ACQUISITIONS

12 Months Ended

Jan. 01, 2023

Momentum Solutionz

On February 8, 2021, the Company acquired substantially all of the assets and assumed certain liabilities of Momentum Solutionz LLC (“Momentum”) for a purchase price of $3.8 million cash, subject to customary purchase price adjustments as specified in the purchase agreement. The purchase agreement further provides for contingent consideration of up to $2.2 million based on the performance of the acquired business for the two years following the date of acquisition. As of January 1, 2023, contingent consideration of $1.1 million has been paid. At closing, the purchase price was paid out of currently available funds under the Company’s credit agreement led by BMO. The purchase agreement contained a provision for a “true up” of acquired working capital 60 days after the closing date, which was not material.

The acquired business was assigned to the Professional segment. The acquisition of Momentum allows the Company to strengthen its operations in IT consultants and technology professionals. Momentum provides IT consulting and managed workforce solutions for organizations utilizing ERP systems. The IT consulting workforce solutions include strategic planning, software selection, road mapping, cloud migration, and implementation of ERP systems. The IT managed workforce solutions include optimization and maintenance of ERP systems. Momentum provides workforce solutions to clients throughout the United States in a variety of industries, including but not limited to hospitals, retail, universities and mid-size businesses.

The 2020 consolidated statement of operations does not include any operating results of Momentum. The Fiscal 2021 Momentum operations included forty-seven weeks for approximately $3.5 million of revenue and of $0.7 million operating income. All amounts recorded to goodwill are expected to be deductible for tax purposes. The acquisition has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:


Accounts receivable	$	345,121
Prepaid expenses and other assets	3,626

Property plant and equipment, net	5,101
Intangible assets	3,347,970
Goodwill	2,089,823

Liabilities Assumed	(73,708)
Total net assets acquired	$	5,717,933

Cash	3,791,210

Fair value of contingent consideration	1,926,723
Total fair value of consideration transferred for acquired business	$	5,717,933

The allocation of the intangible assets is as follows:


	Estimated Fair Value		Estimated Useful Lives
Covenants not to compete	$	37,800	5 years
Trade name	1,420,000		Indefinite
Client partner list	1,890,170		10 years
Total	$	3,347,970

The Company incurred costs of approximately $0.2 million related to the Momentum acquisition. These costs were expensed as incurred in selling, general and administrative expenses.

Horn Solutions

On December 12, 2022, the Company acquired substantially all of the assets, and assumed certain of the liabilities, of Horn Solutions. The purchase price of $42.7 million was paid at closing with $33.9 million in cash and $3.4 million of the Company common stock (254,455 shares of the Company common stock privately placed under Section 4(a)(2) of the Securities Act of 1933, as amended, based upon the volume weighted average closing price of the Company’s shares for the ten business days prior to closing), as well as a two-year convertible promissory note of $4.4 million with an annual interest rate of 6%, with accrued and unpaid interest to be paid quarterly. The promissory note is convertible into shares of the Company common stock at any time after the one-year anniversary of the promissory note at a conversion price equal to $17.12 per share. The promissory note is subordinate to the Company’s senior debt. An additional portion of the purchase price, $1.0 million in cash, was held back as partial security for a post-closing purchase price adjustment, which is expected to fund in March 2023. The asset purchase agreement contains a provision for a “true up” of acquired working capital within 120 days after the closing date. The purchase price at closing was paid out of funds under the Company's credit agreement led by BMO, see “Note 12 - Debt”.

The acquired business was assigned to the Professional segment. The acquisition of Horn Solutions allows the Company to strengthen and expand its finance and accounting operations across the country by providing consulting, project loan staff, interim staff, direct hire, and managed services through three complementary business units, strategic accounting and finance, information technology, and transactional accounting and office staffing. Horn Solutions provides services to clients in a variety of industries including, but not limited to energy, financial services, healthcare, real estate and construction, service, manufacturing, and software industries.

The 2021 and 2020 consolidated statements of operations do not include any operating results of Horn Solutions. The Fiscal 2022 consolidated statement of operations and comprehensive income includes three weeks of Horn Solutions operations, which is approximately $1.4 million of revenue and zero operating income. The purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:


Accounts receivable	$	3,733,515
Prepaid expenses and other assets	117,767
Property and equipment	83,234
Right-of-use asset - operating leases	1,528,073
Intangible assets	13,926,585
Goodwill	26,051,018
Current liabilities assumed	(1,786,715)

Lease liability - operating leases	(1,528,073)
Total net assets acquired	$	42,125,404

Cash	$	33,940,000
Hold back (included in Other current liabilities)	1,000,000
Convertible Note	4,368,000
Common stock	3,351,000
Working capital adjustment	(533,596)
Total fair value of consideration transferred for acquired business	$	42,125,404

The allocation of the intangible assets is as follows:


	Estimated Fair Value		Estimated Useful Lives
Covenants not to compete	$	50,000	5 years

Client partner list	13,876,585		10 years
Total	$	13,926,585

The Company incurred costs of $0.3 million related to the Horn Solutions acquisition. These costs were expensed as incurred in selling, general and administrative expenses.

Supplemental Unaudited Pro Forma Information

The Company estimates the revenues and net income from continuing operations for the periods below that would have been reported if the Momentum and Horn Solutions acquisitions had taken place on the first day of the Company's Fiscal 2021 would be as follows (dollars in thousands, except per share amounts):


	2022		2021
Revenues	$	326,798	$	262,398
Gross profit	$	116,781	$	91,073
Net income	$	11,106	$	8,997
Net income per share:
Basic	$	1.06	$	0.87
Diluted	$	1.05	$	0.86

Pro forma net income from continuing operations includes amortization of identifiable intangible assets, interest expense on additional borrowings on the Revolving Facility related to Momentum and the New Term Loan related to Horn Solutions (see “Note 12 - Debt”) at a rate of 4.3% in 2022 and 2.3% in 2021 and tax expense of the pro forma adjustments at an effective tax rate of 23.1% for Fiscal 2022 and 20.2% for Fiscal 2021. The pro forma operating results include adjustments to Momemtum and Horn Solutions related to synergy adjustments for expenses that would be duplicative and other non-recurring, non-operating and out of period expense items once integrated with the Company.

Amounts set forth above are not necessarily indicative of the results that would have been attained had the Momentum and Horn Solutions acquisitions taken place on the first day of Fiscal 2021 or of the results that may be achieved by the combined enterprise in the future.