XFit Brands (XFTB) 8-K/A Entry into a Material Definitive Agreement

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

For the year ended June 30, 2016 and the three months ended September 30, 2016

Further to the Form 8-K dated October 19, 2016, on October 10, 2016 XFit Brands, Inc. (“XFit” or the “Company”) acquired the assets of Environmental Turf Services, LLC (“EnviroTurf”) pursuant to a definitive Asset Purchase Agreement dated October 10, 2016 (the “Purchase Agreement”) between the Company and EnviroTurf. The acquired assets consisted of inventory, accounts receivable, equipment and vehicles, the registered trademark “ENVIROTURF” and the associated goodwill. The acquisition was completed on October 14, 2016 upon delivery and acceptance of the schedules to the Purchase Agreement (the “Acquisition”).

The accompanying unaudited pro forma combined financial statements present the pro forma consolidated financial position and results of operations of the combined company based upon XFIT’s and EnviroTurf’s historical financial statements, after giving effect to XFit’s acquisition of EnviroTurf and the adjustments described in the following footnotes, and are intended to reflect the impact of this acquisition on XFit on a pro forma basis.

The unaudited pro forma combined balance sheets as of December 31, 2015 and 2014 reflect the acquisition of EnviroTurf as if it had been consummated on that date and includes historical information as reported by the separate companies as well as adjustments that give effect to events that are directly attributable to the Acquisition and that are factually supportable.

The unaudited pro forma combined statements of operations for the year ended June 30, 2016 and for the three months ended September 30, 2016 give effect to the Acquisition as if it had been consummated on July 1, 2015 and include historical information as reported by the separate companies as well as adjustments that give effect to events that are directly attributable to the Acquisition, are expected to have a continuing impact and are factually supportable.

The accompanying unaudited pro forma combined financial statements are presented for illustrative purposes only. They do not purport to represent what XFit’s consolidated results of operations and financial position would have been had the Acquisition actually occurred as of the dates indicated, and they do not purport to project XFit’s future consolidated results of operations or financial position. The unaudited pro forma combined statements of operations and income do not reflect any adjustments for the effect of non-recurring items that XFit may realize as a result of the Acquisition. The unaudited pro forma combined financial statements include certain reclassifications to conform the historical financial information of EnviroTurf to the presentation of XFit.

Pro forma adjustments are necessary to reflect the estimated purchase price and to reflect the amounts related to tangible and intangible assets and liabilities acquired at an amount equal to the preliminary estimate of their fair values. The pro forma adjustments reflecting the completion of the Acquisition are based upon the acquisition method of accounting in accordance with Accounting Standards Codification 805, “Business Combinations” (“ASC 805”), and the assumptions set forth in the notes to the unaudited pro forma combined financial statements. Management has made a preliminary allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on various preliminary estimates. The allocation of the purchase price is preliminary pending finalization of various estimates and valuation analyses.

The pro forma adjustments are based on the preliminary information available at the time of the preparation of this document.

Unaudited Pro forma Condensed Consolidated Balance Sheet

As of June 30, 2016

	XFIT Brands, Inc.			Environmental Turf Services, LLC				Pro forma Adjustment			Pro forma Balance Sheet
ASSETS
Current assets
Cash	$	6,829		$	14						$	6,843
Accounts receivable, net		179,636			200,108							379,744
Prepaid expenses		114,060			-							114,060
Inventory		288,184			63,611							351,795
Total current assets		588,709			263,733				-			852,442
Property and equipment, net		37,676			24,315							61,991
Deposits		23,467			-							23,467
Intangibles assets, net		13,640			-							13,640
Goodwill		-			-		(A)		278,597			278,597
TOTAL ASSETS		663,492			288,048				278,597			1,230,137
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable		730,026			1,036,894		(B)		(836,894	)		930,026
Related party payable		95,620			500		(B)		(500	)		95,620
Accrued expenses and other current liabilities		165,486			5,041							170,527
Customer deposits		129,201			-							129,201
Line of credit		34,999			-							34,999
Short-term financing, net of discount		108,333			15,000		(B)		(15,000	)		108,333
Billings in excess of cost and estimated earnings		-			126,558							126,558
Total current liabilities		1,263,665			1,183,993				(852,394	)		1,595,264
Note payable, net		2,478,720			-							2,478,720
Total liabilities		3,742,385			1,183,993				(852,394	)		4,073,984
Stockholders’ deficit
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized, no shares issued and outstanding as of June 30, 2016		-			-							-
Common stock, par value $0.0001 per share, 1,250,000,000 shares authorized, 23,192,807 shares issued and outstanding as of June 30, 2016		2,119			-		(C)		200			2,319
Additional paid-in- capital		4,712,245			-		(C)		(200	)		4,712,045
Accumulated deficit		(7,793,257	)		(895,945	)	(A), (B)		1,130,991			(7,558,211	)
Total stockholders’ deficit		(3,078,893	)		(895,945	)			1,130,991			(2,843,847	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	663,492		$	288,048			$	278,597		$	1,230,137

