Note 3 - Business Acquisitions | 12 Months Ended |
Dec. 31, 2013 |
Business Combinations [Abstract] | ' |
Business Combination Disclosure [Text Block] | ' |
Note 3. Business Acquisitions |
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Delos Internet |
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In February 2013, the Company completed the acquisition of Delos Internet (“Delos”). The Company obtained full control of Delos and determined that the acquisition was a business combination to be accounted for under the acquisition method. The following table summarizes the consideration transferred and the amounts of identified assets acquired and liabilities assumed at the acquisition date. The number of shares issued was based on the closing price of the Company's common stock on the February 28, 2013 closing date which was $2.47. |
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| | Original | | | Adjustments | | | Final | |
Fair value of consideration transferred: | | | | | | | | | | | | |
Cash | | $ | 225,000 | | | $ | - | | | $ | 225,000 | |
Common stock | | | 1,071,172 | | | | (119,916 | ) | | | 951,256 | |
Other liabilities assumed | | | - | | | | 36,733 | | | | 36,733 | |
Capital lease obligations assumed | | | 128,929 | | | | - | | | | 128,929 | |
Total consideration transferred | | | 1,425,101 | | | | (83,183 | ) | | | 1,341,918 | |
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Fair value of identifiable assets acquired and liabilities assumed: | | | | | | | | | | | | |
Cash | | | 2,058 | | | | - | | | | 2,058 | |
Accounts receivable | | | 80,524 | | | | 1,286 | | | | 79,238 | |
Property and equipment | | | 826,524 | | | | 18,824 | | | | 807,700 | |
Security deposits | | | 1,993 | | | | - | | | | 1,993 | |
Accounts payable | | | (26,970 | ) | | | 2,566 | | | | (29,536 | ) |
Deferred revenue | | | (62,110 | ) | | | (2,135 | ) | | | (59,975 | ) |
Other liabilities | | | (89,930 | ) | | | - | | | | (89,930 | ) |
Total identifiable net tangible assets | | | 732,089 | | | | 20,541 | | | | 711,548 | |
Customer relationships | | | 1,634,469 | | | | - | | | | 1,634,469 | |
Total identifiable net assets | | | 2,366,558 | | | | 20,541 | | | | 2,346,017 | |
Gain on business acquisition | | $ | 941,457 | | | $ | 62,642 | | | $ | 1,004,099 | |
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The Company recognized a gain on business acquisition of $1,004,099 which is included in other income (expense) in the Company’s consolidated statements of operations for the year ended December 31, 2013. The challenging economic environment during 2012 made it difficult for smaller companies like Delos to raise sufficient capital to sustain their growth. As a result, the Company was able to acquire the customer relationships and wireless network of Delos at a discounted price. |
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In May 2013, the Company finalized the purchase price of Delos which resulted in a reduction of approximately $21,000 of identifiable net assets and an increase in the gain on business acquisition of approximately $63,000. The purchase price adjustment resulted in a decrease in the number of shares of common stock issued to Delos of 48,549 from 433,673 to 385,124 shares. |
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The results of operations of Delos have been included in the Company’s consolidated statements of operations since the completion of the acquisition in February 2013. Revenues generated from customers acquired from Delos totaled approximately $517,000 for the year ended December 31, 2013. |
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During the years ended December 31, 2013 and 2012, respectively, the Company incurred approximately $99,000 and $59,000 of third-party costs in connection with the Delos acquisition. These expenses are included in the general and administrative expenses in the Company’s consolidated statements of operations. |
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Color Broadband Communications |
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In December 2011, the Company completed the acquisition of Color Broadband and determined that it was a business combination to be accounted for under the acquisition method. The following table summarizes the consideration transferred and the amounts of identified assets acquired and liabilities assumed at the acquisition date. The number of shares issued was based on the closing price of the Company's common stock on the December 2, 2011 closing date which was $2.47. |
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| | Original | | | Adjustments | | | Final | |
Fair value of consideration transferred: | | | | | | | | | | | | |
Cash | | $ | 2,800,000 | | | $ | - | | | $ | 2,800,000 | |
Common stock | | | 2,286,567 | | | | (243,309 | ) | | | 2,043,258 | |
Other liabilities assumed | | | 121,777 | | | | - | | | | 121,777 | |
Capital lease obligations assumed | | | 111,537 | | | | 22,424 | | | | 133,961 | |
Total consideration transferred | | | 5,319,881 | | | | (220,885 | ) | | | 5,098,996 | |
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Fair value of identifiable assets acquired and liabilities assumed: | | | | | | | | | | | | |
Customer relationships | | | 4,584,756 | | | | (39,816 | ) | | | 4,544,940 | |
Property and equipment | | | 1,976,852 | | | | - | | | | 1,976,852 | |
