Quarterly report pursuant to Section 13 or 15(d)

ACQUISITION OF ASSETS AND OWNERSHIP IN EXACTUS ONE WORLD, LLC

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ACQUISITION OF ASSETS AND OWNERSHIP IN EXACTUS ONE WORLD, LLC
3 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
ACQUISITION OF ASSETS AND OWNERSHIP IN EXACTUS ONE WORLD, LLC

On March 11, 2019, the Company acquired a 50.1% limited liability membership interest in Exactus One World, LLC, an Oregon limited liability company, formed on January 25, 2019 and, since inception, EOW had no operations.

 

The Company acquired 50.1% limited liability membership interest pursuant to a Subscription Agreement (the “Subscription Agreement”) and a Membership Interest Purchase Agreement (the “Purchase Agreement”). Under the terms of the Subscription Agreement, the Company acquired a 30% interest in EOW, and an additional 20.1% was acquired from existing members pursuant to the terms of the Purchase Agreement. The existing members are considered third parties.

 

Under the term of the Subscription Agreement, the Company acquired 30% of membership interest in EOW in consideration for cash of $2,700,000 payable as follows:

 

$400,000 paid previously for purchase of Hemp Seeds;

 

$100,000 upon execution of the LLC Operating Agreement;

 

$500,000 on or before April 1, 2019;

 

$500,000 on or before May 1, 2019;

 

$300,000 on or before August 1, 2019;

 

$450,000 on or before September 1, 2019 and,

 

$450,000 on or before October 1, 2019

 

The acquisition of the 30% membership interest is deemed to be an investment in and capital contribution to EOW and shall be eliminated upon consolidation. The Company paid a total of approximately $1,000,000 between April 2019 and May 2019.

 

Under the term of the Purchase Agreement, the Company acquired 20.1% of EOW from existing members for aggregate consideration of $2,940,000 consisting of cash payments of $1,000,000, 937,500 shares of the Company’s common stock, and $450,000 worth of shares of common stock to be issued on June 14, 2019. Pursuant to the terms of the Purchase Agreement, the Company issued 937,500 shares of its common stock valued at $990,000, or $1.056 per share, the fair value of the Company’s common stock based on the quoted trading price on the date of the Purchase Agreement. No goodwill was recorded since the Purchase Agreement was accounted for as an asset purchase.

 

The consideration shall be paid to the sellers as follows: 

 

$300,000 cash and 937,500 shares of the Company’s common stock to the sellers upon execution, which was paid during the three months ended March 31, 2019;

 

$700,000 on April 20, 2019 which was paid on April 18, 2019;

 

On June 10, 2019, the Company is required to issue the sellers an additional $450,000 of shares of common stock of the Company based upon the 20 day volume weighted average price per share on the date of issue; and

 

$500,000 on September 1, 2019.

 

At March 31, 2019, the Company recorded a subscription payable of $1,650,000 to existing members pursuant to the Purchase Agreement as reflected on the unaudited condensed consolidated balance sheets.

 

Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the operations of EOW and the related agreements to determine if the Company acquired a business or acquired assets. Based on this analysis, it was determined that the Company acquired assets, primarily consisting of the value of two farm leases for approximately 200 acres of farm land in southwest Oregon for growing and processing industrial hemp, with lease terms of one year, and a license to operate such farms. The leases are renewable on a year-to-year basis.

  

The relative fair value of the assets acquired were based on management’s estimates of the fair values on March 11, 2019. Based upon the purchase price allocation, the following table summarizes the estimated relative fair value of the assets acquired at the date of acquisition: 

 

Intangible asset – Hemp farming license   $ 10,000  
Intangible assets – farm leases     2,930,000  
Total assets acquired at fair value     2,940,000  
Total purchase consideration   $ 2,940,000  

 

Additionally, the Company shall record the acquisition of 50.1% of membership interest in EOW under the FASB issued ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). As of March 31, 2019, the Company recorded a non-controlling interest balance of $(35,604) in connection with the majority-owned subsidiary, EOW as reflected in the accompanying unaudited condensed consolidated balance sheet and losses attributable to non-controlling interest of $35,604 during the three months ended March 31, 2019 as reflected in the accompanying unaudited condensed consolidated statements of operations. Under the Operating Agreement for EOW, as amended, the Company has the right to appoint, and remove and replace, if desired, one (1) of the three (3) managers of EOW. The Company has appointed its President, Emiliano Aloi, as a Manager for EOW.