3. ACQUISITION

12 Months Ended

Dec. 31, 2020

Business Combination, Description [Abstract]

ACQUISITION

On December 14, 2020, the Company, through a new wholly-owned subsidiary, Wrap Reality, Inc., entered into an Asset Purchase Agreement with NSENA Inc, a Delaware corporation, to acquire all of NSENA’s tangible and intangible assets, properties, and rights held for use in connection with NSENA’s virtual reality training business. The acquisition enhances the Company’s training services primarily targeting law enforcement agencies.

The Company paid to NSENA cash consideration of $210,000 and recorded a short-term business acquisition liability of $275,000. The liability is payable $100,000 on March 15, 2021, $100,000 on June 15, 2021 and $75,000 on September 15, 2021. In addition, the Company assumed a $15,000 liability for unearned revenues. As additional earn-out consideration, the Company agreed to pay NSENA 10% of net revenues (or a lesser amount equal to 50% of direct profit) from specific identified prospects that become revenue customers before September 30, 2021 but only on amounts collected between Closing and June 30, 2022. The fair value of contingent consideration determined as $22,500 is included as a long-term business acquisition liability on our consolidated balance sheet.

The acquisition was accounted for under the acquisition method of accounting. Under acquisition accounting, the acquired tangible and intangible assets and liabilities of NSENA have been recorded at their respective fair values. The following table summarizes the estimates of fair value of the assets acquired and liabilities assumed on December 14, 2020:

Equipment	$	10,250
Software		460,250
Customer contracts		40,000
Tradenames		2,000
Noncompete agreements		10,000
Deferred revenue		(15,000	)
Total consideration	$	507,500

A portion of the fair value of the consideration transferred has been assigned to identifiable intangible assets as follows:

Description		Useful life in years			Fair Value
Software	5		$	460,250
Customer contracts	1			40,000
Tradenames	1			2,000
Noncompete agreements	2			10,000
Total acquired intangible assets					$	512,250

All assets acquired were determined to be finite-lived intangible assets and are being amortized on a straight-line basis over its estimated useful life with no residual value.