v3.26.1
Note 3 - Business Combination
 3 Months Ended
Mar. 31, 2026
Notes to Financial Statements  
Business Combination [Text Block]

Note 3. Business Combination

 

On February 6, 2026, the Company entered into an Acquisition Purchase Agreement with SEG Jets, whereby the Company agreed to acquire 19.98% of the issued and outstanding shares of common stock of FLYTE. The Company was obligated to issue to the sellers an aggregate of 5,250 shares of the Company’s Series D Convertible Preferred Stock which was recorded as the first component of deferred consideration as of February 6, 2026.

 

On March 9, 2026, the Company entered into an Acquisition Purchase Agreement with Creatd and acquired the remaining 80.02% of the issued and outstanding shares of common stock of FLYTE and 100% of the membership interests of Ponderosa. The Company was obligated to issue to the sellers an aggregate of 5,778 additional shares of the Company’s Series D Convertible Preferred Stock which was recorded as the second component of deferred consideration as of March 9, 2026. The purpose of the Acquisition was to acquire FLYTE’s and Ponderosa’s operations related to aviation, assets, and technology platform.

 

After obtaining a controlling interest in FLYTE, the Company remeasured its previously held minority equity interest to fair value as of the Acquisition date and recorded a change in fair value of minority equity interest of $2.3 million in the condensed consolidated statements of operations. This effectively reduced the fair value of the minority equity interest from $5.2 million to $2.9 million as of the Acquisition date. The fair value of the investment was determined based on the implied transaction value of FLYTE, which was derived from the purchase price paid to acquire the remaining 80.02% interest in FLYTE. 

 

In consideration for the Acquisition, the Company paid cash at closing, settled certain indebtedness on behalf of the seller, issued a short-term promissory note, and recorded the deferred consideration obligation to issue 5,778 additional shares of the Company’s Series D Convertible Preferred Stock. The total purchase consideration for the Acquisition was $14.8 million, which consists of the following estimated fair value amounts (in thousands):

 

Description

 

Fair Value

 

Cash proceeds to seller

 $685 

Fair value of promissory note

  4,788 

Payment of indebtedness

  554 

Fair value of previously held minority equity interest of step acquiree

  2,948 

Fair value of deferred consideration

  5,778 

Total purchase price

 $14,753 

 

The Acquisition is being accounted for as a business combination in accordance with ASC Topic 805. The Company estimated the fair values of the assets acquired and liabilities assumed in the Acquisition. These values have been prepared based on preliminary estimates of the fair value of the consideration paid, assets acquired and liabilities assumed. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences could be material.

 

The following table summarizes the preliminary purchase price allocations relating to the Acquisition (in thousands):

 

Description

 

Fair Value

 

Assets acquired:

    

Cash and cash equivalents

 $29 

Accounts receivable

  1 

Prepaid expenses and other current assets

  74 

Property and equipment

  68 

Operating lease right-of-use assets

  948 

Intangible assets

  7,450 

Goodwill

  9,430 

Other non-current assets

  49 

Total assets acquired

 $18,049 
     

Liabilities assumed:

    

Accounts payable

 $204 

Accrued expenses

  509 

Current portion of operating lease liabilities

  554 

Deferred revenue

  171 

Short-term notes payable

  1,400 

Notes payable

  64 

Operating lease liabilities

  394 

Total liabilities assumed

  3,296 

Total purchase price

 $14,753 

 

The Company recognized $9.7 million in total goodwill after recording an additional $0.3 million goodwill related to the recognition of deferred tax liabilities associated with the acquisition. All intangible assets acquired are subject to amortization and their associated estimated acquisition date fair values and estimated useful lives are as follows (in thousands except for estimated useful life which is in years):

 

  

Estimated

 

Estimated

 

Intangible Assets

 

Fair Value

 

Useful Life

 

Licensing agreements/ vendor and supplier contracts

 $300  5 

Applications

  400  5 

Technology

  1,000  10 

FAA Part 135 Operating Certificate

  1,500 

Indefinite

 

Trademarks/ trade names

  1,250  15 

Customer list/ relationships

  3,000  15 
  $7,450    

 

The impact of the acquisition’s preliminary purchase price allocations on the Company’s consolidated balance sheet and the acquisition date fair value of the total consideration transferred is depicted in the table below. Due to the timing of the closing of the transaction in the first quarter of 2026, the Company has not yet completed its evaluation and determination of certain assets acquired and liabilities assumed, primarily the final valuation of goodwill and intangible assets; therefore, the final fair value of the assets acquired and liabilities assumed, which will be completed within the measurement period of up to one year from the acquisition date,  may vary from the Company’s preliminary estimates.

 

Transaction costs incurred in connection with this business combination amounted to approximately $0.1 million during the three months ended March 31, 2026, and are included within general and administrative expenses in the condensed consolidated statements of operations.

 

Pro Forma Financial Information

 

The following table represents the revenue and net loss, of the acquired entities, as reported on a pro forma basis as if the Acquisition occurred on January 1, 2025. These pro forma results are not necessarily indicative of the results that would have occurred if the Acquisition had occurred on the first day of the period presented, nor does the pro forma financial information purport to represent the results of operations for future periods. The following information for three months ended March 31, 2026 and 2025 is presented in thousands except for the per share data:

 

  

For the Three Months Ended March 31,

 
  

2026

  

2025

 

Revenue associated with the cardiac electrophysiology business

 $248  $143 

Revenue associated with the acquired FLYTE business

  708   181 

Total revenues, net

 $956  $324 
         

Net loss associated with the cardiac electrophysiology business

 $(1,558) $(4,045)

Net loss associated with the acquired FLYTE business

  (98)  (655)

Total net loss

 $(1,656) $(4,700)