash $ 22,942 - $ 22,942
Receivables 48,356 (1,705 ) 46,651
Other current assetsx 21,195 - 21,195
Inventory 122,309 4,428 126,737
Fixed assets 118,867 7 118,874
Intangible assets - 160,000 160,000
Goodwill 847,265 (154,235 ) 693,030
Total assets acquired $ 1,180,934 $ 1,189,429
Liabilities assumed:
Accounts payable $ 206,252 - $ 206,252
Accrued liabilities - 28,000 28,000
Loan payable 25,000 - 25,000
Total liabilities assumed $ 231,252 $ 259,252
Consideration:
Cash $ 225,000 - $ 225,000
Promissory Notes A, unsecured and non-interest
bearing, due November 1, 2015 196,026 19,505 176,521
Promissory Notes B, unsecured and non-interest
bearing, due April 1, 2016 275,555 - 275,555
Promissory Notes C, unsecured and non-interest
bearing, due January 1, 2017 253,101 - 253,101
Total consideration $ 949,682 $ 930,177 In consideration
for the acquisition, the Company paid to the vendors, $225,000 in cash on closing and $900,000 in unsecured promissory notes issued
on the closing (collectively, the Promissory Notes). The Promissory Notes were issued in three equal tranches of
$300,000 due four (4), nine (9) and eighteen (18) months respectfully from the closing (individually, Promissory Notes
A, Promissory Notes B, and Promissory Notes C respectively). The Promissory Notes are all unsecured,
non-interest bearing, and on the maturity date, at the option of the vendors, up to one third (1/3) of each tranche of the Promissory
Notes can be repaid in Common Shares of the Company, calculated using the 5 day weighted average closing market price of the Company
prior to the maturity of the Promissory Notes. The Promissory Notes, are all and each subject to adjustments as outlined in the
share purchase agreement (the SPA), dated June 25, 2015. At December
31, 2015, the Company adjusted the Promissory Notes A for $116,683 which is the known difference in the working capital balance
at closing of the acquisition from the amount specified in the SPA. Further, a 12% discount rate has been used to calculate the
present value of the Promissory Notes based on the Companys estimate of cost of financing for comparable notes with similar
term and risk profiles. Over the term of the respective Promissory Notes, interest will be accrued at 12% per annum to accrete
the Promissory Notes to their respective principal amounts. During the six month period ended June 30, 2016, the Company recorded
$23,246 in interest expense related to the accretion of the Promissory Notes. The Promissory
Notes A were due on November 1, 2015. The Company provided notice to the Promissory Note holders on October 30, 2015 indicating
its intention to repay such Promissory Notes, however, such inability to accurately determine the required adjustments pursuant
to the SPA has forced the Company to defer repayment of such Promissory Notes until such time where the principal amount of the
Promissory Notes can be accurately determined (note 17). Intangible
assets consist primarily of customer relationships and brands. Brand intangibles represents the estimated fair value of the trade
names acquired. Customer relationship intangibles relates to the ability to sell existing and future products to E Vapor Labs
existing and potential customers. The preliminary estimated useful life and fair values of the identifiable intangible assets
are as follows:
Estimated Useful Life (in years) Amount
Brands 5 $ 20,000
Customer relationships 5 140,000
$ 160,000 The results
of operations of E Vapor Labs have been included in the consolidated statements of operations from the acquisition date. The following
table presents pro forma results of operations of the Company and E Vapor Labs as if the companies had been combined as of January
1, 2015. The pro forma condensed combined financial information is presented for informational purposes only. The unaudited pro
forma results of operations are not necessarily indicative of results that would have occurred had the acquisition taken place
at the beginning of the earliest period presented, or of future results.
June 30, 2016 June
30, 2015
Pro forma revenue $ 2,268,528 $ 524,412
Pro forma loss from operations $ (1,966,077 ) $ (706,803 )
Pro forma net loss $ (2,399,693 ) $ (889,828 ) (b) On July
14, 2015, the Company closed the acquisition of all the issued and outstanding shares of VaporLiq, a private E-liquid subscription
based online retailer. The Company purchased VaporLiq mainly to access industry relationships and knowhow of various E-liquid
brands that VaporLiq transacts with. The following summarizes the fair value of the assets acquired, liabilities assumed
and the consideration transferred at the acquisition date:
Assets acquired:
Cash $ 5,381
Website 10,000
Inventory 2,150
Goodwill 109,444
Total assets acquired $ 126,975
Total liabilities assumed $ -
Consideration:
500,000 Common Shares at $0.17 per share $ 85,000
500,000 warrants 41,975
Total consideration $ 126,975 The warrants
are exercisable over eighteen (18) months with an exercise price of $0.20 per Common Share. The goodwill
is attributable to business acumen and access to key E-liquid brands that the Company may leverage for further acquisitions. The results
of operations of VaporLiq have been included in the consolidated statements of operations from the acquisition date, though revenue
and net income from VaporLiq were not material for the six month period ended June 30, 2016. Pro forma results of operations have
not been presented because the acquisition was not material to the results of operations. (c) On November
2, 2015, the Company closed the acquisition of all of the assets of 901 Vaping, an E-liquid manufacturer, including all of the
rights and title to own and operate the Craft Vapes, Craft Clouds and Miss Pennysworths Elixirs E-liquid brands. The following
summarizes the fair value of the assets acquired and the consideration transferred at the acquisition date:
Assets acquired:
Inventory $ 11,335
Equipment 11,872
Intangibles 63,000
Goodwill 87,000
Total assets acquired $ 173,207
Consideration:
Cash $ 23,207
1,000,000 Common Shares at $0.15 per share 150,000
Total consideration $ 173,207 In consideration
for the acquisition, the Company issued 1,000,000 Common Shares of the Company valued at $0.15 per share, paid cash consideration
of $23,207 and agreed to a quarterly earn-out based on the gross profit stream derived from product sales of the acquired brands.