Unaudited Pro forma Condensed Consolidated Statements of Operations

For the Year Ended June 30, 2016

	XFIT Brands, Inc.			Environmental Turf Services, LLC				Pro forma Adjustment		Pro forma Income Statement
Revenues	$	2,357,760		$	1,011,992					$	3,369,752
Cost of revenues		1,326,036			843,107						2,169,143
Gross profit		1,031,724			168,885						1,200,609
Operating expenses
General and administrative expense		1,891,832			172,503						2,064,335
Sales and marketing		353,421			10,380						363,801
Total operating expenses		2,245,253			182,883						2,428,136
Loss from operations		(1,213,529	)		(13,998	)					(1,227,527	)
Other income (expense)
Interest expense		(569,237	)		(1,800	)					(571,037	)
Other income					98						98
Other income (expense)		(569,237	)		(1,702	)					(570,939	)
Net income (loss)	$	(1,782,766	)	$	(15,700	)				$	(1,798,466	)
Loss per common share - basic and diluted	$	(0.09	)							$	(0.08	)
Weighted average shares outstanding - basic and diluted		20,558,382					(C)		2,000,000		22,558,382

Unaudited Pro forma Condensed Consolidated Balance Sheet

As of September 30, 2016

	XFIT Brands, Inc.			Environmental Turf Services, LLC				Pro forma Adjustment			Pro forma Balance Sheet
ASSETS
Current assets
Cash	$	61,096		$	15,740						$	76,836
Accounts receivable, net		91,814			247,097							338,911
Prepaid expenses		91,047			-							91,047
Inventory		373,354			54,702							428,056
Total current assets		617,311			317,539							934,850
Property and equipment, net		32,207			24,696							56,903
Deposits		23,467			-							23,467
Intangibles assets, net		5,541			-							5,541
Goodwill		-			-		(A)		278,597			278,597
TOTAL ASSETS		678,526			342,235				278,597			1,299,358
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable		755,528			1,242,509		(B)		(1,042,509	)		955,528
Related party payable		95,620			-							95,620
Accrued expenses and other current liabilities		228,454			3,163							231,617
Customer deposits		183,636			-							183,636
Line of credit		33,978			-							33,978
Short-term financing, net of discount		108,333			15,000		(B)		(15,000	)		108,333
Billings in excess of cost and estimated earnings		-			26,767							26,767
Total current liabilities		1,405,549			1,287,439				(1,057,509	)		1,635,479
Note payable, net		2,544,469			-							2,544,469
Total liabilities		3,950,018			1,287,439				(1,057,509	)		4,179,948
Stockholders’ deficit
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2016		-			-							-
Common stock, par value $0.0001 per share, 1,250,000,000 shares authorized, 23,742,806 shares issued and outstanding as of September 30, 2016		2,174			-		(C)		200			2,374
Additional paid-in- capital		4,926,015			-		(C)		(200	)		4,925,815
Accumulated deficit		(8,199,681	)		(945,204	)	(A), (B)		1,336,106			(7,808,779	)
Total stockholders’ deficit		(3,271,492	)		(945,204	)			1,336,106			(2,880,590	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	678,526		$	342,235			$	278,597		$	1,299,358

Unaudited Pro forma Condensed Consolidated Statements of Operations

For the Three Months Ended September 30, 2016

				Environmental						Pro forma
	XFIT Brands, Inc.			Turf Services, LLC				Pro forma Adjustment		Income Statement
Revenues	$	492,007		$	432,023					$924,030
Cost of revenues		277,108			364,910					642,018
Gross profit		214,899			67,113					282,012
Operating expenses
General and administrative expense		398,245			105,472					503,717
Sales and marketing		64,175			10,005					74,180
Total operating expenses		462,420			115,477				-	577,897
Loss from operations		(247,521	)		(48,364	)			-	(295,885)
Other income (expense)
Interest expense		(158,932	)		(900	)				(159,832)
Other income					5					5
Other income (expense)		(158,932	)		(895	)				(159,827)
Net income (loss)	$	(406,453	)	$	(49,259	)				$(455,712)
Loss per common share - basic and diluted	$	(0.02	)							$(0.02)
Weighted average shares outstanding - basic and diluted		21,742,806					©		2,000,000	23,742,806

XFit Brands, Inc.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

June 30, 2016 and September 30, 2016

1. Basis of Presentation

The unaudited pro forma combined financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been omitted pursuant to such rules and regulations; accordingly, these pro forma financial statements should be read in connection with XFit Brands, Inc. (“XFit”) and EnviroTurf Group (“EnviroTurf”) historical audited and unaudited financial statements referred to above.

The unaudited pro forma combined statements of operations for the year ended June 30, 2016 and three months ended September 30, 2016 gives effect to the Acquisition as if it had been consummated on July 1, 2015 and include historical information as reported by the separate companies as well as adjustments that give effect to events that are directly attributable to the Acquisition, are expected to have a continuing impact and are factually supportable.

