Annual report pursuant to Section 13 and 15(d)

Business Combinations

v3.20.1
Business Combinations
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Business Combinations

NOTE 3. BUSINESS COMBINATIONS

Acquisition of Performance Bridge

On August 21, 2018, the Company acquired all of the outstanding capital stock of Performance Bridge by means of a merger of an indirect, wholly owned subsidiary of the Company with and into Performance Bridge, with Performance Bridge surviving the merger as an indirect, wholly owned subsidiary of the Company. The Company paid initial consideration of $5,158 and paid a total of $3,909 in additional contingent earnout amounts based on the achievement of certain revenue milestones by Performance Bridge in its 2018 fiscal year. The initial consideration was comprised of $1,220 paid in cash and the issuance of a total of 349,072 shares of the Company’s common stock, valued at $3,938 based on the Company’s closing stock price on August 21, 2018. The initial consideration was subject to adjustment based on a final calculation of Performance Bridge’s net assets at closing, which was completed in the first quarter of 2019 and resulted in the issuance of an additional 6,482 shares of common stock valued at $34 based on the closing price of the Company’s common stock on January 25, 2019, which was the date both parties agreed upon the final calculation of the adjustment. A portion of the initial consideration, consisting of $120 in cash and 34,335 shares of common stock, was deposited into a third-party escrow account at closing and will be held in such account until August 21, 2020, to secure certain indemnification and other obligations of the former stockholder of Performance Bridge. The additional earnout consideration was comprised of $883 in cash and 574,231 shares of the Company’s common stock, valued at $3,026 based on the closing price of the Company’s common stock on March 28, 2019, which were paid and issued to the former stockholder of Performance Bridge in the second quarter of 2019.

The acquisition of Performance Bridge has expanded the Company’s media agency offerings of comprehensive podcast solutions.

The following table summarizes the fair value of purchase price consideration to acquire Performance Bridge:

 

Acquisition consideration

 

Amount

 

Cash consideration at closing

 

$

1,220

 

Equity consideration at closing

 

 

3,938

 

Working capital adjustment

 

 

34

 

Contingent earnout

 

 

3,770

 

Total

 

$

8,962

 

 

In 2019, the Company recorded expense of $139 in general and administrative expenses, representing the difference between the fair value of the contingent earnout consideration recorded by the Company and the final amount of contingent earnout consideration paid by the Company.    

 

The preliminary and final allocations of the purchase price as of the August 21, 2018 closing date under the acquisition method of accounting are set forth in the table below.  The purchase price allocation is based upon an estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition. The purchase price allocation was preliminary until the Company had the information required to make a determination regarding deferred taxes.  In the third quarter of 2019, the Company updated the purchase price allocation based on its determination of the value of the deferred tax liability.

 

Purchase price allocation

 

Preliminary

 

 

Final

 

Cash

 

$

2,283

 

 

$

2,283

 

Accounts receivable

 

 

3,551

 

 

 

3,551

 

Prepaid and other current assets

 

 

23

 

 

 

23

 

Property and equipment

 

 

43

 

 

 

43

 

Intangible assets

 

 

5,800

 

 

 

5,800

 

Accounts payable

 

 

(1,402

)

 

 

(1,402

)

Accrued expenses and other current liabilities

 

 

(4,337

)

 

 

(4,337

)

Accrued compensation

 

 

(42

)

 

 

(42

)

Deferred tax liability

 

 

-

 

 

 

(1,317

)

Identifiable net assets acquired

 

$

5,919

 

 

$

4,602

 

Goodwill

 

 

3,043

 

 

 

4,360

 

Total purchase price

 

$

8,962

 

 

$

8,962

 

 

The following table presents details of the acquired intangible assets of Performance Bridge:

 

 

 

Estimated

Useful Life

(in years)

 

 

Fair Value

 

Customer relationships

 

 

5.0

 

 

$

5,100

 

Noncompete agreement

 

 

4.0

 

 

 

700

 

Total intangible assets

 

 

 

 

 

$

5,800

 

 

Acquisition of Wazee Digital, Inc.

