Note 6 - Acquisition

6 Months Ended

Jun. 30, 2016

Note 6 - Acquisition

Note 6 - Acquisition

Note 6 - Acquisition

On April 29, 2016, subject to approval by the Georgia Board of Pharmacy, the Company entered into definitive documents to acquire P3 Compounding of Georgia, LLC,(“P3”).P3 received Georgia Board of Pharmacy approval for the transaction at the end of June 2016 and the transaction closed effective June 30, 2016. P3 is a full service compounding pharmacy with both sterile and non-sterile expertise headquarter in Atlanta, Georgia. The medicines that P3 compounds include bio-identical hormone replacement therapy, transdermal pain creams, wellness compounding, individualized and prescriptions.The transaction included the acquisition of identifiable assets, customer listings and intellectual properties included in the P3’s library of specialized formulations.

As a result of the acquisition, P3 is now a wholly owned subsidiary of the Company. The acquisition of P3 permits the Company to make and distribute its patent-pending proprietary drug formulations and other novel pharmaceutical solutions through P3 and introduces the Company to new geographic and compounded formulation markets.

The transaction has been accounted for as a business combination and recorded as of June 30, 2016, therefore no revenues or net income have been included in the Company’s consolidated financial statements for second quarter 2016.

The fair value of the consideration paid pertaining to the acquisition of P3 was $851,150. Consideration for the transaction was structured as follows:

• An interest-free note for $150,000 with no interest to be paid in full via wire transfer on the maturity date of August 16, 2016;

▪ $425,000 convertible note with a term of 12 months and a 6% interest rate, with the first installment due June 1, 2016, and convertible into common stock of True Nature at a rate of $1.25 per share (which is 340,000 shares of common stock), less a short-term financing for $14,350 that the Company provided to Integrity for working capital purposes;

▪ A $425,000 convertible note with no interest, which automatically converted 340,000 shares of common stock with a fair value of $261,800 based on the closing price of the True Nature’s common stock on June 30, 2016.

 The notes issued in conjunction with the purchase and the intellectual properties may be converted into restricted common stock at a rate of $1.25 per share. The purchase includes all payables, receivables, cash on hand, inventory and all assets used in the operation of the business.

In addition, Mr. Casey Gaetano, a former owner of P3, received an employment contract with True Nature for 3 years as VP of Corporate Development, at an annual salary of $125,000, plus normal benefits commensurate with other executives in the Company of equal stature. He also receive in second quarter 2016, 125,000 shares of restricted at a value of $3.48 per share in exchange for becoming the Company’s VP of Corporate Development.

Allocation of Consideration Transferred

The identifiable assets acquired and liabilities assumed were recognized and measured as of the acquisition date based on their estimated fair values as of June 30, 2016. The excess of the acquisition date fair value of consideration transferred over the estimated fair value of the net tangible assets and intangible assets acquired was recorded as goodwill.

 The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date based on a fair value acquisition price of $851,150 pertaining to the consideration provided.

Cash and cash equivalents	$	10,201
Accounts receivable		26,000
Inventories		111,668
Other current assets		20,706
Furniture and equipment		5,294
Customer list		151,273
Total identifiable assets acquired		325,142
Accounts payable and accrued expenses		35,422
Total liabilities assumed		35,422
Total identifiable assets less liabilities assumed		289,720
Goodwill		561,430
Net assets acquired	$	851,150

The fair value of the transaction and related purchase price allocation was based on a third-party valuation obtained by the Company.

Intangible Assets-Customer Relationships

In determining the fair value of the intangible assets, the Company considered, among other factors, the best use of the acquired assets, analyses of historical financial performance of P3 and estimates of future performance of P3. The fair values of the identified intangible assets related to P3’s customer relationships. Customer relationships were calculated using the income approach. The following table sets forth the components of identified intangible assets associated with the P3 Acquisition and their estimated useful lives.

	Fair Value		Useful Life
Customer relationships	$	151,273	7years
	$	151,273

The Company determined the useful lives of intangible assets based on the expected future cash flows and contractual life associated with the respective assets. Customer relationships represent the expected future benefit from contracts and relationships which, at the date of acquisition, were reasonably anticipated to continue given the history and operating practices of P3.

Goodwill

Of the total estimated purchase price for the P3 Acquisition, $561,430 was allocated to goodwill. Goodwill represents the excess of the purchase price of the acquired business over the fair value of the underlying net tangible and intangible assets acquired. The goodwill recorded resulting from the acquisition is expected to be deductible for income tax purposes.

Pro Forma Information

The following table presents selected unaudited pro forma information for the Company assuming the acquisition of P3 had occurred as of January 1, 2016. This pro forma information does not purport to represent what the Company’s actual results would have been if the acquisition had occurred as of the date indicated or what such results would be for any future periods.

	Three Months Ended			Six Months Ended
	June 30, 2016			June 30, 2016
Net Sales	$	258,554		$	483,927
Net Loss	$	(1,950,142	)	$	(2,764,565	)
Net Loss per Share – Basic and Diluted	$	(0.15	)	$	(0.22	)