2. Acquisition of EnviroTurf

On October 14, 2016 but effective as of October 10, 2016, XFit Brands, Inc. (“XFit” or the “Company”) acquired the assets of Environmental Turf Services, LLC (“EnviroTurf”) pursuant to a definitive Asset Purchase Agreement dated October 10, 2016 (the “Purchase Agreement”) between the Company and EnviroTurf. The acquired assets consisted of inventory, accounts receivable, equipment and vehicles, the registered trademark “ENVIROTURF” and the associated goodwill. The acquisition was completed on October 14, 2016 upon delivery and acceptance of the schedules to the Purchase Agreement (the “Acquisition”).

At the closing of the Acquisition, the Company paid and issued to EnviroTurf a total purchase price of $346,000 as follows: (i) assumption of $200,000 of EnviroTurf’s accounts payable and (ii) 2,000,000 restricted shares of XFit Common Stock (the “Purchase Price Shares”), which were valued at the closing price on the date of XFit’s Common Stock on the date of the Acquisition. The Company will fund the non-share purchase price and the costs and expenses of the Acquisition through a combination of cash on hand and internally-generated working capital.

The Purchase Agreement contains customary representations, warranties and covenants by the parties.

The foregoing description of the Purchase Agreement and the transactions contemplated thereby is not complete and is subject and qualified in its entirety by reference to the text of the Purchase Agreement, which is filed as Exhibit 2.1 to this report and incorporated by reference in this Item 1.01. The representations and warranties of the parties in the Purchase Agreement have been made solely for the benefit of the other parties to the Purchase Agreement, and were not intended to be, and should not be, relied upon by any person other than such parties, including shareholders of the Company; should not be treated as categorical statements of fact, but rather as a way of allocating risk between the parties; in some cases have been qualified by disclosures that were made to the other parties in connection with the negotiation of the Purchase Agreement, which disclosures are not necessarily reflected in the Purchase Agreement; may apply standards of materiality in a way that may differ from standards of materiality applied by investors; and were made only as of the date of the Purchase Agreement or as of such other date or dates as may be specified in the Purchase Agreement, and are subject to developments occurring after those dates.

After giving effect to the issuance of the shares of Common Stock issued EnviroTurf at closing, EnviroTurf will beneficially own approximately 7.7% of the Company’s outstanding shares of Common Stock. In addition, pursuant to the Purchase Agreement, Jim Bateman, the majority equity owner of EnviroTurf, entered into an employment agreement with the Company for an initial term ending June 30, 2019 pursuant to which he will be President of the Sports Division and join the Board of Directors of the Company for base compensation of $72,000 per year, In addition, the Company shall also pay to Bateman (i) a commission of $0.05 per square of installed and paid turf from the EnviroTurf business; (ii) 2% of Net Sales (defined as Gross Sales less Discounts) directly generated by Bateman on the sale of any other product in the XFit Brand portfolio; and (iii) an equity bonus equivalent to 100,000 shares of XFit Common Stock or share-based equivalents (subject to adjustments for share splits and recapitalizations) for each $5,000,000 in EnviroTurf Net Sales. Finally, Bateman will be provided an equity incentive of 1,000,000 shares of XFit Common Stock following the successful sales and collection of $5,000,000 in EnviroTurf Net Sales. The foregoing description of the Employment Agreement is not complete and is subject and qualified in its entirety by reference to the text of such agreement, which is filed as Exhibit 10.1 to this report and incorporated by reference in this Item 1.01.

The purchase price was allocated to the net assets acquired based on their estimated fair values as follows:

Accounts receivable	$	247,397
Inventories		44,702
Property and equipment, net		24,696
Assumption of accounts payable		200,000
Goodwill		278,597
Total Purchase Price	$	346,000

The above allocation is preliminary and is subject to change. Because the acquisition was consummated on October 10, 2016, the Company has begun to assess the fair value of the various net assets acquired, but has not yet completed this assessment. The Company is also in the process of identifying other intangible assets, such as customer relationships and recipes that may need to be recognized apart from goodwill. Once identified, these other intangible assets, if any, will be recorded at their fair values. The Company is working to finalize the allocations as quickly as possible, and anticipates that the allocation will not be final for approximately 6 months. Any adjustments necessary may be material to the condensed consolidated balance sheet and the amount of goodwill recognized. Any resulting adjustments would have no impact to the September 30, 2016 reported operating results.

3. Pro Forma Adjustments  

The following is a summary of pro forma adjustments reflected in the unaudited pro forma condensed combined financial statements based on preliminary estimates, which may change as additional information is obtained.

Pro Forma Adjustments:

The pro forma adjustments represent the following:

A.	To record goodwill of $278,597 based on the terms of the Asset Purchase Agreement.  The purchase price was designated at $346,000, net assets acquired totaled $67,403.
B.	To reduce accounts payable to reflect the net balance assumed as of the acquisition date.  The terms of the Asset Purchase Agreement stated that XFit would assume $200,000 of accounts payable balances as of the acquisition date.
C.	To record the issuance of 2,000,0000 shares of XFit common stock issued as part of the purchase price in conjunction with the Asset Purchase Agreement.