Does Everybody Remember This?Does everybody remember the NR that stated the transaction value of what shareholders were going to be paying for the acquistition of Naturo?
The Transaction
The LOI provides that the Company will acquire all of the Target Securities outstanding as at the closing (the “Closing”) of the Transaction from the securityholders of the Target (the “Vendors”) in exchange for the issuance of approximately 50,000,000 common shares of the Company (each, a “Consideration Share”) to the Vendors at a deemed price of $0.40 per Consideration Share. The parties have agreed to negotiate and execute a definitive agreement in respect of the Transaction on or before January 22, 2021 which will replace and supersede the LOI.
A key offtake from the NR was the final line of the paragraph in which management left it open to work behind the scenes (without investor oversight) to ultimately screw you in the end. Below shows the ultimate price paid for the $1.55M asset Naturo originally purchased (Miller Springs) and had Bevcanna shareholders build out at a cost of $9.4M (for buildings), $1.77M (for equipment), $5.5M (grow ops), all in $16.6M in improvements to Naturo's $1.55M asset.
So, you would think that paying $20M for all of Naturo assets wasn't so bad. Problem is they amended the original tansaction several times until January 31st 2021 and in the end below is how much Bevcanna investors paid for Naturo (that lost $462,862 in the first quarter).
(My notes are in yellow highlights):
(d) Acquisition of Naturo Group Investments Inc. On December 11, 2020, and as amended on January 31, 2021, the Company entered into an amalgamation agreement to complete the acquisition of all issued and outstanding securities of Naturo Group Investments Inc. Naturo develops and manufactures beverages and consumer products for in-house brands and private label clients and is based in BC. The acquisition closed on February 18, 2021. In accordance with IFRS 3, the substance of a transaction constitutes a business combination as the business of Naturo meets the definition of a business under the standard. Accordingly, the assets acquired and the liabilities assumed have been recorded at their respective estimated fair values as of the acquisition date.
The purchase price is based on managements estimate of fair value of the following transactions:
a) 50,000,000 common shares of the Company were issued to the former shareholders of Naturo with a fair value of;
b) The Company assumed the obligation to issue:
(i) 450,000 common shares in the capital of the Company pursuant to outstanding options in Naturo exercisable at $0.25 until July 31, 2024,
(ii) 26,250,000 common shares in the capital of the Company pursuant to outstanding warrants in Naturo exercisable at $0.50 until August 19, 2021,
(There was only 50,000,000 share warrants @$0.40 for the transaction but there is more then 50% of the totals shares in warrants. How?)
(iii) Such common shares in the capital of the Company as may be issuable pursuant to a convertible debenture in Naturo in the principal amount of $1,468,373 convertible at $0.40 per share, maturing on January 27, 2023 and accruing interest at an annual rate of 10% which is also convertible into shares.
(These convertible debentures @ $0.40 now are gaining 10% interest for two years and there is also a promissary note that was attached Naturo from 2017. On August 5, 2017, Naturo entered into a promissory note for $2,500,000 with an effective interest rate of 8%, payable quarterly, and due on August 5, 2020. On August 5, 2020, the promissory was extended for one year. As at March 31, 2021, the outstanding balance of the loan and accrued interest was $2,518,630. The loan is secured by the land of the Company and the personal property of the CEO under the general security agreement. So technically all the land and Marcello's personal assets still belong to him and not Bevcanna shareholders.)
Consideration: $ Fair value of common shares issued (50,000,000 @ $1.17) 36,398,323.
(Oh my, those $0.20 shares in the transaction are now valued @ $1.17)
(Ever wonder why insiders purchased an above market acquistion at $1.50? It's because their $0.40 shares got revalued to $1.17. Whoop, Whoop)
Fair value of warrants 19,941,995
(Just the warrants are now valued @ $20M)
Fair value of options 487,340
Remaining balance of purchased License Agreement (note 9) 9,046,361
(Remember this in the NR - "For BevCanna, the agreement will eliminate future payment liabilities under BevCanna’s current lease agreement, royalty agreement and manufacturing agreements with Naturo."
That's great, what a savings for the furure. But, Bevcanna shareholders have paid over $20M+ over the past two years for that lease and licence agreement (which generated zero revenue) and now add an additional $9M to get out of that original agreement)
Total = $65,874,019
(That's right, almost $66M for the transaction).
Net assets acquired:
Cash and cash equivalents $7,466,585
(Don't forget Bevcanna was loaning money to Naturo)
Other current assets $3,414,848
Property and equipment $10,914,182 (Naturo only paid $1.55M remainder paid by Bev shareholders)
Right of use asset $15,731
Liabilities assumed (-$779,198)
Debt assumed (-$4,595,897)
Deferred income tax (-$3,931,378) (Merely shows Naturo has been losing money for years)
Intangible asset - water source $16,272,000 (Naturo paid $1.55M for 315 acres, a ranch house and buildings,a bottling facility and apparently a $16.3M well head who's valuation was stated by a consultant that didn't have the qualifications too even make that appraisal)
Intangible asset - brand $3,540,000 (For a money losing brand)
Total net assets $32,316,873 (Naturo only paid $1.55M)
Goodwill (note 11) $33,557,146 (Naturo that is a money losing enterprise that has been appraised by management to have a $33.5M extra thin air value)
For the three months ended March 31, 2021, Naturo has contributed a net loss of $462,852 (2020 - $nil) to the consolidated statements of comprehensive loss of the Company
Tranaction price for the purchase of Naturo was:
$65M (+ shareholders are still paying interest on the debentures they slid in behind your back)
Also need to include roughly $20M+ paid for nothing over the last two years.
How was church for your group Sal?