Note 5 - Asset Purchase Agreements and Joint Ventures

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Note 5 - Asset Purchase Agreements and Joint Ventures

NOTE 5 – ASSET PURCHASE AGREEMENTS AND JOINT VENTURES

EcoXtraction Asset Purchase and CleanWave Labs, LLC Joint Venture – On February 14, 2019, the Company and EcoXtraction LLC, a Louisiana limited liability company (the “Seller”) entered into an Asset Purchase Agreement (the “Purchase Agreement”), pursuant to which the Company issued to the Seller an aggregate of 2,350,000 shares of the Company’s common stock par value $0.0001 per share (the “Shares”) and the Seller sold to the Company certain equipment and other tangible property. In connection with the Purchase Agreement, the Company and the Seller entered into a Lock-Up Agreement, which provides that, among other things, the Seller may not liquidate any of the Shares received in connection with the Purchase Agreement until September 30, 2020 (the “Lock-Up Agreement”). Further, in connection with the Purchase Agreement and the Lock-Up Agreement, the Company and the Seller entered into a Registration Rights Agreement, wherein the Company agreed to provide certain registration rights under the Securities Act of 1933 (the “Securities Act”) including an obligation to, within ninety (90) days following the Seller’s written request, prepare and file with the Securities and Exchange Commission (the “SEC” or the “Commission”) a Registration Statement or Registration Statements on Form S-1, or such other applicable form if Form S-1 is not available.  

The purchase accounting consisted of the following:

Machinery and equipment	$ 210,970
Technology licensing rights	2,820,530
Total assets	$ 3,031,500

The above table is a provisional valuation. A formal valuation will be obtained for the year-end financial statements.

The 2,350,000 shares issued on February 14, 2019 were valued at $1.29 per share, $3,031,500 in total.

The Purchase Agreement conveyed only assets; the Company did not receive any ownership interest in or to the Seller or the securities of the Seller and the Company does not consider it to be an acquisition of a business. The Company and the Seller also took steps described herein to create a joint venture (the “Joint Venture”).  

In connection with the Purchase Agreement, on February 14, 2019, the Company and the Seller entered into a License Agreement, pursuant to which Seller sub-licensed to the Company certain intellectual property relating to cannabis extraction technology which the Seller licenses from Hydro Dynamics, Inc. (“Hydro”) (the “License Agreement”). Subject to the terms of the License Agreement, the Seller grants to the Company certain licenses, including an exclusive license for an initial term of two (2) years from the effective date of the agreement (the “Exclusive License”). The Company has the option to renew the Exclusive License for two (2) successive additional terms of one (1) year each. The Company shall exercise its renewal option by giving the Seller written notice of the Company’s intent to renew the license; in consideration for each one-year renewal term, the Company shall issue to the Seller 250,000 shares of the Company’s common stock. The Company is under no obligation to renew.  

On February 14, 2019, the Company, EcoXtraction LLC (“EcoX”) and CleanWave entered into an Assignment and License Agreement (the “A&L Agreement”), pursuant to which EcoX agreed to assign and/or license certain intellectual property to CleanWave, and the Company agreed to contribute an aggregate of $2,000,000 of cash contributions to CleanWave (the “Cash Contribution”) such Cash Contribution being made no later than by the second anniversary of the effective date of the A&L Agreement. If the Cash Contribution is not met, then ownership of certain intellectual property described in the A&L Agreement shall revert back to EcoX, and CleanWave would execute all documents necessary to re-assign such intellectual property back to EcoX.

In connection with the Purchase Agreement, on February 14, 2019, the Company and EcoX created CleanWave Labs, LLC, a Nevada limited liability company (“CleanWave”) with each of the Company and EcoX as the members of CleanWave (the “Operating Agreement”). The Company shall own 50% of the member equity interests and 50% of the member profit interests of CleanWave. CleanWave was formed primarily for the purpose of (i) developing and exploiting certain proprietary technologies being assigned and licensed to the Company by EcoX designed to extract CBD, THC, as well as additional compounds from cannabis and hemp plants and (ii) manufacture and market equipment derived from that technology for use in extracting CBD, THC and additional compounds.  Pursuant to the terms of the Operating Agreement and in consideration of its membership interests, the Company shall provide certain equipment, as well as $2,000,000 in working capital over a two-year period, with the first $150,000 of the $2,000,000 paid to Hydro upon election to be used to pay Hydro the amount owed by EcoX to Hydro.

