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Acquisitions

12 Months Ended

Dec. 31, 2018

3. Acquisitions

The Company uses the acquisition method of accounting which is based on ASC, Business Combinations (Topic 805), and uses the fair value concepts which requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. Maven is the accounting acquirer and HubPages and Say Media merged with Maven’s wholly owned subsidiary HPAC and SMAC (as further described below), respectively. The consolidated financial statements of Maven for the period prior to the mergers are considered to be the historical financial statements of the Company.

HubPages, Inc.

On March 13, 2018, the Company and HubPages, together with HP Acquisition Co, Inc. (“HPAC”), a wholly-owned subsidiary of the Company incorporated in Delaware on March 13, 2018 in order to facilitate the acquisition of HubPages by the Company, entered into an Agreement and Plan of Merger, as amended (the “HubPages Merger Agreement”), pursuant to which HPAC would merge with and into HubPages, with HubPages continuing as the surviving corporation in the merger and as a wholly-owned subsidiary of the Company (the “HubPages Merger”). On June 1, 2018, the parties to the Merger Agreement entered into an amendment (the “Amendment”), pursuant to which the parties agreed, among other things, that on or before June 15, 2018 the Company would (i) pay directly to counsel for HubPages the legal fees and expenses incurred by HubPages in connection with the transactions contemplated by the Merger Agreement as of the date of such payment (the “Counsel Payment”); and (ii) deposit into escrow the sum of (x) $5,000,000 minus (y) the amount of the Counsel Payment. On June 15, 2018, the Company made the requisite payment of $5,000,000 under the HubPages Merger Agreement.

On August 23, 2018, the Company acquired all the outstanding shares of HubPages, a Delaware corporation, for total cash consideration of $10,569,904, pursuant to the HubPages Merger. The results of operation of the acquired business and the estimated fair market values of the assets acquired and liabilities assumed have been included in the consolidated financial statements as of the acquisition date. The Company acquired HubPages to enhance the user’s experience by increasing content. HubPages is a digital media company that operates a network of 27 premium content channels that act as an open community for writers, explorers, knowledge seekers and conversation starters to connect in an interactive and informative online space. HubPages operates in the United States.

The Company paid cash consideration of $10,000,000 to the stockholders and holders of vested options of HubPages, including a $5,000,000 deposit paid on June 15, 2018, as well as additional cash consideration of $569,904, which consists of legal fees and costs incurred by HubPages, for total cash consideration of $10,569,904. The Company also issued a total of 2,399,997 shares of the Company’s common stock, subject to vesting and a true-up provision (as described in Note 17), to certain key personnel of HubPages who agreed to continue their employment with HubPages subsequent to the closing of the transaction. The shares issued are for post combination services (see Note 17).

The Company incurred $218,981 in transaction costs related to the acquisition, which primarily consisted of banking, legal, accounting and valuation-related expenses. The acquisition related expenses were recorded in general and administrative expenses on the consolidated statements of operations.

The purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the closing date of the acquisition based upon their respective fair values as summarized below:

Cash	$	1,537,308
Current assets		50,788
Accounts receivable and unbilled receivables		1,033,080
Other assets		25,812
Developed technology		6,740,000
Trade name		268,000
Goodwill		1,857,663
Current liabilities		(851,114	)
Deferred tax liability		(91,633	)
Net assets acquired	$	10,569,904

The Company funded the closing of the HubPages Merger from the net proceeds from the Series H Preferred Stock financing (as described in Note 16).

The fair value of the intangible assets was determined as follows: developed technology was determined under the income approach; and trade name was determined by employing the relief from royalty approach. The useful life for the intangible assets is five years (5.0 years).

The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents goodwill from the acquisition. Goodwill is recorded as a non-current asset that is not amortized but is subject to an annual review for impairment. The Company believes the factors that contributed to goodwill include the acquisition of a talented workforce that expands the Company’s expertise and synergies that are specific to the Company’s consolidated business and not available to market participants. No portion of the goodwill will be deductible for tax purposes.

