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Acquisitions

12 Months Ended

Dec. 31, 2017

Note 3 – Acquisitions

Asset Purchase Agreement with Factor Nutrition Labs, LLC:

On January 22, 2015 (the “Closing Date”), the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Factor Nutrition Labs, LLC, a Delaware limited liability company (the “Seller”), Vita Partners, LLC, RPR Partners, LLC, and Thor Associates, Inc. (each a “Principal Owner”). Pursuant to the Purchase Agreement, the Company purchased all of the assets of the Seller’s line of business and products called FOCUS Factor (the product plus the business related to the product is collectively referred to as the “Focus Factor Business”) and assumed the accounts payable and contractual obligations of the Focus Factor Business for an aggregate purchase price of $6.0 million, with $4.5 million paid on the Closing Date, and $750,000 to be paid on or before January 20, 2016 and an additional $750,000 to be paid on or before January 20, 2017, both of which payments were made on a timely basis.

Distribution Agreement

On January 22, 2015, the Company and Knight Therapeutics (Barbados) Inc. (“Knight”) entered into a Distribution, License and Supply Agreement (the “Distribution Agreement”), pursuant to which the Company granted to Knight an exclusive license to commercialize FOCUSFactor, FOCUSFactor Kids and Synergy Strip and all improvements thereto (together the “Licensed Products”) and appointed Knight as the exclusive distributor to offer to sell and sell the Licensed Products in Canada, and, at Knight’s election, one or more of Israel, Russia, and Sub-Saharan Africa. The Distribution Agreement provides that Knight may sublicense its rights or use sub-distributors under the Distribution Agreement on terms consistent with the terms of the Distribution Agreement. During the term of the Distribution Agreement, Knight agrees to obtain from the Company all its requirements for the Licensed Products and the Company agrees to supply the Licensed Products at its adjusted production cost plus a designated percentage and any applicable taxes.

In the event of a long term inability by the Company to supply Knight with the Licensed Products, Knight is entitled to require, among other remedies, the Company to grant a Knight-designated third party a non-exclusive license to use all relevant intellectual property to manufacture and supply Knight with the Licensed Products for commercialization in the Territory. The term of the Distribution Agreement runs until 15 years from the date of the first commercial sale of a Licensed Product in Canada, and the Distribution Agreement will automatically renew for successive 15-year periods unless either party provides the other with written notice of its intention not to renew (a “Non-Renewal Notice”). The Company agrees that in the event it issues a Non-Renewal Notice, the Company will pay to Knight a non-renewal fee equal to the net sales of the Licensed Products achieved by Knight in the Territory during the eight calendar quarters preceding the date of such notice, plus all applicable taxes.

Distribution Option Agreement

In connection with the Loan Agreement, the Company entered into a Product Distribution Option Agreement, dated January 22, 2015 (the “Option Agreement”), pursuant to which the Company granted Knight the exclusive right to negotiate the exclusive distribution rights of any one or more of the Company’s products, including products from the Focus Factor Business, for the territories of Canada, Russia, Sub-Saharan Africa and Israel (the “Option”), pursuant to designated parameters. The Option Agreement is effective upon the date of the Option Agreement, will run until January 31, 2045, and will automatically renew thereafter for successive five-year periods unless either party provides a notice of termination prior to the Option Agreement’s expiration. If Knight does not exercise the option then the Company is free to contract for distribution with other parties, but only on terms no less favorable than those offered by Knight pursuant to the Option Agreement.

On December 3, 2015, we entered into an Amendment to First Amendment Agreement (the “Second Amendment Agreement”) with Knight pursuant to which we agreed to grant distribution rights to Knight for Breakthrough’s products. To satisfy this obligation, on December 3, 2015, we also entered into an Amendment and Confirmation Agreement (the “Confirmation Agreement”) with Knight, Nomad and Breakthrough to amend the Distribution, License and Supply Agreement dated January 22, 2015 (the “Distribution Agreement”) between us and Knight to grant to Knight an exclusive license to commercialize any and all Nomad and Breakthrough products and appoint Knight as the exclusive distributor to offer and sell those products in Canada, Israel, Romania, Russia and each of the countries within Sub-Saharan Africa, which is the new “Territory” under the Distribution Agreement, as amended. Pursuant to the Second Amendment Agreement, Nomad will buy all Flat Tummy Tea products within the Territory for direct to consumer sales exclusively from Knight and/or its affiliates at cost of goods plus 60% of gross sales.

