| Business Combinations and Asset Acquisitions | NOTE
3 –BUSINESS COMBINATIONS AND ASSET ACQUISITIONS IRIE
Acquisition On
April 16, 2018, Leafceuticals consummated the acquisition, with an effective date of April 1, 2018 (date of change in control),
of substantially all of the assets of: Earth Born, Inc., a California corporation (“Earth Born California”), Earth
Born, Inc., a Delaware corporation (“Earth Born Delaware”), Irie Living, a California nonprofit mutual benefit corporation
(“Irie”), and Genesis Media Works, LLC, a Utah limited liability company doing business as “Terra’s Way,”
“Irie Hemp Company,” “Earth Born Botanicals,” and “Santa Cruz Hemp Company” (“Genesis”
and together with Earth Born California, Earth Born Delaware, and Irie, collectively referred to herein as the “Sellers”
or IRIE). Irie CBD is a California-based product line owned by the Sellers that has been operating since 2015 that formulates,
manufactures and distributes CBD tinctures, CBD edibles, CBD topicals and CBD concentrates to retail markets across the country.
IRIE leases a full manufacturing and processing facility in Oakland, California. In addition to the IRIE CBD line and associated
assets and trademarks, the acquisition also includes the product lines, websites and other assets of Earth Born California, Earth
Born Delaware, Irie, and Genesis. In
connection with this acquisition, Leafceuticals assumed approximately $100,000 of liabilities associated with the assets and paid
the Sellers’ principals as follows: $356,080 in cash and $999,000 via the issuance of an aggregate of 8,118,886 shares of
the Company’s common stock. The purchase price is to be reduced if: (i) the Sellers’ aggregate pre-closing revenues
for the year ending December 31, 2017, were less than $1,500,000 or (ii) the Buyer’s average monthly revenues resulting
from the Acquisition of the Assets for the three months following closing are less than $120,000 per month. Additionally, 1,250,000
of the Shares were to be escrowed for four months following Closing as the Buyer’s security for (i) any indemnification
claims against the Sellers pursuant to the Agreement, or (ii) any pre-closing or post-closing revenue deficiency resulting in
the purchase price reductions described above. There was no adjustment to the purchase price based on this clause. The
purchase price was allocated as follows:
Consideration given:
Cash Consideration $ 356,000
Common stock shares
given 999,000
Notes
Assumed 100,000
Total
consideration given $ 1,455,000
Fair
value of identifiable assets acquired, and liabilities assumed:
Current Assets $ 226,000
Current
Liabilities 44,000
Net Working Capital 182,000
Property, Plant &
Equipment 25,000
Trade Names/Trademarks 327,000
Customer Contracts/Relationships 712,000
Assembled Workforce 139,000
Goodwill 70,000
Total
Consideration $ 1,455,000 Revenue
recognized by IRIE from acquisition through June 30, 2018 was $393,480. Tierra
Science Global, LLC On
July 26, 2018, the Company acquired 100% of the membership interests of Tierra Science Global, LLC (“Tierra”), a nutraceutical
business, for which it: (i) issued to that Company’s owners 2,000,000 shares of the Company’s common stock, valued
at $246,000 based on the closing price of the common stock on that day and (ii) entered into employment agreements with the Company’s
principal executives. Pursuant to those employment agreements, each of the Tierra’s two sellers was contacted to receive:
(i) the greater of $2,000 per month or 2.5% of the prior month’s gross margin from sales and (ii) $25,000 of Company common
stock for each $500,000 in cumulative net profits. The Company intends to expand Tierra’s product offering to include various
cannabidiol products branded as “powered by Freedom Leaf. Purchase
Consideration: The
fair value of the purchase consideration issued to the sellers of Tierra was allocated to the net tangible assets acquired. We
accounted for the acquisition of Tierra as the purchase of a business under GAAP under the acquisition method of accounting, the
assets and liabilities acquired were recorded as of the acquisition date, at their respective fair values and consolidated with
