| Acquisitions | 3. Acquisitions Acquisition of Callin Corp. On May 15, 2023 (the “Acquisition
Date”), the Company acquired 100% of the outstanding equity of Callin Corp. (“Callin”), a podcasting and live streaming
platform. Callin creates a seamless experience for its users to create, discover, and consume live and recorded content. The Company has
determined that Callin meets the definition of a business and has accounted for the acquisition as a business combination. The fair value
of the assets acquired and the liabilities assumed by the Company in connection with the acquisition is as follows:
Total consideration $ 18,226,572
Net assets acquired:
Cash $ 1,000,989
Accounts receivable 10,939
Prepaid expenses 200,651
Property and equipment 37,841
Software and technology 9,352,000
Accounts payable, accruals, and other liabilities (1,137,814 )
Deferred tax liability (1,230,526 )
Total net assets acquired $ 8,234,080
Goodwill $ 9,992,492 The fair value of the consideration
consists of the following:
Fair Value
Shares issued $ 6,055,409
Shares to be issued 3,747,209
Replacement awards 15,578
Contingent consideration (liability) – retention payments 3,491,741
Contingent consideration (equity) – milestone 1 2,490,152
Contingent consideration (equity) – milestone 2 2,356,483
Contingent consideration payable 70,000
Total consideration $ 18,226,572 Under the terms of the acquisition
agreement, the Company is required to issue upfront share consideration of 981,243 shares of Class A Common Stock to the preferred shareholders
and SAFE note holders of Callin. The fair value of the Company’s Class A Common Stock on the Acquisition Date was $9.99 per share.
In addition, the Company issued rights to four payments each consisting of 375,000 contingently issuable shares of Class A Common Stock
to the common shareholders, series FF preferred shareholders, option holders and continuing employees of Callin contingent on the following
conditions being met:
● Retention
payment 1: Services are provided by a selling shareholder for 12 months;
● Retention
payment 2: Services are provided by a selling shareholder for 24 months;
● Milestone
payment 1: Within 12 months, certain feature development and technical performance criteria are achieved, and the acquired technology
is integrated into the Company’s existing software and
● Milestone
payment 2: Within 24 months, certain feature development and technical performance criteria are achieved. In assessing what is part of the business
combination, the Company has determined that because the two retention payments are contingent on a selling shareholder providing services
post-combination, the portion of those tranches earned by the party providing services should be reflected in the Company’s financial
statements as post-combination expense. In addition, where future services are required by employees in order to earn rights to the contingent
consideration, such rights are being accounted for either entirely as post-combination expense or as replacement awards where the rights
replace unvested options or restricted series FF preferred shares that were originally granted by Callin. Rights to contingent consideration
held by non-accredited investors will be settled in cash at $8.92 per share. For the remainder, the four tranches of contingently issuable
shares have been accounted for as contingent consideration. The following table shows the breakdown
of the contingently issuable shares:
Number of
Contingent consideration 903,689
Share-based compensation (Note 11) 596,311
Total contingently issuable shares 1,500,000 During the three and nine months ended
September 30, 2024, certain of the contingently issuable shares were issued. Refer to Note 11 for the share-based compensation and below
for the impact on contingent consideration. The fair value of the contingent consideration
has been estimated as follows: Retention payments 1 and 2 At the Acquisition Date, the Company
determined that retention payments 1 and 2 are one unit of account requiring the Company to issue a variable number of shares that is
not indexed to the Company’s stock. As a result, the consideration that is contingent on one of the selling shareholder’s
providing services has been classified as a liability. The contingent consideration is classified Level 3 in the fair value hierarchy.
The key inputs into the fair value determination are the probability of achieving the milestones, which impacts the expected number of
shares to be issued, and the share price on the Acquisition Date. At the Acquisition Date, management estimated the number of shares to
be issued is 349,523. On May 15, 2024, retention payment
1 was met resulting in the issuance of 196,469 shares of Class A Common Stock and a cash payment of $106,026. Retention payment 2 was
reclassified to equity because the number of shares to be issued if the contingency is met is now fixed. As a result, the Company recognized
$1,334,516 in equity and $184,448 in accounts payable and accrued liabilities. As of September 30, 2024, retention payment 2 has not been
met. The Company has recognized a change
in fair value for the retention payment 1 and 2 contingent consideration of $ nil Milestone payments 1 and 2 The Company has determined that milestone
payments 1 and 2 are separate units of account because a fixed number of shares will be issued if each contingency is met, and meeting
one contingency is not dependent on the other. The key inputs into the fair value determination are the probability of each contingency
being met, and the share price on the Acquisition Date. As of September 30, 2024, milestone payments 1 and 2 were met resulting in the
issuance of 513,330 shares of Class A Common Stock and a cash payment of $98,820. The acquired goodwill relates to Callin’s
workforce and synergies that are expected to be realized upon the integration of Callin’s technology with the Rumble platform. Such
synergies will include the ability to leverage the creator relationships that Rumble has secured to date and will allow for a greater
ability to establish brand recognition and monetization of the Callin platform in the future. The goodwill is not expected to be deductible
for tax purposes. Acquisition of North River Project
Inc. On October 3, 2023, the Company acquired
100% of the outstanding equity of North River Project Inc. (“North River”), for $10,000,000 Canadian Dollars ($7,293,000 US
Dollars) in cash upfront and future contingent cash payments of up to $10,000,000 Canadian Dollars. The contingent consideration contains
two payments each consisting of $5,000,000 Canadian Dollars upon the completion of feature development and integration of the acquired
technology into the Company’s existing software within a 5-year period. The Company has elected to account for the contingent consideration
at the point in time in which the payments have been met. On June 4, 2024, one of the milestones was achieved and consequently the Company
made a cash payment of $5,000,000 Canadian Dollars ($3,654,500 US Dollars) to the former North River equity holders. As of September 30,
2024, the second contingent milestone has not been met. The Company allocated the upfront consideration to the acquired
assets based on their relative fair value on the date of acquisition as follows:
Fair Value
Software and technology $ 9,000,740
Assembled workforce 366,188
Net working capital (14,808 )
Deferred tax liability (2,059,120 )
Total consideration $ 7,293,000 The Company allocated the first contingent payment to the
acquired assets based on their relative fair value on the date the milestone was met as follows:
Fair Value
Software and technology $ 4,500,536
Assembled workforce 184,721
Deferred tax liability (1,030,757 )
Total consideration $ 3,654,500 The additions were allocated to the
cost basis of the acquired assets and the Company recognized a cumulative catch up on the amortization expense in the amount of $744,351
during the nine months ended September 30, 2024. The acquired software and technology
was assigned a useful life of 5 years and the assembled workforce was assigned a useful life of 2 years. The assets are recorded in intangible
assets in the Company’s condensed consolidated interim balance sheet. |
