Annual report pursuant to Section 13 and 15(d)

BUSINESS COMBINATION

v3.22.1
BUSINESS COMBINATION
12 Months Ended
Dec. 31, 2021
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]

NOTE 10 BUSINESS COMBINATIONS

 

On July 31, 2020, the Company acquired certain assets of Prairie Technology Solutions Group, LLC, (“PT”) pursuant to an asset purchase agreement for cash of $185,000 and the issuance of three promissory notes each in the amount of $103,333. Note 1 is due on the one- year anniversary of the closing date. Note 2 is due on the two-year anniversary of the closing date and Note 3 is due on the three-year anniversary of the closing date. Each note bears an interest rate of four percent (4%) per annum. Payments are due annually including interest. The allocation of the purchase price to customer list with an estimated life of ten years and goodwill, which is deductible for tax purposes, has been based on an independent valuation.

 

On October 1, 2020, the Company acquired certain assets of Computer Management Services, LLC (“CMS”) pursuant to an asset purchase agreement. In consideration for the acquired assets, the Company paid $410 in cash and issued a promissory note to CMS in the principal aggregate amount of $170,000. The CMS Note is due in 36 months from the closing date and bears interest at a rate of two (2%) percent per annum. Monthly payments including interest are $4,869. The allocation of the purchase price to customer list with an estimated life of seven years and goodwill, which is deductible for tax purposes, has been based on an independent valuation.

 

On December 1, 2020, SWK acquired certain assets of Business Software Solutions (“BSS”) pursuant to an asset purchase agreement for a promissory note in the aggregate principal amount of $230,000 (the “BSS Note”). The BSS Note is due in 60 months from the closing date and bears interest at a rate of two percent (2.0%) per annum. Monthly payments including interest are $4,031. The purchase price has been allocated to customer list with an estimated life of seven years.

 

On April 1, 2021, SWK acquired certain assets of CT-Solution, Inc. (“CTS”) pursuant to an asset purchase agreement for a promissory note in the aggregate principal amount of $130,000 (the “CTS Note”). The CTS Note is due in 36 months from the closing date and bears interest at a rate of two percent (2.0%) per annum. Monthly payments including interest are $3,724. The purchase price has been allocated to customer list with an estimated life of seven years.

 

On May 1, 2021, SWK acquired certain assets of PeopleSense, Inc. (“PSI”) pursuant to an asset purchase agreement for cash of $145,703, customer deposits related to prepaid time from clients in the amount of $99,938, and the issuance of a promissory note in the aggregate principal amount of $450,000 (the “PSI Note”). The PSI Note is due in 36 months from the closing date and bears interest at a rate of two percent (2.0%) per annum. The allocation of the purchase price to customer list with an estimated life of seven years which is deductible for tax purposes, has been based on an independent valuation. The valuation showed an increase of $71,359 above the purchase price, which was recorded as a gain on bargain purchase in the consolidated statement of operations as the independent valuation exceeded the purchase price.

 

On January 1, 2022 (“Effective Date”), the Company entered into an asset purchase agreement with Dynamic Tech Services, Inc (DTS”) to acquire certain assets of DTS. The purchase price for the Acquired Assets was $1,335,000, $500,000 of which was paid in cash and $835,000 of which was paid through the issuance of a four-year $835,000 promissory note dated January 1, 2022, paying interest at the rate of 3.25% per annum. The principal amount of the Note is subject to a downward adjustment in the event the Company loses any subscription renewal revenue during the one-year period immediately following the Effective Date from any persons that were customers of DTS immediately prior to the Effective Date (the “DTS Customers”). Any such downward adjustment will be determined by calculating the percentage of loss of Acumatica subscription renewals during the one-year period immediately following the Effective Date from DTS Customers. In the event that subscription renewal revenue received from DTS Customers during the one-year period immediately following the Effective Date is less than 95% of the subscription renewal revenue received by DTS from DTS Customers during the one-year period immediately preceding the Effective Date, the principal amount of the Note will be reduced. The measuring period for any downward adjustment will be as of the one-year anniversary of the Effective Date. Notwithstanding the foregoing, under no circumstances will the principal amount of the Note be reduced by reason of such downward adjustment by more than $150,000 (i.e., to a principal amount below $685,000). The Note will be amortized as follows: The first payment of principal and interest due under the Note, which will be an annual payment, is due and payable on January 1, 2023, after the revised principal amount of the Buyer Note is determined and thereafter, payments will be made quarterly in twelve equal installments.

