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Acquisition of iNewswirecom LLC | 9 Months Ended
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Sep. 30, 2023
Acquisition of iNewswirecom LLC |
Acquisition of iNewswire.com LLC | Note 3: Acquisition of iNewswire LLC On November 1, 2022, the Company entered into a Membership Interest Purchase Agreement with Lead Capital, LLC, a Delaware limited liability company (“Seller”), whereby the Company purchased all the issued and outstanding membership interests of iNewswire.com LLC, a Delaware limited liability company (“Newswire”). Newswire is a leading media and marketing communications technology company that provides press release distribution, media databases, media monitoring, and newsrooms through its PRO offering, formally Media Advantage Platform. In connection with the transaction (the “Acquisition”), the Company paid to the Seller aggregate consideration of $43.5 million, consisting of the following: (i) a cash payment of $18.0 million subject to a 60-day escrow to secure the payment of any working capital adjustments or any employee bonus obligations of Newswire, (ii) the issuance of a secured promissory note in the principal amount of $22.0 million (the “Secured Note”), and (iii) the issuance of 180,181 shares of the Company’s common stock, par value $0.001, valued at $3.9 million based on the Company’s closing stock price of $21.60 on the Closing Date. During the three months ended March 31, 2023, the Seller paid a $350,000 net working capital adjustment to the Company. The Secured Note was due and payable on November 8, 2023, with an annual interest rate of 6%. The Secured Note allowed for prepayment, however, the 6% interest payment was guaranteed through the Maturity Date even if prepayments were made. On March 20, 2023, the Company paid $370,000 to pay the Secured Note in full, with the Seller agreeing to forgive $440,000 of interest which would have otherwise been due. The $370,000 payment is recorded in Other income, net on the Consolidated statements of operations for the nine month-period ended September 30, 2023. As a result, there is no longer any obligation to the Seller as of September 30, 2023. The Company has determined that the acquisition of Newswire constitutes a business acquisition as defined by ASC 805, Business Combinations. Accordingly, the assets acquired, and the liabilities assumed in the transaction were recorded at their acquisition date estimated fair value, while the transaction costs associated with the acquisition, which totaled $178,000, were expensed as incurred pursuant to the purchase method of accounting in accordance with ASC 805. The Company’s preliminary purchase price allocation was based on an evaluation of the appropriate fair values and represents management’s best estimate based on available data. Any changes within the measurement period resulting from facts and circumstances that existed as of the acquisition date may result in retrospective adjustments to the provisional amounts recorded at the acquisition date. The Company employed a third-party valuation firm to assist in determining the purchase price allocation of assets and liabilities acquired from Newswire. The income approach was used to determine the value of trademarks/tradename and client relationships. The income approach determines the fair value for the asset based on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a rate of return that reflects the relative risk of achieving the cash flow and the time value of money. Projected cash flows for each asset considered multiple factors, including current revenue from existing customers; analysis of expected revenue and attrition trends; reasonable contract renewal assumptions from the perspective of a marketplace participant; expected profit margins giving consideration to marketplace synergies; and required returns to contributory assets. The relief from royalty method was used to value the technology. This approach applies an industry-based royalty rate to future projected cashflows to express the fair value as the expected after-tax royalty savings of the asset. Fair values are determined based on the requirements of ASC 820, Fair Measurements and Disclosure. During the three-month period ended September 30, 2023, the Company obtained the necessary information to determine contract assets and deferred revenue acquired and as such, completed its allocation of the fair value of the assets and liabilities acquired. The measurement period adjustments below did not have a material impact to the Company’s Consolidated statement of operations from November 1, 2022, to September 30, 2023. A summary of the fair value consideration transferred for the Acquisition and the allocation to the fair value of the assets and liabilities of Newswire are as follows (in 000's):
Consideration transferred: |  |  |
Cash payment |  | $ | 18,000 |
Secured promissory note |  |  | 22,000 |
Shares of Issuer Direct common stock based on closing market price prior to the Acquisition |  |  | 3,892 |
Net working capital adjustment and other costs paid on behalf of Seller, net of cash |  |  | (350 | )
Total consideration transferred |  | $ | 43,542 |
|  | As Originally Reported |  |  | Measurement Period Adjustment |  |  | As Adjusted |
Final allocation of tangible and intangible assets and liabilities: |  |  |  |  |  |  |  |  |
Goodwill |  | $ | 16,122 |  |  | $ | (571 | ) |  | $ | 15,551 |
Trademarks/Tradenames |  |  | 27,500 |  |  |  | — |  |  |  | 27,500 |
Technology |  |  | 2,520 |  |  |  | — |  |  |  | 2,520 |
Customer relationships |  |  | 580 |  |  |  | — |  |  |  | 580 |
Net liabilities assumed |  |  | (3,180 | ) |  |  | 571 |  |  |  | (2,609 | )
Total amount allocated |  | $ | 43,542 |  |  | $ | — |  |  | $ | 43,542 |
Net liabilities assumed: |  |  |  |  |  |  |  |  |  |  |  |
Cash |  | $ | 37 |  |  | $ | — |  |  | $ | 37 |
Accounts Receivable |  |  | 90 |  |  |  | 253 |  |  |  | 343 |
Other Current Assets |  |  | 14 |  |  |  | — |  |  |  | 14 |
Accounts Payable |  |  | (645 | ) |  |  | — |  |  |  | (645 | )
Accrued Expenses |  |  | (226 | ) |  |  | — |  |  |  | (226 | )
Deferred Revenue |  |  | (1,775 | ) |  |  | 318 |  |  |  | (1,457 | )
Deferred tax liability |  |  | (675 | ) |  |  | — |  |  |  | (675 | )
|  | $ | (3,180 | ) |  | $ | 571 |  |  | $ | (2,609 | )
Supplemental pro forma information The following unaudited supplemental pro forma information summarizes the Company’s results of operations for the current reporting period, as if the Company completed the acquisition as of the beginning of the annual reporting period. Supplemental pro forma information is as follows:
in $000’s, except per share amounts |  |  |  |  |  |
|  | Three months ended September 30, 2022 |  |  | Nine months ended September 30, 2022 |
Revenues |  | $ | 7,890 |  |  | $ | 25,533 |
Net income |  |  | 41 |  |  |  | 1,143 |
Basic earnings per share |  |  | 0.01 |  |  |  | 0.29 |
Diluted earnings per share |  |  | 0.01 |  |  |  | 0.29 |
The unaudited pro forma combined financial information is presented for information purposes only and is not intended to represent or be indicative of the combined results of operations or financial position that we would have reported had the acquisition been completed as of the date and for the periods presented and should not be taken as representative of our consolidated results of operations or financial condition following the acquisition. In addition, the unaudited pro forma combined financial information is not intended to project the future financial position or results of operations of the combined company. The unaudited pro forma financial information was prepared using the acquisition method of accounting for the acquisition under existing US GAAP. Issuer Direct has been treated as the acquirer.

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