On August 31, 2018, the Company acquired all of the outstanding capital stock of Wazee Digital by means of a merger of a wholly owned subsidiary of the Company with and into Wazee Digital, with Wazee Digital surviving the merger as a wholly owned subsidiary of the Company.  The Company paid an aggregate purchase price of $12,552, comprised of $7,423 paid in cash and the issuance of a total of 491,157 shares of the Company’s common stock, valued at $5,129 based on the Company’s closing stock price on August 31, 2018. A portion of the consideration, consisting of $925 in cash and 60,576 shares of common stock, was deposited into a third-party escrow account at closing and will be held in such account to secure certain indemnification and other obligations of the former stockholders of Wazee Digital. A portion of such escrowed consideration was released in March 2019, and the balance will be held in such account until August 31, 2020.

The acquisition of Wazee Digital has expanded the Company’s offerings to include digital content management and licensing solutions.

The following table summarizes the fair value of purchase price consideration to acquire Wazee Digital:

 

Acquisition consideration

 

Amount

 

Cash consideration at closing

 

$

7,423

 

Equity consideration at closing

 

 

5,129

 

Total

 

$

12,552

 

 

The preliminary and final allocations of the purchase price as of the August 31, 2018 closing date under the acquisition method of accounting are presented in the table below. The purchase price allocation is based upon an estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition.

 

Purchase price allocation

 

Preliminary

 

 

Final

 

Cash

 

$

975

 

 

$

975

 

Accounts receivable

 

 

2,396

 

 

 

2,396

 

Prepaid and other current assets

 

 

376

 

 

 

376

 

Property and equipment

 

 

292

 

 

 

292

 

Intangible assets

 

 

13,300

 

 

 

13,300

 

Accounts payable

 

 

(825

)

 

 

(825

)

Accrued expenses and other current liabilities

 

 

(3,639

)

 

 

(3,516

)

Accrued compensation

 

 

(850

)

 

 

(850

)

Other long-term liabilities

 

 

(700

)

 

 

(700

)

Identifiable net assets acquired

 

$

11,325

 

 

$

11,448

 

Goodwill

 

 

1,227

 

 

 

1,104

 

Total purchase price

 

$

12,552

 

 

$

12,552

 

 

The following table presents details of the acquired intangible assets of Wazee Digital:

 

 

 

Estimated

Useful Life

(in years)

 

 

Fair Value

 

Developed technology

 

 

5.0

 

 

$

9,100

 

Customer relationships

 

 

5.0

 

 

 

4,200

 

Total intangible assets

 

 

 

 

 

$

13,300

 

 

Acquisition of Machine Box, Inc.

On September 6, 2018, the Company acquired all of the outstanding capital stock of Machine Box, Inc. (“Machine Box”) by means of a merger of a wholly owned subsidiary of the Company with and into Machine Box, with Machine Box surviving the merger as a wholly owned subsidiary of the Company. The Company paid initial consideration of $1,484, and paid a total of $2,989 in additional contingent amounts based on Machine Box’s achievement of certain technical development and integration milestones within 12 months after the closing of the acquisition, as further discussed below. The initial consideration was comprised of $423 paid in cash and the issuance of a total of 128,300 shares of the Company’s common stock, valued at $1,061 based on the Company’s closing stock price on September 6, 2018, of which $80 in cash and 26,981 shares of common stock were held back from payment and issuance by the Company until September 6, 2020, to secure certain indemnification and other obligations of the former stockholders of Machine Box.    

The fair value of the contingent amount, as determined as of the acquisition date, totaled $2,880, which amount has been treated as compensation expense for post-combination services as payment of such amount was conditioned upon the continued employment of certain key employees of Machine Box in addition to the achievement of certain performance milestones by Machine Box. The fair value of the contingent amount was determined using a probability-weighted expected payment model. This expense was recognized as research and development expense over three separate intervals tied to the specific performance milestones during the 12 months following the acquisition. In 2019, the Company recorded compensation expense of $1,493 in research and development expense in connection with the additional contingent amounts.

