AgEagle Aerial Systems Inc 8-K/A, filed Jan 12, 2022
AgEagle Aerial Systems Inc. (UAVS)
About this 8-K/A
AgEagle Aerial Systems Inc filed this 8-K/A on January 12, 2022, reporting on events of April 19, 2021.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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Explanatory Note
On April 19, 2021, AgEagle Aerial Systems Inc. (the “Company”) entered into a stock purchase agreement (the “Purchase Agreement”) with the sellers named in the Purchase Agreement (the “Sellers”), completing the acquisition of 100% of the issued and outstanding capital stock of Measure Global Inc. (“Measure”) from the Sellers in accordance with the terms of the Purchase Agreement (the “Transaction”). Measure is an aerial intelligence company that builds software to automate drone operations’ workflows.
On April 23, 2021, the Company filed a Current Report on Form 8-K (the “Original Form 8-K”) reporting, among other items, the consummation of the Transaction.
On May 4, 2021, the Company filed an Amendment No. 1 on Form 8-K (“Form 8-K/A No. 1”) amending the Original Form 8-K to provide the audited financial statements of Measure and pro forma financial information.
This Amendment No. 2 on Form 8-K (“Form 8-K/A No. 2”) amends the Form 8-K/A No. 1 to provide the unaudited condensed balance sheets as of March 31, 2021 and December 31, 2020 and the related unaudited interim condensed statements of operations for the three month period ended March 31, 2021 and the two month period ended March 31, 2020, in addition to the interim pro forma financial information of Measure required by Item 9.01(b) of Form 8-K and the updated accompanying notes as of the date of filing.
Section 9 - Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The unaudited condensed balance sheets of Measure as of March 31, 2021 and December 31, 2020 and the related unaudited condensed statements of operations, stockholders’ equity and cash flows for the three month period ended March 31, 2021 and two month period ended March 31, 2020 are included as Exhibit 99.1 to this Form 8-K/A and are incorporated herein by reference.
(b) Pro Forma Financial Information
The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2020, as well as for the unaudited interim period ended March 31, 2021, and the unaudited pro forma condensed consolidated balance sheet as of March 31, 2021 and related notes to the unaudited pro forma condensed consolidated financial statements, are included as Exhibit 99.2 to this Form 8-K/A No. 2 and are incorporated herein by reference.
The Company is furnishing unaudited pro forma financial information in this Form 8-K/A No. 2 for informational purposes only to assist investors in formulating a comparative framework within which to analyze the Company’s financial performance. The unaudited pro forma financial information is not indicative of the results of operations that would have been achieved if the Transaction had taken place at the beginning of January 1, 2021 and 2020 and do not purport to project the future operating results of the consolidated company. In addition, the pro forma information is based upon the Company’s preliminary purchase price allocation and subject to change.
(c) Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AGEAGLE AERIAL SYSTEMS INC. | ||
| (Registrant) | ||
| Date: January 12, 2022 | ||
| By: | /s/ Nicole Fernandez-McGovern | |
| Nicole Fernandez-McGovern | ||
| Chief Financial Officer | ||
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 No. (File No. 333-252801) of AgEagle Aerial Systems Inc., of our report dated February 4, 2021, relating to the statement of comprehensive loss for the period January 6, 2020 (date of inception) to December 31, 2020 (Successor) of Measure Global Inc., which are referenced in the pro forma financials in this Current Report on Form 8-K/A of AgEagle Aerial Systems Inc.
/s/ Morison Cogen LLP
Blue Bell, PA
January 12, 2022
Exhibit 99.1
Measure Global Inc.
Unaudited Condensed Financial Statements
March 31, 2021
| F-1 |
| Measure Global, Inc. |
| March 31, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 727,979 | $ | 1,744,829 | ||||
| Accounts receivable | 246,878 | 144,244 | ||||||
| Prepaid and other current assets | 374,214 | 260,328 | ||||||
| Total current assets | 1,349,071 | 2,149,401 | ||||||
| Property and equipment, net | 15,724 | 7,542 | ||||||
| Intangible assets, net | 187,125 | 204,423 | ||||||
| Other assets | 39,775 | 39,775 | ||||||
| Total assets | $ | 1,591,695 | $ | 2,401,141 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 258,057 | $ | 325,683 | ||||
| Accrued expenses | 147,552 | 181,740 | ||||||
| Deferred revenue | 356,872 | 227,211 | ||||||
| Current portion of long-term debt | 4,153 | 4,153 | ||||||
| Deferred rent | 11,176 | — | ||||||
| Due to preferred stockholder | 336,780 | 336,119 | ||||||
| Convertible note payable, net of discount | 1,312,054 | 737,916 | ||||||
| Total current liabilities | 2,426,644 | 1,812,822 | ||||||
| Long term portion of promissory note | 189,640 | 189,177 | ||||||
| Other long-term debt | 34,826 | 34,826 | ||||||
| Total liabilities | 2,651,110 | 2,036,825 | ||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Total stockholders’ equity | (1,059,415 | ) | 364,316 | |||||
| Total liabilities and stockholders’ equity | $ | 1,591,695 | $ | 2,401,141 | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| F-2 |
| Measure Global, Inc. |
| For the Three | For the Two | |||||||
| Months Ended | Months Ended | |||||||
| March 31, 2021 | March 31, 2020 | |||||||
| Revenues | $ | 183,158 | $ | 33,105 | ||||
| Cost of sales | 112,150 | 15,014 | ||||||
| Gross Profit | 71,008 | 18,091 | ||||||
| Operating Expenses: | ||||||||
| General and administrative | 214,750 | 102,367 | ||||||
