8-K: FOMO Worldwide Acquires North American Assets of EcoChem Alternative Fuels in Multi-Million Dollar Deal

FOMO Worldwide has entered into a definitive agreement to acquire the North American assets of EcoChem Alternative Fuels, a provider of advanced filtration systems for clean fuel production.

Summary

• FOMO Worldwide has agreed to acquire the North American assets and operations of EcoChem Alternative Fuels LLC.
• The deal includes 5 million restricted Series B Preferred shares convertible into 50 million common shares.
• An additional 5 million restricted Series B Preferred shares will be issued based on technology and revenue milestones over three years.
• 10 million stock options will be granted to existing and new staff.
• A $1.5 million two-year convertible note at $0.05 per common share is part of the deal, with $250,000 cash amortization due in six months and another $250,000 in twelve months from closing.
• A cash payment of $125,000 is due on closing, scheduled for April 16, 2024.
• FOMO intends to form a subsidiary to operate the acquired business under the names 2050 Fuel or Fuel Drop.
• The acquisition includes a first right of refusal for FOMO to acquire EcoChem's international licensing rights.
• The agreement includes a three-year non-compete clause for the seller within North America.

Sentiment

Score: 7

Explanation: The acquisition is a positive step for FOMO, but the deal involves significant dilution and debt. The success of the acquisition depends on achieving aggressive revenue milestones.

Positives

• The acquisition provides FOMO with access to advanced filtration technology for clean fuel production.
• The earn-out structure aligns the seller's incentives with the success of the acquired business.
• The deal includes a first right of refusal for international licensing rights, offering potential future expansion.
• The non-compete agreement protects FOMO's investment in the North American market.
• The acquisition includes key personnel with employment contracts for 5 years.

Negatives

• The deal involves significant stock dilution through the issuance of preferred shares and stock options.
• The convertible note adds debt to FOMO's balance sheet.
• The earn-out structure could lead to additional dilution if milestones are met.
• The company needs to raise $6 million in 18 months.

Risks

• The success of the acquisition depends on the acquired business achieving revenue and technology milestones.
• The integration of the acquired business may present operational challenges.
• The company needs to raise $6 million in 18 months to fund the business and EPA testing.
• The company is subject to market conditions for its equity offering.

Future Outlook

FOMO plans to integrate the acquired assets into a new subsidiary and operate the business under the names 2050 Fuel or Fuel Drop. The company also intends to pursue an equity offering under Regulation A (JOBS Act) subject to market conditions.

Management Comments

• FOMO intends to form a wholly owned acquisition subsidiary which will incorporate the purchased assets and operate the business under 2050 Fuel and/or Fuel Drop.

Industry Context

This acquisition reflects a growing interest in clean fuel technologies and the transition towards more sustainable energy sources. The deal positions FOMO to capitalize on the increasing demand for advanced filtration systems and alternative fuels.

Comparison to Industry Standards

• The acquisition of EcoChem's North American assets is similar to other deals in the clean energy sector, where companies are acquiring technologies to expand their market presence.
• The use of preferred shares and convertible notes is a common financing method for acquisitions in this space.
• The revenue milestones are aggressive and will require significant growth in the acquired business.
• The non-compete agreement is standard practice to protect the buyer's investment.

Stakeholder Impact

• Shareholders will experience dilution due to the issuance of preferred shares and stock options.
• Employees of the acquired business will receive employment contracts.
• Customers of EcoChem will now be served by FOMO's subsidiary.
• Suppliers of EcoChem will now be dealing with FOMO's subsidiary.

Next Steps

• FOMO will form a wholly owned subsidiary to operate the acquired business.
• The company will work with its investment bankers for an online roadshow and in person meetings/support.
• The company will prepare its own annual report for 2023.
• The company will complete an audit within 71 days of closing.
• The company will pursue an equity offering under Regulation A (JOBS Act) subject to market conditions.

Key Dates

Keywords

acquisition, clean fuel, alternative fuels, filtration systems, convertible note, preferred shares, stock options, earn-out, carbon fuels, North America