Business Combination

12 Months Ended

Dec. 31, 2019

Business Combinations [Abstract]

BUSINESS COMBINATION

NOTE 5: BUSINESS COMBINATION

On November 20, 2018, the Company completed the Allure Acquisition. Pursuant to the Stock Purchase Agreement, the total purchase price was $8,450, which was primarily funded using cash from the Company's public offering closed on November 19, 2018. The difference between the total purchase price and the net consideration transferred is driven by the cash acquired in the acquisition, including cash received by the Company as a result of a net working capital settlement with Seller. During the fourth quarter of 2019, the Company finalized the purchase price accounting of Allure. The final purchase price consisted of the following items:

(in thousands)	Consideration
Cash consideration for stock	$	6,300	(1)
Payable to former Allure management		1,021	(2)
Seller note payable		900	(3)
Earnout liability		250	(4)
Total consideration		8,471
Cash acquired		(424	)(5)
Net consideration transferred	$	8,047

(1)	Cash consideration for outstanding shares of Allure common stock per Stock Purchase Agreement.
(2)	Represents a payable due to two former members of the Allure management team for a total of $1,250 as a result of the acquisition; 30% due in November 2018 and 70% due in November 2019. The fair value of the payable as of the acquisition date was deemed to be $1,021. During November 2019, the Company entered a payment plan with each former member of Allure management to spread the remaining payments due from the Company throughout 2020. As of December 31, 2019, the Company's consolidated balance sheet includes $535 related to this liability within accrued expenses.
(3)	Represents a note payable due from Allure to Seller, under a pre-existing Seller Note which was amended and restated for this amount through the Stock Purchase Agreement. At the closing date, the estimated net working capital deficit of Allure was $801 in excess of the target net working capital as defined in the stock purchase agreement. As of the acquisition date, Allure also had accounts payable to Seller for outsourced services of $2,204. We agreed with the Seller to settle the estimated net working capital deficit through a reduction in the accounts payable to Seller as of the acquisition date and to further amend the Seller Note to include the remaining $1,403 accounts payable due from Allure to Seller. The Seller Note thereby increased from $900 per the Stock Purchase Agreement to $2,303 at the opening balance sheet. That debt is represented by our issuance to the Seller of a promissory note accruing interest at 3.5% per annum. The promissory note required us to make quarterly payments of interest through February 19, 2020, on which date the promissory note matured and all remaining amounts owing thereunder were due. See Note 10 Commitments and Contingencies in the consolidated financial statements for further discussion of this note, which is now past due.

(4)

The Stock Purchase Agreement contemplates additional consideration or $2,000 to be paid by us to Seller in the event that acquiree revenue exceeds $13,000, as defined in the underlying agreement. The fair value of the earnout liability was initially determined to be $250 at the time of acquisition but has since been adjusted to $0, resulting in a gain on reversal of earnout liability of $250 in the fourth quarter of 2019. We currently do not expect to owe any amount of additional consideration to Seller and no liability has been recorded in the Consolidated Financial Statements for this contingent liability as of December 31, 2019. We utilized a third-party valuation specialist to assist in evaluating this liability as of the opening balance sheet date. Should revenues from Allure customers exceed $13,000 during 2020, the $2,000 liability generated would be recorded through the Company's statement of operations.

(5)

Represents the Allure cash balance acquired at acquisition ($26) and the cash received from Seller in settlement of our net working capital claim ($398). On May 10, 2019, we reached a settlement agreement with Seller on, among other things, the final net working capital as of the acquisition date resulting in (i) a payment to us from Seller in the amount of $210, and (ii) a reduction of the amount due under the Amended and Restated Seller Note of $168 of cash collected by the Company which had been previously designated for payment on the Amended and Restated Seller Note but was not ultimately remitted to the Seller and (b) $20 of unpaid accrued interest. In addition to this net working capital settlement, Seller accepted collection risk for one acquired receivable in the amount of $666, which was net settled through the Amended and Restated Seller Note. As a result, our consolidated balance sheet reflects a reduction in both accounts receivable and the Amended and Restated Seller Note of $666. The outstanding principal balance of the Amended and Restated Seller Note as of December 31, 2019 is $1,637.

