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Asset Acquisition – Securities Purchase Agreement

6 Months Ended

Jun. 30, 2022

Asset Acquisition – Securities Purchase Agreement

3. Asset Acquisition – Securities Purchase Agreement

As discussed above, on June 9, 2022, the Company entered into the Securities Purchase Agreement by and among the Company, the Purchaser, Visicom and Target NewCo, pursuant to which the Purchaser purchased, effective as of the Effective Date, all of the issued and outstanding shares of Target NewCo.

The Purchaser acquired the Conveyed Assets for a cash purchase price of $2.7 million (the “Cash Consideration”). In addition to the Cash Consideration, Visicom is entitled to receive an additional payment of up to $600,000 (the “Earn-Out Payment”) based on the sales of the ManyCam software less chargebacks and refunds (“Gross Sales”) in the six-month period following the Closing (the “Earn-Out Period”) as follows: (i) if the Gross Sales during the Earn-Out Period are greater than $800,000, the Earn-Out Payment shall be $600,000, (ii) if the Gross Sales during the Earn-Out Period are greater than $700,000 but less than $800,000, the Earn-Out Payment shall be $300,000, (iii) if the Gross Sales during the Earn-Out Period are greater than $600,000 but less than $700,000, the Earn-Out Payment shall be $150,000 and (iv) if the Gross Sales during the Earn-Out Period do not exceed $600,000, then the Seller will not be paid any portion of the Earn-Out Payment. The Company concluded that the acquisition of the Conveyed Assets is not considered a business under Regulation S-X and in accordance with ASC 805, Business Combinations.

As part of a valuation analysis, the Company identified intangible assets, including internally developed software, subscriber relationships/customer list and intellectual property (trade names, trademarks, URLs). The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows. Final allocation was determined by a third-party valuation specialist hired by Company management. The following table summarizes the fair value of the identifiable intangible assets and their respective useful lives:

	Estimated Fair Value		Estimated Useful Life in Years
Internally developed software	$	1,504,000	7
Intellectual property (trade names, trademarks, URLs)	$	321,000	3
Subscriber Relationships/Customer List	$	875,000	7
Total acquired assets	$	2,700,000

The estimated aggregate amortization expense for each of the next five years and thereafter will approximate $185,238 for the remainder of 2022, $444,571 in 2023, $444,571 in 2024, $393,071 in 2025, $341,571 in 2026 and $853,930 thereafter.

The Company incurred approximately $230,000 of expenses in connection with the ManyCam Acquisition and capitalized them accordingly.

As part of the accounting for the ManyCam assets, the Company provisionally recorded a deferred tax liability of $0.8 million with an offset to intangible assets related to the excess financial reporting basis over the tax basis of the Conveyed Assets.

On June 30, 2022, the Company entered into a License Agreement with Visicom (the “License Agreement”), pursuant to which the Company agreed to distribute, at the discretion and direction of Visicom, a specified number of ManyCam software updates to certain license holders to whom Visicom has previously granted a “lifetime” license to ManyCam software. As consideration for distributing the software updates, Visicom paid the Company an initial upfront nonrefundable payment of $65,000. The License Agreement provides that Visicom may purchase additional licenses at prices specified therein. Other than providing a one-time, limited license to Visicom for the distribution of ManyCam software updates pursuant to the terms of the License Agreement, the Company does not have any obligation to provide support or service to the licensee end users.