Asset Acquisition – Securities Purchase Agreement

9 Months Ended

Sep. 30, 2022

Asset Acquisition [Abstract]

Asset Acquisition – Securities Purchase Agreement

3. Asset Acquisition – Securities Purchase Agreement

As discussed above, on June 9, 2022, the Company entered into the Securities Purchase Agreement by and among the Company, the Purchaser, Visicom and Target NewCo, pursuant to which the Purchaser purchased, effective as of the Effective Date, all of the issued and outstanding shares of Target NewCo.

The Purchaser acquired the Conveyed Assets for a cash purchase price of $2.7 million (the “Cash Consideration”). In addition to the Cash Consideration, Visicom is entitled to receive an additional payment of up to $600,000 (the “Earn-Out Payment”) based on the sales of the ManyCam software less chargebacks and refunds (“Gross Sales”) in the six-month period following the Closing (the “Earn-Out Period”) as follows: (i) if the Gross Sales during the Earn-Out Period are greater than $800,000, the Earn-Out Payment shall be $600,000, (ii) if the Gross Sales during the Earn-Out Period are greater than $700,000 but less than $800,000, the Earn-Out Payment shall be $300,000, (iii) if the Gross Sales during the Earn-Out Period are greater than $600,000 but less than $700,000, the Earn-Out Payment shall be $150,000 and (iv) if the Gross Sales during the Earn-Out Period do not exceed $600,000, then the Seller will not be paid any portion of the Earn-Out Payment. The Company concluded that the Conveyed Assets were not considered a business for purposes of Regulation S-X and ASC 805, Business Combinations. Based on performance as of September 30, 2022, the Company determined that it was likely that Gross Sales during the Earn Out Period would exceed $600,000 but be less than $700,000, and as a result, the Company recorded a liability in the amount of $150,000 for payment to the Seller, with a corresponding adjustment to the cost basis of the Conveyed Assets, as it is likely that the contingency will be resolved.

As part of a valuation analysis, the Company identified intangible assets, including internally developed software, subscriber relationships/customer list and intellectual property (trade names, trademarks, URLs). The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows. Final allocation was determined by a third-party valuation specialist hired by Company management. The following table summarizes the fair value of the identifiable intangible assets and their respective useful lives:

	Estimated Fair Value		Estimated Contingent Consideration Allocation at September 30, 2022		Total Allocation		Estimated Useful Life in Years
Internally developed software	$	1,504,000	$	83,550	$	1,587,550	7
Intellectual property (trade names, trademarks, URLs)		321,000		17,850		338,850	3
Subscriber Relationships/Customer List		875,000		48,600		923,600	7
Total acquired assets	$	2,700,000	$	150,000	$	2,850,000

The estimated aggregate amortization expense for each of the next five years and thereafter will approximate $161,315 for the remainder of 2022, $645,260 in 2023, $645,260 in 2024, $558,562 in 2025, $490,748 in 2026 and $1,196,880 thereafter.

The Company incurred approximately $242,000 of expenses in connection with the ManyCam Acquisition and capitalized them accordingly.

As part of the accounting for the ManyCam assets, the Company provisionally recorded a deferred tax liability of $0.9 million with an offset to intangible assets related to the excess financial reporting basis over the tax basis of the Conveyed Assets.

On June 30, 2022, the Company entered into a License Agreement with Visicom (the “License Agreement”), pursuant to which the Company agreed to distribute, at the discretion and direction of Visicom, a specified number of ManyCam software updates to certain license holders to whom Visicom has previously granted a “lifetime” license to ManyCam software. As consideration for distributing the software updates, Visicom paid the Company an initial upfront nonrefundable payment of $65,000. The License Agreement provides that Visicom may purchase additional licenses at prices specified therein. Other than providing a one-time, limited license to Visicom for the distribution of ManyCam software updates pursuant to the terms of the License Agreement, the Company does not have any obligation to provide support or service to the licensee end users. The Company recognized the $65,000 payment as revenue during the three months ended September 30, 2022, as it satisfied its performance obligation as specified in the License Agreement.