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INVESTMENTS, ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS
 9 Months Ended
Sep. 30, 2021
INVESTMENTS, ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS  
NOTE 3 - INVESTMENTS, ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS

NOTE 3 – INVESTMENTS, ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS

 

Investments

 

The Company records certain investments using the cost method. If cost exceeds fair value, an impairment loss is recognized unless the impairment is considered temporary. The Company records investments in equity securities using the fair value method. In certain cases, the equity securities may not meet the criteria for RDFV, then the Company determines the fair value using Black-Scholes calculations with applicable assumptions.

 

The Company had investments recorded using the cash method of $35,000 as of September 30, 2021 and December 31, 2020.

 

The Company had investments in equity securities using the fair value method of $0 and $588,637 as of September 30, 2021, and December 31, 2020, respectively. On April 26, 2021, the Company completed a debt reduction through the sale of Jacksam Corporation shares owned by the Company to Greg Lambrecht. No gain or losses were incurred with this debt settlement.

 

2021 Acquisition – Box Pure Air, LLC

 

On February 26, 2021, the Company completed the acquisition of 51% of the membership interests in Box Pure Air, LLC. The purchase price consideration for this ownership interest was $500,000 paid with the issuance of 168,350 shares of common stock. The total value of common stock issued was allocated to goodwill pending further assessment and identification of acquired assets.

 

Total revenue of $133,297 and $350,395, net loss of ($125,884) and ($424,008), and contributed net loss of ($64,201) and ($216,244) after non-controlling interest related to Box Pure Air for the three and nine months ended September 30, 2021, respectively, are included in the Company’s accompanying consolidated statement of operations.

 

2021 Acquisition – EnergyWyze, LLC

 

On January 26, 2021 the Company entered into a purchase agreement to acquire 100% ownership of EnergyWyze, LLC, a limited liability company. The purchase price consideration consisted of the following:

 

The Company paid $25,000 at closing and the remaining balance of $50,000 in the form of a 180-day Note (the “Seller Note”) to be retired in conjunction with any capital raise associated with the up listing of the Company’s common stock to a national exchange. The Seller Note would be extendable for a period of 90-days at the Company’s option, furthermore the note can be converted at any time into Common Stock during the initial 180-day period based on the 10 Day Volume Weighted Average Price (VWAP) of the Company’s common stock. These two components of the purchase price consideration were allocated to Goodwill pending further assessment and identification of acquired assets. The Company paid the $25,000 at the closing and recorded a Seller Note with a fair value of $50,000 as a short-term liability on the balance sheet as of March 31, 2021. As of September 30, 2021, the Seller Note has been paid in full.

The final component of the consideration consisted of the following:

 

$450,000.00 USD in Restricted Common Stock of the Company based on the 10 Day VWAP immediately preceding the closing date. Such shares are allocated equally, $150,000 USD each, between the principal members of EnergyWyze, and will vest over a three-year period. Each principal member must be employed on the vesting date to be awarded such shares. The vesting schedule shall be as follows: $50,000 USD shall vest on July 1, 2021, and $100,000 USD, representing the remaining balance, shall be divided into ten equal amounts and will vest on quarterly basis over the next 10 quarters post the initial vesting period of July 1, 2021.

 

For this component of the acquisition, the Company determined the $450,000 payment represented compensation for post-acquisition services due to the vesting directly tied to the sellers’ employment by the Company. Further, the Company determined that it was “more-likely-than-not” the principal members would remain employed for the 36-month vesting period. The Company determined the fair value of the $450,000 using the Black-Scholes calculation method based on the following criteria:

 

 

 

March 31,

2021

 

Dividend yields

 

 

0%

Exercise price based on 10-day VWAP for the common stock

 

$1.47

 

Volatility

 

 

136.8%

Risk free rate

 

 

.018%

 

Based on the Black-Scholes calculation, the purchase consideration price of $450,000 had a fair value of $339,599. The Company recorded the $450,000, net of the initial $110,401 discount as a purchase price liability with an offset to deferred compensation asset. The deferred compensation and the discount amount will be amortized to compensation expense over the 36 months consistent with the vesting schedule set forth in the acquisition agreement. The purchase price liability will be converted to common stock upon issuance of any vested shares.

Goodwill and Intangible Assets

 

The following table presents details of the Company’s goodwill as of September 30, 2021 and December 31, 2020:

 

 

 

Goodwill

 

Balances at December 31, 2020:

 

$1,893,740

 

Aggregate goodwill acquired

 

 

575,000

 

Impairment losses

 

 

-

 

Goodwill adjustment

 

 

-

 

Balances at September 30, 2021:

 

$2,468,740

 

 

The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. Specifically, a goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units.

 

The Company used the discounted cash flow method for the impairment testing as of September 30, 2021, and December 31, 2020. The Company performed discounted cash flow analysis projected over four years to estimate the fair value of the reporting unit, using management’s best judgement as to revenue growth rates and expense projections. This analysis indicated cash flows (and discounted cash flows) greater than the book value of goodwill. The Company determined there were no indicators of impairment in goodwill as of September 30, 2021.