Accounts receivable | | | 383,947 | | | | (420 | ) | | | 383,527 | |
Security deposits | | | 7,506 | | | | - | | | | 7,506 | |
Prepaid expenses and other current assets | | | 48,425 | | | | - | | | | 48,425 | |
Accounts payable | | | (5,984 | ) | | | - | | | | (5,984 | ) |
Deferred revenue | | | (488,875 | ) | | | (4,106 | ) | | | (492,981 | ) |
Customer credits | | | (656 | ) | | | (216,622 | ) | | | (217,278 | ) |
Total identifiable net assets | | | 6,505,971 | | | | (260,964 | ) | | | 6,245,007 | |
Gain on business acquisition | | $ | 1,186,090 | | | $ | (40,079 | ) | | $ | 1,146,011 | |
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The Company recognized a gain on business acquisition of $1,146,011 which is included in other income (expense) in the Company’s consolidated statements of operations of which $1,186,090 was recognized in the year ended December 31, 2011 and subsequently adjusted by $40,079 in the year ended December 31, 2012. The challenging economic environment during 2011 made it difficult for smaller companies like Color Broadband to raise sufficient capital to sustain their growth. As a result, the Company was able to acquire the customer relationships and wireless network of Color Broadband at a discounted price. |
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In May 2012, the Company finalized the purchase price of Color Broadband which resulted in a reduction of approximately $261,000 of identifiable net assets and a reduction in the gain on business acquisition of approximately $40,000. The purchase price adjustment resulted in a decrease in the number of shares of common stock issued to Color Broadband of 98,506 from 925,736 to 827,230 shares. In addition, 45,600 shares of common stock were returned to the Company principally representing accounts receivable collections retained by Color Broadband during the post-closing transition services period. |
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The results of operations of Color Broadband have been included in the Company’s consolidated statements of operations since the completion of the acquisition in December 2011. Revenues generated from customers acquired from Color Broadband totaled approximately $226,000 for the year ended December 31, 2011. |
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During the years ended December 31, 2012 and 2011, respectively, the Company incurred approximately $359,000 and $209,000 of third-party costs in connection with the Color Broadband acquisition. These expenses are included in the general and administrative expenses in the Company’s consolidated statements of operations. |
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One Velocity, Inc. |
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In May 2011, the Company completed the acquisition of One Velocity. The Company obtained full control of One Velocity and determined that the acquisition was a business combination to be accounted for under the acquisition method. The following table summarizes the consideration transferred and the amounts of identified assets acquired and liabilities assumed at the acquisition date. The number of shares issued was based on the closing price of the Company's common stock on the May 18, 2011 closing date which was $4.75. |
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| | Original | | | Adjustments | | | Final | |
Fair value of consideration transferred: | | | | | | | | | | | | |
Cash | | $ | 1,600,000 | | | $ | - | | | $ | 1,600,000 | |
Common stock | | | 1,839,732 | | | | (557,773 | ) | | | 1,281,959 | |
Total consideration transferred | | | 3,439,732 | | | | (557,773 | ) | | | 2,881,959 | |
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Fair value of identifiable assets acquired and liabilities assumed: | | | | | | | | | | | | |
Customer relationships | | | 2,466,512 | | | | (136,979 | ) | | | 2,329,533 | |
Property and equipment | | | 1,952,883 | | | | - | | | | 1,952,883 | |
Accounts receivable | | | 84,460 | | | | 48,760 | | | | 133,220 | |
Security deposits | | | 21,679 | | | | - | | | | 21,679 | |
Prepaid expenses and other current assets | | | 795 | | | | - | | | | 795 | |
Accounts payable and accrued expenses | | | (115,772 | ) | | | 9,024 | | | | (106,748 | ) |
Deferred revenue | | | (406,700 | ) | | | 2,741 | | | | (403,959 | ) |
Total identifiable net assets | | | 4,003,857 | | | | (76,454 | ) | | | 3,927,403 | |
Gain on business acquisition | | $ | 564,125 | | | $ | 481,319 | | | $ | 1,045,444 | |
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The Company recognized a gain on business acquisition of $1,045,444 which is included in other income (expense) in the Company’s consolidated statements of operations. The challenging economic environment during 2011 made it difficult for smaller companies like One Velocity to raise sufficient capital to sustain their growth. As a result, the Company was able to acquire the customer relationships and wireless network of One Velocity at a discounted price. |
