2018-08-29 13:27 ET - News Release

Mr. Jim Elbert reports

GOLDREA ENTERS INTO LETTER OF INTENT WITH XCHEMISTRY, A PROVIDER OF COMPLIANCE TESTING FOR CANNABIS PRODUCTS

Goldrea Resources Corp. has signed a binding letter of intent (LOI) with XChemistry Holdings Inc., headquartered in San Diego, Calif. The primary business of XChemistry Holdings is focused on providing compliance testing for cannabis products. On Jan. 1, 2018, new cannabis guidelines became effective in California after legalizing its recreational use. It is XChemistry Holdings' plan, partnering with Goldrea Resources, to build a laboratory testing facility in the Greater Los Angeles Area. The lab is expected to be completed in a minimum of four months, and after city and state requirements are fulfilled, be fully operational approximately two months following.

The market for cannabis products in California has been forecasted to surpass $5-billion in 2019. California mandates that samples from every type of cannabis be tested for impurities from a licensed laboratory. At an estimated cost of $400 per sampling, this provides a lucrative source of revenue for an efficient and high-capacity facility, such as the one the XChemistry Holdings team will be building. Only lab-tested products may be sold by licensed retailers as of July 1, 2018. With this new regulation in effect, there is a shortage of testing services, causing long wait times for results, which leads to delays in selling of product and possible spoilage. This provides an immediate market for XChemistry Holdings to participate in. The cost of construction for the lab, as well as becoming operational, is estimated to be $3-million.

XChemistry Holdings has an experienced group of experts in the field that will construct and operate the new facility. Chuck Nokes, chief executive officer of XChemistry Holdings, commented: "We are excited to have found the right fit with Goldrea, and now look forward to quickly moving this LOI forward to a definitive agreement and begin the construction of a working laboratory that will fulfill a percentage of a massive need in the coming years. We fully expect to play a major role in this field, along with future projects in DNA [deoxyribonucleic acid] and non-cannabis application. Our planned partnership with Goldrea gives us the public platform from which to build out our business plan efficiently and effectively."

Under the LOI, Goldrea Resources will acquire all of the issued and outstanding shares of XChemistry Holdings in exchange for issuing Goldrea Resources shares to the XChemistry shareholders, which will collectively equal approximately 10 per cent of the issued and outstanding shares of Goldrea Resources at closing of the transaction. The value of this position is deemed to be approximately $320,000 based on Goldrea Resources' shares outstanding priced at 10 cents per share. Other key terms of the deal include:

The company must complete an equity financing of at least $2-million, concurrent with the closing of the acquisition.

XChemistry Holdings will be entitled to nominate one person to Goldrea Resources' board of directors.

Goldrea Resources will assume certain liabilities of XChemistry Holdings.

After the closing of the acquisition, XChemistry Holdings (as a wholly owned subsidiary of Goldrea Resources) will enter into three-year management contracts with Mr. Nokes as chief executive officer, Zac Simmar as president and chief financial officer, and Dr. Charles Sailey as chief strategy officer.

XChemistry Holdings' founders will receive a total of $150,000 (U.S.) as a cash bonus when XChemistry Holdings attains net profits of at least $500,000 (U.S.) over a trailing six-month period, as well as bonuses in the form of share issuances equal (collectively) to 10 per cent of the issued and outstanding Goldrea Resources shares at the time XChemistry Holdings reaches the milestones of $5-million, $15-million and $25-million in annual revenues, respectively, provided that net profits are at least 10 per cent of the revenues attained. All benchmarks being reached would result in a 40-per-cent ownership interest of Goldrea Resources by XChemistry Holdings.

Each party must be satisfied with its due diligence investigations of the other before completing the proposed transaction. The proposed transaction is subject to obtaining all necessary consents, including shareholder and regulatory approvals. Construction of the laboratory is anticipated to begin in the fourth quarter 2018 and end in March, 2019.

Jim Elbert, president and chief executive officer of Goldrea Resources, commented: "After much planning and investigation, we are quite satisfied that the acquisition of XChemistry represents an exciting opportunity for Goldrea to enter the cannabis sector. We look forward to further growth once we firmly establish this core business servicing a regulatory aspect of this burgeoning industry."

We seek Safe Harbor.