3. ACQUISITION

12 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

ACQUISITION

NOTE 3        ACQUISITION

On January 18, 2018, the Company entered into a Stock Purchase Agreement (the “Agreement”) by and among the Company, IPS, the holders of all of the common stock of IPS, Inc. (the “Sellers”) and Mitchell Maiman, President of IPS, representing the Sellers.  In consideration for the acquisition of all of IPS’ outstanding securities, the Company: (i) paid approximately $1.9 million in cash; (ii) assumed approximately $1.5 million of outstanding debt; (iii) issued a total of 401,836 shares of the Company’s common stock to the two owners of IPS; (iv) agreed to pay $1,000,000 of deferred cash consideration (with the first payment of $500,000 due and paid on May 31, 2018, the second payment of $200,000 due on September 30, 2019, and third payment of $300,000 due on September 30, 2020); and (v) agreed to pay up to $2.2 million of earnout payments based upon IPS meeting certain EBITDA milestones (as defined in the Agreement) over a three-year period.  Additionally, the Company entered into three-year employment agreements with both Mitchell Maiman and Paul Severino (Chief Operating Officer of IPS), and agreed to pay them each $256,000 per year. In order to fund the acquisition of IPS, the Company issued a $1.6 million promissory note payable to Forward China Industries (Asia-Pacific) Corporation (“Forward China”) due January 18, 2019.   The promissory note bears an interest rate of 8% per annum and requires monthly interest payments commencing February 18, 2018.  Forward China is an entity which is principally owned by the Company’s Chairman and Chief Executive Officer.  As part of the Agreement, IPS entered into at-will employment agreements with two additional key employees. Pursuant to the employment agreements, the employees were issued a total of 40,184 shares of the Company’s common stock of which 40% vested immediately with the remainder vesting in two equal increments on the six-month and twelve-month anniversary of the grant date, subject to continued employment on such vesting dates.

At the date of acquisition, the purchase consideration consists of cash, equity in Forward’s (“Buyer’s”) stock, deferred cash and contingent consideration based on earn-out performance over a three-year period. Acquisition-related costs were expensed as incurred and are included in the general and administrative expenses within the consolidated statements of operations. The purchase consideration components are summarized in the table below (amounts stated in thousands):

Cash at closing (1)	$	1,930
Value of Equity in Buyer's Common Stock (2)		500
Fair Value of Earn-Out Consideration (3)		600
Fair Value of Deferred Cash Consideration (4)		936
Total Purchase Consideration	$	3,966

(1) Cash paid by Forward at closing funded, in part, by a $1.6 million promissory note issued to Forward China, a related party of Forward. The remainder of the cash was funded by Forward’s operating cash account.

(2) Forward issued 401,836 shares of common stock valued at the January 18, 2018 closing price of $1.24 per share for an aggregated value of approximately $500,000.

(3) Fair Value of the Earn-Out consideration is measured using the Black-Scholes option pricing method. Earn-Out is to be paid in cash only upon meeting certain EBITDA milestones over a three-year period.

(4) Fair value of the Deferred Cash consideration is the present value of the $1,000,000 payable in three increments with an applied discount rate ranging between 4.73% and 5.33%.

The following table summarizes the allocation of the assets acquired and liabilities assumed based on their estimated fair values on the acquisition date and the related estimated useful lives of the amortizable intangible assets acquired (in thousands, except for estimated useful life):

Current Assets:				Preliminary estimated useful life
Cash and Equivalents	$	600
Accounts Receivable		2,489
Other Current Assets		52
Total Current Assets		3,141
Current Liabilities:
Accounts Payable		(149	)
Deferred Revenue		(267	)
Accrued and Other Current Liabilities		(548	)
Total Current Liabilities		(964	)
Property and Equipment		346
Other Long-Term Assets		51
Deferred Tax Liability		(747	)
Assumed Debt		(1,568	)
Finite-Lived Intangible Assets:
Trademark		475		15 years
Customer Relationships		1,050		8 years
Total Intangible Assets		1,525
Goodwill		2,182
Total	$	3,966

On June 30, 2018, the Earn-out consideration was revalued and adjusted down by $510,000 due to the high likelihood that IPS would not meet certain EBITDA milestones per the Stock Purchase Agreement for Fiscal year 2018. On September 30, 2019, the Earn-out consideration was revalued and adjusted up by $260,000 based on the updated projections in meeting the EBITDA milestones (see Note 6 - Fair Value Measurements).

In relation to our acquisition of IPS, we incurred approximately $296,000 of expenses in Fiscal 2018 related to the transaction, including legal costs, financial and legal diligence, tax accounting, and valuation.

Pro Forma Impact

The following schedule presents unaudited consolidated pro forma results of operations for Fiscal 2018 as if the IPS acquisition had occurred on October 1, 2017. This information does not purport to be indicative of the actual results that would have occurred if the IPS acquisition had actually been completed on October 1, 2017, nor is it necessarily indicative of the future operating results or the financial position of the combined companies. The unaudited pro forma results of operations do not reflect the cost of any integration activities or benefits that may result from synergies that may be derived from any integration activities.

	Year Ended September 30,
	2019			2018
Revenue	$	37,409,030		$	38,849,084
Net income (loss)	$	(3,604,030	)	$	1,308,838
Net income (loss) per share:
Basic	$	(0.38	)	$	0.14
Diluted	$	(0.38	)	$	0.13
Weighted Average Outstanding Shares
Basic		9,532,034			9,666,506
Diluted		9,532,034			9,756,505