Quarterly report pursuant to Section 13 or 15(d)

TRANSACTION AND BUSINESS COMBINATION

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TRANSACTION AND BUSINESS COMBINATION
6 Months Ended
Jun. 30, 2022
Business Combination and Asset Acquisition [Abstract]  
TRANSACTION AND BUSINESS COMBINATION TRANSACTION AND BUSINESS COMBINATION
Business Combination
On February 28, 2022, the Company completed the acquisition of TVS. TVS is an independent global measurement and attribution platform for converged TV and a private company limited by shares incorporated under the laws of Scotland. The Company acquired all of the equity of TVS for an aggregate amount of $100,000 in cash, 11,549,465 shares of the Company common stock at fair value of $3.80 per share, and the issuance of 949,893 fully vested stock option of the Company at weighted average fair value of $3.49, subject to certain adjustments as defined in the Stock Purchase Agreement.
The Company, through this acquisition, added a real-time, cross-platform service to its offerings, including measurement outcomes such as frequency and unique unduplicated reach and performance metrics. The combination of ad serving and cross-platform measurement enables the buy- and sell-sides to solve fragmentation by unlocking a complete picture of advertising across the linear TV, CTV and digital video marketplaces.
The acquisition of TVS has been accounted for as a business combination using the acquisition method of accounting. The acquisition method requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The valuation of assets acquired and liabilities assumed, have not yet been finalized as of June 30, 2022 (unaudited). As a result, Innovid recorded preliminary estimates for the fair value of assets acquired and liabilities assumed as of the acquisition date. Subsequent to the acquisition date, the Company made certain measurement period adjustments to the preliminary purchase price allocation.
Finalization of the valuation during the measurement period could result in a change in the amounts recorded for the acquisition date fair value of intangible assets, goodwill, and income taxes among other items. The completion of the valuation will occur no later than one year from the acquisition date.
The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date (unaudited):

Total value
Cash and cash equivalents
$ 5,318 
Accounts receivables
3,507
Other current assets 1,912
Property and equipment 154
Total tangible assets
10,891 
Technology 17,075
Customer relationships
14,700
Trade name
4,600
Goodwill
110,053
Total assets acquired
157,319 
Less: Deferred tax liabilities (1,783)
Less: Other assumed liabilities
(3,498)
Net assets acquired
$ 152,038 
Intangible assets relate to technology, trade name and customer relationship of $17,075, $4,600 and $14,700, respectively. These are being amortized over the estimated useful life of approximately 6 years, 8 years, and 11 years, respectively. The estimated fair values of identifiable intangible assets were determined using the "income approach", which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. Some of the more significant assumptions inherent in the development of these asset valuations include the estimated net cash flows for each year for the appropriate discount rate necessary to measure the risk inherent in each future cash flow stream, the life cycle of each asset, competitive trends impacting the asset and each cash flow stream, as well as other factors.
Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from the other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recognized from the acquisition of TVS represents the value of additional growth potential of the revenue base from the creation of a single combined global organization and synergies related to combined IT efforts for enhancement of the existing and acquired technologies . The goodwill is not deductible for tax purposes.
In addition to the purchase consideration, the Company entered into cash compensation arrangements with certain employees, which amounted to $9,700 in aggregate and are subject to certain performance and employment conditions following the acquisition date.
The Company incurred total transaction costs of $5,033 for the acquisition, of which $4,873 was incurred for the six months ended June 30, 2022 (unaudited). Acquisition related transaction costs include legal, accounting fees and other professional costs directly related to the acquisition, and are recognized in “general and administrative” in the condensed consolidated statements of operations.
Following the acquisition date, the operating results of TVS have been included in the interim condensed consolidated financial statements. For the period from the acquisition date through June 30, 2022 (unaudited), revenues attributable to TVS were $9,238 and net loss attributable to TVS were $3,256, inclusive of $1,239 of intangible asset amortization. For the three months period ended June 30, 2022 (unaudited), revenues attributable to TVS were $6,789 and net loss attributable to TVS were $2,302, inclusive of $729 intangible asset amortization.
Pro Forma Financial Information
The following table presents the unaudited pro forma combined results of Innovid and TVS for the three months and six months ended June 30, 2022 and 2021 as if the acquisition of TVS had occurred on January 1, 2021:
Three months ended June 30, Six months ended June 30,
2022