those of our company. The fair value of the net assets acquired, net of liabilities assumed, and was approximately $430,430. The
excess of the aggregate fair value of the net tangible and intangible assets has been treated as goodwill. The
purchase price was allocated as follows: Consideration
given:
Cash Consideration
Common
stock shares given 300,630
Notes payable 129,800
Total
consideration given $ 430,430 Assets
acquired and liabilities assumed at fair value:
Current
assets $ 1,210
Identifiable intangible
assets:
Trade names and trademarks 55,000
Customer contracts
and relationships 252,000
Assembled Workforce 64,000
Goodwill 58,220
Total
Consideration $ 430,430 AccuVape,
Inc. On
November 15, 2018, the Company consummated the acquisition of the assets of AccuVape, Inc. (www.accuvape.net), which produce and
sell various vape-related products. AccuVape was founded in 2013 as a vaporizer company to fill the growing needs of the emerging
vape market. Today, AccuVape: distributes to all 50 states, Canada, the UK and EU and has Midwest and West Coast distribution
centers and over 550 authorized retailers that carry AccuVape products. In
consideration of the transaction the Company issued to that Company’s owners: (i) $126,000 in cash plus (ii) 496,667 shares
of the Company’s common stock, valued at $155,208 based on the closing price of the common stock on that day. Additionally,
the Company entered into a two-year employment agreement with the Company’s principal executive, pursuant to which she is
contacted to receive: (i) $2,000 per month in cash plus (ii) annual incentive compensation equal to 22% of any “Gross Margin”
increase over the prior 12 months, all of which incentive compensation shall be paid in Company common stock. Apart from the purchase
price, the company agrees to reimburse the seller the sum of $27,500 in full satisfaction of itemized expenses. Purchase
Consideration: The
fair value of the purchase consideration issued to the sellers of AccuVape was allocated to the net tangible assets acquired.
We accounted for the acquisition of AccuVape as the purchase of a business under GAAP under the acquisition method of accounting,
the assets and liabilities acquired were recorded as of the acquisition date, at their respective fair values and consolidated
with those of our company. The fair value of the net assets acquired, net of liabilities assumed, and was approximately $18,642.
The excess of the aggregate fair value of the net tangible and intangible assets has been treated as goodwill. The
purchase price was allocated as follows: Consideration
given:
Cash consideration $ 126,000
Accounts payable 72,827
Fair value of common stock 155,208
Total
consideration given $ 312,535 Assets
acquired and liabilities assumed at fair value:
Current
assets $ 40,407
Property and equipment 1,871
Other assets 33,257
Identifiable intangible
assets:
Patents 87,000
Trade Name 7,000
Non-Complete Agreement 19,000
Assembled Workforce 5,000
Goodwill 119,000
Total
Consideration $ 312,535 Revenue
recognized by AccuVape from acquisition through June 30, 2019 was $72,080. ECS
Labs, LLC Acquisition On
May 31, 2019, the Company closed the acquisition of Dallas, Texas based ECS Labs LLC (the “Acquisition”), including
its two-wholly owned operating subsidiaries, B&B Labs, LLC, a Texas limited liability company and Texas Wellness Center, a
Texas limited liability company, which constitute the “Green Lotus” premium hemp CBD products brand. Green Lotus™
Hemp (“Green Lotus”) is a rapidly growing premium hemp oil products brand that manufactures and distributes premium cannabinoid
products including tinctures, gel caps, edibles, topicals vape cartridges, and beverages made from organic industrial hemp. Green
Lotus™ has grown rapidly since its inception in 2016 and now has a national presence with a presence in over 1,200 locations
in the U.S. and is a first mover in the Mexican CBD market, with 4,000 points of initial distribution. The
Company has performed a valuation analysis of the fair market value of Green Lotus’ assets and liabilities. The provisional
fair value of the purchase consideration issued to the sellers of Green Lotus was allocated to the net tangible assets acquired.
