| 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 has been structured as a merger of equals, the merger will be 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. |
Proforma
Included
in the consolidated statement of operations for three and nine months ended September 30, 2014 are revenues of $27,998 and $125,273,
respectively, and net loss of $136,031 and $719,411, respectively, attributed to A Squared from the date of acquisition.
The
table below presents the proforma revenue and net loss for the three and nine months ended September 30, 2014 and 2013, assuming
the Merger had occurred on January 1, 2013, pursuant to ASC 805-10-50. This proforma information does not purport to represent
what the actual results of operations of the Company would have been had Merger occurred on this date nor does it purport to predict
the results of operations for future periods.
| |
|
Three Months Ended
(1) |
|
|
Nine Months Ended
(2) |
|
| |
|
9/30/2014 |
|
|
9/30/2013 |
|
|
9/30/2014 |
|
|
9/30/2013 |
|
| Revenues |
|
$ |
318,801 |
|
|
$ |
277,867 |
|
|
$ |
712,279 |
|
|
$ |
1,721,734 |
|
|
| Net Loss |
|
$ |
(848,970 |
) |
|
$ |
(1,343,870 |
) |
|
$ |
(2,843,763 |
) |
|
$ |
(3,829,654 |
) |
|
| (1) |
Net loss during the three months ended September
30, 2013 includes merger related costs of $339,180 as well as the elimination of interest expense of $589,606, loss on derivative
valuation of $1,061,791, loss on extinguishment of debt of $217,376, and loss on exchange of warrants of $308,500. |
| (2) |
Net loss during the nine months ended September 30, 2013 includes
merger related costs of $339,180 as well as the elimination of interest expense of $900,348, loss on derivative valuation
of $1,051,034, loss on extinguishment of debt of $217,376, and loss on exchange of warrants of $308,500. |
|