Note 4. Acquisitions

Acquisition of Red Barn

On March 1, 2021, the Company completed the acquisition of Red Barn, in a transaction deemed immaterial to the Company. The Red Barn acquisition was accounted for as a business combination using the acquisition method of accounting.

Acquisition of Naberly

On March 1, 2021 the Company acquired substantially all of the assets of Naberly for cash consideration of $2.7 million. Based on the Company’s preliminary estimation of the fair value of the assets acquired, the Naberly acquisition was accounted for as an asset acquisition. The total acquisition cost, including transaction costs of approximately $0.1 million was $2.8 million and was recorded as software intangible assets.

During the year ended December 31, 2020, in connection with, and in advance of the closing under the asset purchase agreement to acquire the assets of Naberly, the Company issued to Naberly, an unsecured loan (the “Loan”) in the principal amount of up to $0.2 million with an interest rate of two percent (2%) per annum, compounded annually, and a maturity date of February 28, 2021. The outstanding principal balance of the Loan was forgiven in connection with the closing of the acquisition and was accounted for as part of the purchase consideration transferred to Naberly.

Acquisition of E4:9

On April 16, 2021 the Company purchased 100% of outstanding capital stock of E4:9. The Company accounted for the E4:9 acquisition as a business combination. The purchase price consisted of $9.8 million cash consideration and $16.6 million common stock consideration for a total purchase price of $26.5 million. The aggregate purchase price exceeded the fair value of the net tangible and intangible assets acquired, and accordingly the Company recorded goodwill of approximately $14.9 million, including a $0.4 million subsequent fair value adjustment discussed below.

The total purchase consideration and the fair values of the assets and liabilities at the acquisition date were as follows:

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The Company recognized approximately $0.3 million of acquisition related costs that were expensed in the nine months ended September 30, 2021 and are included in general and administrative expenses.

Goodwill of approximately $7.4 million and $7.0 million was assigned to the Company’s Mortgage and Other services reporting units, respectively, and is attributable primarily to its assembled workforce and the anticipated future economic benefits of the vertical integration of E4:9’s mortgage lending and insurance product offerings available to our real estate agents. None of the goodwill is expected to be deductible for income tax purposes.

The fair value associated with identifiable intangible assets was $11.8 million, comprised of customer relationships of $6.2 million, tradenames of $5.2 million and know-how of $0.4 million. Customer relationships is being amortized on an accelerated basis over a useful life of 8 years. Tradenames and know-how are amortized on a straight-line basis over 10 years and 5 years, respectively.

The Company finalized the fair value estimates used in the purchase price allocation related to the E4:9 acquisitions during the quarter ended June 30, 2022, resulting in a $0.4 million adjustment to lower the fair value of accounts receivable assumed to be $0.5 million with an offsetting increase to goodwill in our Corporate and other services reporting unit.

The Company’s condensed consolidated financial statements include the results of operations of E4:9 since the closing on April 16, 2021. During the three-month periods ended September 30, 2022 and 2021 E4:9 contributed $4.6 million and $4.0 million in revenues and $1.2 million and $1.0 million in net loss, respectively. During the nine-month period ended September 30, 2022 and from the acquisition closing on April 16, 2021 through September 30, 2021, E4:9 contributed $13.2 million and $6.9 million in revenues and $5.1 million and $2.6 million in net loss, respectively.

Acquisition of LiveBy

On April 20, 2021 the Company purchased 100% of the outstanding capital stock of LiveBy Inc. The Company accounted for the LiveBy acquisition as a business combination. The purchase price consisted of $3.4 million cash consideration and $5.6 million common stock consideration for a total purchase price of $9.0 million. The aggregate purchase price exceeded the fair value of the net tangible and intangible assets acquired, and accordingly the Company recorded goodwill of approximately $4.2 million.

The total purchase consideration and the fair values of the assets and liabilities at the acquisition date were as follows:

Recognized amounts of identifiable assets acquired and liabilities assumed (amounts in thousands):

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The Company recognized approximately $0.2 million acquisition related costs that were expensed in the nine months ended September 30, 2021 and are included in general and administrative expenses.