On December 23, 2016, we entered into a FOCUSFactor Distribution Agreement (Canada) with Knight whereas the Company was appointed the exclusive Third Party distributor or FOCUSFactor products in Canada. In conjunction with this agreement, we are required to pay Knight a distribution amount equal to 30% of gross sales on revenue generated from direct sales and 5% of gross sales on revenue generated from retail sales. This distribution agreement has a minimum amount due of $100,000 Canadian, annually.

The Company has accounted for this transaction under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price is allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values based on the management’s estimates as of the date of the acquisition. The Company expects to retain the services of independent valuation firm to determine the fair value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded on January 22, 2015. The preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on the estimated fair values is as follows:

Assets
Accounts receivable	$	2,733,167
Inventory		67,113
Intellectual property		1,000,000
Non-compete provision		50,000
Non-solicitation provision		50,000
Intangible assets-Customer relationships		1,941,030
Goodwill		2,071,517
Liabilities
Accounts payable		(971,381	)
Accrued expenses		(941,446	)
	$	6,000,000

During the first quarter of 2016, the Company consulted with a valuation professional to assist in determining the fair value of the identifiable FOCUSfactor intangible assets. As a result of this work, the Company increased the amount allocated to the FOCUSfactor indefinite-lived brand and patent by $450,000 and reduced the amount recorded to goodwill by an identical amount. This adjustment had no effect on the income statement for the year ended December 31, 2015. The Company believes that the restated amount of $1,450,000 properly states the fair value of the FOCUSfactor brand and patent.

The final allocation of the purchase price to the assets acquired and liabilities assumed based on the independent valuation is as follows:

Assets
Accounts receivable	$	2,733,167
Inventory		67,113
Intellectual property		1,450,000
Non-compete provision		50,000
Non-solicitation provision		50,000
Intangible assets-Customer relationships		1,941,030
Goodwill		1,621,517
Liabilities
Accounts payable		(971,381	)
Accrued expenses		(941,446	)
	$	6,000,000

The Customer relationships, the non-compete and the non-solicitation provisions will be amortized over their estimated useful lives of 5 years. Intellectual property is not amortized and will be tested for impairment. During each of the years ended December 31, 2017 and 2016, the Company charged to operations amortization expense of $408,206.

The purchase price allocated to the acquisition of the assets of Factor Nutrition Labs, LLC is made up as follows:

	Amount
Cash payment made on January 22, 2015	$	4,500,000
Cash payment made on January 20, 2016		750,000
Cash payment made on January 20, 2017		750,000
Total	$	6,000,000

Asset Purchase Agreement with Knight Therapeutics Inc.:

On June 26, 2015 (the “Closing Date”), Neuragen Corp., a Delaware corporation (“Neuragen”) and our wholly owned subsidiary, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Knight Therapeutics Inc., a Canadian corporation (“Knight Canada”). Pursuant to the Purchase Agreement, Neuragen purchased the U.S. rights related to an innovative OTC product that helps relieve pain caused by diabetic nerve damage (the “Purchased Assets”) for an aggregate purchase price of $1.2 million, with (i) $250,000 paid on the Closing Date, (ii) $250,000 to be paid on or before June 30, 2016, (iii) $700,000 to be paid in quarterly installments (beginning with the quarter ending September 30, 2015) equal to the greater of $12,500 or 5% of U.S. net sales, and (iv) 2% of U.S. net sales of Neuragen for 60 months thereafter. The payment of such amounts is secured by a security interest in certain assets, undertakings and property (“Collateral”) pursuant to the Security Agreement, which will be released upon receipt of total payments of $1.2 million (collectively, “Total Consideration”). The Company has recorded present value of future payments of $282,240 and $290,947 as of December 31, 2017 and 2016, respectively. The Company has recorded interest expense of $41,292 and $59,358 for the years ended December 31, 2017 and 2016, respectively.

Security Agreement

On the Closing Date, Neuragen entered into a Security Agreement with Knight Canada, pursuant to which Neuragen granted a lien and security interest to Knight Canada in Collateral in connection with the Purchase Agreement.

The Security Agreement was made to secure the payment of all indebtedness, obligations and liabilities of Neuragen of the Purchase Agreement, including all expenses and charges, legal or otherwise, suffered or incurred by Knight Canada in collecting or enforcing such indebtedness of the Purchase Agreement.

The Security Agreement includes customary events of default, including but not limited to: payment defaults; Neuragen becoming insolvent or entering into bankruptcy; or if any contemplated security ceases to be a valid and perfected first-priority security interest that is not remedied within fifteen business days by Neuragen. Upon the occurrence of an event of default and during the continuation thereof, the principal amount of the outstanding Total Consideration will bear a default interest rate of an additional 10% per annum.

