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Note 5 - Acquisition | 9 Months Ended
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Sep. 30, 2021
Notes to Financial Statements |
Business Combination Disclosure [Text Block] |
5. | Acquisition
On April 7, 2021, the Company executed and closed a stock purchase agreement to purchase all of the issued and outstanding shares of stock of Tellenger, Inc. The adjusted purchase price was approximately $2.3 million in cash and 68,264 unregistered shares of the Company’s stock, valued at $200,000. Legal fees and other costs specifically related to the Tellenger acquisition in the amounts of $18,575 and $171,860 were incurred during the three-month and nine-month periods ended September 30, 2021, respectively, and were classified as acquisition costs in the Company’s consolidated statement of operations. The Company also incurred other acquisition types of costs unrelated to Tellenger. Included in the cash consideration is $272,000 in amounts held in escrow at Citizens Bank, N.A. Institutional Services Group (as escrow agent) to satisfy any potential post-closing claims. Tellenger is primarily engaged in the businesses of cyber security, cloud services, and data analytics services. Tellenger has access to a range of federal government contract vehicles and subcontracts under federal government agencies which include the Department of Homeland Security, the U.S. Department of Agriculture, the Department of Health and Human Services, the U.S. Marine Corps, and the U.S. Census Bureau, among others. Tellenger also performs cloud services for several national not-for-profits. Tellenger’s processes are appraised at CMMI Level 3, providing assurance to customers of consistency and quality in their efforts. Following the April 7, 2021, Tellenger acquisition, the Company engaged an independent valuation firm to aid in the application of ASC 805 inclusive of the initial measurement of any intangible assets acquired by the Company. The Company’s intangible assets subject to amortization consist of acquired customer relationships and non-compete agreements. The Company amortizes intangible assets over their respective estimate useful lives. Identifiable intangible assets that are subject to amortization are evaluated for impairment and the Company will periodically reassess the carrying value, useful lives, and classifications of all identifiable intangible assets. The purchase price allocation has been prepared on a preliminary basis and changes to the preliminary purchase price allocations may occur as additional information concerning asset and liability valuations is finalized. Under the acquisition method of accounting, the total consideration was first allocated to net tangible assets and identifiable intangible assets based upon their fair values as of the date of completion of the acquisition. As a result of the acquisition, the Company recorded net tangible assets of $240,357, and intangible assets in the form of $1,090,000 for customer relationships with an amortizable useful life of eight years, $280,000 for Tellenger’s trade name / trademarks with an indefinite life, and $120,000 for executed non-compete agreements with a useful life of three years. In accordance with ASC 350, the excess of the total consideration over the fair values of the net tangible and intangible assets of $785,000 was recorded as goodwill on the transaction. The components of the Company’s identifiable intangible assets are as follows:
|  | September 30, 2021 |
|  |  |  |  |  | Gross |
|  | Useful |  |  | Carrying |
|  | Lives (years) |  |  | Amounts |
Intangible assets with estimated useful lives |  |  |  |  |  |  |  |
Customer relationships |  |  | 8 |  |  | $ | 1,090,000 |
Non-compete agreements |  |  | 3 |  |  |  | 120,000 |
Intangible assets with indefinite lives |  |  |  |  |  |  |  |
Trade names |  |  |  |  |  |  | 280,000 |
Gross identified intangible assets |  |  |  |  |  |  | 1,490,000 |
Accumulated amortization |  |  |  |  |  |  | (87,912 | )
Net identifiable intangible assets |  |  |  |  |  |  | 1,402,088 |
Goodwill |  |  |  |  |  |  | 785,000 |
Intangible assets |  |  |  |  |  | $ | 2,187,088 |
Amortization expense related to the amortizable intangible assets was $44,061 and $87,912 for the three months and nine months ended September 30, 2021, respectively. Amortization expense for the remaining three months of 2021 and the five years after 2021 is estimated to be:
Remainder of 2021 |  | $ | 44,061 |
2022 |  |  | 176,244 |
2023 |  |  | 176,244 |
2024 |  |  | 146,259 |
2025 |  |  | 136,248 |
2026 |  |  | 136,248 |
Thereafter |  |  | 306,784 |
Total |  | $ | 1,122,088 |
Supplemental Pro Forma Information The following unaudited pro forma financial information presents combined results of operations for the periods presented as if the acquisition of Tellenger had been completed on January 1, 2020. The pro forma information includes adjustments to amortization expense for the intangible assets acquired and interest expense for the additional debt used to partially fund the acquisition price. The pro forma data are for informational purposes only are not necessarily indicative of the consolidated results of operations of the combined business had the acquisition of Tellenger occurred on January 1, 2020, or the results of future operations of the combined business. For instance, planned or expected operational synergies following the acquisition are not reflected in the pro forma information. Consequently, actual results will differ from the unaudited pro forma information presented below.
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Revenue |  | $ | 4,299,925 |  |  | $ | 5,061,260 |  |  | $ | 13,677,430 |  |  | $ | 14,058,930 |
Income (loss) from operations |  | $ | (84,267 | ) |  | $ | 252,947 |  |  | $ | 291,508 |  |  | $ | (9,425 | )

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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