Goodwill was assigned to the technology reporting unit and is attributable primarily to its assembled workforce and the anticipated future economic benefits to the Company’s agents through technology product offerings. None of the goodwill is expected to be deductible for income tax purposes.

The Company’s condensed consolidated financial statements include the results of operations of LiveBy since the closing on April 20, 2021. During the three month periods ended September 30, 2022 and 2021 LiveBy contributed $0.7 million and $0.6 million in revenues and $0.4 million and $0.1 million in net loss, respectively. During the nine-month period ended September 30, 2022 and from the acquisition closing on April 20, 2021 through September 30, 2021, LiveBy contributed $2.0 million and $1.0 million in revenues and $0.3 million and less than $0.1 million in net loss, respectively.

Acquisition of Epic Realty

On June 30, 2021, the Company completed the acquisition of Epic Realty (“Epic”) in a transaction deemed immaterial to the Company. The Epic acquisition was accounted for as a business combination using the acquisition method of accounting.

Supplemental Pro Forma Financial Information

On an unaudited pro forma basis in thousands, the revenues and net loss of the Company assuming the acquisitions of E4:9 and LiveBy occurred on January 1, 2020, are shown below. The unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisition happened on January 1, 2020, nor is the financial information indicative of the results of future operations. The pro forma financial information includes the estimated amortization expense based on the fair value and estimated useful lives of intangible assets as part of the acquisitions of E4:9 and LiveBy.

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Acquisitions of Cornerstone Financial and iPro Realty Network

The Company completed two acquisitions in the nine months ended September 30, 2022, both accounted for as business combinations. On January 24, 2022, the Company acquired Cornerstone Financial, a real estate mortgage business in the Washington DC and surrounding markets, for approximately $4.7 million. The purchase price was comprised of $1.1 million in cash consideration and 267,470 shares of common stock with an acquisition date fair value of $3.6 million. Approximately $0.6 million of the cash consideration is due within one year of the acquisition date. On February 8, 2022, the Company acquired iPro Realty Network, a real estate brokerage business in the Utah real estate market, for total consideration of approximately $4.2 million. The purchase price included cash consideration of approximately $1.8 million and 167,824 shares of common stock with an acquisition date fair value of $2.3 million. Approximately $0.1 million of the cash consideration is due within one year of the acquisition date. Assets acquired and liabilities assumed in the individual acquisitions were recorded on the Company’s condensed consolidated balance sheet at their estimated fair values as of the respective dates of acquisition, including mortgage loans held for sale of approximately $3.5 million, lease right of use assets and lease liabilities of approximately $0.6 million, accrued liabilities of approximately $0.4 million and warehouse lines of credit of approximately $3.4 million. The Company recorded finite-lived intangible assets of approximately $3.6 million and goodwill of approximately $4.9 million, prior to the updates to fair values noted below. None of the goodwill relating to the Cornerstone Financial acquisition is expected to be deductible for income tax purposes. Goodwill in the amount of approximately $1.4 million relating to the iPro Realty Network acquisition is expected to be deductible for income tax purposes.

The Company updated the fair value estimates used in the purchase price allocation related to the Cornerstone and iPro acquisitions during the nine-month period ended September 30, 2022, resulting in an increase of $0.4 million in the fair value of assumed finite lived intangible assets, an increase of $0.3 million in other assets, and a $0.2 million increase in goodwill. Due to the timing of the acquisition, the valuation of net assets acquired has not been finalized and is expected to be completed by the end of December 2022, and in any case, no later than one year from the acquisition date in accordance with GAAP.

Pro forma information has not been included as it is impracticable to obtain the information due to the lack of availability of historical GAAP financial data. The results of operations of these businesses do not have a material effect on the Company’s consolidated results of operations. Acquisition related costs incurred during the three and nine months ended September 30, 2022, were $8,000 and $60,000, respectively and are included in general and administrative expense.