Note 12 - Acquisition of Magical Beasts, LLC

3 Months Ended

Mar. 31, 2021

Business Combination, Description [Abstract]

Note 12 - Acquisition of Magical Beasts, LLC

Note 12 - Acquisition of Magical Beasts, LLC

Effective February 21, 2020, Jupiter Wellness Inc., a Florida corporation (“Jupiter Sub”), our wholly-owned subsidiary, entered into a membership interest purchase agreement with Magical Beasts LLC (“Magical Beasts”), a Nevada limited liability corporation, and Krista Whitley, its sole interest holder, pursuant to which Jupiter Sub acquired all of the membership interests in Magical Beasts (the “Magical Beasts Acquisition”) in exchange for the following consideration:

• $250,000 cash at closing;

• A $1,000,000 promissory note, non-interest bearing payable by us, due upon the earlier of i) the closing of this offering or ii) December 31, 2020 valued at its discounted amount of $950,427; and

• an option to purchase 250,000 restricted shares of our common stock at an exercise price of $1.00 per share valued at $156,612. The fair value of these options was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions for Black-Scholes valuation model on the reporting date. The market price was valued based upon the last price paid by third parties for shares of our common stock.

Reporting Date	Number of Options Granted		Term (Years)		Exercise Price		Market Price on Grant Date		Volatility Percentage			Fair Value
2/21/20		250,000		5	$	1.00	$	1.00		77	%	$	156,612

In connection with the Magical Beasts Acquisition, Jupiter Sub shall enter into an executive employment agreement with Krista Whitley to act as our Director of Marketing, however, until such agreement is entered into, Jupiter Sub shall pay Krista Whitley an annual salary of $150,000. 

Valuation and Purchase Price Allocation

According to ASC 805, the standard of value to be used in the application of purchase accounting rules is fair value. The Company utilized fair value defined in Statement of Financial Accounting Standard No. 820–10–35–37 Fair Value Measurements and Disclosures. The determination of the fair value of the consideration and related allocation of the purchase price was determined by management of the Company with the assistance of a qualified professional valuation firm.

The fair value of the consideration is as follows:

Cash	$	250,000
Promissory Note, net of discount		950,427
Stock Options		156,612
Total Consideration paid	$	1,357,039

The purchase price allocation is as follows: 

Tangible assets
Cash	$	4,609
Inventory		86,220
Total tangible assets		90,829

Intangible assets
Tradename-Trademarks		151,800
Customer base		651,220
Non-compete		154,500
Total Intangibles		957,520
Goodwill		308,690
	$	1,357,039

In connection with the promissory note above, the Company recognized amortization of the discount on the note as interest expense of $49,573 from the date of closing through December 31, 2020.

On July 6, 2020, Brian Menke (the “Plaintiff”) in Nevada court seeking to enforce a judgement that he had obtained in 2012 against Krista Whitley, the former owner and manager of Magical Beasts LLC., in the amount of $250,000. In July 2020, the Plaintiff brought a claim in Nevada State Court to impute such judgement to the Company’s wholly owned subsidiary, Magical Beasts, LLC. On August 6, 2020, the court imputed the judgement to Magical Beasts and advised the Company that before paying any funds to Ms. Whitley, they must first satisfy the judgement to the Plaintiff. On October 12, 2020, the Company, Ms. Whitley and the Plaintiff reached a settlement agreement whereby the Company agreed that of the $1,000,000 note payable to Ms. Whitley, the first $336,450 be paid to the Plaintiff. Ms. Whitley in turn agreed that such payments would be applied to the $1,000,000 owed to Ms. Whitley that was to be paid from the proceeds of the offering and the Plaintiff agreed to withdraw the case against Magical Beasts without prejudice. In November, the Company made a cash payment of $300,000 to the Plaintiff and issued 8,500 shares of its common stock valued at $8,500. The $308,500 was recorded as an offset to the $1,000,000 note.