Say Media, Inc.

On October 12, 2018, the Company, Say Media, a Delaware corporation, SM Acquisition Co., Inc. (“SMAC”), a Delaware corporation, which is a wholly-owned subsidiary of the Company incorporated on September 6, 2018 to facilitate a merger, and Matt Sanchez, solely in his capacity as a representative of the Say Media security holders, entered into an Agreement and Plan of Merger, which were amended October 17, 2018, (the “Say Media Merger Agreements”), pursuant to which SMAC will merge with and into Say Media, with Say Media continuing as the surviving corporation in the merger as a wholly-owned subsidiary of the Company (the “Say Media Merger”).

On December 12, 2018, the Company acquired all the outstanding shares of Say Media, for total consideration of $12,257,022, pursuant to the Say Media Merger Agreements. The results of operation of the acquired business and the estimated fair market values of the assets acquired and liabilities assumed have been included in the consolidated financial statements as of the acquisition date. The Company acquired Say Media to enhance the user’s experience by increasing content. Say Media is a digital media company that enables brand advertisers to engage today’s social media consumer through rich advertising experiences across its network of web properties. Its corporate headquarters is located in San Francisco, California. Say Media operates in the United States and has subsidiaries located in the United Kingdom, Canada, and Australia.

In connection with the consummation of the Say Media Merger, total cash consideration of $9,537,397 was paid, including the following: (1) $6,703,653 to a creditor of Say Media; (2) $250,000 transaction bonus to a designated employee of Say Media; (3) $2,078,498 advanced prior to the closing for the execution payments in connection with the acquisition (certain promissory notes treated as advance against purchase price, see Note 19); and (4) $505,246 for legal fees ($450,000 was advanced for acquisition related legal fees of Say Media paid on August 27, 2018 (certain amount of the promissory notes treated as advance against purchase price, see Note 19) and additional cash consideration of $55,246 was paid at the closing for acquisition related legal fees incurred). Pursuant to the Say Media Merger Agreements, the Company issued a total of 432,835 shares of its common stock as of December 31, 2018 (total common shares to be issued of 5,500,002 at the common stock trading price at the acquisition date of $0.35, refer to Note 17 for additional information) to the former holders of Say Media’s preferred stock. The Company also issued a total of 2,000,000 restricted stock awards, subsequent to the acquisition, to acquire shares of the Company’s common stock to key personnel for continuing services with Say Media, subject to vesting, and repurchase rights under certain circumstances (see Note 17). The shares issued are for post combination services. The composition of the purchase price is as follows:

Cash	$	9,537,397
Issued shares of common stock		1,636,251
Indemnity shares of common stock		288,750
Net settlement of preexisting relationship		552,314
Noncompete agreement		242,310
Total purchase consideration	$	12,257,022

In connection with the Say Media Merger Agreements, the Company entered into a noncompete agreement with a certain former executive, whereby the Company will be obligated to pay such executive $416,378 at the end on the restrictive non-competition period of 2 years. The Company recorded the fair value of the noncompete agreement of $242,310 at the date of the Say Media Merger classified as other long term liability on the consolidated balance sheets. The noncompete agreement is collateralized by a note receivable from the certain former executive (as further described below).

The Company incurred $479,289 in transaction costs related to the acquisition, which primarily consisted of banking, legal, accounting and valuation-related expenses. The acquisition related expenses were recorded in general and administrative expense on the consolidated statements of operations.

The Company funded the closing of the Say Media Merger from the net proceeds from the 10% OID Convertible Debenture and 12% Convertible Debenture financings (as described in Note 16).

