| INTANGIBLE ASSET |
4.
INTANGIBLE ASSET
Intangible
asset represents Intellectual Property (“IP”) acquired under an Asset purchase agreement from Manna Nutritional Group, LLC
(“MNG”) on September 10, 2021. The IP encompasses patent-pending technologies to naturally process and convert grain, pulses
and root vegetables, resulting in low-starch, low-sugar, high-protein, fiber-rich baking flour products, as well as a wide range of breakfast
cereals, juices, natural sweeteners and baking enhancers. The terms of the agreement are as below:
The
aggregate purchase price for the Purchased Assets (the “Purchase Price”) is up to $14,475,000, and shall consist of the following,
subject to the terms and conditions of this Agreement, as follows:
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(i) |
The
number of shares of Company’s common stock (rounded up to the nearest whole number),
restricted as to resale under Section 4(a)(2) of the Securities Act, equal to the quotient
of (i) $5,000,000 divided by (ii) a per share price equal to the average of the volume weighted
average price (“VWAP”) of the Company’s common shares for the ten trading
days immediately preceding the Due Diligence Deadline (as defined below) (the “Closing
Shares”). The Closing Shares, to be due on the Closing Date, which Closing Shares are
restricted as to resale and issued under a private placement exempt from registration under
Section 4(a) (2) of the Securities Act, are subject to release of restriction and lockup
on a quarterly basis over ten quarters commencing on the Closing Date in equal amounts of
shares over ten consecutive calendar quarters. The Closing Shares are due and will be issued
to MNG upon the date that is 180 days from the Effective Date (September 10, 2021) (the “Due
Diligence Deadline”), with such due diligence being comprised of (the following three
bullet points are the key performance indicators “KPIs”): |
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● |
Receipt
and Tasting of Flours and Sweeteners by the Company; |
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● |
Independent
Lab Testing of Flours and Sweeteners by the Company to confirm fiber, protein, and starch
content of such products meets the specifications provided by MNG; and |
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● |
Completion
by the Company of Third-Party Engineering Process Analysis, included in the scope of work
outlined by Covert Engineers, dated August 11, 2021, for conceptual and preliminary plant
design for a Pilot Manufacturing Facility. |
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(ii) |
$1,475,000
in cash, minus any amounts paid to MNG under (iii), payable to MNG at Closing; |
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(iii) |
$725,000
in cash payable follows: (a) $225,000 payable on the Effective Date; and (b) $500,000 payable
within 120 days after the Effective Date, to reimburse MNG for, without limitation, satisfaction
of all the secured debt as listed in Section 2.04 of the Disclosure Schedules to the Agreement
(the “Secured Debt”). |
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(iv) |
The
number of shares of Company’s common stock (rounded up to the nearest whole number)
to be issued in two tranches that equals (i) $8,000,000 divided by (ii) a per share price
equal to the VWAP of the Company’s common shares for the ten trading days immediately
before the issuance date of those shares (“Post Closing Shares”). $5,000,000
of the Post-Closing Shares will be issued on June 30, 2022, to be held in Escrow. $3,000,000
of the Post-Closing Shares will be issued to MNG on December 31, 2022, to be held in Escrow.
All distributions and dividends attributable to the Post-Closing Shares (collectively, “Dividends”)
will accrue for the benefit of MNG and will be held in Escrow pending release of the Post-Closing
Shares, in which case all Dividends will be released to MNG at the same time as the Post-Closing
Shares are so released. Until Post-Closing Shares are released from Escrow, all voting rights
thereto shall be exercised as directed by the Company’s Board of Directors. If a Patent
is issued within 24 months of the Closing Date, and such Patent is transferred to the Company
free and clear of all encumbrances, then the Post-Closing Shares shall be released from Escrow
in four equal amounts commencing on the date of issuance of the Patent and then for the three
subsequent three-month anniversaries thereof. |
In
the event that after 24 months from the closing date, a Patent does not issue from the IP, Buyer’s obligation to issue the Post-Closing
Shares and Dividends to MNG will be deemed null and void ab initio and will no longer be due and owing to MNG, and the Post-Closing Shares
shall be released from escrow and returned to the Company, and the Purchase Price shall be adjusted downward dollar for dollar.
Based on the terms
above and in conformity with US GAAP, the Company accounted for purchase as an asset acquisition and has deemed the asset purchased
as an in-process research and development. The Company has further deemed the asset to be of indefinite life until the completion
of the associated research and development (“R&D”) activities. Once completed and commercialized, the asset will
be amortized over its useful life. The recognition of the IP asset is based on the payments made to date of $225,000
and contingent consideration that is probable and reasonably estimable as of the reporting
date. Subsequent changes in contingent consideration are recorded against cost. As of September 30, 2021, the company has recorded $500,000
under accrued expenses, related to reimbursement for satisfaction of secured debt of seller.
Further, the company has recorded $750,000
as contingent consideration, which is considered probable and due on closing. The remaining amounts
payable as described above were not deemed to be probable at September 30, 2021, and accordingly have not been accrued for.
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