Quarterly report pursuant to Section 13 or 15(d)

NOTE 10 - BUSINESS COMBINATION

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NOTE 10 - BUSINESS COMBINATION
3 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]

NOTE 10 – BUSINESS COMBINATION  


On May 31, 2018 SWK acquired certain assets of Info Sys Management, Inc. (“ISM”), a reseller of Sage and Acumatica software, pursuant to an Asset Purchase Agreement in exchange for a convertible promissory note in the aggregate principal amount of $1,000,000 (“ISM Note”) and a cash payment of $300,000.  The ISM Note is due May 31, 2023 and bears an interest rate of 2% per year. The monthly payments including interest are $17,528. The ISM Note has an optional conversion feature where the holder may, at its sole and exclusive option, elect to convert, at any time and from time to time, until payment in full of the ISM Note, all of the principal amount of the ISM Note, plus accrued interest, into shares of the Company’s common stock at a price equal to $4.03. The allocation of the purchase price to customer lists with an estimated life of fifteen years, deposits and other assets, fixed assets and goodwill, which is deductible for tax purposes, has been based on an independent valuation. 


On May 31, 2018 SCS acquired certain assets of Nellnube, Inc. (“Nellnube”), a business application hosting company, pursuant to an Asset Purchase Agreement in exchange for a convertible promissory note (“Nellnube Note”) in the aggregate principal amount of $400,000. The Nellnube Note is due on May 31, 2023 and bears an interest rate of 2% per year. The monthly payments including interest are $7,011. The Nellnube Note has an optional conversion feature where the holder may, at its sole and exclusive option, elect to convert, at any time and from time to time, until payment in full of the Nellnube Note, all of the principal amount of the Nellnube Note, plus accrued interest, into shares of the Company’s common stock at a price equal to $4.03. The allocation of the purchase price to customer lists with an estimated life of fifteen years, fixed assets and goodwill, which is deductible for tax purposes, has been based on an independent valuation.


On January 1, 2019, SWK acquired certain assets of Partners in Technology, Inc. (“PIT”) pursuant to an Asset Purchase Agreement in exchange for cash of $60,000 and a promissory note in the aggregate principal amount of $174,000 (“PIT Note”).  The PIT Note is due in 36 months from the closing date and bears interest at a rate of two (2.0%) percent.  Monthly payments including interest are $4,984. Upon completion of an independent valuation, the allocation of the purchase price to customer lists will be modified with the excess purchase consideration being allocated to goodwill.


The Company expects these acquisitions to create synergies by combining operations and expanding geographic market share and product offerings.


The following summarizes the preliminary purchase price allocation for all current year’s acquisitions:


   

PIT

 
         

Cash consideration

  $ 60,000  

Note payable

    174,000  

Total purchase price

  $ 234,000  
         

Customer List

    234,000  

Total assets acquired

    234,000  
         

Liabilities acquired

    (-

)

Net assets acquired

  $ 234,000  

The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisitions occurred on January 1, 2018, nor is the financial information indicative of the results of future operations. The following table represents the unaudited consolidated pro forma results of operations for the three months ended March 31, 2018 as if the acquisition occurred on January 1, 2018. Operating expenses have been increased for the amortization expense associated with the estimated fair value adjustment as of March 31, 2018 of expected definite lived intangible assets and interest on the notes payable.


Pro Forma

 

Three Months Ended

March 31, 2018

 

Net revenues

  $ 10,681,191  

Cost of revenues

    5,997,343  

Operating expenses

    4,535,552  

Income before taxes

    148,296  

Net income (loss)

  $ 107,718  

Basic and diluted income (loss) per common share

  $ 0.02  

The Company’s condensed consolidated financial statements for the three months ended March 31, 2019 include the actual results of Partners in Technology since the date of acquisition, January 1, 2019. 


For the three months ended March 31, 2018, there is $33,968 of amortization and interest expense included in the ISM/Nellnube/PIT pro-forma three months results.


For the three months ended March 31, 2019, the ISM/Nellnube/PIT operations had a net income before taxes of $87,968 which represents three months operations that were included in the Company’s Condensed Consolidated Statement of Income. This consists of approximately $932,679 in revenues, $428,603 in cost of revenues, and $416,111 in operating expenses.