The Company analyzed CleanWave and determined that it is a variable interest entity since the total equity investment is not sufficient to permit the entity to finance its activities without additional funding from NewBridge. Also, neither NewBridge nor EcoX have a controlling financial interest in CleanWave since neither entity has the power to direct the activities of CleanWave that most significantly impact the economic performance of CleanWave. This is because neither party can approve the annual budget without the other party’s agreement since neither party has a majority interest. As a result, neither party is the primary beneficiary. NewBridge accounted for its interest in CleanWave using the equity method.

As of June 30, 2019, the Investment in CleanWave was $527,723, which consisted of $52,450 of equipment and $511,573 of cash contributed from NewBridge to CleanWave, less $36,300 for NewBridge’s share of the net loss of CleanWave during the six months ended June 30, 2019.

Hydro Technology License Acquisition – On April 12, 2019, the Company and Hydro Dynamics, Inc., a Georgia corporation (“Hydro”) entered into a technology license agreement (the “Agreement”), whereby the Company would license from Hydro certain Hydro-owned technology and associated intellectual property including the ShockWave Power Reactor/Extractor, such intellectual property being useful in a variety of industries including but not limited to those industries which extract, mix, heat, hydrate, homogenize and crystallize materials (the “Hydro Technology”). Pursuant to the terms and subject to the conditions set forth in the Agreement, the Company shall, in consideration for licensing the Hydro Technology from Hydro, furnish to Hydro: (i) a one-time lump-sum cash payment of $60,000 (the “Cash Payment”) no later than July 3, 2019; (ii) four semiannual payments of $125,000 each for an aggregate of $500,000 in payments beginning on January 15, 2020 and culminating with a final payment on July 15, 2021, such $500,000 is convertible into shares of the Company’s common stock, par value $0.0001 per share at a conversion price of $1.00 per share or the market price at the time of conversion but not less than $0.75 per share; (iii) 2,125,000 shares of the Company’s Common Stock (the “Stock Payment”) and (iv) an annual license fee of $100,000 no later than January 15 of each year of the Term beginning in 2022. In addition to these fees, Hydro and the Company agreed to enter into a revenue-sharing plan whereby the Company will furnish to Hydro 3% of net revenues from the Company derived by the Company’s sale or lease of certain technologies (the “Revenue-Sharing Arrangement”) and Hydro is further permitted to sell certain stand-alone products to third-parties in exchange for paying to the Company a participation fee for any such third-party sales. The agreement is perpetual, subject to the Company’s right to terminate the agreement at the end of the Company’s 2025 fiscal year.  The license does not meet the definition of an intangible asset acquired in an asset acquisition and, as a result, the cost of the license was expensed as of the effective date. The total expense was $2,153,750, which consisted of the $60,000 cash payment, $500,000 convertible debt and $1,593,750 for the 2,125,000 shares of common stock issued at $0.75 per share.

King Hemp Farm, LLC Joint Venture – On April 17, 2019, the Company and King Hemp Farm NM, LLC, a New Mexico limited liability company (“King”), entered into an operating agreement (the “Operating Agreement”), pursuant to which the Companies formed King Hemp Farm LLC, a Nevada limited liability company (the “Joint Venture” or “King JV”). The Companies formed the Joint Venture primarily for the purpose of exploiting certain farming operations to raise hemp on properties controlled by King and to extract CBD and additional compounds from hemp plants. In connection with the Operating Agreement, King granted the Company two 10-year leases on at least 10 acres of land controlled by King. The managers of the Joint Venture are initially Robert Bench, the Company’s Chief Financial Officer, and Tyler King. The members of the Joint Venture are the Company and King, each with a 50% membership interest, with payment from the proceeds generated by the Joint Venture to be distributed in accord with the respective capital contributions of each of the Company and King.  King agreed to cultivate 50 acres of land in 2019 and the Company issued 1,000,000 shares, valued at $0.50 per share to King during April 2019.

