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ACQUISITIONS

6 Months Ended

Jun. 30, 2023

ACQUISITIONS

NOTE 3 — ACQUISITIONS

Bureau of Internet Accessibility Inc.

On March 9, 2022, we entered into a Stock Purchase Agreement (“Purchase Agreement”) to acquire all the outstanding equity interests of Bureau of Internet Accessibility Inc. (“BOIA”), a Delaware corporation which provides web accessibility services including audits, training, remediation and implementation support. The aggregate consideration for the purchase of BOIA was approximately $7.5 million (at fair value), consisting of $5.1 million cash payment at closing, $0.2 million cash received in the third quarter of 2022 resulting from net working capital adjustments, and an estimated $2.6 million in aggregate contingent consideration to be paid in cash following the one- and two-year anniversary of the closing date. Actual aggregate cash consideration is based on BOIA’s revenues for 2022 and 2023 and may differ from estimated contingent consideration at acquisition. In the first quarter of 2023, we made a $974,000 cash payment towards the contingent consideration liability.

We accounted for the acquisition of BOIA as business combination in accordance with FASB ASC 805, “Business Combinations” (“ASC 805”). Accordingly, under the acquisition method of accounting, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date as follows:


(in thousands)		Balance at March 9, 2022
Assets purchased:
Cash		$	398
Accounts receivable			437
Other assets			29
Client relationships (1)			3,600
Internally developed software (1)			700
Trade name (1)			50
Goodwill (2)			3,300
Total assets purchased			8,514

Liabilities assumed:
Accounts payable and accrued liabilities			7
Deferred revenue			1,040
Total liabilities assumed			1,047

Net assets acquired			7,467

Consideration:
Cash paid, net of proceeds from working capital adjustment			4,882
Contingent consideration liability (3)			2,585
Total consideration		$	7,467

(1)

Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives of 2 to 7 years. In the six months ended June 30, 2023 and 2022, we recorded $357,000 and $221,000, respectively, in amortization expense associated with these acquired intangible assets.

(2)

Goodwill represents the excess of purchase price over the estimated fair value of net tangible and intangible assets acquired.

(3)

The fair value of the contingent consideration liability was determined using the Monte-Carlo simulation. The key assumptions used in the Monte-Carlo simulation were as follows: non-recurring and recurring revenue metrics for the earn-out periods, non-recurring revenue discount rate of 11.5%, recurring revenue discount rate of 10.5%, expected revenue volatility of 24.65%, risk-free rate of 1.58%, buyer specific discount rate of 9.0%, and discount periods of 1.01 year and 2.22 year.

NOTE 3 — ACQUISITIONS (continued)

For the six months ended June 30, 2023 and 2022, we recorded $214,000 and $158,000, respectively, in change in the fair value of contingent consideration, which is included in General and administrative in the accompanying Statement of Operations. The balance of contingent consideration represents the estimated fair value of the second anniversary payment as of the reporting period and is subject to further change in subsequent periods through settlement based on actual and estimated non-recurring and recurring revenues from the BOIA offering relative to certain thresholds, as well as adjustments for discount periods, discount rates, risk-free rate, volatility, and buyer specific discount rate.

In the six months ended June 30, 2023 and 2022, the Company incurred zero and $240,000, respectively, of transaction costs related to the acquisition of BOIA, which were included on our Statement of Operations within General and administrative expenses.