Annual report pursuant to Section 13 and 15(d)

Acquisition of ChizComm Entities

Acquisition of ChizComm Entities
12 Months Ended
Dec. 31, 2021
Business Combination and Asset Acquisition [Abstract]  
Acquisition of ChizComm Entities

Note 3: Acquisition of ChizComm Entities


On February 1, 2021, the Company through GBI Acquisition LLC, a New Jersey limited liability company, and 2811210 Ontario Inc., a company organized under the laws of the Province of Ontario, two wholly-owned subsidiaries of the Company, closed its previously announced acquisition of the issued and outstanding equity interests of ChizComm Ltd., a corporation organized in Canada (“ChizComm Canada”), and ChizComm USA Corp., a New Jersey corporation (“ChizComm USA” and, together with ChizComm Canada, “ChizComm”) (the “ChizComm Acquisition”).


The following table summarizes the fair value of the purchase price consideration paid to acquire ChizComm (in thousands):

Cash consideration at closing   $ 8,500  
Equity consideration at closing     3,527  
Fair value of Earn-Out shares     7,210  
Total   $ 19,237  


Total consideration paid by the Company in the transaction at closing consisted of $8.5 million in cash and 1,980,658 shares (the “Closing Shares”) of the Company’s common stock with a value of approximately $3.5 million, both as subject to certain purchase price adjustments. Of the Closing Shares, 674,157 shares of common stock, with a value of approximately $1.2 million, were deposited into an escrow account to cover potential post-closing indemnification obligations of Sellers under the Purchase Agreement. Additionally, the Purchase Agreement also provides for the issuance of additional shares of common stock with an aggregate value of up to $8.0 million that may be issued to the Sellers if certain EBITDA and performance levels are achieved within a four-year period commencing on the date of the Purchase Agreement (Earn-Out).


The ChizComm Acquisition was approved by the board of directors of each company. Transaction costs incurred relating to this acquisition including legal and accounting totaled $0.5 million, which is included in general and administrative expenses on the statement of operations. The ChizComm Acquisition expands the Company’s revenue streams into media and advertising services.


The Company has determined that the ChizComm Acquisition constitutes a business acquisition as defined by ASC 805, Business Combinations. Accordingly, the assets acquired and the liabilities assumed in the transaction were recorded at their estimated acquisition fair values, while transaction costs associated with the acquisition were expensed as incurred pursuant to the purchase method of accounting in accordance with ASC 805. The Company’s purchase price allocation was based on an evaluation of the appropriate fair values and represent managements best estimate based on available data. Fair values are determined based on the requirements of ASC 820, Fair Measurements and Disclosures.


The Earn-Out arrangement meets the liability classification criteria outlined in ASC 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity. Liability classified contingent consideration is measured initially at the fair value on the acquisition date and is remeasured at each reporting period. Subsequent differences between the estimated fair value of the Earn-Out recorded at the acquisition date and the remeasurement date will be reflected as a charge or credit, as applicable, in the statement of operations. As of December 31, 2021, due to an update in the assumptions used to value the contingent consideration during the fourth quarter of 2021, a credit was recorded as other income in the Company’s statement of operations, in the amount of $5.9 million.


The Company completed and finalized the purchase price allocation during the year ended December 31, 2021. The Company recorded assets acquired and liabilities assumed at their respective fair values. The following table summarizes the final fair value of assets acquired and liabilities assumed (in thousands):

Cash   $ 711  
Accounts Receivable     6,151  
Prepaid Expenses     56  
Lease Deposits     12  
Fixed Assets     148  
Trade Name     3,430  
Customer Relationships     6,140  
Non-Compete Agreements     60  
Goodwill     9,607  
Accounts Payable and Accrued Expenses     (7,006 )
Payroll Tax Liability     (72 )
Total Consideration   $ 19,237  


The identifiable intangible assets acquired of $9.6 million was composed of $3.4 million for ChizComm’s trade name with an indefinite economical life, $6.1 million for ChizComm’s customer base with a useful life of approximately 12 years, and $60,000 for ChizComm’s non-compete agreements with an economic life of 3 years. The goodwill arising from the acquisition consists largely of the synergies expected from combining the operations of ChizComm and the Company and was recorded to the Media Advisory & Advertising Services reporting unit.


Valuation Methodology


Customer relationships for ChizComm were valued by performing a discounted cash flow analysis using the multiperiod excess earnings method. This method includes discounting the projected cash flows associated with existing customers based primarily upon customer turnover data over its expected life and considers the operating expenses and contributory asset charges associated with servicing such existing customers. Projected cash flows attributable to the customer relationships were discounted to their present value at a rate commensurate with the perceived risk. The useful lives of customer relationships are estimated based primarily upon the present value of cash flows attributable to the customer relationships.


Trademarks and trade names for ChizComm were valued using the relief-from-royalty method. This method is an income approach that estimates the portion of a company’s earnings attributable to an asset based on the royalty rate the company would have paid for the use of the asset if it did not own it. Royalty payments are estimated by applying a royalty rate to the prospective revenue attributable to the intangible asset. The resulting annual royalty payments are tax-affected and then discounted to present value.


Non-compete agreements were valued using a with and without method. Under this method, estimated prospective financial information (“PFI”) is calculated with the existence and ownership of an intangible asset and compared to the PFI in the absence of the ownership of the intangible asset. The after-tax differential PFI attributable to the intangible asset is then discounted to its present value.


Assumptions used in forecasting cash flows for each of the identified intangible assets included consideration of the following:


  · Historical performance including sales and profitability.


  · Business prospects and industry expectations.


  · Estimated economic life of asset.


  · Acquisition of new customers.


  · Attrition of existing customers.


The acquisition was treated for tax purposes as a nontaxable transaction and as such, the historical tax basis of the acquired assets, net operating loss, and other tax attributes of ChizComm will carryover. As a result, no new goodwill for tax purposes was created in connection with the acquisition as there is no step-up to the fair value of the underlying tax bases of the acquired net assets.


The following supplemental pro forma information summarize the Company’s results of operations for the current reporting period, as if the Company completed the acquisition as of the beginning of the annual reporting period.


Supplemental pro forma information is as follows (in thousands):

    Year Ended December 31,  
    2021     2020  
Total Revenues   $ 9,225     $ 9,464  
Net Loss     (126,918 )     (400,477 )
Net Loss per Common Share (Basic and Diluted)   $ (0.43 )   $ (2.81 )
Weighted Average Shares Outstanding (Basic and Diluted)     297,513,373       142,452,393