Annual report pursuant to Section 13 and 15(d)

ACQUISITION OF TRACE ANALYTICS, INC.

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ACQUISITION OF TRACE ANALYTICS, INC.
12 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
NOTE 5 - ACQUISITION OF TRACE ANALYTICS, INC

On January 7, 2019, the Company closed on a purchase of 520,410 shares of common stock of Trace Analytics, Inc., a Washington corporation (“Trace Analytics”). Pursuant to a Common Stock Purchase Agreement, the Company purchased Trace Analytics at a purchase price of $2.40 per share, for an aggregate purchase price of $1,250,000, of which $750,000 was paid in cash and $500,000 was paid through the issuance of shares of the Company’s common stock. Trace Analytics is a cannabis testing laboratory acquired to enable the Company to position itself as the leading provider of testing solutions for CBD products for both compliance requirements and consumer safety as these products continue to increase in popularity. Immediately following the purchase, the Company holds 51% of the issued and outstanding shares of common stock of Trace Analytics. The Common Stock Purchase Agreement included the option for Trace to repurchase 205,410 shares of Common Stock based on the occurrence of certain Repurchase Triggering Events. Based on a review of the Repurchase Triggering Events, it is considered unlikely that any of the events will occur. Additionally, the Company entered into a Voting Agreement with Trace concurrent with the Common Stock Purchase Agreement. The Voting Agreement provided for the designation of three out of five positions on the Trace Analytics Board of Directors by the Company. The Voting Agreement also detailed certain transactions that require two-thirds approval by the Board of Directors. The Voting Agreement is not considered to impact the ability of the Company to control the operations and assets of Trace Analytics.

 

The Company accounted for the transaction as a business combination in accordance with ASC 805 “Business Combinations”. The Company is in the process of performing an allocation of the purchase price paid for the assets acquired and the liabilities assumed. The fair values of the assets acquired, as set forth below, are considered provisional and subject to adjustment as additional information is obtained through the purchase price measurement period (a period of up to one year from the closing date). The provisional allocation of the purchase price is based on management’s preliminary estimates. Once management completes its analysis to finalize the purchase price allocation, it is reasonably possible that there could be changes to the preliminary values. The primary areas of the purchase price allocation that are not yet finalized relate to identifiable intangible assets and goodwill.

 

The following table summarizes the provisional amounts of identified assets acquired and liabilities assumed at the acquisition date:

 

    Amount  
Cash   $ 38,261  
Accounts receivable     127,997  
Prepaid expense     34,890  
Due from purchaser     200,000  
Office and lab equipment     486,679  
 Total assets acquired     887,827  
Accounts payable     (347,517 )
Note payable     (25,000 )
Accrued expenses     (5,479 )
 Total liabilities assumed     (377,996 )
Net identifiable assets acquired     509,831  
Less the fair value of non-controlling interest     (1,200,980 )
Goodwill     1,941,149  
Total purchase consideration   $ 1,250,000  

 

Based on management’s analysis of the acquisition transaction pursuant to the provisions of ASC 805, the Company determined that any customer lists or business licenses held by Trace Analytics are immaterial in relation to the overall value of Trace; additionally, Trace Analytics does not hold any patents or proprietary technology, and does not have long-term contractual arrangements with customers. As such, there are no separately identifiable intangible assets meeting the criteria of ASC 805. Concurrently, the Company preliminarily allocated the $1,941,149 excess of the purchase price over the identifiable net assets of $509,831 to goodwill.

 

The following unaudited pro forma information presents the combined results of operations as if the business combination with Trace Analytics had been completed on April 1, 2017, the beginning of the comparable prior annual reporting period. These unaudited pro forma results are presented for informational purpose only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations:

 

    For the Fiscal Years Ended  
    March 31,
2019
    March 31,
2018
 
    (unaudited)     (unaudited)  
             
Revenue   $ 1,332,470     $ 1,252,367  
Operating loss     (2,699,611 )     (2,149,768 )
Net loss     (2,757,326 )     (2,149,768 )
Net loss per share     (0.23 )     (0.14 )