Annual report pursuant to Section 13 and 15(d)

BUSINESS COMBINATIONS

v3.22.1
BUSINESS COMBINATIONS
 12 Months Ended
Dec. 31, 2021
Business Combinations [Abstract]  
BUSINESS COMBINATIONS BUSINESS COMBINATIONSOn February 14, 2020, the Company acquired all of the assets of OneQor Technologies, Inc. (“OneQor”). The acquisition of OneQor was accounted for in accordance with ASC 805-10, “Business Combinations.” The total consideration transferred included 58,154,027 shares of the Company’s common stock, with a fair value of $9.31 million. The preliminary allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions of the assets acquired and liabilities assumed were subject to change within the measurement period pending the finalization of a third-party valuation. The multi-period excess earnings method, an income approach, was utilized to estimate the fair value of OneQor’s customer relationships. The relief-from-royalty method, an income approach, was
utilized to estimate the fair value of OneQor’s trade name. The following table summarizes the preliminary allocation of the purchase price:
(in thousands)
Assets acquired
Accounts receivable $ 51 
Inventory 81 
Prepaid expenses 241 
Property, plant and equipment 80 
Customer relationships 3,070 
Trade name 690 
Goodwill 6,763 
Other long-term assets 260 
Total Assets acquired $ 11,237 
Liabilities assumed
Accounts payable and accrued expenses $ 1,481 
Deferred income 300 
Short-term debt 100 
Long-term lease liabilities 108 
Total liabilities assumed $ 1,990 
In the view of management, goodwill reflected the future cash flow expectations for OneQor’s market position in the growing CBD industry, synergies and the assembled workforce, at the time of the acquisition. Goodwill recorded for the OneQor transaction is non-deductible for tax purposes. During 2020, Management suspended the operations of OneQor Technologies due to (i) a lack of proper growth in customer acquisition and revenue for this CBD operation during the COVID-19 pandemic and (ii) the overall financial health of the Company as a result of the COVID-19 pandemic and social unrest. During the year ended December 31, 2020, the Company recognized $1.21 million of revenue and a net loss of $12.29 million from OneQor. During the year ended December 31, 2021, the Company recognized a net loss of $0.16 million from OneQor. The results of OneQor's operations are included in Discontinued Operations (see Note 19, "Discontinued Operations").
UMBRLA, Inc.
On July 1, 2021, the Company completed the acquisition of UMBRLA, Inc. Pursuant to Articles of Merger filed by the Company with the Nevada Secretary of State, which became effective upon filing on July 1, 2021. UMBRLA became a wholly owned subsidiary of the Company. The acquisition of UMBRLA was accounted for in accordance with ASC 805-10, “Business Combinations.” The preliminary allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions of the assets acquired and liabilities assumed were subject to change within the measurement period pending the finalization of a third-party valuation. The multi-period excess earnings method, an income approach, was utilized to estimate the fair value of UMBRLA customer relationships. The relief-from-royalty method, an income approach, was utilized to estimate the fair value of UMBRLA trade name.
Consideration for the merger consisted of 191,772,781 shares of common stock issued on the acquisition date, 23,424,674 shares of common stock reserved for issuance in one year, and the assumption of all of UMBRLA’s stock options and
warrants outstanding as of July 1, 2021. The fair value of the components of the purchase price is summarized below (in thousands):
Purchase Price (in thousands):
Stock $ 52,929 
Liability for holdback shares 6,465 
Stock options assumed 9,695 
Warrants assumed 10,733 
Less: cash transferred (1,290)
Total consideration 78,532 
The preliminary allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions of the assets acquired and liabilities assumed were subject to change within the measurement period pending finalization of a third-party valuation. The relief-from-royalty method, an income approach, was utilized to estimate the fair value of UMBRLA’s trade name. The multi-period excess earnings method was utilized to estimate the fair value of UMBRLA’s licenses. The following table summarizes the preliminary allocation of the purchase price (in thousands):
(in thousands)
Assets acquired
Accounts receivable 3,772 
Inventory 6,532 
Prepaid & other current assets 1,543 
Fixed assets 1,450 
Notes receivable 750 
Other long-term assets 3 
Right-of-use asset 460 
Trade name 31,130 
Licenses 40,760 
Goodwill 16,216 
Total assets acquired $ 102,617 
 
