v3.26.1
Note 3 - Business Combination
 6 Months Ended
Jun. 30, 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. 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. The Company will continue to evaluate and refine the allocation based on additional information obtained during the measurement period in accordance with ASC 805.

 

During the measurement period, there were changes to the preliminary purchase price allocation based on adjustments to the fair value of the acquired assets and assumed liabilities. The measurement period adjustment did not have a material impact on the condensed consolidated statements of operations. The following table summarizes the preliminary purchase price allocations relating to the Acquisition as of the Acquisition date and related adjustments thereafter (in thousands):

 

Description

 

As Originally Reported

  

Measurement Period Adjustments

  

As Adjusted

 

Assets acquired:

            

Cash and cash equivalents

 $29  $—  $29 

Accounts receivable

  1   —   1 

Prepaid expenses and other current assets

  74   —   74 

Property and equipment

  68   —   68 

Operating lease right-of-use assets

  948   —   948 

Intangible assets

  7,450   (3,333)  4,117 

Goodwill

  9,430   3,532   12,962 

Other non-current assets

  49   —   49 

Total assets acquired

 $18,049  $199  $18,248 
             

Liabilities assumed:

            

Accounts payable

 $204  $—  $204 

Accrued expenses

  509   —   509 

Current portion of operating lease liabilities

  554   —   554 

Deferred revenue

  171   —   171 

Deferred tax liability

  —   199   199 

Short-term notes payable

  1,400   —   1,400 

Notes payable

  64   —   64 

Operating lease liabilities

  394   —   394 

Total liabilities assumed

  3,296   199   3,495 

Total purchase price

 $14,753  $—  $14,753 

 

The Company recognized $13.0 million in total goodwill as of  June 30, 2026 which shows the net impact of the measurement period adjustments recorded as of June 30, 2026. 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

 

Applications

 $200  5 

FAA Part 135 Operating Certificate

  2,417 

Indefinite

 

Trademarks/ trade names

  1,300  15 

Customer list/ relationships

  200  15 
  $4,117    

 

 

Transaction costs incurred in connection with this business combination amounted to approximately $0.1 million during the six months ended June 30, 2026, and are included within selling, 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 and six months ended June 30, 2026 and 2025 is presented in thousands:

 

  

For the Three Months Ended June 30,

  

For the Six Months Ended June 30,

 
  

2026

  

2025

  

2026

  

2025

 

Revenue associated with the cardiac electrophysiology business

 $270  $212  $518  $355 

Revenue associated with the acquired FLYTE business

  749   800   1,456   981 

Total revenues, net

 $1,019  $1,012  $1,974  $1,336 
                 

Net loss associated with the cardiac electrophysiology business

 $(2,319) $(5,458) $(3,877) $(9,503)

Net loss associated with the acquired FLYTE business

  (987)  (142)  (1,085)  (797)

Total net loss

 $(3,306) $(5,600) $(4,962) $(10,300)