Business Combinations

12 Months Ended

Dec. 31, 2012

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

3. Business Combinations

On December 30, 2011, the Company together with its wholly-owned subsidiary, WidePoint Solutions Corp. (WSC), entered into an Asset Purchase Agreement (“APA”) with AGS, pursuant to which WSC acquired certain assets and assumed certain liabilities of AGS. The purchased assets include, but are not limited to, customer contracts and relationships; assembled workforce talent and expertise necessary to manage the telecommunications and consulting operations and integral internally developed software upon which managed services are delivered by AGS. Goodwill recorded in connection with this business combination was recorded within the Managed Mobility Solutions segment. Goodwill amortizable for tax purposes is approximately $4.9 million.

The Company finalized its determination of fair value of purchase consideration and assets and liabilities acquired and in accordance with GAAP adjusted its December 31, 2011 balances reported for cash, receivables, intangible assets, goodwill, accrued expenses and long term debt to reflect this final basis of accounting as of the acquisition date.

Cash consideration paid totaled $7.5 million and came from the use of $3.5 million in operating cash on hand and use of $4.0 million bank loan proceeds. Additional consideration of up to $4.0 million was provided in the form of two (2) seller financed promissory notes. The first promissory bears a stated face value of $1.0 million and is not subject to contingent payment terms. The Company revised its provisional value of contingent consideration paid at December 31, 2011 to reflect additional information existing at the date of the AGS purchase that affected the payout probabilities used to calculate fair value, as well as additional net working capital adjustments finalized during fiscal 2012. The second promissory note bears a stated face value of $3.0 million and is subject to contingent payment terms. The following table sets forth a final reconciliation of the provisional and final estimated fair value of consideration paid in connection with the asset purchase agreement with AGS as of December 31, 2011:

	Provisional		Purchase			Final Fair
	Value		Adjustments			Value
Cash consideration paid	$	7,500,000	$	-	(1)	$	7,500,000
Non-continent subordinated seller financednote payable consideration		1,000,000		-	(1)		1,000,000
Contingent seller financed note payableconsideration		3,000,000		(850,000	)(2)		2,150,000
Net working capital escrow adjustment to consideration paid		-		(76,539	)(3)		(76,539	)
Fair value of total consideration transferred	$	11,500,000	$	(926,539	)	$	10,573,461

(1) There were no changes in the provisional values established for cash and senior debt consideration paid in connection with this business combination.

(2) The contingent seller financed promissory note (“contingent obligation”) had a provisional value of $3.0 million at December 31, 2011. During the year ended December 31, 2012, the Company finalized its fair value accounting and determined the estimated fair value to be approximately $2.15 million as of December 31, 2011. This resulted in a reduction in the value of contingent obligation of approximately $850,000, thereby reducing goodwill in connection with this business combination.

(3) As required under the agreement a portion of the cash proceeds were held in escrow until certain transitional matters were completed by AGS. There were networking capital deficiency adjustments of approximately $76,000 which reduced purchase consideration paid to AGS from the escrow proceeds.

The Company incurred approximately $120,000 in transaction-related costs which were expensed as incurred and reflected in general and administrative expense in the consolidated statements of operations for the year ended December 31, 2011. In connection with this business combination, the Company entered into employment agreements with certain senior officers of AGS. Also, the Company did not incur exit or termination charges in connection with this business acquisition.

The following table sets forth a final reconciliation of the provisional and final estimated fair value of the assets acquired and liabilities assumed in the AGS business combination as of December 31, 2011:

	Provisional			Purchase			Final Fair
	Value			Adjustments			Value
Fair value of identifiable assets acquired and
liabilities assumed:
Current assets	$	3,235,413		$	(125,867	)(1)	$	3,109,546
Customer relationships		2,220,364			(240,364	)(2)		1,980,000
Distribution channel		572,064			(32,064	)(2)		540,000
Tradenames and trademarks		-			70,000	(2)		70,000
Covenant not to compete		150,000			630,000	(2)		780,000
Internally developed software		1,550,000			380,000	(2)		1,930,000
Other assets		17,782			-			17,782
Current liabilities		(2,762,055	)		(33,150	)(3)		(2,795,205	)
Total identifiable net assets acquired		4,983,568			648,555			5,632,123
Goodwill		6,516,432			(1,575,094	)(4)		4,941,338
Total purchase price	$	11,500,000		$	(926,539	)	$	10,573,461

(1) Decrease in current assets reflects adjustments to cash due to timing differences and increased allowances for doubtful accounts related to past due receivables.

(2) Increase in fair value of identified intangible assets of approximately $807,570 based on final estimate of fair value of identified intangibles. The Company estimated the fair value of finite lived intangible assets acquired using discounted cash flow valuation techniques. These estimates of fair value included the use of Level 2 and Level 3 inputs.

(3) Increase in accrued expense to reflect an additional liability incurred as of the acquisition date.

(4) Decrease in goodwill reflects reduction in purchase consideration of approximately $850,000, networking capital adjustment of approximately $76,540 and increase in fair value of finite-lived intangible assets, partially offset by reductions in current assets as described in (1) and (2) above.

In connection with the Company’s adoption of ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations, the following unaudited pro forma consolidated statements of operations for the years ended December 31, 2012 and 2011 have been prepared as if the acquisition of AGS had occurred at January 1, 2011 (unaudited):

	DECEMBER, 31
	2012		2011
Revenues, net	$	55,782,742	$	49,882,694
Net Income (Loss)	$	832,301	$	(705,689	)
Basic EPS	$	0.013	$	(0.011	)
Diluted EPS	$	0.013	$	(0.011	)

The following footnotes explain the nonrecurring pro forma adjustments made to arrive at the unaudited pro forma results presented above:

(1) Pro forma adjustments of $1,160,607 were charged against net income (loss) for the year ended December 31, 2011 to reflect increased intangible asset amortization recorded in connection with the AGS business combination.

(2) Pro forma adjustments of $5,417 were charged against net income (loss) for the year ended December 31, 2011to reflect increased borrowings incurred to finance a portion of the purchase price for the AGS business combination.

The pro forma adjustments above differ from those included in the Company’s Form 8-K/A filing due to subsequent changes in provisional intangible asset values. The unaudited pro forma consolidated statements of operations do not purport to be indicative of the results that would have been obtained if the above acquisition had actually occurred as of the dates indicated or of those results that may be obtained in the future. These unaudited pro forma consolidated statements of operations were derived, in part, from the historical consolidated financial statements of AGS and other available information and assumptions believed to be reasonable under the circumstances.