The earn-out commences on the closing date and pays up to a maximum of 25% of the gross profit stream. As of June 30, 2016,
no amounts have been accrued or paid in relation to the quarterly earn-out. Intangible
assets consist primarily of customer relationships and brands. Brand intangibles represents the estimated fair value of the trade
names acquired. Customer relationship intangibles relates to the ability to sell existing and future products to 901 Vapings
existing and potential customers. The preliminary estimated useful life and fair values of the identifiable intangible assets
are as follows:
Estimated Useful Life (in years) Amount
Brands 5 $ 30,000
Customer relationships 5 33,000
$ 63,000 The results
of operations of 901 Vaping have been included in the consolidated statements of operations from the acquisition date, though
revenue and net income from 901 Vaping were not material for the six month period ended June 30, 2016. Pro forma results of operations
have not been presented because the acquisition was not material to the results of operations. (d) On December 2,
2015, the Company acquired all of the assets of TMA, an E-liquid manufacturer, including the assets, rights and title to own and
operate The Mad Alchemist and Replicant E-liquid brands. The following summarizes the fair value of the assets acquired and
the consideration transferred at the acquisition date:
Assets acquired:
Inventory $ 41,462
Equipment 36,579
Intangibles 157,000
Goodwill 208,376
Total assets acquired $ 443,417
Consideration:
819,672 Common Shares at $0.122 per share $ 100,000
Deferred payments 343,417
Total consideration $ 443,417 On the closing
date, the Company issued 819,672 Common Shares valued at $0.122 per share for a total value of $100,000; agreed to pay a total
of $400,000 in deferred payments (the Amounts Owing on Acquisition), payable in ten (10) equal payments of $20,000
in cash and $20,000 in common stock every three (3) months following the closing date, and agreed to a quarterly earn-out based
on the gross profit stream derived from product sales of the acquired brands. The earn-out commences on the closing date and pays
up to a maximum of 25% of the gross profit stream. The number of Common Shares issuable will be calculated and priced using the
weighted average closing market price of the Company, as quoted by the OTC Markets Group, for the five trading days prior to each
issuance date. Further, a 12% discount rate has been used to calculate the present value of the Amounts Owing on Acquisition.
Over the term of the respective deferred payments, interest will be accrued at 12% per annum to accrete the payments to their
respective principal amounts. During the six month period ended June 30, 2016, the Company recorded $9,582 in interest expense
related to the accretion of the Amounts Owing on Acquisition. Intangible
assets consist primarily of customer relationships and brands. Brand intangibles represents the estimated fair value of the trade
names acquired. Customer relationship intangibles relates to the ability to sell existing and future products to TMAs existing
and potential customers. The preliminary estimated useful life and fair values of the identifiable intangible assets are as follows:
Estimated Useful Life (in years) Amount
Brands 5 $ 60,000
Customer relationships 5 97,000
$ 157,000 The results
of operations of TMA have been included in the consolidated statements of operations from the acquisition date, though revenue
and net income from TMA were not material for the six month period ended June 30, 2016. Pro forma results of operations have not
been presented because the acquisition was not material to the results of operations. On April 15, 2016, the Company entered into
a settlement agreement (the Settlement Agreement) with TMA and the Pennington family, being Joshua Pennington,
Nicole Pennington and Mike Simon (collectively, the Pennington Family). Subject to the terms and conditions of the
Settlement Agreement, the parties settled: (i) any and all compensation and expenses owing by the Company to the Pennington Family
and (ii) all remaining consideration payable by the Company to TMA under the asset purchase agreement totaling $400,000
which was due in cash and common stock in exchange for the Company paying to TMA and the Pennington Family a total consideration
of $133,163 payable as $100,000 in cash and $33,163 in assets as payments in kind. Of the $100,000 payable in cash, $45,000 was
paid upon execution of the Settlement Agreement, $27,500 was payable thirty days following the execution of the Settlement Agreement
and the remaining $27,500 payable at the later of (i) sixty days following the execution of the Settlement Agreement, or (ii)
the completion of the historical audit of the TMA. As a result of the Settlement Agreement, the Company has recorded a gain on
settlemaent in the amount of $274,051. As at June 30, 2016, $55,000 remains payable to TMA and the Pennington Family. In addition,
the employment agreements between the Company and Joshua Pennington and Nicole Pennington were mutually terminated and all amounts
were fully settled pursuant to the Settlement Agreement. Due to change in circumstance, the Company tested goodwill for impairment
and as a result, the Company has fully impaired goodwill related to TMA in the amount of $208,376 which represents the value of
workforce and business acumen acquired. |