We accounted for the acquisition of Green Lotus as the purchase of a business under GAAP under the acquisition method of accounting,
the assets and liabilities acquired were recorded as of the acquisition date, at their respective fair values and consolidated
with those of our company. The excess of the aggregate fair value of the net tangible assets has been allocated to an intangible
asset, value of customer accounts and the remainder to goodwill. The purchase price allocation was based, in part, on management’s
knowledge of Green Lotus’ business and is preliminary. Once we complete our analysis to finalize the purchase price allocation,
which includes finalizing the valuation report from a third-party appraiser and a review of potential intangible assets, it is
reasonably possible that, there could be significant changes to the preliminary values below. The
provisional purchase price was allocated as follows: Provisional
consideration given:
Cash consideration $ –
Fair value of common stock 14,000,000
Liabilities
assumed 2,795,430
Total
consideration given $ 16,795,430 Assets
acquired and liabilities assumed at fair value:
Current
assets $ 1,632,348
Property and equipment 105,333
Goodwill 15,057,749
Total
Consideration $ 16,795,430 Revenue
recognized by Green Lotus from acquisition through June 30, 2019 was $204,021. The
following table summarizes our consolidated results of operations for the years ended June 30, 2019, and 2018, as well as unaudited
pro forma consolidated results of operations as though each acquisition had occurred on July 1, 2017:
For
the Year Ended For
the Year Ended
As
Reported Pro
Forma As
Reported Pro
Forma
Net sales $ 2,318,749 $ 5,087,683 $ 411,272 $ 3,762,602
Net loss (12,605,233 ) (15,888,680 ) (4,628,673 ) (5,119,821 )
Loss per common share $ (0.06 ) $ (0.07 ) $ (0.03 ) $ (0.03 ) The
unaudited pro forma information set forth above is for informational purposes only and includes adjustments related to the step-up
of acquired inventories, amortization expense of acquired intangible assets, and interest expense on long-term debt. The pro forma
information should not be considered indicative of actual results that would have been achieved if each acquisition had occurred
on July 1, 2017, or results that may be obtained in any future period. The
goodwill arising from the acquisitions discussed above consists largely of the synergies and economies of scale we hope to achieve
from combining the acquired assets and operations with our historical operations. Green
Market Europe Purchase On
January 5, 2018 as amended on February 5, 2018, with an effective date of January 5, 2018, the Company consummated its previously
announced acquisition of 100% of the capital stock of Green Market Europe, S.L. (“GME”), a Spanish producer of hemp
products. GME’s facilities include: a 21,000 square foot light deprivation greenhouse; a 43,000 square foot indoor growing
research facility, and over 200 acres of outdoor production space. The light deprivation allows the increase of the number of
yearly crops from 3 to 4 crops a year, and the 43,000 square foot indoor grow facility is used for genetic research and cultivating
additional hemp crops. GME is strategically located in Elche, Alicante, an important Spanish business hub, with great year-round
weather conditions for agricultural growing and a long tradition of growing hemp. From its inception to-date, GME has had negligible
operations. Purchase
Consideration: In
consideration for the acquisition, the Company paid to GME’s seller $320,205 in cash and Company common stock as follows:
(i) $24,805 (which amount
was paid by a third party, and to whom the Company owes that amount), and
(ii) 4,220,000 shares
of the Company’s common stock valued on the Company’s Balance Sheet at $295,400. Additionally:
(i) additional shares will be issuable if the volume weighted-average price of the Company’s stock between January 5, 2018
and July 3, 2018 is less than $0.10 per share, and (ii) the sellers of GME have the option to repurchase all of the assets of
GME for €100 (and the assumption of GME’s liabilities) if the volume weighted-average price of the Company’s
stock between January 5, 2018 and January 5, 2019 is less than $0.01 per share. Assets
acquired, and liabilities assumed, at fair value: The
provisional fair value of the purchase consideration issued to the sellers of GME was allocated to the net tangible assets acquired.
We accounted for the acquisition of GME as the purchase of a business under GAAP under the acquisition method of accounting, the
assets and liabilities acquired were recorded as of the acquisition date, at their respective fair values and consolidated with
those of our company. The fair value of the net assets acquired, net of Liabilities assumed, was approximately $20,285. The excess
of the aggregate fair value of the net tangible assets has been treated as Goodwill. The purchase price allocation was based,
in part, on management’s knowledge of GME’s business and is preliminary. Once we complete our analysis to finalize
the purchase price allocation, which includes finalizing the valuation report from a third-party appraiser and a review of potential
intangible assets, it is reasonably possible that, there could be significant changes to the preliminary values below. Consideration
given:
Common
stock shares given $ 295,400
Total
consideration given 295,400 Fair
value of identifiable assets acquired, and liabilities assumed:
Cash 3,546
Accounts receivable 7,430
Fixed assets, net 64,891
Intangible assets,
net 5,176
