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Acquisition
 6 Months Ended
Jun. 30, 2025
Acquisition [Abstract]  
Acquisition

3. Acquisition

 

On the Closing Date, the Company acquired NTS through a two-step merger process. As a result of the Acquisition, the Company acquired all of the issued and outstanding equity interests of NTS. The Acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations.

 

The aggregate purchase price delivered by the Company to Newtek was $12,904,000, which consisted of (i) $4,000,000 in cash and (ii) 4,000,000 shares of Series A Preferred Stock, which had a fair value of $8,200,000 on the Closing Date. Newtek is also entitled to earnout payments under certain circumstances of up to $5,000,000 (the “Earn-Out” or “Earn-Out Liability”) based on the Company’s achievement of certain cumulative average adjusted EBITDA thresholds for the 2025 and 2026 fiscal years, which had a fair value of $704,000 on the Closing Date. The Company financed the cash portion of the purchase price using existing cash on-hand.

 

The Series A Preferred Stock will automatically convert into one share of the Company’s common stock, par value $0.001 per share (subject to certain customary anti-dilution adjustments), upon the occurrence of certain qualifying transfers by Newtek to third parties. The Earn-Out may be paid, in the Company’s sole discretion, in cash, in shares of Series A Preferred Stock (the “Acquisition Earn-Out Stock Consideration”) or in a combination thereof. Pursuant to the Acquisition Agreement, to the extent that all or a portion of the Acquisition Earn-Out Amount is paid in shares of Series A Preferred Stock, the number of shares of Series A Preferred Stock to be issued to Newtek will be calculated based on the average of the daily volume weighted average prices of the Company’s common stock during each trading day during a 60 calendar-day period ending on December 31, 2026; provided, that in no event shall such price be less than $1.00.

 

Pursuant to the Acquisition Agreement, if the issuance of the Acquisition Earn-Out Stock Consideration would cause Newtek’s “total equity” (as calculated under the Bank Holding Company Act of 1956, as amended (the “BHCA”), and as implemented and interpreted by the Board of Governors of the Federal Reserve System) in the Company to exceed one-third of the Company’s total equity (the “Total Equity Cap”), then the number of shares of Series A Preferred Stock issuable as Acquisition Earn-Out Stock Consideration will be adjusted so that the Company will issue to Newtek the maximum number of shares of Series A Preferred Stock that would not cause Newtek’s total equity to exceed the Total Equity Cap, with a corresponding increase to the Acquisition Earn-Out Amount paid in cash.

 

The Company recorded a non-current liability of $704,000 for the fair value of the contingent consideration related to the expected Earn-Out. The Earn-Out Liability is classified as a Level 3 measurement for which fair value is derived from inputs that are unobservable and significant to the overall fair value measurement. The fair value of such Earn-Out Liability is estimated using a Monte Carlo simulation model that utilizes key assumptions including forecasted average EBITDA and volatilities of the underlying financial metrics during the Earn-Out periods.

 

Under the acquisition method of accounting, the assets acquired and liabilities assumed were recorded at their fair values as of the Closing Date. The fair values of intangible assets were based on valuations using various income approaches and methods, such as the multi-period excess earnings method, relief from royalty method, etc., which require the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The results of NTS have been included in the Company’s single-segment business.

The fair value of all the acquired identifiable assets and liabilities summarized below are based on preliminary valuations and are subject to change as the Company obtains additional information during the acquisition measurement period. The purchase price allocation as of the Closing Date was as follows:

 

Assets acquired:    
     
Accounts receivable  $3,535,343 
Prepaid expenses and other current assets   129,233 
Property and equipment, net   738,046 
Operating lease right-of-use asset   212,452 
Intangible assets   7,910,000 
Other assets   998,228 
Total assets acquired   13,523,302 
Liabilities assumed:     
Accounts payable   46,692 
Accrued expenses and other current liabilities   370,059 
Operating lease liabilities   212,452 
Deferred revenue   3,450,000 
Deferred tax liability   2,056,600 
Total liabilities assumed   6,135,803 
Total identifiable net assets acquired   7,387,499 
Total purchase price   12,904,000 
Goodwill  $5,516,501 

 

The preliminary purchase price allocation resulted in goodwill of $5,516,501, which will be deductible for income tax purposes. The resulting amount of goodwill is attributed to expected synergies from cross-sale opportunities and future growth. Intangible assets of $7,910,000 include customer relationships of $5,275,000, order backlog of $438,000, and trademarks and trade names of $2,197,000, which are being amortized on a straight-line basis, over weighted-average useful lives of 8 years, 1 year, and 8 years, respectively.

 

After the closing of the Acquisition, and in the normal course of business, certain amounts were due to the Company by Newtek and its affiliates. For the three and six months ended June 30, 2025, sales to Newtek and its affiliates totaled $1,907,574 and $3,702,527 respectively. Included in accounts receivable at June 30, 2025 was $28,145 due from Newtek and its affiliates.

 

In connection with the Acquisition, the Company entered into a referral arrangement with Newtek pursuant to which Newtek will refer potential clients to the Company for a fee. The referral arrangement with Newtek is terminable by either the Company or Newtek at any time. The Company paid Newtek and its affiliates $79,521 and $155,704 for the three and six months ended June 30, 2025, respectively, in connection with these agreements.

 

Supplemental Pro Forma Information

 

The following unaudited pro forma consolidated financial information reflects the results of operations of the Company for the three and six months ended June 30, 2024 as if the Acquisition had occurred as of January 1, 2024 and gives effect to transactions that are directly attributable to the Acquisition. These amounts are based on financial information of NTS and are not necessarily indicative of what the Company’s operating results would have been had the Acquisition taken place on the date presented, nor is it indicative of the Company’s future operating results. As the Acquisition occurred on January 2, 2025, the Company’s results of operations for the three and six months ended June 30, 2025 include those results attributable to the acquired operations of NTS.

 

   For the
Three Months
Ended		   For the
Six Months
Ended		 
   June 30, 2024 
Total Revenue  $6,312,058   $13,621,395 
Net Income from Continuing Operations  $(195,031)  $(113,851)

 

The pro forma adjustments for the periods presented include additional amortization expense related to the fair value of the acquired intangible assets as if such assets were acquired on January 1, 2024.