2. ACQUISITIONS

3 Months Ended

Dec. 31, 2019

Business Combinations [Abstract]

ACQUISITIONS

On December 20, 2018 (the “Closing”), the Company, and its newly organized wholly-owned subsidiaries AcqCo, LLC and cbdMD LLC, both North Carolina limited liability companies, completed a two-step merger (the “Merger Agreement”) with Cure Based Development, LLC, a Nevada limited liability company (“Cure Based Development”). The Merger Agreement provided that AcqCo LLC merge with and into Cure Based Development with Cure Based Development as the surviving entity (the “Merger”), and immediately thereafter Cure Based Development merged with and into cbdMD LLC with cbdMD LLC as the surviving entity (the “Secondary Merger” and collectively with the Merger, the “Mergers”). cbdMD LLC was renamed on April 10, 2019 to CBD Industries LLC (“CBDI”) and has continued as a wholly-owned subsidiary of the Company and maintains the operations of Cure Based Development pre-closing. As consideration for the Merger, the Company has a contractual obligation, after approval by our shareholders, to issue 15,250,000 shares of our common stock to the members of Cure Based Development, of which 8,750,000 of the shares will vest over a five year period and are subject to a voting proxy agreement. The Merger Agreement also provides that an additional 15,250,000 shares of our common stock can be issued upon the satisfaction of aggregate net revenue criteria by CBDI, within 60 months following the Closing. The net revenue criteria are: $20.0, $40.0, $80.0 and $160.0 million, in aggregate $300.0 million (See Note 8 for more information).

The initial 15,250,000 shares were approved by our shareholders and issued on April 19, 2019.

The Company owns 100% of the equity interest of CBDI. The valuation and purchase price allocation for the Mergers was finalized at September 30, 2019.

The following table presents the final purchase price allocation:

Consideration	$	74,353,483
Assets acquired:
Cash and cash equivalents	$	1,822,331
Accounts receivable		850,921
Inventory		1,054,926
Other current assets		38,745
Property and equipment, net		723,223
Intangible assets		21,585,000
Goodwill		54,669,997
Total assets acquired		80,745,143
Liabilities assumed:
Accounts payable		257,081
Notes payable – related party		764,300
Customer deposits - related party		265,000
Accrued expenses		460,979
Deferred tax liability		4,644,300
Total Liabilities assumed		6,391,660
Net Assets Acquired	$	74,353,483

The goodwill generated from this transaction can be attributed to the benefits the Company expects to realize from the growth strategies the acquired Company had developed and the entry into an emerging market with high growth potential. See Note 8 regarding contingent liability.

In connection with the purchase price allocation, the Company recorded a deferred tax liability of approximately $4,644,000, with a corresponding increase to goodwill, for the tax effect of the acquired intangible assets from Cure Base Development. This liability was recorded as there will be no future tax deductions related to the acquired intangibles, and we have identified these as indefinite-lived intangible assets.

The Company also acquired estimated net operating loss carryforwards of approximately $1,996,000, Under Internal Revenue Code (IRC) Section 382, the use of net operating loss (“NOL”) carryforwards may be limited to an annual limit if a change in ownership of a company occurs.