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Subsequent Event

9 Months Ended

Sep. 30, 2021

Subsequent Event

15. Subsequent Event

15. Subsequent Event

Acquisition

On October 1, 2021, the Company completed the acquisition of specified assets of IT Authorities, Inc. (ITA). The closing purchase price paid by the Company consisted of $4.75 million in cash and 75,000 fully vested warrants to purchase an equal number of shares of the Company’s common stock at an exercise price of $5.33 per share (“Warrants”) exercisable for a period of four years. In addition, the Company agreed to pay contingent consideration to the seller as follows: (i) up to an additional $250,000 and 75,000 Warrants exercisable for four years depending on the EBITDA of the business in 2021; (ii) up to an additional $1.0 million and 150,000 Warrants exercisable for three years depending on the EBITDA of the business in 2022; (iii) up to an additional $1.0 million and 125,000 Warrants exercisable for three years depending on the EBITDA of the business in 2023; and (iv) up to an additional $1.0 million and 125,000 Warrants exercisable for three years depending on the EBITDA of the Business in 2024. In addition, the Company entered into employment agreements with two of the founders of the seller and in the event of the termination of either employee without cause (or by the employee for good reason), the contingent consideration payable under the purchase agreement will be deemed earned and payable for earn-out periods that have not been completed at the time of termination. The cash portion of the acquisition was funded using cash on hand.

As of the date of filing this quarterly report on Form 10-Q, total consideration transferred and the acquisition-date fair value information is not provided because the preliminary purchase accounting has not yet been finalized due primarily to the timing of information being provided to our valuation specialist and the pending receipt of a preliminary valuation report for certain assets and liabilities, including identified intangible assets. The Company expects to update this information in the fourth quarter.

Supplemental Unaudited Pro Forma Information

The following unaudited pro forma information presents the condensed consolidated results of operations of the Company and ITA for the three and nine month periods ended September 30, 2021 and 2020 as if the acquisition of ITA had been completed on January 1, 2020. These unaudited pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments that reflect pro forma results of operations, such as removal of revenue and expenses that were not part of the asset purchase agreement, and does not reflect the potential amortization for the fair value of acquired intangible assets and fair value adjustment for deferred revenue, adjustments for revenue and contract costs in connection with the adoption of Accounting Standards Codification 606 “Revenue from Contracts with Customers” for the IT Authorities business, and adjustments relating to the tax effect of combining the Company and IT Authorities businesses.

The unaudited pro forma results do not reflect any operating efficiencies or potential cross-selling of product and services which may result from the consolidation of the operations of the Company and ITA. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of the results of operations that actually would have been achieved had the acquisition occurred as of January 1, 2020, nor are they intended to represent or be indicative of future results of operations.

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2021				2020				2021				2020
		(a)				(a)				(a)				(a)
		(Unaudited)
Revenues		$	24,740,000			$	60,387,000			$	70,100,000			$	161,897,000
Net income			636,000				1,287,000				1,061,000				2,823,000

(a) To reflect on a pro forma basis unaudited consolidated financial information for the three and nine month periods ended September 30, 2021 and 2020 for the Company. The unaudited financial information presented herein were derived from unaudited historical internally prepared financial statements for ITA and WidePoint’s Form 10-Q quarterly unaudited financial statements.

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- Definition

The entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 855
-URI http://asc.fasb.org/topic&trid=2122774

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 855
-SubTopic 10
-Section 50
-Paragraph 2
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=6842918&loc=SL6314017-165662

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