| Professional fees | 549,305 | 43,648 | ||||||
| Research and development | 293,926 | 93,487 | ||||||
| Sales and marketing | 225,343 | 86,402 | ||||||
| Total Operating Expenses | 1,283,324 | 325,904 | ||||||
| Loss from Operations | (1,212,316 | ) | (307,813 | ) | ||||
| Other Expenses (Income): | ||||||||
| Interest expense (income), net | 576,034 | (22 | ) | |||||
| Other expense (income) | (29,063 | ) | — | |||||
| Total Other Expenses (Income) | 546,971 | (22 | ) | |||||
| Loss Before Income Taxes | (1,759,287 | ) | (307,791 | ) | ||||
| Provision for income taxes | — | — | ||||||
| Net Loss | $ | (1,759,287 | ) | $ | (307,791 | ) | ||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| F-3 |
| Measure Global, Inc. |
| For the Three | For the Two | |||||||
| Months Ended | Months Ended | |||||||
| March 31, 2021 | March 31, 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Loss | $ | (1,759,287 | ) | $ | (307,791 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation & Amortization | 19,209 | 2,055 | ||||||
| Accrued interest | 574,601 | (22 | ) | |||||
| Fair value of warrants issued for services | 335,556 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (95,207 | ) | 174,417 | |||||
| Accounts receivable - related party | 16,815 | — | ||||||
| Prepaid expenses | (138,129 | ) | 15,477 | |||||
| Accounts payable | (67,626 | ) | (97,736 | ) | ||||
| Accrued expenses | (22,350 | ) | (1,889 | ) | ||||
| Deferred revenue | 129,661 | 25,284 | ||||||
| Net cash used in operating activities | (1,006,757 | ) | (190,205 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | (10,093 | ) | — | |||||
| Purchases of intangible assets, net of contributed assets | — | (74,299 | ) | |||||
| Net cash used in investing activities | (10,093 | ) | (74,299 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Capital contributions, preferred stock | — | 2,146,745 | ||||||
| Net cash provided by financing activities | — | 2,146,745 | ||||||
| Net change in cash | (1,016,850 | ) | 1,882,241 | |||||
| Cash at the beginning of the year | 1,744,829 | — | ||||||
| Cash at the end of the period | $ | 727,979 | $ | 1,882,241 | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| F-4 |
| Measure Global, Inc. |
| Condensed Interim Statements of Changes in Stockholders' Equity |
| For the Three Months Ended March 31, 2021 and Two Months Ended March 31, 2020 |
| (Unaudited) |
| Total | ||||||||||||||||||||||||||||
| net parent | ||||||||||||||||||||||||||||
| Additional | investment and | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | paid-in | Accumulated | stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | deficit | equity | ||||||||||||||||||||||
| Balance, January 31, 2020 | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Issuance of common stock upon incorporation | — | — | 100 | 0.1 | — | — | 0.1 | |||||||||||||||||||||
| Issuance of preferred stock in accordance with the contribution and exchange agreement | 4,800,000 | 4,800 | (100 | ) | (0.1 | ) | 1,959,009 | — | 1,963,809 | |||||||||||||||||||
| Issuance of common stock for notes receivable | — | — | 5,200,000 | 5,200 | 12,202 | — | 17,402 | |||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | (670 | ) | — | (670 | ) | |||||||||||||||||||
| Net loss | — | — | — | — | — | (307,791 | ) | (307,791 | ) | |||||||||||||||||||
| Balance, March 31, 2020 | 4,800,000 | $ | 4,800 | 5,200,000 | $ | 5,200 | $ | 1,970,541 | $ | (307,791 | ) | $ | 1,672,750 | |||||||||||||||
| Total | ||||||||||||||||||||||||||||
| net parent | ||||||||||||||||||||||||||||
| Additional | investment and | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | paid-in | Accumulated | stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | deficit | equity | ||||||||||||||||||||||
| Balance, December 31, 2020 | 4,800,000 | $ | 4,800 | 4,800,000 | $ | 4,800 | $ | 3,390,450 | ($ | 3,035,734 | ) | $ | 364,316 | |||||||||||||||
| Issuance of warrants in connection with consulting services | — | — | — | — | 335,556 | — | 335,556 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (1,759,287 | ) | (1,759,287 | ) | |||||||||||||||||||
| Balance, March 31, 2021 | 4,800,000 | $ | 4,800 | 4,800,000 | $ | 4,800 | $ | 3,726,006 | $ | (4,795,021 | ) | $ | (1,059,415 | ) | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
F-5
MEASURE GLOBAL INC.
Notes to Condensed Interim Financial Statements
For the Three Months Ended March 31, 2021
| (1) | Description of Business |
Measure Global Inc. (the “Company”) was incorporated as a Delaware Corporation on January 6, 2020. Prior to January 6, 2020, the Company was not a separate entity and was operating within Measure UAS Inc. (the “Preferred stockholder” or “UAS”). The Company is an aerial intelligence company that builds software to automate drone operations workflows. The Company sells its products primarily through its own sales personnel.
| (2) | Going Concern |
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company’s reliance on successfully obtaining additional capital in order to fund future operations raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
On April 19, 2021, the Company was acquired by AgEagle Aerial Systems, Inc. (“AgEagle”).
| (3) | Summary of Significant Accounting Policies |
| (a) | Basis of Presentation |
The financial statements and accompanying notes of the Company are prepared in accordance with generally accepted accounting principles (“GAAP”). Certain information and disclosures included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These interim condensed financial statements should be read in conjunction with the audited condensed financial statements and accompanying notes for the year ended December 31, 2020, included in the Current Report on Form 8-K of AgEagle, as filed with the Securities and Exchange Commission (the “SEC”) on May 4, 2021.