The acquisition was treated as an acquisition of assets as the transaction involved the acquisition of a brand and a license agreement. The allocation of the purchase price to the assets acquired and liabilities assumed based on the estimated fair values is as follows:

Assets
Accounts receivable	$	58,054
Inventory		204,925
Intangible property		100,000
License agreement		606,553
Liabilities
Accounts payable		(51,795	)
Accrued expenses		(148,520	)
	$	769,217

The intangible property and license agreement will be amortized over their estimated useful lives of 5 years. During each of the years ended December 31, 2017 and 2016, the Company charged to operations amortization expense of $141,311.

Contribution Agreement with Hand MD Corp.:

On August 18, 2015 (the “Closing Date”), we entered into a Contribution Agreement with Hand MD Corp., a Delaware corporation, whereby we contributed to Hand MD Corp. 2,142,857 shares of our common stock in exchange for 50% of Hand MD Corp.’s outstanding capital securities valued at $0.70 per share. Simultaneously, Hand MD, LLC, a California limited liability company, entered into a Contribution Agreement with Hand MD Corp., the principal owners of Hand MD, LLC, and us whereby Hand MD LLC contributed to Hand MD Corp. all of its right, title and interest in its intellectual property associated with skincare, nail care and nail polish products (the “Hand MD Business”) in exchange for the other 50% of Hand MD Corp.’s outstanding capital securities. In the Contribution Agreement among Hand MD Corp., Hand MD, LLC, the principal owners of Hand MD, LLC and us, Hand MD, LLC and its principal owners agreed to not compete or solicit customers or employees for five years. As part of the transaction, we also purchased from Hand MD Corp. all inventory related to the Hand MD Business for approximately $106,000. The Company has recorded 50% of the present value of future royalty payments of $221,222 and $313,752 as of December 31, 2017 and 2016, respectively.

We also entered into a license agreement with Hand MD Corp. on August 18, 2015, whereby we acquired the exclusive worldwide license to commercialize Hand MD Corp. skincare products and all improvements thereto. The license runs in perpetuity unless earlier terminated. We will pay Hand MD Corp. a royalty of 5% of the net sales price of product sold, transferred or otherwise disposed of by us, as well as 5% of any amount we receive from sublicensees, subject to a minimum royalty of $250,000 in the second year of the license and $500,000 in the third year of the license, after which the minimum royalty terminates. We are solely responsible for any regulatory and intellectual property filings, including those necessary to maintain regulatory approvals for the licensed products. Either we or Hand MD Corp. can terminate the agreement in the event of bankruptcy or insolvency of the other party, or the uncured material breach of the agreement by the other party. Upon termination we would be entitled to sell any inventory of licensed product in the normal course of business and consistent with sales of licensed product during the term of the agreement.

The Contribution Agreements and the License Agreement contain customary representations and warranties and covenants by the respective parties.

We also entered into a Consulting Agreement on August 18, 2015, with Kara Harshbarger, the co-founder of Hand MD, LLC, pursuant to which she will provide marketing and sales related services. We will pay Ms. Harshbarger $10,000 a month for one year unless the Consulting Agreement is terminated earlier by either party. If we terminate the Consulting Agreement without cause, we will be obligated to pay the remaining term of the Agreement. Ms. Harshbarger agreed not to compete with us in the United States in any marketing or sales of skincare, nail polish and nail care products during the term of the Consulting Agreement and for 12 months after its termination. Ms. Harshbarger also agreed not to solicit customers or employees for the same period.

Assets
Intangible property	$	100,000
License agreement		1,670,675
Liabilities		-
Royalty payable		(258,897	)
Others		(11,778	)
	$	1,500,000

Stock Purchase Agreement with Breakthrough Products, Inc.:

On November 12, 2015 (the “UrgentRx Closing Date”), we entered into a Stock Purchase Agreement (the “UrgentRx SPA”) with Breakthrough Products, Inc., a Delaware corporation (“Breakthrough”), URX ACQUISITION TRUST, a Delaware statutory trust, (the “Trust”), Jordan Eisenberg, the chief executive officer and a shareholder of Breakthrough (“Eisenberg”), and the other shareholders of Breakthrough (Eisenberg and such other shareholders collectively referred to as the “UrgentRx Sellers”) for the purchase of all the issued and outstanding capital stock of Breakthrough for 6,000,000 shares of our common stock (“UrgentRx Equity Consideration”). Breakthrough is engaged in the business of developing and selling treatments for headache, heart burn, allergy attack, ache and pain and upset stomach in the form of powders (“UrgentRx”).

