| Business Combination |
Overview
On November 15, 2013, the Company entered
into the Merger Agreement with A Squared and Acquisition Sub. Upon closing of the Merger, which occurred concurrently with entering
into the Merger Agreement, our Acquisition Sub merged with and into A Squared, and A Squared, as the surviving entity, became a
wholly-owned subsidiary of the Company. As a result of the Merger, the Company acquired the business and operations of A Squared.
Immediately following the Merger, the
Company’s pre-Merger shareholders and option holders owned approximately 50% of the Company’s common stock on a fully-diluted
basis, and former A Squared members directly and indirectly owned approximately 50% of the Company’s common stock on a fully
diluted basis.
Pursuant to the terms and conditions
of the Merger:
| |
• |
At the closing of the Merger, the membership interests of A Squared issued and outstanding immediately prior to the closing of the Merger were cancelled, and the Member received 2,972,183 shares of our common stock. |
| |
• |
Upon the closing of the Merger, Klaus Moeller resigned as the Company’s Chief Executive Officer and Chairman, Larry Balaban resigned as the Company’s Corporate Secretary, and Howard Balaban resigned as the Company’s Vice President of Business Development. Simultaneously with the effectiveness of the Merger, Andrew Heyward was appointed as the Company’s Chief Executive Officer, Amy Moynihan Heyward was appointed as the Company’s President and Gregory Payne was appointed as the Company’s Corporate Secretary. Mr. Moeller remained a director of the Company until his subsequent resignation on May 15, 2014. |
| |
• |
Effective upon the Company’s meeting its information obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Michael Meader, Larry Balaban, Howard Balaban and Saul Hyatt resigned as directors of the Company, and Andrew Heyward, Amy Moynihan Heyward, Lynne Segall, Jeffrey Weiss, Joseph “Gray” Davis, William McDonough and Bernard Cahill were appointed as directors of the Company. On December 9, 2013, these changes to the Board of Directors were made effective. |
Accounting Treatment
Although the transaction was structured
as a merger of equals, the merger was treated as a business combination for accounting purposes. The audited financial statements
have been prepared using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Genius Brands
is the deemed accounting acquirer, and A Squared is the deemed accounting acquiree based on the following factors: the transfer
of the Company’s equity as consideration for the merger, the relative size of the pre-merger assets and revenue bases with
the Company holding a significantly larger asset and revenue base as compared to A Squared, and the fact that the Company paid
a premium over the pre-combination fair value of A Squared.
Purchase Price Allocation
The following table summarizes the final
purchase accounting for the fair value of the assets acquired and liabilities assumed at the date of the Merger:
| |
|
Allocated Fair Value |
|
| Cash |
|
$ |
283,199 |
|
| Accounts Receivable |
|
|
89,398 |
|
| Prepaid Expenses and Other Assets |
|
|
145,574 |
|
| Property and equipment, net |
|
|
75,385 |
|
| Identifiable artistic-related intangible assets (a) |
|
|
1,740,000 |
|
| Total assets acquired |
|
|
2,333,556 |
|
| |
|
|
|
|
| Accounts Payable |
|
|
(404,757 |
) |
| Accrued Expenses |
|
|
(450,000 |
) |
| Short Term Debt - Related Party |
|
|
(516,966 |
) |
| Disputed Trade Payable |
|
|
(925,000 |
) |
| Total liabilities assumed |
|
|
(2,296,723 |
) |
| |
|
|
|
|
| Net assets acquired |
|
|
36,833 |
|
| |
|
|
|
|
| Consideration (b) |
|
|
10,402,638 |
|
| |
|
|
|
|
| Goodwill |
|
$ |
10,365,805 |
|
| (a) |
The value of the identifiable artistic-related intangible assets was determined by an independent Corporate Finance and Business Valuation firm. |
| (b) |
As consideration for the net assets acquired in the Merger, the Company issued an aggregate of 2,972,183 shares of its common stock the Parent Member, valued at $3.50 per share. The acquisition-date fair value of the common stock was based on the common stock sold under the private placement on the date of the Merger. |
|