 

Machine Box achieved the technical development and integration milestones required to be completed within the 12 months after closing the acquisition and, as a result, in 2019, the former Machine Box stockholders became entitled to receive an aggregate of $600 in cash and an aggregate of 394,604 shares of the Company’s common stock, valued at a total of $2,389 based on the closing price of the Company’s common stock at each milestone date. In 2019, the Company paid to the former Machine Box stockholders an aggregate of $480 in cash and issued to them an aggregate 315,687 shares of common stock. The remaining $120 in cash and 78,917 shares of common stock were held back from payment and issuance until September 6, 2020 to secure certain indemnification and other obligations of the former stockholders of Machine Box.

 

The value of all common stock that has been held back from issuance in connection with the acquisition was included in additional paid-in capital as of December 31, 2019.

Machine Box is a developer of state-of-the-art machine learning technologies, which have enhanced the Company’s aiWARE platform capabilities.

The following table summarizes the fair value of purchase price consideration to acquire Machine Box:

 

Acquisition consideration

 

Amount

 

Cash consideration at closing

 

$

423

 

Equity consideration at closing

 

 

1,061

 

Total

 

$

1,484

 

 

The preliminary and final allocations of the purchase price as of the September 6, 2018 closing date under the acquisition method of accounting are set forth in the table below. The purchase price allocation is based upon an estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition.  The purchase price allocation was preliminary until the Company had the information required to make a determination of deferred taxes. In the third quarter of 2019, the Company updated the purchase price allocation based on the determination of the value of the deferred tax liability.

 

Purchase price allocation

 

Preliminary

 

 

Final

 

Cash

 

$

25

 

 

$

25

 

Intangible assets

 

 

700

 

 

 

700

 

Accrued expenses

 

 

(375

)

 

 

(375

)

Deferred tax liability

 

 

-

 

 

 

(172

)

Identifiable net assets acquired

 

$

350

 

 

$

178

 

Goodwill

 

 

1,134

 

 

 

1,306

 

Total purchase price

 

$

1,484

 

 

$

1,484

 

 

The following table presents details of the acquired intangible assets of Machine Box:

 

 

 

Estimated

Useful Life

(in years)

 

 

Fair Value

 

Developed technology

 

 

5.0

 

 

$

500

 

Trademarks and tradenames

 

 

2.3

 

 

 

100

 

Noncompete agreement

 

 

3.0

 

 

 

100

 

Total intangible assets

 

 

 

 

 

$

700

 

 

Assumptions in the Allocations of Purchase Price

Management prepared the purchase price allocations for the acquired businesses, and in doing so considered or relied in part upon a report of a third party valuation expert to calculate the fair value of certain acquired assets and liabilities of each acquired business, which would primarily include identifiable intangible assets and the contingent earn-out amounts. Determining the fair value of assets and liabilities requires management to make significant estimates. The goodwill recognized is the excess of the purchase price over the fair value of net assets acquired. The Company does not expect to deduct any of the acquired goodwill for tax purposes.

Unaudited Supplemental Pro Forma Information

The following table presents unaudited pro forma combined financial information for the year ended December 31, 2018, as if the acquisition of Wazee Digital had occurred at the beginning of that year:

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2018

 

Net revenue - pro forma combined

 

$

39,196

 

Net loss - pro forma combined

 

 

(62,086

)

 

The following adjustments were included in the unaudited pro forma combined net revenues:

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2018

 

Net revenue

 

$

27,047

 

Add: Net revenue - acquired business

 

 

12,149

 

Net revenue - pro forma combined

 

$

39,196

 

 

The following unaudited adjustments were included in the unaudited pro forma combined net loss:

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2018

 

Net loss

 

$

(61,104

)

Add: Results of operations - acquired business

 

 

570

 

Less: Pro forma adjustments

 

 

 

 

Depreciation and amortization

 

 

1,552

 

Net loss - pro forma combined

 

$

(62,086

)

 

 

 

 

 

Net loss per share - pro forma combined:

 

 

 

 

Basic and diluted

 

$

(3.35

)

 

 

 

 

 

Shares used to compute net loss per share - pro forma combined:

 

 

 

 

Basic and diluted

 

 

18,515

 

 

The pro forma combined financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations of the consolidated business had the acquisition of Wazee Digital actually occurred at the beginning of fiscal year 2018 or of the results of future operations of the consolidated business. The unaudited pro forma financial information does not reflect any operating efficiencies or cost savings that have or may be realized from the integration of the acquired business.