Accounts payable (71,478
Acquisition payable (24,805
Payable
to stockholders (5,045
Total identifiable
net liabilities (20,285
Goodwill 315,685
Total
consideration $ 295,400 During
March, April and May of 2018, in connection with the Company’s preliminary audit of GME, the Company’s management
discovered several irregularities regarding GME’s operations and its sellers’ activities before and after the consummation
of the Company’s acquisition of that business. Based on investigation of these discoveries, the Company, effective June
4, 2018, consummated a termination agreement with GME’s seller. In connection with that agreement, GME’s sellers returned
to the Company the 4,220,000 shares it had previously issued to the sellers. The Company wrote off the approximately $33,000 it
had invested cumulatively in GME in addition to the stock issuance and recognized a non-cash loss of $295,400 upon disposition
of this business. Valencia
Purchase The
Company, on May 17, 2018, consummated the acquisition of an existing, approximately 430,000 square foot facility, that was converted
from a dormant Poinsettia production facility into a light deprivation hemp production greenhouse. The total purchase price was
€4,000,000 (approximately US$4.8million). The purchase consideration will be paid as follows: (i) €20,000 down, which
amount already has been paid by the Company; (ii) €20,000 a month for 25 months, and (iii) €100,000 per month thereafter
until paid in full. Located in Valencia, the third largest city in Spain with an average of 300 days of sun per year and agricultural
setting, the facility previously was one of the biggest Poinsettia producers in Europe. At its peak, it produced millions of Poinsettia
clones and had more than 80 greenhouse workers working 24/7. The Company chose this facility due to the similarities in growing
Poinsettias and Hemp and because of its light cycles and heavy machinery specific to industrial plant production. This turn-key
facility includes: approximately 430,000 square feet of light deprivation greenhouse, growing supplies, polished concrete, and
triple galvanized steel framework. It its fully equipped with an automated irrigation system, a mist system, a refrigerated storage
area, a light deprivation system to maximize number of crops per year, a Dutch, hydroponic set up and heating system, its own
gas pipe, and five sources of irrigation water with reservoir. The facility also has office space that the Company intends to
utilize to house: (i) our Spanish Media department (lamarihuana.com) and (ii) a warehouse. The purchase also includes outdoor
space and the necessary structural steel sufficient to erect a new 64,000 sq. ft galvanized steel frame facility the Company intends
to build to use as a GMP extraction, formulation and bottling facility. The
agreement was in the form of a lease/purchase and included a clause allowing for the cancellation of the agreement with notice
and payment of 2 months lease payments. On May 16, 2019, Leafceuticals S.L.U. informed the owner of the facility through a notarial
deed of its intent to withdraw from the agreement. The required €40,000 (approximately US $48,000) was paid. Freedom Leaf
Inc. and Leafceuticals S.L.U have no obligation relating to the agreed price for the purchase of the greenhouse, as both companies
have withdrawn from the contract and the other party has accepted it. Accordingly, the remaining lease obligation no longer appears
on the books of the Company LaMarihuana
Purchase On
May 30, 2017, with an effective date of April 8, 2017 as per the Bill of Sale, Cannabis Business Solutions Inc. (the “Buyer”),
a wholly owned Nevada subsidiary of the registrant, Freedom Leaf Inc., entered into an Asset Purchase Agreement with Valencia
Web Technology S.L., B-97183354, a Spanish limited liability company (Sociedad de Responsabilidad Limitada) (the “Seller,”
or “Valencia”) to purchase the Seller’s assets, including its cash and cash equivalents, equipment, inventory,
receivables, and two of its websites www.lamarihuana.com and www.marihuana-medicinal.com (but not including the Seller’s
website cannabislandia.com), for a purchase price consisting of a 10% interest in the Buyer, and 3,000,000 shares of common stock
of the registrant, valued at $300,000 (the “Initial FRLF Shares”), with additional shares of the registrant’s
common stock due six months (October 8, 2017) following closing if, at such time, the average closing price of the registrant’s
common stock during the previous five trading days is less than $0.10/share. Such additional shares shall be calculated as follows:
$300,000 minus the product of (a) the Initial FRLF Shares multiplied by (b) the average closing price of the registrant’s
common stock during the five trading days immediately preceding the True-Up Date (the “True-Up Price”), with such
difference divided by the True-Up Price. On October 8, 2017, the Company removed the previously recorded contingent liability
and recorded 4,142,857 shares of common stock as issuable. On February 7, 2018, the Company and the Buyer agreed that because
of the increase in the value of the Company’s common stock, the Buyer had waived its right to additional shares of common
stock as stated herein. Therefore, on February 7, 2018, the Company reversed its recording of the 4,142,857 shares of common stock
recorded as issuable. International
requirements for the complete use of the web sites by the Company have been met. LaMarihuana is now complete in use by the Company
for both advertising and lead generation. |