2021 2022

2021
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues $ 33,088  $ 28,045  $ 63,267  $ 50,558 
Net profit (loss) 4,869  (4,113) 628  (19,503)
The unaudited pro forma interim condensed combined financial information was prepared using the acquisition method of accounting and was based on the historical financial information of Innovid and TVS. In order to reflect the occurrence of the acquisition on January 1, 2021, the unaudited pro forma financial information includes adjustments to reflect incremental amortization expense to be incurred based on the current preliminary fair values of the identifiable intangible assets acquired and the reclassification of acquisition-related costs incurred during the three months and six months ended June 30, 2022 to the three months and six months ended June 30, 2021. The unaudited pro forma financial information is not necessarily indicative of what the condensed consolidated results of operations would have been had the acquisition been completed on January 1, 2021. In addition, the unaudited pro forma financial information is not a projection of future results of operations of the combined company.
Transaction
As discussed in Note 1, on November 30, 2021, the Transaction was closed.
The Transaction was accounted for as a reverse recapitalization in accordance with US GAAP. Under this method of accounting, ION who was the legal acquirer, was treated as the “acquired” company for accounting purposes and the Transaction was treated as the equivalent of Innovid Corp. issuing stock for the net assets of ION, accompanied by a recapitalization. The net assets of ION are stated at historical cost, with no goodwill or other intangible assets recorded.
Upon the Closing of the Transaction, among other things:
All outstanding shares of Legacy Innovid common stock, Legacy Innovid redeemable convertible preferred stock, Legacy Innovid Warrants, and Secondary Sale Transaction of 6,885,486 shares to PIPE investors, were exchanged for 93,787,278 shares of common stock in Innovid Corp..

Number of shares
Legacy Innovid common stock of January 1, 2021 16,275,609 
Warrant exercised 132,392 
Stock option exercised 3,180,943 
Conversion of redeemable convertible preferred stock into common stock 73,690,340 
Conversion of Legacy Innovid Warrants 507,994 
Exchanged into Innovid Corp. common stock on November 30, 2021 93,787,278 
Holders of 19,585,174 shares of ION’s Class A common stock sold in its initial public offering (the “Initial Shares”) exercised their right to have such shares redeemed for a full pro rata portion of the trust account holding the proceeds from ION IPO, which was approximately $10.00 per share, or $195,888 in the aggregate. The remaining shares of ION Class A common stock, including total shares of ION Class B common stock converted to ION Class A common stock immediately prior to the Domestication, were automatically converted to 12,039,826 shares of common stock in Innovid Corp.
After giving effect to the Transaction, the redemption of Initial Shares as described above and the consummation of the PIPE Investment, there were 118,941,618 shares of common stock issued and outstanding after the close of the Transaction.
Innovid Corp received approximately $149,252 in cash proceeds, net of transaction costs paid. The Company has not paid an accrued liability of $3,185 directly related to the Transaction as of December 31, 2021.
The following table reconciles the elements of the Transaction to the condensed consolidated statement of cash flows and the condensed consolidated statement of changes in temporary equity and stockholders’ equity for the year ended December 31, 2021.

Total value
Cash - ION trust account and cash, net of redemptions
$ 55,466 
Cash - PIPE Investment, net of Secondary Sale Amount of $68,855
131,145 
Less: Transaction costs paid
(31,160)
Less: Deferred underwriting fee paid (6,199)
Proceeds from reverse recapitalization, net
149,252 
Less: Accrued transaction costs not yet paid
(3,185)
Less: Company Warrant assumed as part of the Transaction
(22,791)
Plus: Transaction costs allocated to Company Warrant 2,750 
Reverse recapitalization, net
$ 126,026 
During the six-month period ended June 30, 2022, the Company fully paid the accrued transaction costs of $3,185.
As a result of the Transaction, each share of Legacy Innovid redeemable convertible preferred stock and common stock was converted into the right to receive approximately 1.337 shares of the common stock of the Company.
Public Warrants and Private Placement Warrants
As a result of the Transaction, the Company assumed the outstanding Public Warrants to purchase 3,162,500 shares of the Company’s common stock and the outstanding Private Placement Warrants to purchase 7,060,000 shares of the Company’s common stock. Each whole Warrant entitles the registered holder to purchase one share of the Company’s common stock at a price of $11.50 per share, at any time commencing 30 days after the Closing. The warrants expire five years after the completion of the Transaction.