In addition to the UrgentRx Equity Consideration, we agreed to pay a royalty to the Trust, for the benefit of the UrgentRx Sellers, equal to 5% of gross sales of the UrgentRx following the first $5,000,000 in gross sales by the UrgentRx Products, on a quarterly basis for a period of seven years from the UrgentRx Closing Date.

Following the UrgentRx Closing Date, we discovered certain liabilities and obligations of Breakthrough that required an adjustment to the UrgentRx Equity Consideration and the royalty payments.

On December 17, 2015, we entered into a Settlement and Release Agreement (the “Settlement Agreement”) with the UrgentRx Sellers, the Trust, on its own behalf and as the representative of the UrgentRx Sellers, David T. Leyrer, Michael Valentino, Ron Fugate, and Randall Kaplan (collectively with Leyrer, Valentino, Fugate, the “Former Directors”) to resolve the post-closing liabilities. Pursuant to the terms of the Settlement Agreement, 3,000,000 shares of the Equity Consideration were returned by the Trust to us and our obligation to pay royalties to the Trust was reduced from seven years to five years. The Settlement Agreement further contained mutual releases among us, the UrgentRx Sellers, and the Former Directors, with limited exceptions. Additionally, we issued a three-year warrant to the Trust with a $5.00 per share exercise price. We may redeem the warrant at a price of $0.001 per share if our common stock is traded on the OTCBB or on a national securities exchange, and the per share closing sale price of our common stock equals or exceeds the exercise price for a period of 90 consecutive calendar days. In the event of a reorganization or reclassification of our capital stock, the merger or consolidation of our company into another entity or the sale or transfer of all or substantially all of our assets, the warrant will terminate if not exercised prior to the date of such event.

The Company has accounted for this transaction under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price is allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values based on the management’s estimates as of the date of the acquisition. The Company expects to retain the services of independent valuation firm to determine the fair value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded on November 12, 2015. The preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on the estimated fair values is as follows:

Assets
Cash	$	2,298,619
Accounts receivable		(68,976	)
Inventory		234,709
Prepaid expenses		57,569
Intellectual property		100,000
Non-compete provision		50,000
Goodwill		3,253,160
Liabilities
Accounts payable		(741,822	)
Accrued expenses		(2,202,848	)
	$	2,980,411

The preliminary purchase price allocated to the acquisition of the assets of UrgentRx is made up as follows:

	Amount
Stock payment	$	2,550,000
Stock warrants issued		430,411
Total	$	2,980,411

During the second quarter of 2016, the Company consulted with a valuation professional to assist in determining the fair value of the identifiable Breakthrough Products, Inc.’s intangible assets. As a result of this work, the Company increased the amount allocated to the UrgentRx patent by $150,000, decreased the amount allocated to a Non-Compete agreement by $50,000 and reduced the amount recorded to goodwill by the identical amounts. In addition, it was determined that an incorrect stock price was used to calculate the purchase price of the transaction. As a result of this determination, the Company decreased Additional Paid In Capital and Goodwill by $1,170,000. These adjustments had no effect on the income statement for the year ended December 31, 2015. The Company believes that these restated amounts properly state the fair value of the Breakthrough Products, Inc. transaction.

The final allocation of the purchase price to the assets acquired and liabilities assumed based on the independent valuation is as follows:

Assets
Cash	$	2,298,619
Accounts receivable		(68,976	)
Inventory		234,709
Prepaid expenses		57,569
Intellectual property		250,000
Non-compete provision		-
Goodwill		1,983,160
Liabilities
Accounts Payable		(741,822	)
Accrued Expenses		(2,202,848	)
	$	1,810,411

The Intellectual property will be amortized over its estimated useful live of 5 years and the non-compete provision will be amortized over its term of 3 years. During the years ended December 31, 2017 and 2016, the Company charged to operations amortization expense of $0 and $51,667, respectively.

As of December 31, 2016 our review of intangible assets and Goodwill related to UrgentRx did indicate that the carrying amount of these assets may not be recoverable. It was determined that the net balance of $193,750 of intangible assets and $1,983,160 of Goodwill would be fully impaired and accordingly the Company recorded impairment loss of $2,176,910 during the year ended December 31, 2016.

