ACQUISITIONS

6 Months Ended

Jun. 30, 2022

ACQUISITIONS

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 acquisition represents another step forward in strengthening our suite of products and services by adding additional capabilities for enterprise accessibility compliance. The aggregate consideration for the purchase of BOIA was approximately $7.8 million (at fair value), consisting of $5.1 million cash payment at closing and an estimated $2.7 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. In addition, the purchase price is subject to certain adjustments related principally to net working capital, which will be settled in the third quarter of 2022.

NOTE 3 — ACQUISITIONS (continued)

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 preliminary 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)		3,616
Total assets purchased		8,830
Liabilities assumed:
Accounts payable and accrued liabilities		7
Deferred revenue		1,040
Total liabilities assumed		1,047
Net assets acquired		7,783
Consideration:
Cash paid		5,132
Contingent consideration liability (3)		2,651
Total consideration	$	7,783

(1) Acquired intangible assets will be amortized on a straight-line basis over their estimated useful lives of 2 to 7 years. In the six months ended June 30, 2022, amortization expense associated with these acquired intangible assets totaled $221,000.

(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 11.75%, recurring revenue discount rate of 10.75%, expected revenue volatility of 28.83%, risk-free rate of 2.84%, buyer specific discount rate of 12.35%, and discount periods of 0.7 year and 1.91 year. The change in the fair value of contingent consideration was $158,000 from the date of BOIA acquisition, March 9, 2022, to the end of the quarter, June 30, 2022, and is included in General and administrative in the accompanying Statement of Operations. The balance of contingent consideration 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.

The provisional purchase price allocated to goodwill and assumed liabilities are subject to adjustments as information is obtained about facts and circumstances that existed at the acquisition date.

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

NOTE 3 — ACQUISITIONS (continued)

Pro Forma Financials

The following unaudited pro forma results of operations for the three and six months ended June 30, 2022 and 2021 assumes BOIA had been acquired on January 1, 2021.

The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the acquisition had been completed on January 1, 2021, nor does it purport to project the results of operations of the combined Company in future periods. The pro forma financial information does not give effect to any anticipated integration costs savings or expenses related to the acquired company and are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated.

	Pro Forma Combined Financials (unaudited)
	Three months ended June 30,				Six months ended June 30,
( in thousands)	2022		2021		2022		2021
Revenue	$	7,569	$	6,692	$	15,138	$	13,019
Net loss attributed to common shareholders		(2,568)		(1,814)		(5,834)		(4,725)

For purposes of the pro forma disclosures above, results for the three and six months ended June 30, 2022 exclude $240,000 in acquisition expense.

Square ADA LLC

On December 28, 2021, the Company completed the acquisition of substantially all of the assets of Square ADA LLC (“Square ADA”), a provider of accessibility solution to websites built or hosted by Squarespace, Inc. The aggregate consideration for the purchase of Square ADA was $185,000, consisting of (i) $53,000 paid in cash upon closing, and (ii) $132,000 in contingent consideration paid in cash in the second quarter of 2022.

We accounted for the acquisition of Square ADA as an asset acquisition in accordance with ASC 805 and ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. Based on our assessment of the screen test as required by ASU 2017-01, the transaction does not meet the definition of a business as substantially all the fair value of the gross assets acquired is concentrated in one single identifiable intangible asset, the acquired customer relationships. Accordingly, we allocated the total cost of the acquisition to customer relationships following the cost accumulation model. No external direct transaction costs were incurred in connection with Square ADA’s acquisition.