See accompanying notes to the unaudited pro forma condensed combined financial information
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. BACKGROUND
On October 3, 2022 (the “Closing Date”), Integrated Cannabis acquired all of the issued and outstanding shares of common stock of Consolidated Apparel pursuant to the Amended Purchase Agreement. The purchase price set forth in the Amended Purchase Agreement provided for the issuance of 175,000,000 shares of Integrated Cannabis common stock with a fair value of $297,500 and the issuance of a note payable in the amount of $250,000. Consolidated Apparel had net liabilities of $297,912 as of the acquisition date, as detailed below in Note 3.
2. BASIS OF PRESENTATION
The unaudited pro forma condensed combined financial statements were prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and pursuant to U.S. Securities and Exchange Commission Regulation S-X Article 11 and present the pro forma financial position and results of operations of the combined companies based upon the historical information after giving effect to the acquisition and adjustments described in these footnotes. The unaudited pro forma condensed combined balance sheet is presented as if the acquisition had occurred on June 30, 2022 and December 31, 2021. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2022 and the year ended December 31, 2021 is presented as if the acquisition had occurred on January 1, 2021.
The historical results of the Company and Consolidated Apparel have been derived from their respective audited financial statements as of and for the six months ended June 30, 2022 and the year ended December 31, 2021.
The unaudited pro forma condensed combined financial information does not reflect pro forma adjustments for ongoing cost savings that the Company expects to and/or have achieved as a result of the acquisition or the costs necessary to achieve these costs savings or synergies.
3. PRELIMINARY CONSIDERATION TRANSFERRED AND PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
Assets acquired and the liabilities assumed have been measured at fair value based on various preliminary estimates. Due to the unaudited pro forma condensed combined financial information having been prepared based on preliminary estimates, the final amounts recorded for the acquisition may differ materially from the information presented herein. These estimates are subject to change pending further review of the fair value of assets acquired and liabilities assumed.
The following is a summary of the preliminary estimate of consideration transferred:
Net liabilities assumed | | $ | 297,912 | |
Shares of common stock issued | | | 297,500 | |
Note payable issued | | | 250,000 | |
Total purchase price | | $ | 845,412 | |
Management has made preliminary allocation estimates based on currently available information. The final determination of the accounting for the business combination will be completed as soon as practicable. Management anticipates that the valuations of the acquired assets and liabilities will be determined using discounted cash flow analyses and other appropriate valuation techniques to determine the fair value of the assets acquired and liabilities assumed. In addition, management is still completing its analysis of deferred income taxes to be recorded in the transaction. The amounts allocated to the assets acquired and liabilities assumed could differ materially from the preliminary amounts presented in these unaudited pro forma condensed combined financial statements.
The following is a preliminary purchase price allocation as of the October 3, 2022 closing date:
Cash | | $ | 47,562 | |
Accounts receivable | | | 62,017 | |
Inventory | | | 212,911 | |
Right of use asset – operating lease | | | 3,351 | |
Other assets | | | 9,861 | |
Total identifiable assets acquired | | $ | 335,702 | |
| | | | |
Accounts payable | | $ | 91,637 | |
Accrued interest payable | | | 4,062 | |
Accrued expenses | | | 9,062 | |
Operating lease liability | | | 6,663 | |
Notes payable | | | 522,190 | |
Total liabilities assumed | | $ | 633,614 | |
Estimated fair value of net tangible assets acquired and liabilities assumed | | $ | (297,912 | ) |
Unallocated intangible assets and goodwill | | | 1,143,324 | |
Total | | $ | 845,412 | |
4. PRO FORMA ADJUSTMENTS
The preliminary pro forma adjustments included in the unaudited pro forma condensed combined financial statements related to the acquisition are pending a final purchase price allocation using appropriate valuation techniques and are anticipated to be made to the following categories:
(a) Unallocated intangible assets and goodwill represent the excess of the consideration transferred over the preliminary fair value of the assets acquired and liabilities assumed described in Note 3. We expect this balance to include identifiable and unidentifiable goodwill. Identifiable intangible assets will reflect the preliminary fair value related to the identifiable intangible assets acquired in the acquisition. The preliminary fair value of Consolidated Apparel’s identifiable intangible assets will be determined using discounted cash flow analyses and other appropriate valuation techniques. We anticipate amounts will be assigned to an Employment agreement with Eugene Caiazzo, the former owner of Consolidated, customer relationships and trademarks and patents. Goodwill will not be amortized, but instead will be tested for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment exists.
(b) Common stock consideration – Adjustments necessary to common stock and additional paid-in capital to reflect 17,250,000,000 shares of common stock issued, $0.001 par value, in connection with the acquisition at the fair market value of $297,500, or $0.0172 per share.
(c) Stockholders’ Equity— Adjustments at December 31, 2021 and June 30, 2022 to eliminate the common stock of $250, additional paid-in capital of ($250) and the December 31, 2020 and 2021 retained deficit amounts of $882,007 and $760,419 of Consolidated Apparel, respectively.
(d) Notes payable, accrued interest and interest expense, related party – Adjustments at December 31, 2021 and June 30, 2022 to eliminate the note balances of $245,386 and $231,546, accrued interest of $140,744 and $131,424 and interest expense of $13,984 and $23,387, respectively, related to the note payable to Eugene Caiazzo, former owner of Consolidated Apparel.
(e) Note payable – Adjustments to reflect the $250,000 note payable issued to Eugene Caiazzo as consideration for the sale of Consolidated Apparel, including $9,375 and $18,750 in interest expense at 7.5% per annum, as of and for the periods ending June 30, 2022 and December 31, 2021, respectively.
No deferred income taxes or provision for federal have been recorded as Integrated Cannabis has historically incurred net operating losses (“NOLs”), which are estimated to be available to offset taxable income generated by Consolidated Apparel. Consolidated Apparel’s taxable income approximates the historical taxable amount therefore adjustment is not deemed necessary.
5. RECLASSIFICATIONS
Certain Integrated Cannabis and Consolidated Apparel accounts for the six months ended June 30, 2022 and the year ended December 31, 2021 have been reclassified for presentation purposes in the accompanying pro forma condensed combined statements of operations. These reclassifications had no material effect on previously reported results of operations.
*Previously filed
** Previously filed on Form 8-K/A, Amendment Number 2 filed on October 3, 2022.