For the comparative period end ed March 31, 2020, the Company included two months of results in the statement of operations, statement of cash flows and statement of changes in stockholders’ equity, as the Company did not acquire the assets from UAS for the period January 6, 2020 (date of inception) through January 31, 2020, as described in the accompanying notes to the audited financial statements in the Current Report on Form 8-K of AgEagle, as filed with the SEC on May 4, 2021.
| (b) | Use of Estimates |
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in these financial statements include those used to (i) determine stock-based compensation, (ii) evaluate inventory for excess and obsolescence, and (iii) calculate fair values for warrants issued with debt.
| (c) | Cash |
Cash balances at March 31, 2021 totaled $727,979. The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company’s bank balances at times may exceed the FDIC limit. To date, the Company has not experienced any losses on its invested cash.
| (d) | Capitalized Software Costs |
The Company capitalizes software development costs based upon headcount allocation or identified vendors during the application development stage. Costs incurred before the software reaches technological feasibility are expensed, which for the Company’s software products, is generally shortly before the products are released to production. The capitalized software is amortized on a straight-line basis over its estimated useful life which is three years. The amortization expense is reflected in cost of revenues on the statement of operations. The Company evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
F-6
| (e) | Income Taxes |
Deferred taxes are provided on the liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities, and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
| (f) | Revenue Recognition |
The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers”. This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including (i) identifying the promised goods, (ii) evaluating performance obligations, (iii) measuring the transaction price, (iv) allocating the transaction price to the performance obligations if there are multiple components, and (v) recognizing revenue as each obligation is satisfied. The Company’s revenue transactions consist of software revenue from the platform and advisory services. Revenue is recognized when persuasive evidence of an arrangement exists, service has been provided to the customer, collection of the fees is reasonably assured, and fees are fixed or determinable.
The Company’s contracts with customers may include multiple services. For example, some of the Company’s contracts include both software licenses and integration. Determining whether the software licenses and the integration are distinct from each other, and therefore performance obligations to be accounted for separately, or not distinct from each other, and therefore part of a single performance obligation, may require significant judgment. The Company has concluded that the software licenses and integration services provided in subscription offerings are not distinct from each other and thus, should be considered a single performance obligation and the total revenue from the contract is recognized ratably over the subscription period of the software licenses. In reaching this conclusion, the Company considered that since the integration service requires customization of the software to function with the customer’s other computer programs and systems, the integration and software license are not separately identifiable and should be combined into a single performance obligation.
The Company’s revenues also include advisory services and training, which mainly consists of services for additional enhancements to the software, consulting, and training related to our platform. Professional services revenue is recognized over time with consideration given to output measures, such as contract deliverables, when applicable.
| (g) | Deferred Revenue |
The Company typically invoices customers in advance of fulfilling performance obligations. Deferred revenue represents the payments received in advance of the Company completing performance obligations. Revenue is generally recognized ratably over the contract term.
| (h) | Research and Development |
Research and development costs are expensed as incurred. Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development and programming costs. Costs related to software development are included in research and development expense until technological feasibility is reached, which for the Company’s software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized as a cost of revenue over the estimated lives of the products. Research and development costs were $293,926 for the three months ended March 31, 2021 and $93,487 for the two months ended March 31, 2020 .
F-7
| (i) | Comprehensive Income (Loss) |
The Company follows FASB ASC 220 in reporting comprehensive income (loss). Comprehensive income (loss) is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income (loss). Since the Company has no items of other comprehensive income (loss), comprehensive loss is equal to net income loss for all periods presented.
| (j) | Accounting Pronouncements Recently Adopted |
Management does not believe that recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying condensed financial statements.
| (4) | Property and Equipment |
Property and equipment comprise the following at March 31 , 2021 and December 31, 2020 :
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Computer equipment | $ | 31,654 | $ | 21,561 | ||||
| Accumulated depreciation | (15,930 | ) | (14,019 | ) | ||||
| Net carrying value | $ | 15,724 | $ | 7,542 | ||||
Depreciation expense was $1,911 for the three months ended March 31, 2021, and $2,055 for the two months ended March 31, 2020.
| (5) | Intangible Assets |
Intangible assets as of March 31, 2021:
| Intangibles | Accumulated | Net Book | ||||||||||||||
| Gross Cost | Amortization | Impairment | Value | |||||||||||||
| Domain Name | $ | 73,980 | $ | (25,893 | ) | $ | — | $ | 48,087 | |||||||
| Website Development | — | — | — | — | ||||||||||||
| Capitalized Software | 185,384 | (46,346 | ) | — | 139,038 | |||||||||||
| $ | 259,364 | $ | (72,239 | ) | $ | — | $ | 187,125 | ||||||||
Intangible assets as of December 31, 2020:
| Intangibles | Accumulated | Net Book | ||||||||||||||
| Gross Cost | Amortization | Impairment | Value | |||||||||||||
| Domain Name | $ | 73,980 | $ | (24,044 | ) | $ | — | $ | 49,936 | |||||||
| Website Development | — | — | — | — | ||||||||||||
| Capitalized Software | 185,384 | (30,897 | ) | — | 154,487 | |||||||||||
| $ | 259,364 | $ | (54,941 | ) | $ | — | $ | 204,423 | ||||||||
The 2021 capitalized software costs are in relation to the development of a new version of the Measure Ground Control platform. The new version of the platform was available as of July 1, 2020. Amortization is recognized on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. Amortization expense was $17,298 for the three months ended March 31, 2021, of which $15,448 was recorded as part of cost of revenues and $1,850 was recorded as part of selling, general and administrative expenses on the statement of operations. No amortization expense was reported for the two months ended March 31, 2020.
F-8
The following is an annual schedule of approximate future amortization of the Company’s intangible assets:
For the year ended December 31,
| 2021 | $ | 51,895 | ||
| 2022 | 69,193 | |||
| 2023 | 38,295 | |||
| 2024 and thereafter | 27,742 | |||
| Total | $ | 187,125 |
| (6) | Convertible Note Payable |
The Company entered into loan and security agreements dated September 30, 2020 whereby the holders have loaned the Company $1,250,000. The Company shall pay interest on the notes at a rate of 7% per annum. Accrued interest shall be payable in arrears in cash on the earlier of the maturity date or the date of conversion. The principal of the notes shall be repaid on the maturity date unless the principal amount is converted. The maturity date of the notes is the earliest of September 30, 2021, the consummation of the qualified IPO or the event of default. The notes are convertible into common stock of the Company at a price that is 80% of the IPO price per share.
