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Acquisition
 3 Months Ended
Mar. 31, 2023
Business Combination and Asset Acquisition [Abstract]  
Acquisition

Note 4. Acquisition

 

On November 15, 2022, the Company and its subsidiary entered into a series of merger and acquisition transactions resulting in the acquisition of 100.00% control of Rockview Digital Solutions Inc. d/b/a/ ABACA (collectively “Abaca”). This acquisition was completed in exchange for a combination of cash and the Company’s shares. As part of the acquisition, the Company’s Notes of $500,000 along with interest accrued until the date of acquisition were redeemed.

 

The acquisition increases the Company’s customer base to include more than 1,000 unique depository accounts across 40 states and U.S. territories; adds Abaca’s fintech platform to the Company’s existing technology; increases the Company’s financial institution client relationships and access to balance sheet capacity to five unique financial institutions strategically located across the United States; increases the Company’s lending capacity; and nearly doubles the Company’s team, adding to the existing talent pool of the cannabis industry’s foremost financial services and financial technology experts.

 

 

Pursuant to the Abaca merger agreement, as amended, the Company acquired Abaca in exchange for $30,000,000, paid in a combination of cash and shares of the Company as follows:

 

(a)cash consideration in an amount equal to (i) $9,000,000 ($3,000,000 was payable at the closing of the Mergers (the “Merger Closing”), with an additional $3,000,000 payable at each of the one-year and two-year anniversaries of the Merger Closing), (collectively, the “Deferred Cash Consideration”); and

 

(b)Common Stock equal to the lesser of (1) 2,100,000 shares or (2) a number of shares equal to (i) $8,400,000, divided by (ii) the Closing Parent Trading Price and $12,600,000 (minus an outstanding note balance of $500,000, plus accrued interest) in shares of Class A Common Stock at the one-year anniversary of the Merger Closing based on a 10-day VWAP (collectively, the “Future stock consideration”).

 

The Company measures the deferred cash consideration and future stock consideration at fair value on the acquisition date based on a report received from an independent valuation firm.

 

The following table summarizes the purchase price allocation:

      
Property, plant & equipment  $27,117 
Software   9,189 
Cash & cash equivalents   245,524 
Prepaid expense   23,061 
Security deposit   675 
Accounts receivables   232,265 
Accounts Payable   (206,508)
Accrued Expense   (235,894)
Fair value of net assets acquired  $95,429 
Other intangibles   10,800,000 
Goodwill   19,266,276 
Deferred tax liabilities   (1,758,769)
Total purchase consideration  $28,402,936 

 

The following table summarizes the total fair value of consideration:

 

     
Cash paid  $2,763,800 
Deferred cash payment   5,452,424 
Share issued – common stock (2,099,977 shares)   8,105,911 
Settlement of pre-existing notes along with accrued interest   523,404 
Future consideration settled in common stock   11,557,397 
Fair value of consideration  $28,402,936 

 

At the date of acquisition, management allocated the initial purchase price based on the estimated fair value of the identifiable assets and liabilities assumed on the acquisition date. The pre-existing relationships settled were the Company’s notes and related accrued interest with Abaca. Subsequently, the Company finalized the purchase price allocation and has adjusted the provisional values retrospectively to reflect changes to the assets and liabilities at the acquisition date. For the fair value of the identifiable intangible assets acquired, the Company used an income-based approach, which involves estimating the future net cash flows and applies an appropriate discount rate to those future cash flows.

 

 

Intangible assets were recorded at estimated fair value, as determined by management based on available information which includes a valuation prepared by an independent third party. The fair values assigned to identifiable intangible assets were determined through the use of the income approach and multi-period excess earnings methods. The major assumptions used in arriving at the estimated identifiable intangible asset values included management’s estimates of future cash flows, discounted at an appropriate rate of return which is based on the weighted average cost of capital for both the company and other market participants. The useful lives of intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows. The estimated fair value of intangible assets and related useful lives as included in the purchase price allocation include:

 

   Amount   Useful life in
Years		 
Market related intangible assets  $2,100,000    8 
Customer relationships   2,000,000    10 
Developed technology   6,700,000    10 
Fair value of consideration  $10,800,000      

 

Goodwill has been recognized as a result of the specialized assembled workforce at Abaca.

 

Had the acquisition of Abaca occurred on January 1, 2022, there would not have been a significant impact on the consolidated operating sales revenues and net earnings for the three months ended March 31, 2022. Acquisition costs of $236,200 were incurred and recognized in acquisition related costs in the year of acquisition.