Sugarmade Signs LOI to Acquire Major Hydroponic Supplier, Raises FY2019 Sales Outlook to $70M
Monrovia, CA -- October 17, 2018 -- InvestorsHub NewsWire -- Sugarmade, Inc. (OTCQB:SGMD), one of the largest publicly traded hydroponics supply companies, today announces the signing of a binding Letter of Intent ("LOI") to acquire Sky Unlimited, LLC, dba Athena United (www.AthenaUnited.com), a California-based supplier of cannabis cultivation materials to wholesalers and large commercial cannabis cultivators. Sugarmade expects this acquisition to be highly accretive to earnings and shareholder value and thus is revising its guidance for full-year 2019 revenues to more than $70 million.
Sugarmade's revenue within the cannabis cultivation supply sector is primarily derived from online sales, whereas Sky Unlimited's revenues are mainly generated via direct sales to wholesalers and large commercial cultivation companies. Management believes that combining its focus on e-commerce with Sky Unlimited's larger commercial operator-focused business will result in strong marketing, manufacturing and logistical synergies, as well as improved margins and other corporate benefits.
"The trend in cannabis cultivation is toward the larger commercial cultivation operations, and Sky Unlimited is in the thick of that dynamic marketplace," commented MIXED EGG Jimmy Chan, CEO of Sugarmade. "This year, Sky Unlimited and its associated operations are expected to produce in excess of $40 million in revenues with profitability and positive cash flow. This new revenue stream combined with our recently upwardly guided revenue forecast of $30 million for next year will make Sugarmade one of the largest publicly traded suppliers to the booming cannabis cultivation marketplace, with a combined revenue forecast for next year in excess of $70 million."
Sugarmade's market strategy is to cover three major areas supplies for cannabis cultivation: 1) online and e-commerce; 2) the wholesale market, which services brick and mortar retailers; and 3) large-scale commercial cultivation operations.
"As a result of successfully acquiring Sky Unlimited we anticipate revenue and growth exposure to all three of these sectors, while gaining strong cost and operational synergies. We are currently in process of additional discussions to further expand our growth goals via other acquisitions in this fast-growing market sector," stated MIXED EGG Chan.
The terms of the LOI call for the payment by the Company of 10 million common shares of Sugarmade, which will immediately vest as a non-refundable fee, to the owners of Sky Unlimited. These shares will be subject to normal sales and registration restrictions imposed by the financial industry and governmental agencies. In exchange for this non-refundable compensation, Sky Unlimited agrees to a non-shop and due diligence period not to exceed 180 days.
At closing and upon the completion of a successful audit of up to two years of financials, the Company will pay Sky Unlimited an additional 210 million common shares. At closing Sugarmade will pay the owners a maximum value of 20% of the transaction value in cash, which is initially contemplated to be $8 million, or will allow Sky Unlimited to exercise an option to convert a portion of the cash payment or the entire cash payment into common shares at a price of $0.10 per share. The LOI also outlines specific incentives that contemplate allowing Sky Unlimited to gain additional Company shares based on surpassing specific revenue goals and conversely to receive a smaller payment in Company shares should the revenue targets not be reached. It is expected the specifics of these incentives will be fully outlined in the definitive agreement.
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