On October 28, 2019, the Company, through its wholly-owned subsidiary, WES acquired all of the capital stock of Energy and Environmental Economics, Inc. (“E3, Inc.”), pursuant to the terms of a stock purchase agreement (the “Stock Purchase Agreement”) by and among the Company, WES, E3, Inc., each of the stockholders of E3, Inc. (the “E3, Inc. Stockholders”) and Ren Orans, as seller representative of the E3, Inc. Stockholders. E3, Inc. is an energy consulting firm that helps utilities, regulators, policy makers, developers, and investors make strategic decisions as they implement new public policies, respond to technological advances, and address customers’ shifting expectations in clean energy. The Company believes that E3 will provide Willdan and our clients visibility into future market trends and position it to advise clients on upcoming policy, electrification, and decarbonization. E3, Inc.’s financial information is included within the Energy segment beginning in the fourth quarter of fiscal year 2019. The Company expects to finalize the purchase price allocation with respect to this transaction during the fourth quarter of fiscal 2020.

The Company agreed to pay up to $44.0 million for the purchase of all of the capital stock of E3, Inc., which purchase price consists of (i) $27.0 million in cash paid on the E3, Inc. Closing Date (subject to holdbacks and adjustments), (ii) $5.0 million in shares of the Company’s common stock, based on the volume-weighted average price per share of the Company’s common stock for the ten trading days immediately following, but not including, the E3, Inc. Closing Date and (iii) up to $12.0 million in cash if E3, Inc. exceeds certain financial targets during the three years after the E3, Inc. Closing Date, as more fully described below (such potential payments of up to $12.0 million, being referred to as “Earn-Out Payments” and $12.0 million in respect thereof, being referred to as the “Maximum Payout”).

The amount of the Earn-Out Payments to be paid will be determined based on E3, Inc.’s earnings before interest, taxes, depreciation and amortization (“EBITDA”). The E3, Inc. Stockholders will receive Earn-Out Payments in each of the three years after the E3, Inc. Closing Date (the “Earn-Out Period”) based on the amount by which E3, Inc.’s EBITDA exceeds certain targets. The amounts due to the E3, Inc. Stockholders as Earn-Out Payments will in no event, individually or in the aggregate, exceed the Maximum Payout. Earn-Out Payments will be made in annual installments for each of the three years of the Earn-Out Period. In addition, the Earn-Out Payments will be subject to certain subordination provisions in favor of the lenders under the Company’s Credit Agreement.

The Purchase Agreement also contains customary representations and warranties regarding WES, the Company, E3, Inc. and the E3, Inc. Stockholders, indemnification provisions and other provisions customary for transactions of this nature.

The Company borrowed $30.0 million under its Delayed Draw Term Loan on October 28, 2019 to fund the $27.0 million cash payment paid on the E3, Inc. Closing Date.

The acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, the Company recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated to goodwill. Goodwill represents the value the Company expects to achieve through the operational synergies, the expansion into new markets and the acquired company’s assembled work force. The Company estimates that the entire $21.9 million of goodwill resulting from the acquisition will be tax deductible.

The following table summarizes the preliminary amounts for the acquired assets recorded at their estimated fair value as of the acquisition date:

During the six months ended July 3, 2020, the Company made adjustments, primarily related to other working capital, to the consideration paid for E3 which resulted in an adjustment to the preliminary purchase price allocation of E3. The adjustments resulted in an aggregate increase of $1.5 million in the net carrying value of right-of-use assets and current lease liability, and an aggregate decrease of $1.5 million in the net carrying value of non-current lease liability, liabilities, and goodwill. The decrease in the fair value of intangible assets resulted in no change in the amortization expense for the fiscal three months and six months ended July 3, 2020.

The acquisition related costs associated with E3, Inc. included in other general and administrative expenses in the consolidated statements of comprehensive income were not material for either the three or six months ended July 3, 2020.

During the three and six months ended July 3, 2020, the acquisition of E3, Inc. contributed $6.8 million and $11.8 million in revenue, and contributed $1.6 million and $2.4 million in income from operations, respectively.

Acquisition of Onsite Energy Corporation

On July 2, 2019, the Company acquired substantially all of the assets and liabilities of Onsite Energy Corporation (“Onsite Energy”), an energy efficiency services and project implementation firm that specializes in energy upgrades and commissioning for industrial facilities. The Company believes the acquisition will expand its presence in the California-based industrial energy management services. Pursuant to the terms of the Asset Purchase Agreement, dated July 2, 2019, by and between WES and Onsite Energy, WES will pay a maximum aggregate purchase price of $26.4 million, subject to certain holdback and working capital adjustments, to be paid in cash. Onsite Energy’s financial information is included within the Energy segment. The Company finalized the purchase price allocation with respect to this transaction in the second quarter of 2020.

The acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, the Company recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated to goodwill. Goodwill represents the value the Company expects to achieve through the operational synergies, the expansion into new markets and the acquired company’s assembled work force. The Company estimates that the entire $8.6 million of goodwill resulting from the acquisition will be tax deductible.