As part of the convertible notes payable with the holders, 400,000 warrants to purchase the Company shares were issued to one holder and 100,000 warrants to purchase the Company shares were issued to the other holder. The warrants have a $2.50 exercise price and expire on September 30, 2025. The fair value price of the Company’s common stock was valued at $3.03 per share, using the Probability Weighted Expected Return Method (“PWERM”) pricing model to calculate the grant-date fair value of the common stock. The model applies a weighted average based on whether the IPO would be successful at 80% with the remaining 20% on remaining private. Assumptions such as expected term, discount rate and discount for lack of marketability varied based on the two potential outcomes. The warrants were valued at $730,000, fair value, using the Black-Scholes pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: fair value price per share of $3.03, no dividend yield, expected volatility of 50%, risk free interest rate of 0.11% and expected term of 5 years. The relative fair value of the warrants was $95,407 and was recorded as a discount to the note payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the period up to the earliest maturity date, which is estimated to be March 31, 2021. For the three months ended March 31, 2021 $47,704 was accreted through interest expense.
In addition, both holders were issued penny warrants that would be equal to 20% and 5% of the outstanding common shares post the IPO, respectively. The number of these warrants have been estimated at 2,000,000 and 500,000. The warrants have a $0.01 exercise price and expire on September 30, 2025. The fair value price of the Company’s common stock was valued at $3.03 per share, using the PWERM pricing model, as detailed above, to calculate the grant-date fair value of the common stock. The warrants were valued at $7,584,276, fair value, using the Black-Scholes pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: fair value price per share of $3.03, no dividend yield, expected volatility of 50%, risk free interest rate of 0.11% and expected term of 6 months. The relative fair value of the warrants was $991,225 and was recorded as a discount to the note payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the period up to the earliest maturity date, which is estimated to be March 31, 2021. For the three months ended March 31, 2021 $495,612 was accreted through interest expense.
The total relative fair value, on the date of issuance, of all of the above warrants issued with the convertible note was $1,086,632. As of March 31, 2021, the convertible note payable balance was $1,312,054 which includes accrued interest of $30,821 and is net of $0 discount.
F-9
| (7) | Long-Term Debt |
On January 31, 2020, the outstanding note that relates to the acquisition of Measure.com domain name was transferred to the Company from UAS. The note includes interest at a rate per annum of 15% and is paid in annual installments of principal and interest in the amount of $10,000 with the final payment due May 2026. Interest expense was $1,462 for the three months ended March 31, 2021 and for the two months ended March 31, 2020 no expense was recorded .
| (8) | Paycheck Protection Program Loan |
On May 7, 2020, the Company was granted a loan from Silicon Valley Bank in the aggregate amount of $187,982 pursuant to the Paycheck Protection Program (“PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The loan, which is in the form of a note dated May 5, 2020, matures on May 5, 2022 and bears interest at a rate of 1.00% per annum. The note may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. Payments were initially deferred for six months and then extended under the program until a forgiveness decision was made. The Company has applied for forgiveness as of March 31, 2021 and expects to receive full forgiveness. At March 31, 2021, the loan payable was $189,640 and includes accrued interest of $464 .
The PPP loan was forgiven by the Small Business Administration (“SBA”) on May 20, 2021.
| (9) | Stockholders’ Equity |
On January 6, 2020, 100 shares of Common Stock were issued at $0.001 par value to UAS to establish the Company. On January 31, 2020, the Common Stock was exchanged for 4,800,000 shares of Preferred Stock at a value of $1,963,809, represented by cash proceeds of $2,146,745 offset by the assumption of $182,936 in net liabilities of the predecessor company .
Warrants
In addition to the warrants related to the convertible note (See Note 6), the Company has issued the following warrants associated with two consulting agreements.
On September 25, 2020, the Company entered an agreement with an individual for a total of 416,000 warrants as compensation for consulting services. The agreement’s term is from October 1, 2020 through March 31, 2023. The warrants have a $0.01 exercise price. The number of warrants were estimated based on a percentage of ownership in the Company post IPO, as stated in the agreement. The warrants were valued at $1,262,024, fair value, using the Black-Scholes pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: fair value price per share of $3.03 (see Note 6 for valuation of common stock), no dividend yield, expected volatility of 50%, risk free interest rate of 0.11% and expected term of 6 months. The fair value of the warrants will be expensed over the 30-month service term. As of March 31, 2021, $126,202 has been recorded as consulting expense.
On October 7, 2020, the Company entered an agreement with an individual for a total of 414,055 warrants as compensation for consulting services. The agreement’s term is from October 1, 2020 through March 31, 2022. The warrants have a $0.01 exercise price. The number of warrants were estimated based on a percentage of ownership in the Company post IPO, as stated in the agreement. The warrants were valued at $1,256,123, fair value, using the Black-Scholes pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: fair value price per share of $3.03 (see Note 6 for valuation of common stock), no dividend yield, expected volatility of 50%, risk free interest rate of 0.11% and expected term of 6 months. The fair value of the warrants will be expensed over the 18-month service term. As of March 31, 2021, $209,354 has been recorded as consulting expense.
At March 31, 2021, the remaining unamortized expense of these warrants is $1,847,034.
F-10
The following table summarizes the issuances of warrants for the three months ended March 31, 2021:
| Remaining | ||||||||||||
| Contractual | ||||||||||||
| Number of | Exercise | Term | ||||||||||
| Warrants | Price | (in years) | ||||||||||
| Outstanding as of December 31, 2020 | 3,830,055 | 0.34 | 4.10 | |||||||||
| Outstanding as of March 31, 2021 | 3,830,055 | 0.34 | 3.85 | |||||||||
| Exercisable at March 31, 2021 | 3,830,055 | 0.34 | 3.85 | |||||||||
| (10) | Related Party Transactions |
In January 2020, a common stockholder of the Company entered into agreement with UAS to provide legal services on behalf of UAS. This agreement was transferred to the Company on January 31, 2020. The agreement calls for monthly fixed payments of $10,000. Amounts included in legal expense were $30,000 for the three month ended March 31, 2021. At March 31, 2021, $10,000 is included in accrued expenses on the Balance Sheet. At December 31, 2020, $10,000 is included in accrued expenses on the Balance Sheet.