The Company incurred $710 of direct transaction costs for the year ended December 31, 2018. These costs are included in general, administrative expense in the accompanying consolidated statement of operations. In addition, the Company incurred $9 of incremental interest expense for the year ended December 31, 2018, representing interest on the Allure Amended and Restated Note for the period from November 20, 2018 to December 31, 2018.

The Company accounted for the Allure Acquisition using the acquisition method of accounting. The allocation of the purchase price, which was finalized in November 2019 in conjunction with the close of the one-year measurement period, is based on estimates of the fair value of assets acquired and liabilities assumed as of November 20, 2018. The components of the final purchase price allocation are as follows:

(in thousands)	Total
Accounts receivable	$	1,452
Unbilled receivables		221
Inventory		142
Prepaid expenses & other current assets		17
Property and equipment		177
Other assets		7
Identified intangible assets:
Definite-lived trade names		340
Developed technology		1,770
Customer relationships		2,870
Goodwill		3,812
Accounts payable		(330	)
Accrued expenses		(294	)
Customer deposits		(494	)
Deferred revenues		(276	)
Accounts payable converted into Seller Note		(737	)
Net consideration transferred	$	8,047

The fair value of the customer relationship intangible asset has been estimated using the income approach through a discounted cash flow analysis with the cash flow projections discounted using a rate of 26.0%. The cash flows are based on estimates used to price the Allure Acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return from the Company's pricing model and the weighted average cost of capital.

The definite-lived trade name represents the Allure brand name as marketed primarily in the sports & entertainment, large venue and quick service restaurant verticals of the digital signage industry. The Company applied the income approach through an excess earnings analysis to determine the preliminary fair value of the trade name asset. The Company identified this asset as definite-lived as opposed to indefinite-lived as the Company plans to utilize the Allure trade name as a product name as opposed to go-to-market company name. The Company applied the income approach through a relief-from-royalty analysis to determine the fair value of this asset.

The developed technology assets are primarily comprised of know-how and functionality embedded in Allure's proprietary content management application which drives currently marketed products and services. The Company applied the income approach through a relief-from-royalty analysis to determine the fair value of this asset.

The Company is amortizing the identifiable intangible assets on a straight-line basis over the weighted average lives ranging from 3 to 15 years.

The table below sets forth the valuation and amortization period of identifiable intangible assets:

(in thousands)	Preliminary Valuation		Amortization Period
Identifiable intangible assets:
Definite-lived trade names	$	340	3-5 years
Developed technology		1,770	7 years
Customer relationships		2,870	15 years
Total	$	4,980

The Company estimated the fair value of the acquired property, plant and equipment using a combination of the cost and market approaches, depending on the component. The fair value of property, plant and equipment of $177.

The excess of the purchase price over the estimated fair value of the tangible net assets and identifiable intangible assets acquired was recorded as goodwill and is subject to change upon final valuation. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the Allure Acquisition. These benefits include a comprehensive portfolio of iconic customer brands, complementary product offerings, enhanced national footprint, and attractive synergy opportunities and value creation. None of the goodwill is expected to be deductible for income tax purposes.

The following unaudited pro forma information for the year-ended December 31, 2018 presents the combined financial results for the Company and Allure, adjusted for Allure's fiscal year ended March 31, as if the Allure Acquisition had been completed January 1, 2017. Prior to the Allure Acquisition, Allure had a fiscal year reporting from April 1 to March 31 annually. The pro forma financial information set forth below for the year-ended December 31, 2018 includes Allure's pro forma information for the twelve-month period January 1, 2018 through December 31, 2018. The information set forth below for the year-ended December 31, 2019 represents the Company's consolidated results for that period.

	Year Ended December 31,
(in thousands, except earnings per common share)	2019		2018
	(unaudited)
Net sales	$	31,598	$	31,477
Net income/(loss)	$	1,038	$	(11,615	)
Earnings per common share	$	0.11	$	(3.22	)

The information above does not include the pro forma adjustments that would be required under Regulation S-X for pro forma financial information and does not reflect future events that may occur after December 31, 2018 or any operating efficiencies or inefficiencies that may result from the Allure Acquisition and related financing. Therefore, the information is not necessarily indicative of results that would have been achieved had the businesses been combined during the periods presented or the results that the Company will experience going forward.