| 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 Parent
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. |
|