On January 25, 2021, the Company entered into an Omnibus Amendment to: (1) the Confidential Membership Interest Purchase Agreement, dated February 21, 2020; (2) the Sales Distributor Agreement, dated February 21, 2020; and (3) the Executive Employment Agreement, dated March 31, 2020 (the “Agreements”). Pursuant to the Omnibus Amendment, the parties (i) acknowledge that the Company has fully satisfied its obligation of $334,000 to the Plaintiff as Ms. Whitley’s judgment creditors; (ii) agree that in satisfaction of the remaining balance due to Ms. Whitley under the Agreements, she is to be paid $150,000 in cash; (iii) agree that starting April 1, 2020, Whitley shall be entitled to individually market and sell the Bella line of products remaining in the Company’s inventory, as identified in the Omnibus Amendment, and the Company will relinquish its rights to the Bella brand; (iv) agree that the number of shares issuable upon exercise of the common stock purchase options granted to Ms. Whitley under the Agreements shall be reduced from 250,000 to 185,000, Ms. Whitely may utilize a cashless exercise feature to exercise such options, subject to a six (6) month holding period on the shares, and Ms. Whitley shall not be permitted to sell an amount of shares in any week which exceeds 10% of the Company’s total weekly trading volume in the prior week; (v) agree that Ms. Whitley’s Employment Agreement shall terminate on March 31, 2021 and shall not renew; (vi) acknowledge that Ms. Whitley has been paid $5,541 for unreimbursed expenses on or about December 30, 2020; and (vii) the balance of the note due Whitley be forgiven.

As a result of the above, the Company recognized a gain of $669,200 comprised of the forgiveness of debt of $691,500 and the write-off of the unamortized portion of Whitley’s the non-compete agreement of $22,300. 

In February 2021, Ms. Whitley exercised her 185,000 options (see Omnibus Agreement above) using the cashless option feature and was issued 159,053 shares of the Company’s restricted common stock in full satisfaction of the option agreement.

Supplemental proforma financial information

The following shows the proforma results of operations as if the transaction had occurred effective January 1, 2019.

JUPITER WELLNESS, INC.
PROFORMA BALANCE SHEETS
	December 31, 2020
	Jupiter Wellness, Inc.			Magical							Jupiter Wellness, Inc.
	Consolidated Balance			Beasts, LLC		Proforma Adjustments			Notes		Proforma Balance
Cash	$	4,262,168			—	$	—				$	4,262,168
Current Assets		726,096			—		—					726,096
Total current assets		4,988,264			—		—					4,988,264
Intangible assets		559,800			—		(67,523	)		(a)		492,277
Goodwill		941,937			—		—					941,937
Other		35,592			—		—					35,592
Total assets	$	6,525,593			—	$	(67,523	)			$	6,458,070
Liabilities	$	1,440,552			—	$	—				$	1,440,552
Note payable issued in acquisition		691,500			—		—					691,500
Total liabilities		2,132,052			—		—					2,132,052
Common stock		10,656			—		—					10,656
Additional paid-in capital		11,657,286			—		—					11,657,286
Accumulated deficits		(7,274,401	)		—		(67,523	)		(b)		(7,341,924	)
Total Shareholders’ Equity		4,393,541			—		(67,523	)				4,326,018
Total Liabilities and Shareholders’ Equity	$	6,525,593			—	$	(67,523	)			$	6,458,070
Notes to Proforma Balance Sheets
(a) Additional amortization of intangible assets
(b) Income statement effects of notes (a) and (b) above

JUPITER WELLNESS, INC.
PROFORMA STATEMENT OF OPERATIONS
	Year Ended December 31, 2020
	Jupiter Wellness, Inc.			Magical							Jupiter Wellness, Inc.
	Consolidated Balance			Beasts, LLC		Proforma Adjustments			Notes		Proforma Balance
Sales	$	1,065,665		$	—	$	105,404			(a)	$	1,171,069
Cost of sales		624,570			—		83,428			(a)		707,998
Gross profit		441,095			—		21,976					463,071
Expenses		6,730,300			—		50,057			(a)(b)		6,782,357
Net Income (loss)	$	(6,289,205	)		—	$	(30,081	)			$	(6,319,286	)
(a) Magical Beasts income and cost of sales prior to closing date
(b) Includes additional amortization of intangibles plus expenses of Magical Beasts prior to closing