As mentioned above in Note 3(a), at the time of the UAS capital contribution, UAS transferred $364,000 in cash to the Company that was recorded as a payable due to UAS. During 2020, the Company paid some invoices on behalf of UAS and recorded these invoices against the payable due to UAS. The net amount due to Preferred stockholder at December 31, 2020 is $336,780 and is recorded on the face of the Balance Sheet.
The Company’s CEO acts as Chairman of the Board of a customer. For the period ended March 31, 2021, revenue from this customer was $621 and $6,726 is due from this customer for billings to another customer collected on behalf of the Company. For the period ended March 31, 2020, revenue from this customer was $0 and $23,541 is due from this customer for billings to another customer collected on behalf of the Company.
| (11) | Commitments and Contingencies |
Legal Matters
In the Contribution and Exchange Agreement dated January 31, 2020, the Company assumed certain assets and liabilities of UAS, including a subcontract between UAS and a software development vendor (“Vendor”). Under that subcontract, the vendor claimed past due payments of $191,743, including penalties and late interest. The Company has contested the amounts owed based on non-performance by the Vendor. The subcontract related to an SAP integration project completed in 2019, where the Vendor was replaced by another vendor. In a letter dated September 15, 2020, the Vendor lowered the amount in dispute to $143,807. The Company has made a settlement offer of approximately $20,000. The $143,807 disputed liability is reflected in the accounts payable balance as of March 31, 2021, as the parties continue to hold discussions in an effort to resolve the matter.
Operating Leases
The Company leases its office space in Washington, D.C., under an operating lease expiring in September 2021. Rent expense was $20,667 for the period ended March 31, 2021.
On December 1, 2020, the Company signed a lease for an office in Austin, Texas. The commitment term is for 12 months and began on January 1, 2021. Rent expense was $7,280 for the period ended March 31, 2021.
Future minimum lease payments for the offices as of March 31, 2021 are as follows:
| Amount | ||||
| Year ending December 31: | ||||
| 2021 | $ | 94,110 | ||
F-11
| (12) | Subsequent Events |
On April 19, 2021, AgEagle Aerial Systems Inc. entered into a stock purchase agreement (the “Purchase Agreement”) with Brandon Torres Declet, in his capacity as Sellers’ representative, and the sellers named in the Purchase Agreement (the “Sellers”) pursuant to which AgEagle agreed to acquire 100% of the issued and outstanding capital stock of Measure Global Inc., a Delaware corporation (“Measure”) from the Sellers. The aggregate purchase price for the shares of Measure is $45,000,000, less the amount of Measure’s debt and transaction expenses and subject to a customary working capital adjustment. The purchase price is comprised of $15,000,000 in cash, and shares of common stock of AgEagle, par value $0.001 (“Common Stock”), having an aggregate value of $30,000,000 based on a volume weighted average trading price of the Common Stock over a seven consecutive trading day period prior to the date of issuance of the shares of Common Stock to the Sellers (the “Shares”). AgEagle will issue 5,319,149 Shares, in the aggregate, to the Sellers , with 4,321,807 of those Shares issued at closing and the remaining 997,342 Shares subject to a holdback . $5,000,000 of the cash portion of the purchase price is payable 90 days after the closing date of the transaction. As a result of the transaction, Measure is now a wholly-owned subsidiary of AgEagle.
The consideration is also subject to a $5,625,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback is scheduled to be released on the date that is 18 months from the closing date, less any amounts paid or reserved for outstanding indemnity claims and certain amounts subject to employee retention conditions set forth in the Purchase Agreement.
The PPP loan was forgiven by the SBA on May 20, 2021.
F-12
Exhibit 99.2
| AgEagle Aerial Systems Inc. and Subsidiaries |
| Pro Forma Condensed Consolidated Balance Sheet |
| As of March 31, 2021 |
| (Unaudited) |
| AgEagle Aerial Systems Inc. And Subsidiaries Historical | Measure Global Inc. Historical | Pro Forma Adjustments | Note 4 | AgEagle Aerial Systems Inc. And Subsidiaries Pro Forma | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
| CURRENT ASSETS: | ||||||||||||||||||||
| Cash | $ | 24,193,542 | $ | 727,979 | $ | (9,925,295 | ) | (A) | $ | 14,996,226 | ||||||||||
| Accounts receivable | 380,419 | 246,878 | — | 627,297 | ||||||||||||||||
| Inventories, net | 894,811 | — | — | 894,811 | ||||||||||||||||
| Prepaid and other current assets | 282,869 | 374,214 | (179,995 | ) | (B) | 477,088 | ||||||||||||||
| Notes receivable | 500,000 | — | — | 500,000 | ||||||||||||||||
| Total current assets | 26,251,641 | 1,349,071 | (10,105,290 | ) | 17,495,422 | |||||||||||||||
| Property and equipment, net | 299,259 | 154,762 | — | 454,021 | ||||||||||||||||
| Right of use asset | 1,136,742 | — | — | 1,136,742 | ||||||||||||||||
| Intangible assets, net | 3,667,492 | 48,087 | 2,668,689 | (C) | 6,384,268 | |||||||||||||||
| Goodwill | 22,116,591 | — | 42,488,730 | (C) | 64,605,321 | |||||||||||||||
| Other assets | 25,000 | 39,775 | — | 64,775 | ||||||||||||||||
| Total assets | $ | 53,496,725 | $ | 1,591,695 | $ | 35,052,129 | $ | 90,140,549 | ||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||||||||
| Accounts payable | $ | 492,921 | $ | 258,057 | $ | — | $ | 750,978 | ||||||||||||
| Accrued expenses | 3,581,902 | 147,552 | (32,092 | ) | (A) | 3,697,362 | ||||||||||||||