Consideration for the acquisition includes the following:


	Onsite Energy
		(in thousands)
Cash paid	$	24,905
Other working capital adjustment		-
Total consideration	$	24,905

The following table summarizes the amounts for the acquired assets recorded at their estimated fair value as of the acquisition date:


	Onsite Energy
		(in thousands)
Current assets	$	19,058
Non-current assets ⁽¹⁾		10
Equipment and leasehold improvements, net		39
Right-of-use assets		828
Current lease liability		(168)
Non-current lease liability		(660)
Liabilities		(12,222)
Backlog		1,510
Customer relationships		7,050
Tradename		860
Goodwill		8,600
Net assets acquired	$	24,905

(1)

Excluded from non-current assets are equipment and leasehold improvements, net, right-of-use assets, customer relationships, tradename, backlog and goodwill.

During the six months ended July 3, 2020, the Company made adjustments, primarily related to other working capital, to the consideration paid for Onsite Energy which resulted in an adjustment to the purchase price allocation of Onsite Energy. The adjustments resulted in an aggregate increase of $3.5 million in the net carrying value of backlog,

tradename and goodwill and an aggregate decrease of $3.5 million in the net carrying value of current assets and goodwill. The increase in the fair value of intangible assets resulted in $0.7 million change of the amortization expense for the fiscal three and six months ended July 3, 2020.

The acquisition related costs associated with Onsite Energy included in other general and administrative expenses in the consolidated statements of comprehensive income were not material for either the three or six months ended July 3, 2020.

During the three and six months ended July 3, 2020, the acquisition of Onsite Energy contributed $2.4 million $4.6 million in revenue, respectively, and had no material contributions in income from operations.

Acquisition of The Weidt Group

On March 8, 2019, the Company acquired substantially all of the assets of the energy practice division of The Weidt Group Inc. (“The Weidt Group”). The Company believes the acquisition will expand its presence in the upper Midwest and better position the Company to help utilities make their grids more resilient. Pursuant to the terms of the Asset Purchase Agreement, dated March 8, 2019, by and among the Company, WES and The Weidt Group, WES paid a cash purchase price of $22.1 million, inclusive of working capital adjustments. The Weidt Group’s financial information is included within the Energy segment. The Company finalized the purchase price allocation with respect to this transaction in the first quarter of 2020.

The acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, the Company recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated to goodwill. Goodwill represents the value the Company expects to achieve through the operational synergies, the expansion into new markets and the acquired company’s assembled work force. The Company estimates that the entire $11.5 million of goodwill resulting from the acquisition will be tax deductible.

Consideration for the acquisition includes the following:


	The Weidt Group
		(in thousands)
Cash paid	$	22,136
Other working capital adjustment		-
Total consideration	$	22,136

The following table summarizes the amounts for the acquired assets recorded at their estimated fair value as of the acquisition date:


	The Weidt Group
		(in thousands)
Current assets	$	2,317
Non-current assets ⁽¹⁾		25
Equipment and leasehold improvements, net		198
Right-of-use assets		1,730
Current lease liability		(245)
Non-current lease liability		(1,533)
Liabilities		(612)
Backlog		750
Customer relationships		4,240
Tradename		550
Developed technology		3,170
Goodwill		11,546
Net assets acquired	$	22,136

(1)

Excluded from non-current assets are equipment and leasehold improvements, net, right-of-use assets, customer relationships, tradename, developed technology, backlog and goodwill.

The acquisition related costs associated with The Weidt Group included in other general and administrative expenses in the consolidated statements of comprehensive income were not material for either the three or six months ended July 3, 2020.

During the three and six months ended July 3, 2020, the acquisition of The Weidt Group contributed $3.7 million and $7.4 million in revenue, and contributed $0.6 million and $0.8 million in income from operations, respectively.

The following unaudited pro forma financial information for the three and six months ended July 3, 2020 and June 28, 2019 assumes that the acquisitions of substantially all of the assets and liabilities of E3, Inc., Onsite Energy and The Weidt Group occurred on the first day of the year prior to the year of acquisition:


	Three Months Ended				Six Months Ended
	July 3,		June 28,		July 3,		June 28,
	2020		2019		2020		2019
	(in thousands, except per share data)
Pro forma revenue	$	83,549	$	117,010	$	189,575	$	219,409

Pro forma income (loss) from operations	$	(3,841)	$	3,818	$	(12,110)	$	5,096
Pro forma net income (loss)⁽¹⁾	$	(4,985)	$	2,732	$	(13,139)	$	2,784

Earnings (Loss) per share:
Basic	$	(0.43)	$	0.24	$	(1.13)	$	0.25
Diluted	$	(0.43)	$	0.23	$	(1.13)	$	0.23

Weighted average shares outstanding:
Basic		11,682		11,315		11,593		11,252
Diluted		11,682		11,894		11,593		11,885

(1)

Adjustments to pro forma net income include income from operations, amortization and interest expenses.

This pro forma supplemental information does not purport to be indicative of what the Company’s operating results would have been had the acquisition of all the capital stock of E3, Inc. and that the acquisitions of substantially all of the assets and liabilities of Onsite Energy and The Weidt Group each occurred on the first day of the year prior to the year of acquisition and may not be indicative of future operating results.

During the three and six months ended July 3, 2020, the acquisition of E3, Inc., Onsite Energy and The Weidt Group contributed $12.9 million and $23.8 million in revenue, and contributed $2.2 million and $3.3 million in income from operations, respectively.