Liabilities assumed
Accounts payable/accrued expenses $ 15,849 
Short-term lease liability 118 
Long-term lease liability 342 
Short-term debt 4,796 
Long-term debt 674 
Deferred tax liability 499 
Uncertain Tax Position 1,806 
Total liabilities assumed $ 24,084 
For the fiscal year ended December 31, 2021, the Company recognized $21.50 million of revenue and a net loss of $6.88 million from UMBRLA. In the view of management, goodwill reflects the future cash flow expectations for UMBLRA market position in the cannabis industry, synergies and the assembled workforce. Goodwill recorded for the UMBRLA transaction is non-deductible for tax purposes.
People’s California
On August 15, 2021, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with People’s California, LLC, a California limited liability company (“People’s California”) and People’s First Choice, LLC, a California limited liability company and wholly owned subsidiary of People’s California (the “Target”), which operates cannabis dispensary operations. Upon the terms and subject to the satisfaction of the conditions described in the Purchase Agreement, the Company will acquire 100% of the outstanding equity of the Target in two separate closings (the
“Acquisition”), with 80% of the equity of the Target transferred at the first closing and the remaining 20% of the equity transferred at the second closing.
At the first closing of the Acquisition, People’s California shall receive from the Company: (a) a cash payment of $24.00 million less certain outstanding indebtedness and transaction expenses related to the Acquisition; (b) a secured note in an aggregate principal amount of $36.00 million less certain indebtedness; and (c) 40,000,000 shares of Company common stock valued at $0.40 per share, subject to terms and conditions of the agreement by and between the Company and People’s California, which includes a one-year lockup of the shares. The Purchase Agreement is subject to customary indemnification provisions.
On August 4, 2021, in connection with the Acquisition, People’s California issued senior secured indebtedness to the Company, pursuant to the terms of a certain Secured Promissory Note (the “Deposit Note”). The Deposit Note provided for a one-time advance of $6.00 million (the “Loan”) by the Company to People’s California at a flat rate of 3% per annum. The Deposit Note matures on August 4, 2022.
The full principal balance and all outstanding but unpaid interest is due and payable at the maturity date of August 4, 2022; provided that, if the Company consummates the first closing, pursuant to the terms of the Purchase Agreement, then the principal amount of the Deposit Note, but not the accrued interest, shall be deemed repaid, satisfied, or otherwise applied to the cash consideration paid for the equity of the Target and the Deposit Note shall be deemed satisfied.
On September 1, 2021, in connection with the Acquisition, People’s California issued senior secured indebtedness to the Company, pursuant to the terms of a certain Secured Promissory Note (the “Second Deposit Note”). The Second Deposit Note provided for a one-time advance of $9.00 million (the “Loan”) by the Company to People’s California at a flat rate of 3% per annum. The Second Deposit Note matures on September 1, 2022.
The full principal balance and all outstanding but unpaid interest is due and payable at the maturity date of September 1, 2022; provided that, if the Company consummates the first closing, pursuant to the terms of the Purchase Agreement, then the principal amount of the Second Deposit Note, but not the accrued interest, shall be deemed repaid, satisfied, or otherwise applied to the cash consideration paid for the equity of the Target and the Second Deposit Note shall be deemed satisfied.
On September 1, 2021, the Company entered into a Management Agreement with the Target, which provided the Company with control over the Target’s operation and finances. Management concluded that effective September 1, 2021, the Company became the primary beneficiary of the Target as a result of the Management Agreement, and began consolidating the Target’s financial results. The Company applied acquisition accounting on September 1, 2021 and allocated the fair value of the Target to its assets and liabilities. The preliminary valuation of the Target was based on the purchase price described below (in thousands):
Purchase Price (in thousands):
Cash $ 24,000 
Note payable $ 33,749 
Common stock $ 16,000 
Less: cash transferred $ (994)
Total consideration $ 72,755 
The preliminary allocation was based upon the Company’s estimates and assumptions of the assets acquired and liabilities assumed are subject to change within the measurement period pending the finalization of a third-party valuation. The following table summarizes the preliminary allocation of the purchase price:
Assets acquired (in thousands)
Inventory 662 
Prepaids 74 
Fixed Assets 554 
Right-of-use asset 2,105 
Trade name 4,500 
Licenses 49,510 
Goodwill 20,995 
Total assets acquired $ 78,400 
 