| Deferred revenue | 65,893 | 356,872 | — | 422,765 | ||||||||||||||||
| Current portion of lease liability | 244,826 | — | — | 244,826 | ||||||||||||||||
| Current portion of promissory note | 102,962 | — | — | 102,962 | ||||||||||||||||
| Current portion of liabilities related to acquisition agreement | 4,578,775 | — | 5,000,000 | (D) | 9,578,775 | |||||||||||||||
| Current portion of long-term debt | — | 4,153 | (4,153 | ) | (A) | — | ||||||||||||||
| Deferred rent | — | 11,176 | — | 11,176 | ||||||||||||||||
| Due to preferred stockholder | — | 336,780 | (336,780 | ) | (A) | — | ||||||||||||||
| Convertible note payable, net of discount | — | 1,312,054 | (1,312,054 | ) | (A) | — | ||||||||||||||
| Total current liabilities | 9,067,279 | 2,426,644 | 3,314,921 | 14,808,844 | ||||||||||||||||
| Long term portion of lease liability | 894,210 | — | — | (E) | 894,210 | |||||||||||||||
| Long term portion of promissory note | 4,477 | 189,640 | (189,640 | ) | (A) | 4,477 | ||||||||||||||
| Long term portion of acquisition | 5,000,000 | — | 5,625,000 | (D) | 10,625,000 | |||||||||||||||
| Other long-term debt | — | 34,826 | (34,826 | ) | (A) | — | ||||||||||||||
| Total liabilities | 14,965,966 | 2,651,110 | 8,715,455 | 26,332,531 | ||||||||||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||||||||||||||
| Total stockholders’ equity | 38,530,759 | (1,059,415 | ) | 26,336,674 | (A)(B)(C)(D)(F)(G) | 63,808,018 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 53,496,725 | $ | 1,591,695 | $ | 35,052,129 | $ | 90,140,549 | ||||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
| AgEagle Aerial Systems Inc. and Subsidiaries |
| Pro Forma Condensed Consolidated Statement of Operations |
| Three Months Ended March 31, 2021 |
| (Unaudited) |
| AgEagle Aerial Systems, Inc. And Subsidiaries Historical (1) | Measure Global Inc. Historical | Pro Forma Adjustments | Note 4 | AgEagle Aerial Systems, Inc. And Subsidiaries Pro Forma | ||||||||||||||||
| Revenues | $ | 1,701,592 | $ | 183,158 | $ | — | $ | 1,884,750 | ||||||||||||
| Cost of sales | 621,904 | 112,150 | — | 734,054 | ||||||||||||||||
| Gross Profit | 1,079,688 | 71,008 | — | 1,150,696 | ||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||
| General and administrative | 1,851,653 | 214,750 | 114,829 | (F) | 2,181,232 | |||||||||||||||
| Professional fees | 1,658,326 | 549,305 | ( 479,494 | ) | (B) | 1,728,137 | ||||||||||||||
| Research and development | 232,804 | 293,926 | — | 526,730 | ||||||||||||||||
| Sales and marketing | 297,705 | 225,343 | — | 523,048 | ||||||||||||||||
| Total Operating Expenses | 4,040,488 | 1,283,324 | ( 364,665 | ) | 4,959,147 | |||||||||||||||
| Loss from Operations | (2,960,800 | ) | ( 1,212,316 | ) | 364,665 | (3,808,451 | ) | |||||||||||||
| Other Income (Expenses): | ||||||||||||||||||||
| Interest income (expense), net | 2,851 | (576,034 | ) | 576,034 | (G) | 2,851 | ||||||||||||||
| Other income | 27,419 | 29,063 | — | 56,482 | ||||||||||||||||
| Total Other Income (Expenses) | 30,270 | (546,971 | ) | 576,034 | 59,333 | |||||||||||||||
| Loss Before Income Taxes | (2,930,530 | ) | ( 1,759,287 | ) | 940,699 | (3,749,118 | ) | |||||||||||||
| Provision for income taxes | — | — | — | — | ||||||||||||||||
| Net Loss Available to Common Stockholders | $ | (2,930,530 | ) | $ | ( 1,759,287 | ) | $ | 940,699 | $ | (3,749,118 | ) | |||||||||
| Net Loss Per Common Share - Basic and Diluted | $ | (0.05 | ) | $ | — | $ | — | $ | (0.06 | ) | ||||||||||
| Weighted Average Number of Shares Outstanding During the Period -- Basic and Diluted | 61,294,205 | — | 4,321,807 | 65,616,012 | ||||||||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
| (1) | Correction of Prior Period Information – During the review of the Company’s financial statements for the interim period June 30, 2021, the Company identified an error in the accounting and presentation of revenue and related expenses recorded for the MicaSense acquisition related to the three months ended March 31, 2021. This error resulted in the recording of $394,743 in additional revenue, $129,510 in additional cost of goods sold, and $232,252 in additional operating expenses, resulting in additional net income of $32,033. If reported correctly, the Company would have recorded $1,306,849 in revenue, $492,394 in cost of goods sold, $3,808,236 in operating expenses, and a net loss of ($2,962,563) for the three months ended March 31, 2021. To correct this error, the Company recorded the correction in the three-month period ended June 30, 2021. Instead, the Company recorded revenue of $1,701,592, cost of goods sold of $621,904, operating expenses of $4,040,488, and a net loss of ($2,930,530) for the three months ended March 31, 2021. If reported correctly for the three months ended June 30, 2021, then the Company would have reported $2,332,107 in revenue, $1,088,739 in cost of goods sold, $6,030,872 in operating expenses, and a net loss of ($4,646,139). In accordance with the SEC’s Staff Accounting Bulletin Nos. 99 and 108 (SAB 99 and SAB 108), the Company evaluated this error and concluded that although the adjustment to revenue was quantitatively material, the cumulative effects were quantitatively and qualitatively immaterial and would not have materially impacted a reasonable investor’s opinion of the Company. This is further supported by the fact that the impact would not have been significant in comparison to prior periods, as the financial results still supported the Company’s increased year-over-year growth in revenue as reported and discussed in both periods within the Management Discussion & Analysis. Therefore, as permitted by SAB 108 and treated under ASC 250 revisions, the Company corrected previously recorded results for the three and six months ended June 30, 2021, to account for the error in this current filing. As a result, the statement of operations for the six months ended June 30, 2021 reflects the corrected revenues, cost of goods sold, operating expenses and net loss. |
