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5. Acquisitions | 12 Months Ended
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Sep. 30, 2017
Business Combinations [Abstract] |
Acquisitions | Acquisition of Marquis Industries, Inc. On July 6 and July 7, 2015, the Company entered into a series of agreements in connection with its indirect purchase of Marquis Industries, Inc., a Georgia corporation, and its subsidiaries (“Marquis”). The Marquis acquisition has been accounted for under the acquisition method and, accordingly, is included in the consolidated financial statements from the effective date of acquisition. Initially the Company acquired 80% of Marquis indirectly through a wholly-owned subsidiary, Marquis Affiliated Holdings LLC, a Delaware limited liability company. Effective November 30, 2015, the Company acquired the remaining 20% interest in Marquis for $2,000,000. The purchase price was paid through a combination of debt financing that was provided by (i) Bank of America through a Term and Revolving Loan in the aggregate amount of (a) approximately $7.8 million for the term component and (b) approximately $15 million for the revolving component and (ii) a mezzanine loan in the amount of up to $7.0 million provide by Isaac Capital Fund – see note 15. A summary of the restated and final purchase price allocation at fair value is presented below. The Company finalized its estimates just prior to filing it’s form 10-K for fiscal year ended September 30, 2016 after it was able to determine that it had obtained all necessary information that existed as of the acquisition date related to these matters during fiscal 2016.
|  | (Restated) Total |  |
Cash and cash equivalents |  | $ | 496,944 |  |
Accounts receivable |  |  | 7,262,188 |  |
Inventory |  |  | 11,717,113 |  |
Prepaid and other current assets |  |  | 1,518,430 |  |
Property and equipment |  |  | 16,392,695 |  |
Intangible - customer relationships |  |  | 439,039 |  |
Bargain purchase gain (1) |  |  | (1,499,345 | ) |
Deferred taxes (1) |  |  | (3,074,623 | ) |
Accounts payable |  |  | (4,139,830 | ) |
Accrued expenses |  |  | (433,989 | ) |
Non-controlling interest (2) |  |  | (2,000,000 | ) |
|  | $ | 26,678,622 |  | (3)
______________
| (1) | – see note 4
| (2) | – non-controlling interest was valued at the price paid by the Company when it subsequently purchased the remaining 20% of Marquis.
| (3) | - includes $4,800,000 of cash, $6,495,825 from a mezzanine loan from Isaac Capital fund, and $15,382,797 from Bank of America Term and Revolver Loan.
Marquis’ results of operations were included in the Company’s financial statements. The estimated fair value of the Customer Relationships related to Marquis was determined using the income approach, which discounts expected future cash flows to present value. The Company estimated the fair value of this intangible asset using the residual method and a present value discount rate of 18%. Customer relationships relate to the Company’s ability to sell existing and future versions of products. The Company is amortizing the Customer relationships intangible asset on a straight-line basis over an estimated life of 15 years. After determining and recording the fair value associated with the assets and liabilities acquired, the Company recorded a restated gain on the acquisition of $1,499,345 included in ―Gain on acquisition in the Consolidated Statement of Operations for the year ended September 30, 2016. Due to the measurement period extending into the fourth quarter of fiscal 2016, the following would have been recorded in the Company’s consolidated statement of operations for year ending September 30, 2015. Instead, according to ASU 2015-16 they were recorded at the end of the measurement period in the fourth quarter of fiscal 2016 when management completed its analysis of fair value as it relates to the Marquis acquisition.