The Company analyzed the King Joint Venture and determined that it is a variable interest entity since the total equity investment is not sufficient to permit the entity to finance its activities without additional funding from NewBridge. Also, neither NewBridge nor King have a controlling financial interest in King JV since neither entity has the power to direct the activities of King JV that most significantly impact the economic performance of King JV. This is because neither party can approve the annual budget without the other party’s agreement since neither party has a majority interest. As a result, neither party is the primary beneficiary. NewBridge accounted for its interest in King JV using the equity method.

As of June 30, 2019, the Investment in King JV was $553,855, which consisted of $53,855 of cash contributions and $500,000 of stock contributions from NewBridge during the six months ended June 30, 2019. There was minimal activity in King JV as of June 30, 2019.

Innovative Separations Inc. Joint Venture – On May 1, 2019, the Company and Innovative Separations, LLC, an Oregon limited liability company (“Innovative”) together with Joseph Mazza, the managing member of Innovative (“Mr. Mazza”) entered into a letter of intent, pursuant to which the Company and Innovative will be joint partners for the purpose of exploiting certain farming operations that raise cannabis and hemp and to extract CBD, THC and other compounds from cannabis and hemp plants through the use of certain technologies and equipment (the “Innovative Transaction”). Pursuant to the terms of the letter of intent and subject to the conditions to be set forth in an Operating Agreement, the Company may: (i) issue 25,000 shares of the Company’s common stock to Mr. Mazza, and 25,000 shares of the Company’s common stock to the Gary and Gail Harstein Family Trust; (ii) enter into a lease purchase option to purchase certain property; (iii) place at least one Company ShockWave Power™ Reactor (SPR) in Innovative and (iv) provide cash for working capital of up to $200,000 over a one-year period. In addition to the Innovative joint venture, the Company will receive the right to use certain trade names and access to certain lands currently owned by Innovative (together with the Innovative joint venture, the “Innovative Interests”). The term of the proposed Operating Agreement shall be perpetual absent certain dissolution provisions as further described in the Operating Agreement. The Operating Agreement may also provide for certain drag-along provisions, whereby the Managers may require any members of Innovative to sell their respective Innovative MIs to a proposed purchaser.

As of June 30, 2019, the Company and Innovative had not entered into any agreements, issued any stock, or placed the SPR extraction unit; however, the Company has advanced $200,000 to Innovative for purchase of Hemp biomass, which will be inventory of the joint venture once the joint venture agreement is finalized. The $200,000 is classified as a prepaid asset on the Company’s books as of June 30, 2019.

Apothio Bakersfield, LLC Joint Venture – On May 2, 2019, the Company and Apothio, LLC, a Colorado limited liability company (“Apothio”) entered into an operating agreement (the “Operating Agreement”), pursuant to which the Company and Apothio agreed to form Apothio Bakersfield, LLC, a Nevada limited liability company (the “Joint Venture” or “Apothio JV”), whereby pursuant to the terms and subject to the conditions set forth in the Operating Agreement, the Company and Apothio shall each receive fifty percent (50%) of the membership interests in the Joint Venture. Under the terms of the Operating Agreement, the Company will be required to: (i) underwrite costs to contribute extraction equipment; (ii) fund the cost of a fully-functional extraction facility and (iii) install a fully-functional testing laboratory with certain equipment as determined by the managers of the Joint Venture. Apothio will contribute existing biomass of approximately 150,000 pounds for the Company to begin processing and extraction, and will contribute some of its 512 acres of plants. The term of the Operating Agreement shall be perpetual absent certain dissolution provisions as further described in the Operating Agreement. The Operating Agreement also provides for certain drag-along provisions, whereby the managers may require any members of the Joint Venture to sell their respective membership interests to a proposed purchaser.

The Company analyzed the Apothio Joint Venture and determined that it is a variable interest entity since the total equity investment is not sufficient to permit the entity to finance its activities without additional funding from NewBridge. Also, neither NewBridge nor Apothio have a controlling financial interest in Apothio JV since neither entity has the power to direct the activities of Apothio JV that most significantly impact the economic performance of Apothio JV. This is because neither party can approve the annual budget without the other party’s agreement since neither party has a majority interest. As a result, neither party is the primary beneficiary. NewBridge accounted for its interest in Apothio JV using the equity method.

As of June 30, 2019, the Investment in Apothio JV consisted of $5,182 of cash contributions. There was minimal activity in Apothio JV as of June 30, 2019.