| AgEagle Aerial Systems Inc. and Subsidiaries |
| Pro Forma Condensed Consolidated Statement of Operations |
| Year Ended December 31, 2020 |
| (Unaudited) |
| AgEagle Aerial Systems, Inc. And Subsidiaries Historical | Measure Global Inc. Historical | Pro Forma Adjustments | Note 4 | AgEagle Aerial Systems, Inc. And Subsidiaries Pro Forma | ||||||||||||||||
| Revenues | $ | 1,285,383 | $ | 350,326 | $ | — | $ | 1,635,709 | ||||||||||||
| Cost of sales | 711,650 | 152,514 | — | 864,164 | ||||||||||||||||
| Gross Profit | 573,733 | 197,812 | — | 771,545 | ||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||
| Selling expenses | 40,003 | — | — | 40,003 | ||||||||||||||||
| General and administrative | 2,732,274 | 1,391,145 | 459,318 | (F) | 4,582,737 | |||||||||||||||
| Professional fees | 2,703,371 | — | — | 2,703,371 | ||||||||||||||||
| Research and development | 29,392 | 711,943 | — | 741,335 | ||||||||||||||||
| Sales and marketing | — | 556,885 | — | 556,885 | ||||||||||||||||
| Total Operating Expenses | 5,505,040 | 2,659,973 | 459,318 | 8,624,331 | ||||||||||||||||
| Loss from Operations | (4,931,307 | ) | (2,462,161 | ) | (459,318 | ) | (7,852,786 | ) | ||||||||||||
| Other Expenses: | ||||||||||||||||||||
| Loss on disposal of fixed assets | (594 | ) | — | — | (594 | ) | ||||||||||||||
| Interest expense, net | (549 | ) | (573,573 | ) | 573,573 | (G) | (549 | ) | ||||||||||||
| Total Other Expenses | (1,143 | ) | (573,573 | ) | 573,573 | (1,143 | ) | |||||||||||||
| Loss Before Income Taxes | (4,932,450 | ) | (3,035,734 | ) | 114,255 | (7,853,929 | ) | |||||||||||||
| Provision for income taxes | — | — | — | — | ||||||||||||||||
| Net Loss | (4,932,450 | ) | (3,035,734 | ) | 114,255 | (7,853,929 | ) | |||||||||||||
| Deemed dividends on redemption of Series D Preferred Stock | (3,763,591 | ) | — | — | (3,763,591 | ) | ||||||||||||||
| Deemed dividends on Series C Preferred Stock and Series D warrants | (4,050,838 | ) | — | — | (4,050,838 | ) | ||||||||||||||
| Deemed dividends on issuance and repurchase of Series E Preferred Stock | (1,227,120 | ) | — | — | (1,227,120 | ) | ||||||||||||||
| Series D Preferred stock dividends | (69,778 | ) | — | — | (69,778 | ) | ||||||||||||||
| Net Loss Available to Common Stockholders | $ | (14,043,777 | ) | $ | (3,035,734 | ) | $ | 114,255 | $ | (16,965,256 | ) | |||||||||
| Net Loss Per Common Share - Basic and Diluted | $ | (0.35 | ) | $ | — | $ | — | $ | (0.38 | ) | ||||||||||
| Weighted Average Number of Shares Outstanding During the Period -- Basic and Diluted | 40,688,019 | — | 4,321,807 | 45,009,826 | ||||||||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements
Note 1. Basis of Presentation
The unaudited pro forma condensed consolidated financial statements have been prepared using AgEagle Aerial Systems Inc.’s (“the Company”) and Measure Global Inc.’s (“Measure”) historical financial information and present the pro forma effect of the acquisition and certain adjustments described herein in accordance with Article 11 of Regulation S-X. The historical financial information of the Company and Measure has been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The historical financial information of the Company and the information presented herein are in U.S. dollars (“USD”) unless otherwise stated.
The unaudited pro forma condensed consolidated financial statements were prepared using the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Topic 805, Business Combinations (“ASC 805”) with the Company considered the acquirer of Measure (“the Acquisition”) for accounting purposes. The pro forma condensed consolidated financial statements are provided for illustrative purposes only and are not intended to represent, and are not necessarily indicative of, what the operating results or financial position of the Company would have been had the Acquisition been completed on the dates indicated, nor are they necessarily indicative of the Company’s future operating results or financial position. The pro forma condensed consolidated balance sheet gives effect to the transaction as if the Acquisition occurred on March 31, 2021 and the pro forma condensed consolidated statements of operations give effect to the transaction as if it occurred on January 1, 2021 and 2020. The pro forma financial information does not reflect the impacts of any potential operational efficiencies, asset dispositions, cost savings or economies of scale that the Company may achieve with respect to the Acquisition. Additionally, the unaudited pro forma condensed consolidated statements of operations do not include non-recurring charges or credits that result directly from the Acquisition. Differences between estimates used in the purchase price allocation included within these unaudited pro forma consolidated financial statements and the final purchase price allocation amounts will occur, and these differences could have a material impact on the accompanying unaudited pro forma condensed consolidated financial statements or future financial statements.
The historical financial information has been adjusted in the unaudited pro forma condensed consolidated financial statements to give effect to pro forma events that are (1) directly attributable to the Acquisition, (2) factually supportable, and (3) expected to have a continuing impact on the consolidated results of the combined companies.