Cash	$	534,637
Accounts receivable and unbilled receivables		4,624,455
Prepaid expenses		172,648
Note receivable		41,638
Fixed assets		11,392
Other assets		65,333
Developed technology		8,010,000
Trade name		480,000
Noncompete agreement		480,000
Goodwill		5,466,624
Accounts payable		(3,618,112	)
Accrued expenses		(1,470,749	)
Contract liabilities		(513,336	)
Other liabilities		(2,027,508	)
Net assets acquired	$	12,257,022

In connection with the Say Media Merger, the Company acquired a note receivable dated May 29, 2015 of $416,378 from a certain former executive, bearing interest of 1.53% compounded annually and due May 29, 2024, whereby the Company agreed to deem all amounts due under the note following the restrictive non-competition period of 2 years as paid providing the certain former executive does not violate the noncompete agreement. The Company recorded the fair value of the note receivable of $41,638 at the date of the Say Media Merger within other long term assets on the consolidated balance sheets.

The fair value of the intangible assets was determined as follows: developed technology was determined under the income approach; tradename was determined by employing the relief from royalty approach; and noncompete was determined under the with and without approach. The weighted-average useful life for the intangible assets is four and three quarter years (4.75 years).

Supplemental Pro forma Information

The following table summarizes the results of operations of the above mentioned transactions from their respective dates of acquisition included in the consolidated results of operations and the unaudited pro forma results of operations of the combined entity had the date of the acquisitions been January 1, 2017:

	Revenue			Net Income (Loss)
Acquired entities only from acquisition date until December 31, 2018:
HubPages	$	2,996,700		$	471,640
Say Media		1,398,690			75,661
Total acquired entities only from acquisition date until December 31, 2018	$	4,395,390		$	547,301
Combined entity supplemental pro forma from January 1, 2018 to December 31, 2018 (unaudited):
HubPages	$	7,537,166		$	951,836
Say Media		15,210,464			3,365,989
Maven		1,304,809			(26,615,184	)
Adjustments		(1,376,478	)		(5,774,681	)
Total supplemental pro forma from January 1, 2018 to December 31, 2018	$	22,675,961		$	(28,072,040	)
Combined entity supplemental pro forma from January 1, 2017 to December 31, 2017 (unaudited):
HubPages	$	4,904,759		$	575,963
Say Media		12,608,398			20,829,482
Maven		76,995			(6,284,313	)
Adjustments		-			(8,344,013	)
Total supplemental pro forma from January 1, 2017 to December 31, 2017	$	17,590,152		$	6,777,119

The following summarizes earnings per common share of the combined entity had the date of the acquisitions been January 1, 2017:

	Supplemental Pro Forma from January 1, 2018 to December 31, 2018 (unaudited)			Supplemental Pro Forma from January 1, 2017 to December 31, 2017 (unaudited)
Net income (loss)	$	(28,072,040	)	$	6,777,119
Net income (loss) per common share – basic and diluted	$	(0.81	)	$	0.33
Weighted average number of common shares outstanding – basic and diluted		34,444,608			20,849,067

The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisitions had occurred as of the beginning of the Company’s 2017 reporting period.

For the annual period ended December 31, 2018 supplemental pro forma net income (loss) were adjusted for the HubPages Merger to exclude $218,981 of acquisition-related costs and the income tax benefit of $91,633. The supplemental pro forma net income (loss) for the annual periods ended December 31, 2018 and December 31, 2017 were adjusted for the vesting of restricted stocks awards to HubPages employees in connection with the HubPages Merger of $511,108 and $687,528, respectively, and the amortization of the acquired assets of $678,916 and $998,264, respectively.

For the annual period ended December 31, 2018 supplemental pro forma net income (loss) were adjusted for the Say Media Merger to exclude $479,289 of acquisition-related costs, $2,371,124 for the net settlement of preexisting relationship and certain execution payments, and $258,485 loss on the change in fair value of embedded derivatives. The supplemental pro forma net income (loss) for the annual periods ended December 31, 2018 and December 31, 2017 were adjusted for the vesting of restricted stocks awards to Say Media employees in connection with the Say Media Merger of $184,763 and $196,140, respectively, and the amortization of the acquired assets of $385,731 and $798,204, respectively, and interest expense of $2,508,161 and $4,965,607, respectively.