 

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

 

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

 

   

2020 Purchase Prairie Tech

   

2020 Purchase CMS

   

2020 Purchase BSS

 
                         

Cash consideration

  $ 185,000     $ 410     $ -  

Note payable

    310,000       170,000       230,000  

Total purchase price

  $ 495,000     $ 170,410     $ 230,000  
                         

Deposits and other assets

  $ 32,896     $ -     $ -  

Customer list

    406,000       274,115       230,000  

Operating lease right-of-use assets

    64,863       -       -  

Goodwill

    107,852       13,000       -  

Total assets acquired

    611,611       287,115       230,000  
                         

Deferred revenue

    (51,748

)

    (111,705

)

    -  

Contingent liability

    -       (5,000

)

    -  

Operating lease liability

    (64,863

)

    -       -  

Net assets acquired

  $ 495,000     $ 170,410     $ 230,000  

 

   

2021

Purchase

CTS

   

2021

Purchase

PSI

   

2022

Purchase

DTS

(Preliminary)

 
                         

Cash consideration

  $ -     $ 145,703     $ 500,000  

Note payable

    130,000       450,000       835,000  

Total purchase price

  $ 130,000     $ 595,703     $ 1,335,000  
                         

Deposits and other assets

  $ -     $ -     $ -  

Customer list

    130,000       695,641       1,335,000  

Operating lease right-of-use assets

    -       -       -  

Goodwill

    -       -       -  

Total assets acquired

    130,000       695,641       1,335,000  
                         

Deferred revenue

    -       (99,938 )     -  

Contingent liability

    -       -       -  

Operating lease liability

    -       -       -  

Net assets acquired

  $ 130,000     $ 595,703     $ 1,335,000  

 

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, 2020, 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 years ended December 31, 2021 and 2020 as if the acquisitions occurred on January 1, 2020 and 2021. Operating expenses have been increased for the amortization expense associated with the estimated fair value adjustment as of December 31, 2020 of expected definite lived intangible assets and interest on the notes payable.

 

Pro Forma

 

Year Ended

December 31,

2021

   

Year Ended

December 31,

2020

 

Net revenues

  $ 43,888,590     $ 45,165,265  

Cost of revenues

    25,730,512       26,267,816  

Operating expenses

    17,733,536       18,214,985  

Income before taxes

    424,543       682,464  

Net income

  $ 139,866     $ 506,434  

Basic and diluted income per common share

  $ 0.03     $ 0.11  

 

The Company’s consolidated financial statements for the years ending December 31, 2021, pro-forma results above include three months of results of CTS and four months of PSI. For the year ended December 31, 2021, $4,644 of estimated amortization expense and $606 of estimated interest expense is included in the pro-forma results for CTS, $33,126 of estimated amortization, $2,797 of estimated interest expense included for PSI, and $190,714 of estimated amortization expense and $27,138 of estimated interest expense is included in the pro-forma results for DTS in the pro-forma results. For the year ended December 31, 2021, the PSI and CTS operations had a net income before taxes of $176,536 which represented eight months of operations of PSI and nine months of operations of CTS that were included in the Company’s Consolidated Statement of Operations. This consisted of approximately $365,117 in revenues, $172,150 in cost of revenues and $16,430 in operating expenses.

 

For the year ended December 31, 2020, there is $23,683 of estimated amortization expense and $7,231 of estimated interest expense included in the pro-forma results for PT, $20,598 of estimated amortization expense and $2,274,of estimated interest expense included in the pro-forma results for CMS, $30,118 of estimated amortization expense and $3,118 of estimated interest expense included in the pro-forma results for BSS, $18,576 of estimated amortization expense and $1,407 of estimated interest expense is included in the pro-forma results for CTS, $99,377 of estimated amortization expense and $7,657 of estimated interest expense is included in the pro-forma results for PSI, and $190,714 of estimated amortization expense and $27,138 of estimated interest expense is included in the pro-forma results for DTS in the pro-forma results For the year ended December 31, 2020, PT had a net loss of $5,739, CMS had net income of $116,074 and BSS had a net loss $7,463. For the year ended December 31, 2020, the PT, CMS & BSS operations had a net income before taxes of $157,515 which represented 6 months of operations of PT, three months of operations of CMS and one months of operations of BSS that were included in the Company’s Consolidated Statement of Operations. This consisted of approximately $867,991 in revenues, $467,654 in cost of revenues and $242,822 in operating expenses.