Acquisition of iNewswire.com LLC

12 Months Ended

Dec. 31, 2022

Acquisition of iNewswire.com LLC

Acquisition of iNewswire.com LLC

Note 4: Acquisition of iNewswire.com LLC

On November 1, 2022 (the “Closing Date”), the Company entered into a Membership Interest Purchase Agreement with Lead Capital, LLC, a Delaware limited liability company (the “Seller”), whereby the Company purchased all of the issued and outstanding membership interests of iNewswire.com LLC, a Delaware limited liability company (“Newswire”).  Newswire is a leading media and marketing communications technology company that provides press release distribution, media databases, media monitoring, and newsrooms through its Media Advantage Platform.

In connection with the transaction (the “Acquisition”), the Company paid to the Seller aggregate consideration of $43.5 million, consisting of the following: (i) a cash payment of $18.0 million subject to a 60-day escrow to secure the payment of any working capital adjustments or any employee bonus obligations of Newswire, (ii) the issuance of a secured promissory note in the principal amount of $22.0 million (the “Secured Note”), and (iii) the issuance of 180,181 shares of the Company’s common stock, par value $0.001, valued at $3.9 million based on the Company’s closing stock price of $21.60 on the Closing Date.

The Secured Note is due and payable on November 8, 2023 (the “Maturity Date”) and bears an annual interest rate of 6%. The Secured Note is secured by the intellectual property (with certain exceptions) and the domain names acquired by the Company as part of the acquisition.  The Secured Note may be prepaid, however, the 6% interest payment is guaranteed through the Maturity Date even if prepayments are made.

The Company has determined that the acquisition of Newswire 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 acquisition date estimated fair value, while the transaction costs associated with the acquisition, which totaled $140,000, were expensed as incurred pursuant to the purchase method of accounting in accordance with ASC 805.  The Company’s preliminary purchase price allocation was based on an evaluation of the appropriate fair values and represents management’s best estimate based on available data. Any changes within the measurement period resulting from facts and circumstances that existed as of the acquisition date may result in retrospective adjustments to the provisional amounts recorded at the acquisition date.  The Company employed a third-party valuation firm to assist in determining the purchase price allocation of assets and liabilities acquired from Newswire. The income approach was used to determine the value of trademarks/tradename and client relationships. The income approach determines the fair value for the asset based on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a rate of return that reflects the relative risk of achieving the cash flow and the time value of money. Projected cash flows for each asset considered multiple factors, including current revenue from existing customers; analysis of expected revenue and attrition trends; reasonable contract renewal assumptions from the perspective of a marketplace participant; expected profit margins giving consideration to marketplace synergies; and required returns to contributory assets. The relief from royalty method was used to value the technology. This approach applies an industry-based royalty rate to future projected cashflows to express the fair value as the expected after-tax royalty savings of the asset.  Fair values are determined based on the requirements of ASC 820, Fair Measurements and Disclosure.  As of December 31, 2022, the calculation and allocation of the purchase price to tangible and intangible assets and liabilities is preliminary, as the Company is still in the process of accumulating all of the required information to finalize the opening balance sheet and calculations of intangible assets.

A summary of the fair value consideration transferred for the Acquisition and the preliminary allocation to the fair value of the assets and liabilities of Newswire are as follows (in 000's):

Consideration transferred:
Cash payment	$	18,000
Secured promissory note		22,000
Shares of Issuer Direct common stock based on closing market price prior to the Acquisition		3,892
Net working capital adjustment		(350	)
Total consideration transferred	$	43,542
Preliminary allocation of tangible and intangible assets and liabilities:
Goodwill	$	16,122
Trademarks/Tradename		27,500
Technology		2,520
Customer relationships		580
Net liabilities assumed		(3,180	)
Total amount allocated	$	43,542

Net liabilities assumed:
Cash	$	37
Accounts Receivable		90
Other Current Assets		14
Accounts Payable		(645	)
Accrued Expenses		(226	)
Deferred Revenue		(1,775	)
Deferred tax liability		(675	)
	$	(3,180	)

Supplemental pro forma information

The following unaudited supplemental pro forma information summarizes 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 $000’s, except per share amounts
	2022		2021
Revenues	$	34,194	$	31,917
Net income	$	770	$	729
Basic earnings per share	$	0.20	$	0.18
Diluted earnings per share	$	0.20	$	0.18

                The unaudited pro forma combined financial information is presented for information purposes only and is not intended to represent or be indicative of the combined results of operations or financial position that we would have reported had the acquisitions been completed as of the date and for the periods presented and should not be taken as representative of our consolidated results of operations or financial condition following the acquisition.  In addition, the unaudited pro forma combined financial information is not intended to project the future financial position or results of operations of the combined company.

                The unaudited pro forma financial information was prepared using the acquisition method of accounting for the acquisition under existing US GAAP.  Issuer Direct has been treated as the acquirer.