| INTANGIBLE ASSET |
Intangible
asset represents $1,477,237 of 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 December 31, 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 $753,727 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 December 31, 2021, and accordingly have
not been accrued for.
Subsequent
to the year end, the Company paid $500,000 to satisfy the secured debt of seller.
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