Business Combination | Note 4 – Business Combinations 1091 Pictures Acquisition On March 4, 2022, the Company consummated its acquisition of certain of the assets of 1091 Media, LLC , including all of the outstanding equity of its operating subsidiary, TOFG LLC, which does business under the name 1091 Pictures (“1091 Pictures”). 1091 Pictures provides full-service distribution services to film and series owners, including access to platforms that reach more than 100 countries, and related marketing support, and has a library of approximately 4,000 licensed films and television shows. The Company paid consideration of $13,283,750 through the payment of $8,000,000 in cash, the issuance of 375,000 shares of the Company’s Class A common stock and the issuance of 80,000 shares of the Company’s Series A preferred stock. The Company has allocated the purchase price to the identifiable net assets acquired, including intangible assets and liabilities assumed, based on the estimated fair values at the date of acquisition. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities was recorded as goodwill. The purchase price allocation is preliminary and subject to change up to one year after the date of acquisition and could result in changes to the amounts recorded below. The preliminary allocation of the purchase price to the fair values of the assets acquired and liabilities assumed at the date of the acquisition was as follows: Accounts receivable, net $ 4,677,133 Content assets 4,695,000 Other assets 49,348 Intangibles 2,810,000 Total identifiable assets acquired 12,231,481 Accounts payable and accrued expenses 129,244 Revenue share payable 1,623,177 Accrued third party share 3,999,544 Total liabilities assumed 5,751,965 Net identifiable assets acquired 6,479,516 Goodwill 5,476,710 Net assets acquired $ 11,956,226 Cash consideration $ 8,000,000 Equity consideration - Class A common stock 3,303,750 Equity consideration - Series A Preferred Stock 1,980,000 Purchase price consideration 13,283,750 Less: cash acquired (1,327,524) Total Estimated Purchase Price $ 11,956,226 The $2,810,000 of acquired intangibles represents the estimated fair value of the quality control certification process, trademarks, technology and noncompete agreements. These definite lived intangible assets are being amortized on a straight-line basis over there estimated useful life of 24 Sonar Acquisition On May 21, 2021, the Company consummated its acquisition of the principal assets of Sonar Entertainment, Inc. (“SEI”) and certain of the direct and indirect subsidiaries of SEI (collectively, “Sonar”). Sonar is an award-winning independent television studio that owns, develops, produces, finances and distributes content for global audiences. In consideration for the assets purchased from Sonar (“Purchased Assets”), the Company paid to Sonar an initial cash purchase price of $18,902,000 and from time to time will be required to pay additional purchase price based on the performance of the acquired assets. During the 18-month period following the closing, the Company has the right (the “Buyout Option”), exercisable upon written notice to Sonar during such period, to buy out all future entitlements (i.e., additional purchase price and other entitlements not yet due and payable to Sonar as of the date of such notice) in exchange for a one-time payment to Sonar. In connection with the transaction, the Company formed a new subsidiary, CSS AVOD Inc., and issued shares of common stock, representing 5% of the after-issued equity of CSS AVOD, to MidCap Financial Trust, as Agent. At any time during the three-year period immediately following the 18-month anniversary of the asset purchase agreement closing, MidCap, as Agent, shall have the right upon 60 days’ prior written notice to CSSE to require CSSE to purchase such CSS AVOD Shares for $11,500,000 (“Put Election”). The Sonar acquisition was accounted for as a purchase of a business in accordance with ASC 805 and the aggregate purchase price consideration of $53,812,000 has been allocated to the assets acquired and liabilities assumed, based on the estimated fair values at the date of acquisition. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities was recorded as goodwill. The allocation of the purchase price to the fair values of the assets acquired assumed at the date of the acquisition was as follows: May 21, 2021 Accounts receivable, net $ 17,373,257 Film library 13,000,000 Intangible asset 3,600,000 Total identifiable assets acquired 33,973,257 Goodwill 19,838,743 Net assets acquired $ 53,812,000 The amount related to the acquired intangible asset represent the estimated fair value of the distribution network. This definite lived intangible asset is being amortized on a straight-line basis over its estimated useful life of 36 months. Goodwill was calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from the intangible assets acquired that do not qualify for separate recognition. The fair values of assets acquired were based upon valuations performed by independent third party valuation experts. Cash $ 18,902,000 Fair Value of Additional Purchase Price – Library Account Receivable 1,580,000 Fair Value of Additional Purchase Price – Contracted TV Cash Flow 13,700,000 Fair Value of Additional Purchase Price – % of Film Cash Flow 630,000 Fair Value of Additional Purchase Price – % of Non-TV Business Cash Flow 2,300,000 Fair Value of Additional Purchase Price – Development Slate Cash Flow 5,200,000 Fair Value of Additional Purchase Price – CSS AVOD Equity Put 11,500,000 Total Estimated Purchase Price $ 53,812,000 Based on the terms of the asset purchase agreement, the Company estimated the fair value of the Additional Purchase Price components based on, but not limited to, expected future collection of receivables, expected future revenue and cash flows, expected growth rates, and estimated discount rates. The Additional Purchase Price included a 5% interest in CSS AVOD and a Put Option that requires the Company to purchase the shares of CSS AVOD, Inc. (5.0% of the entity) from the investor for $11,500,000. The fair value of the 5.0% interest in CSS AVOD, Inc. was estimated based on expected future cash flows. The Put Option was valued by the Company via a Black-Sholes valuation model assuming an initial price of $125,000, a strike price of $11,500,000, volatility of 100.0% and term of 1.5 years. The following tables illustrates the stand-alone financial performance attributable to acquisitions included in the Company’s condensed consolidated statement of operations: Three Months Ended June 30, 2022 Sonar Other Total Net revenue $ 6,875,499 $ 8,324,514 $ 15,200,013 Net income (loss) $ 3,539,177 $ (364,267) $ 3,174,910 Six Months Ended June 30, 2022 Sonar Other Total Net revenue $ 14,067,201 $ 12,703,090 $ 26,770,291 Net income (loss) $ 6,860,148 $ (232,170) $ 6,627,978 |