|  | (Restated) |
Depreciation expense |  | $ | 227,654 |
Amortization expense |  |  | 6,117 |
Cost of revenue |  |  | 1,080,051 |
Bargain purchase gain on acquisition |  |  | 1,499,345 |
Acquisition of Vintage Stock Inc. On November 3, 2016 (the “Closing Date”), the Company, through its newly formed, wholly-owned subsidiary, VSAH, entered into a series of agreements in connection with its purchase of Vintage Stock. Vintage Stock is a retailer that sells, buys and trades new and used movies, books, collectibles, games, comics, music and other retail products. Total consideration paid of $57,653,698 was paid through a combination of $8,000,000 of capital provided by the Company and debt financing provided by (i) Texas Capital Bank Revolver Loan in the aggregate amount of approximately $12,000,000, mezzanine financing from the Capitala Term Loan of approximately $30 million, and the Company issued $10,000,000 in subordinated acquisition notes payable to the sellers of Vintage Stock, as more fully described in Note 9. The following table below summarizes our final purchase price allocation of the consideration paid to the respective fair values of the assets acquired and liabilities assumed in the Vintage Stock acquisition as of the closing date. The Company finalized its estimates after it was able to determine that it had obtained all necessary information that existed as of the acquisition date related to these matters.
Cash and cash equivalents |  | $ | 272,590 |
Trade and other receivables |  |  | 177,338 |
Inventory |  |  | 18,711,192 |
Prepaid expenses and other current assets |  |  | 814,201 |
Property and equipment |  |  | 4,859,676 |
Intangible - leases |  |  | 1,033,412 |
Intangible - trade names |  |  | 1,200,000 |
Intangible - customer list |  |  | 50,000 |
Intangible - customer relationship |  |  | 1,000,000 |
Goodwill |  |  | 36,946,735 |
Notes payable |  |  | (542,074 | )
Accounts payable |  |  | (5,165,612 | )
Accrued expenses |  |  | (1,703,760 | )
|  | $ | 57,653,698 |
In connection with the purchase of Vintage Stock, we incurred bank fees of $15,000, appraisal fees of $20,497, legal fees of $192,339 and consulting fees of $119,774 – for a total of $347,610; all of which was recorded as general and administrative expense during the year ended September 30, 2017. Goodwill of $36,946,735 is the excess of total consideration less identifiable assets at fair value less debt assumed at fair value and is tax deductible. Goodwill is attributable to Vintage Stock’s management, assembled workforce, operating model, the number of stores, locations and competitive presence in each of its respective markets. The operating results of Vintage Stock have been included in our consolidated financial statements beginning on November 3, 2016 and are reported in our Retail and Online segment. The estimated fair value of the customer relationship intangible related to Vintage Stock was determined using the income approach, which discounts expected future cash flows to present value. The Company estimated the fair value of this intangible asset using the residual method and a present value discount rate of 17% or $1,000,000. Customer relationships relate to the Company’s ability to sell existing and future products. The Company is amortizing the Customer relationships intangible asset on a straight-line basis over an estimated life of 5 years. The estimated fair value of the trade names intangible that Vintage Stock uses – “Vintage Stock”, “EntertainMart” and “Movie Trading Company” was determined using a royalty income approach, which estimates an assumed royalty income stream and then discounts that expected future revenue or cash flow stream to present value. The Company estimated the fair value of this intangible asset using the residual method and a present value discount rate of 17% or $1,200,000. Trade names relate to the Company’s awareness by consumers in the market place. The Company is amortizing the trade names intangible asset on a straight-line basis over an estimated life of 7 years. The estimated fair value of the customer list intangible asset was determined using the cost approach, which estimates the cost to acquire each email address in the list. The Company estimated the fair value of this intangible asset to be $0.19 per acquired email address, less a discount 40% attributable to domain and trade names or a net cost per email address of $0.11 or approximately $50,000. The Company is amortizing the customer list intangible asset on a straight-line basis over an estimated life of 3 years. The unaudited pro forma information below presents statement of income data for the years ended September 30, 2017 and 2016, as if the acquisition of Vintage Stock took place on October 1, 2015.
|  |  | Year Ended September 30, 2017 |  |  | Year Ended September 30, 2016 |
Net revenue |  | $ | 76,133,061 |  |  | $ | 65,493,122 |
Gross profit |  |  | 43,735,263 |  |  |  | 37,482,534 |
Operating income |  |  | 11,167,940 |  |  |  | 11,674,745 |
Net income |  |  | 5,517,942 |  |  |  | 3,285,387 |
Earnings per basic common share |  | $ | 2.50 |  |  | $ | 1.17 |

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