Note 2. Description of the Transaction
The aggregate purchase price for the shares of Measure is $45,000,000, less the amount of Measure’s debt and transaction expenses and subject to a customary working capital adjustment. The purchase price is comprised of $15,000,000 in cash, and shares of common stock of the Company, par value $0.001 (“Common Stock”), having an aggregate value of $30,000,000 based on a volume weighted average trading price of the Common Stock over a seven consecutive trading day period prior to the date of issuance of the shares of Common Stock to the Sellers (the “Shares”). The Company will issue 5,319,149 Shares, in the aggregate, to the Sellers , with 4,321,807 of those Shares issued at closing and the remaining 997,342 Shares subject to a holdback . $5,000,000 of the cash portion of the purchase price is payable 90 days after the closing date of the transaction. As a result of the transaction, Measure is now a wholly-owned subsidiary of the Company.
The consideration is also subject to a $5,625,000 holdback to cover any post-closing indemnification claims and to satisfy any purchase price adjustments. The holdback is scheduled to be released in three tranches on the dates that are 12, 18 and 24 months from the closing date, less any amounts paid or reserved for outstanding indemnity claims and certain amounts subject to employee retention conditions set forth in the Purchase Agreement.
The Purchase Agreement contains certain customary representations, warranties and covenants, including representations and warranties by the Sellers with respect to Measure’s business, operations and financial condition. The Purchase Agreement also includes post-closing covenants relating to the confidentiality and employee non-solicitation obligations of the Sellers, and the agreement of the Sellers not to compete with certain aspects of the business of Measure following the closing of the transaction. The completion of the transactions contemplated by the Purchase Agreement is subject to: (i) the absence of a material adverse effect on Measure, (ii) the delivery by the parties of certain ancillary documents, and (iii) the execution by key employees of Measure of employment offer letters. Subject to certain limitations, each of the parties will be indemnified for damages resulting from third party claims and breaches of the parties’ respective representations, warranties and covenants in the Purchase Agreement.
Note 3. Purchase Consideration and Preliminary Purchase Price Allocation
The fair value of the purchase consideration was allocated to the preliminary fair value of the net tangible assets acquired and to the separately identifiable intangible assets. The excess of the aggregate fair value of the net tangible assets and identified intangible assets has been treated as goodwill in accordance with ASC 805.
The Company has performed a preliminary valuation analysis of the fair market value of the assets to be acquired and liabilities to be assumed. Using the total consideration for the Acquisition, the Company has estimated the allocations to such assets and liabilities.
The preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of tangible assets; (2) changes in allocations to intangible assets such as trade names, developed technology and customer relationships, as well as goodwill; and (3) other changes to assets and liabilities.
The following table summarizes the allocation of the preliminary purchase price as of the acquisition date of April 19, 2021:
| Calculation of Goodwill: | ||||
| Net purchase price, including debt paid at close | $ | 45,403,394 | ||
| Plus fair value of liabilities assumed: | ||||
| Deferred revenue | 319,422 | |||
| Fair value of liabilities assumed | $ | 319,422 | ||
| Less fair value of assets acquired: | ||||
| Cash | 486,544 | |||
| Other tangible assets | 39,078 | |||
| Identifiable intangibles | 2,668,689 | |||
| Fair value of assets acquired | $ | 3,194,311 | ||
| Net nonoperating assets | 39,775 | |||
| Goodwill | $ | 42,488,730 |
4. Pro Forma Adjustments
The pro forma adjustments in the unaudited pro forma condensed consolidated balance sheet as of March 31, 2021 and the unaudited pro forma condensed consolidated statements of operations for the periods ended March 31, 2021 and December 31, 2020 are as follows:
| (A) | Adjustments to pay the sellers in the transaction and remove liabilities as per the purchase agreement upon closing: | |||||
| Cash paid to sellers per the purchase agreement | $ | 8,613,242 | ||||
| Cash paid to repay debt and accrued interest associated with Measure per the purchase agreement | 1,312,054 | |||||
| $ | 9,925,295 | |||||
| (B) | Adjustments to Measure’s prepaid expenses and professional fees related to an abandoned initial public offering: | |||||
| To remove prepaid IPO expenses | $ | 179,995 | ||||
| To remove professional fees from consultants who were retained to help with the IPO | 479,494 | |||||
| (C) | Adjustments to record intangibles and goodwill per valuation report of Measure as part of purchase price accounting: | |||||
| To record intangibles as identified per valuation report of Measure | $ | 2,668,689 | ||||
| To record goodwill as identified per valuation report of Measure | 42,488,730 | |||||
| (D) | Adjustments to book future payments to the sellers in the transaction as per the purchase agreement: | |||||
| Cash to be paid 90-days after closing per the purchase agreement | $ | 5,000,000 | ||||
| Holdback stock of 997,342 Shares to be paid in three tranches on April 19, 2022, October 19, 2022 and April 19, 2023 per the purchase agreement | 5,625,000 | |||||
| $ | 10,625,000 | |||||
| (E) | Represents the deferred tax impact associated with the incremental differences in book and tax basis created from the preliminary purchase price allocation resulting from the step up in fair value of intangible assets. This estimate of deferred income tax liabilities is preliminary and is subject to change based upon the final determination of the fair value of assets acquired and liabilities assumed. | $ | — | |||
| (F) | Adjustment to record amortization from new intangibles: | |||||
| Added amortization from new intangibles per valuation report of Measure for the period ended March 31, 2021 | $ | 114,829 | ||||
| Added amortization from new intangibles per valuation report of Measure for the period ended December 31, 2020 | 459,318 | |||||
| (G) | Adjustments to Measure’s existing interest expense and other expense related to debt and other assets eliminated at closing: | |||||
| To remove interest expense related to debt for the period ended March 31, 2021 | $ | 576,034 | ||||
| To remove interest expense related to debt for the period ended December 31, 2020 | 573,573 |