Liabilities assumed
Accounts Payable/Accruals $ 2,586 
Short-term lease liability 540 
Long-term lease liability 1,565 
Deferred tax liabilities 4,775 
Total liabilities assumed $ 9,466 
Silverstreak Solutions
On October 1, 2021, the Company completed the acquisition of Silverstreak Solutions, Inc ("Silverstreak"). Silverstreak became a wholly owned subsidiary of the Company. The acquisition of Silverstreak was accounted for in accordance with ASC 805-10, “Business Combinations.” The preliminary allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions of the assets acquired and liabilities assumed were subject to change within the measurement period pending the finalization of a third-party valuation. The cost approach was utilized to estimate the fair value of the Silverstreak license.
Consideration is comprised of (i) One Million Five Hundred Thousand Dollars ($1,500,000) in cash, (ii) 9,051,412 shares of restricted common stock, par value $0.001 per share, which is equal to the quotient obtained by (a) $2,500,000, by (b) the volume-weighted average price of the Purchaser Shares as reported through Bloomberg for the ten (10) consecutive trading days ending on the business day prior to the Closing, (iii) $2,000,000 in unsecured promissory notes with an interest rate of 3% and due six months after the Closing, and (iv)
$2,500,000 in unsecured promissory notes with an interest rate of 3% and due twelve months after the Closing (the “Twelve-Month Notes”). The fair value of the components of the purchase price is summarized below (in thousands):
Purchase Price (in thousands):
Cash $ 1,500 
Note payable 4,500 
Common stock 2,500 
Less: cash transferred (24)
Total consideration $ 8,476 
The preliminary allocation was based upon the Company’s estimates and assumptions of the assets acquired and liabilities assumed are subject to change within the measurement period pending the finalization of a third-party valuation. The following table summarizes the preliminary allocation of the purchase price:
Assets acquired (in thousands)
Inventory 215 
Prepaid expenses 6 
Fixed assets 257 
Licenses 161 
Goodwill 10,921 
Total assets acquired $ 11,561 
Liabilities assumed
Accounts payable and accrued expenses $ 1,517 
Deferred taxes 14 
Taxes payable 1,553 
Total liabilities assumed $ 3,084 
Supplemental Pro-Forma Information (Unaudited)
Supplemental information on an unaudited pro-forma basis is reflected as if each of the 2020 and 2021 acquisitions had occurred in the year prior to the year in which each acquisition closed, after giving effect to certain pro-forma adjustments primarily related to the amortization of acquired intangible assets.
The unaudited pro-forma supplemental information is based on estimates and assumptions that the Company believes are reasonable. The supplemental unaudited pro-forma financial information is presented for comparative purposes only and is not necessarily indicative of what the Company’s financial position or results of operations actually would have been had the Company completed the acquisitions at the dates indicated, nor is it intended to project the future financial position or operating results of the Company as a result of the Purchase Agreement.

For the Year Ended
12/31/2021 12/31/2020
Pro-forma revenues $ 95,867  $ 88,078 
Pro-forma net loss from continuing operations (36,454) (1,077)