5. BUSINESS ACQUISITIONS

12 Months Ended

Dec. 31, 2014

Business Acquisitions

5. BUSINESS ACQUISITIONS

The Company completed several strategic business combinations in 2014 that further managements growth strategy and geographic markets expansion.

Vapestick Holdings Limited

On January 9, 2014, the Company completed its acquisition of Vapestick. The assets and liabilities of Vapestick shown below are based on their acquisition date fair values. The following is the Company’s assignment of the aggregate consideration:

Fair Value of Consideration Transferred
Cash	$	5,804,240
Issuance of shares of common stock		48,974,558
	$	54,778,798
Assets Acquired and Liabilities Assumed
Cash	$	136,165
Accounts receivable		212,331
Inventory		234,656
Prepaids and other current assets		100,548
Furniture and equipment		47,772
Tradename		6,591,000
Customer relationships		4,098,000
Accounts payable and accrued expenses		(221,210	)
Revolving line of credit		(330,322	)
Long-term debt		(45,577	)
Deferred tax liability		(2,513,440	)
Other liabilities		(72,994	)
Total identifiable net assets		8,236,929
Goodwill		46,541,869
Total fair value of consideration	$	54,778,798

FIN Electronic Cigarette Corporation, Inc.

On February 28, 2014, the Company completed its acquisition of FIN. The assets and liabilities of FIN shown below are based on their acquisition date fair values. The following is the Company’s assignment of the aggregate consideration:

Fair Value of Consideration Transferred
Cash	$	10,000,000
Issuance of shares of common stock		108,600,000
Short term promissory notes		15,000,000
	$	133,600,000
Assets Acquired and Liabilities Assumed
Cash	$	177,786
Accounts receivable		1,730,151
Inventory		18,045,580
Prepaids and other current assets		990,289
Furniture and equipment		1,230,774
Tradename		20,375,000
Customer relationships		47,280,000
Accounts payable and accrued expenses		(2,484,203	)
Deferred tax liability		(25,441,968	)
Other liabilities		(11,134,042	)
Total identifiable net assets		50,769,367
Goodwill		82,830,633
Total fair value of consideration	$	133,600,000

Must Have Limited (VIP)

On April 22, 2014, Company completed its acquisition of VIP. The assets and liabilities of VIP shown below are based on acquisition date fair values. The following is the Company’s assignment of the aggregate consideration:

Fair Value of Consideration Transferred
Cash	$	20,396,767
Issuance of shares of common stock		15,525,000
Contingent earn-out		5,000,000
Short term promissory notes		11,000,000
	$	51,921,767
Assets Acquired and Liabilities Assumed
Cash	$	14,698,409
Accounts receivable		426,243
Inventory		2,379,159
Prepaids and other current assets		1,315,212
Furniture and equipment		249,863
Tradename		11,025,000
Customer relationships		13,865,000
Domain name/website		1,235,000
Accounts payable and accrued expenses		(4,301,751	)
Deferred tax liability		(6,008,750	)
Total identifiable net assets		34,883,385
Goodwill		17,038,382
Total fair value of consideration	$	51,921,767

Hardwire Interactive Inc. (Hardwire)

On July 16, 2014, Company completed its acquisition of Hardwire. The assets and liabilities of Hardwire shown below are based on acquisition date fair values. The following is the Company’s assignment of the aggregate consideration:

Fair Value of Consideration Transferred
Cash	$	5,000,000
Issuance of shares of common stock		18,675,000
	$	23,675,000
Assets Acquired and Liabilities Assumed
Accounts receivable	$	1,786,232
Inventory, net		987,855
Prepaids and other current assets		290,264
Non-compete agreements		420,000
Customer relationships		6,075,000
Trademark		6,045,000
Total identifiable net assets		15,604,351
Goodwill		8,070,649
Total fair value of consideration	$	23,675,000

The acquisition date amounts for Vapestick, FIN, VIP, and Hardwire are based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. The customer relationships are being amortized over the estimated useful life of Hardwire customer relationships which is 2 years. Tradenames are being amortized over an estimated useful life of 10 to 15 years. Goodwill is calculated as the excess of the fair value of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, as well as expected future synergies.

The Company’s consolidated results of operations for year ended December 31, 2014 include the results of Vapestick, FIN, VIP and Hardwire since the respective acquisition dates.  The following table sets forth unaudited pro forma results of operations on a combined basis assuming that the acquisitions of Vapestick, FIN, VIP, and Hardwire occurred on January 1, 2013:

	Unaudited Pro Forma Information
	Year Ended
	December 31,			December 31,
	2014			2013
Net revenue	$	76,291,095		$	98,568,106
Loss from operations	$	(36,261,545	)	$	(4,848,541	)