RETAIL STORES AND KIOSKS

12 Months Ended

Dec. 31, 2015

Retail Stores And Kiosks - Schedule Of Purchase Price Allocations Based On Managements Knowledge Of Retail Businesses Acquired Details

RETAIL STORES AND KIOSKS

Note 4. RETAIL STORES AND KIOSKS

Retail Stores

The Company acquired eight Florida retail stores in the aforementioned Merger in March 2015, and opened three additional Florida retail stores between April and August 2015. In the ordinary course of business the Company acquires the assets and business operations of established retail stores. The purchase prices are generally allocated to inventory, leasehold improvements, fixtures, security deposits, intangible assets, and goodwill. No liabilities are assumed from the seller and the Company has no obligation to retain existing employees. On August 31, 2015 the Company acquired the assets of two established retail stores in Gainesville, Florida. On September 3, 2015 the Company acquired the assets of one established retail store in Fort Myers, Florida. On October 10, 2015 the Company acquired the assets of three established retail stores in Atlanta, Georgia. On November 6, 2015 the Company acquired the assets of three retail stores and a warehouse located in Atlanta, Georgia, Birmingham, Alabama, and Nashville, Tennessee.

The Company incurred aggregate cost of $2,259,079 for the acquisitions after the Merger. Leasehold improvements and fixtures acquired were not considered material to these purchases. The Company holds back a portion of the seller’s purchase price for three to six months during the operational transition period (the “hold back period”). If the stores’ gross minimum revenues during the hold back period do not reach an amount agreed upon by the buyer and seller at closing, then the hold back amount due to the seller is reduced in the final settlement. The hold back amount due to sellers of $860,000 was recorded in accrued liabilities at December 31, 2015 as the achievement of the minimum revenue milestones are considered probable. The hold back liability is considered contingent consideration recorded at fair value at each respective acquisition and is re-measured with each reporting period. Subsequent to December 31, 2015, the Company made $185,000 of aggregate holdback payments. Commissions and ancillary store closing costs totaling approximately $62,271 are expensed as incurred and reflected in selling general and administrative expenses for the year ended December 31, 2015.

The accounting and reporting of the acquired retail store operations were fully integrated into the Company at dates of the individual acquisitions and it is impracticable to separate. Unaudited pro-forma combined results of operations of the Company is not presented, as it is unfeasible to obtain complete, reliable and financial information prepared in accordance with GAAP. The prior owners of the retail store businesses were individuals without reporting requirement and accordingly the financial data available is incomplete, inconsistent, and the presentation would not add value to pro-forma financial disclosure.

The Company entered into retail leases for purchased retail locations and the resulting lease obligation are included in the Company’s commitments (See Note 14). The purchase price allocations were based, on management’s knowledge of the retail businesses acquired.

Purchase Consideration
Goodwill	$	1,977,533
Other assets		17,736
Inventory		263,810
Total allocation to tangible assets and goodwill		2,259,079
Holdback obligation		(860,000	)
Cash used in retail store business acquisitions	$	1,399,079

Retail Kiosks

The Company opened eight mall retail kiosk for its vaping products in October and November 2014. The Company’s management decided to close the kiosks after evaluating the short-term performance of the locations and to focus expansion efforts on retail stores. During 2015 the Company closed all of its mall kiosks. In connection with the kiosk closings, for the year ended December 31, 2015, the Company incurred $463,840 of loss on disposal of computer equipment, fixtures, and furniture and $265,627 of exit costs for settlement of non-cancellable leases and license obligations. The loss on disposal and exit costs are included in selling, general and administrative expenses.