The adjusted purchase price allocated to the acquisition of the assets of UrgentRx is made up as follows:

	Amount
Stock payment	$	1,380,000
Stock warrants issued		430,411
Total	$	1,810,411

Stock Purchase Agreement with TPR Investments Pty Ltd:

On November 15, 2015 (the “Flat Tummy Tea Closing Date”), we entered into a Stock Purchase Agreement (the “Flat Tummy Tea SPA”) with TPR Investments Pty Ltd ACN 128 396 654 as trustee for Polmear Family Trust (the “Flat Tummy Tea Seller”), Timothy Polmear and Rebecca Polmear and NomadChoice Pty Limited ACN 160 729 939 trading as Flat Tummy Tea, an Australian proprietary limited company (“NomadChoice”) for the purchase of all the issued and outstanding capital stock of NomadChoice for $4,000,000 (AUD) in cash consideration (the “Cash Consideration”) and 3,571,428 shares of our common stock (“Flat Tummy Tea Equity Consideration”).

In addition to the Cash Consideration and the Flat Tummy Tea Equity Consideration, we have also agreed to pay the Flat Tummy Tea Seller certain earn-out payments of up to $3,500,000 (AUD) in aggregate upon certain EBITDA thresholds are met as of June 30, 2016, as described in the Flat Tummy Tea SPA. This full earn-out payment was distributed on March 4, 2016.

Flat Tummy Tea is engaged in the business of developing, manufacturing, and selling herbal detox tea (“Flat Tummy Tea”).

The Company has accounted for this transaction under the acquisition method of accounting. Under the acquisition method of accounting, the total acquisition consideration price is allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values based on the management’s estimates as of the date of the acquisition. The Company expects to retain the services of independent valuation firm to determine the fair value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded on November 1, 2015. The preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on the estimated fair values is as follows:

Assets
Cash	$	1,584,642
Other receivable		30,684
Inventory		134,212
Prepaid expenses		141,070
Fixed assets, net		5,698
Intangible assets, Net		3,493
Blogger database		200,000
Customer database		500,000
Intellectual property		100,000
Non-compete provision		50,000
Goodwill		6,174,899
Liabilities
Accounts payable		(77,064	)
Accrued expenses		(56,224	)
Dividends payable		(1,177,152	)
Provision for income tax		(518,558	)
	$	7,095,700

During second quarter of 2016, the Company consulted with a valuation professional to assist in determining the fair value of the identifiable NomadChoice’s intangible assets. As a result of this work, the Company increased the amount allocated to the Customer Database by $215,000, decreased the amount allocated to Intellectual Property by $100,000 and decreased the amount allocated to the Blogger Database by $115,000. These adjustments had no effect on the income statement for the year ended December 31, 2015. The Company believes that these restated amounts properly state the fair value of the TPR Investments Pty Ltd. transaction.

The final allocation of the purchase price to the assets acquired and liabilities assumed based on the independent valuation is as follows:

Assets
Cash	$	1,584,642
Other receivable		30,684
Inventory		134,212
Prepaid expenses		141,070
Fixed assets, net		5,698
Intangible assets, Net		3,493
Blogger database		85,000
Customer database		715,000
Intellectual property		-
Non-compete provision		50,000
Goodwill		6,174,899
Liabilities
Accounts payable		(77,064	)
Accrued expenses		(56,224	)
Dividends payable		(1,177,152	)
Provision for income tax		(518,558	)
	$	7,095,700

The Blogger Database, Customer Database, Intellectual property and non-compete provision will be amortized over its estimated useful lives of 5 years. During each of the years ended December 31, 2017 and 2016, the Company charged to operations amortization expense of $170,000.

The purchase price allocated to the acquisition of the assets of NomadChoice is made up as follows:

	Amount
Cash	$	2,848,800
Stock issued at closing		1,750,000
Earn-out payment		2,496,900
Total	$	7,095,700

Asset Purchase Agreement with Perfekt Beauty Holdings LLC and CDG Holdings, LLC:

On June 21, 2017, the Company entered into and simultaneously closed on an Asset Purchase Agreement with Perfekt Beauty Holdings LLC and CDG Holdings, LLC, which owns 92.3% of the issued and outstanding equity interests of Perfekt Beauty. Perfekt Beauty is engaged in the business of developing and selling skincare and cosmetics products under the brand Per-fekt.

Accounts Receivable	$	52,439
Inventory		290,174
Intellectual Property		10,000
Accounts Payable		(111,217	)
Consideration paid in 473,326 shares of common stock	$	241,396

As additional consideration, the Company will pay quarterly royalties equal to 5% of net sales for 10 years following the closing date. The purchase price was subject to adjustment as provided in the Purchase Agreement, based on the final amounts of accounts payable, accounts receivable and new and unsold inventory.