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In January 2012, the Company finalized the purchase price of the One Velocity acquisition. The final purchase price of $2,881,959 was $557,773, or 16%, lower than the initially reported purchase price of $3,439,732. The adjustment resulted in a decrease of 117,426 shares of common stock issued to One Velocity, from 387,312 to 269,886 shares. In addition, the Company recognized additional gain on business acquisition of approximately $481,000 and a reduction of approximately $77,000 of identifiable net assets in the fourth quarter of 2011. These adjustments are included in the Company’s consolidated financial statements for the year ended December 31, 2011. |
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The results of operations of One Velocity have been included in the Company’s consolidated statements of operations since the completion of the acquisition in May 2011. Revenues generated from customers acquired from One Velocity totaled approximately $976,000 for the year ended December 31, 2011. |
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During the year ended December 31, 2011, the Company incurred approximately $202,000 of third-party costs in connection with the One Velocity acquisition. These expenses are included in general and administrative expenses in the Company’s consolidated statements of operations. |
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Pipeline Wireless, LLC |
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In December 2010, the Company completed the acquisition of Pipeline Wireless, LLC (“Pipeline”). The Company obtained full control of Pipeline and determined that the acquisition was a business combination to be accounted for under the acquisition method. The following table summarizes the consideration transferred and the amounts of identified assets acquired and liabilities assumed at the acquisition date. The number of shares issued was based on the closing price of the Company's common stock on the December 15, 2010 closing date which was $3.61. |
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| | Original | | | Adjustments | | | Final | |
Fair value of consideration transferred: | | | | | | | | | | | | |
Cash | | $ | 1,580,060 | | | $ | - | | | $ | 1,580,060 | |
Common stock | | | 1,485,598 | | | | - | | | | 1,485,598 | |
Deferred payments | | | 613,646 | | | | (112,421 | ) | | | 501,225 | |
Capital lease obligations assumed | | | 152,164 | | | | - | | | | 152,164 | |
Total consideration transferred | | | 3,831,468 | | | | (112,421 | ) | | | 3,719,047 | |
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Fair value of identifiable assets acquired and liabilities assumed: | | | | | | | | | | | | |
Customer relationships | | | 1,864,187 | | | | - | | | | 1,864,187 | |
Property and equipment | | | 266,345 | | | | - | | | | 266,345 | |
Accounts receivable | | | 194,137 | | | | - | | | | 194,137 | |
Security deposits | | | 6,363 | | | | - | | | | 6,363 | |
Prepaid expenses and other current assets | | | 86,240 | | | | (65,065 | ) | | | 21,175 | |
Accounts payable | | | (30,219 | ) | | | 2,934 | | | | (27,285 | ) |
Deferred revenue | | | (239,939 | ) | | | - | | | | (239,939 | ) |
Other current liabilities | | | (40,217 | ) | | | - | | | | (40,217 | ) |
Total identifiable net assets | | | 2,106,897 | | | | (62,131 | ) | | | 2,044,766 | |
Goodwill | | $ | 1,724,571 | | | $ | (50,290 | ) | | $ | 1,674,281 | |
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The Company allocated the purchase price of Pipeline to identifiable assets acquired and liabilities assumed based on their fair values on the date of acquisition. The Company recognized $1,674,281 of goodwill related to the acquisition which represents the excess of the purchase price over the estimated fair values of the identifiable net assets. The Company expects the full balance of goodwill to be tax deductible for tax purposes. Pipeline had a very concentrated network comprised of only six Points-of-Presence (“PoPs”) compared to other acquisitions which had at least twice as many PoPs. The relatively low valuation of the Pipeline network resulted in goodwill being recognized on the transaction. |
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In September 2011, the Company finalized the purchase price of the Pipeline acquisition which resulted in a decrease in deferred payments of $145,065, or $112,421 on a net present value basis. In addition, identifiable net assets and goodwill were reduced by $62,131 and $50,290, respectively. |
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Total deferred payments of $623,804 were discounted at a 12% rate and recorded at $501,225 for acquisition purposes. Current and long-term balances totaled $148,198 and $56,827 at December 31, 2012, and $166,563 and $205,024 at December 31, 2011, respectively. There were 5 monthly payments of $16,630 remaining as of December 31, 2013. |
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Pro Forma Information |
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The following table reflects the unaudited pro forma consolidated results of operations had the acquisitions taken place at the beginning of the 2013, 2012 and 2011 periods: |
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| | Years Ended December 31, | |
| | 2013 | | | 2012 | | | 2011 | |
Revenues | | $ | 33,545,854 | | | $ | 32,954,850 | | | $ | 30,449,882 | |
Amortization expense | | | 3,159,196 | | | | 3,764,041 | | | | 5,208,252 | |
Total operating expenses | | | 59,073,359 | | | | 54,056,970 | | | | 40,775,869 | |
Net loss | | | (24,756,167 | ) | | | (21,219,773 | ) | | | (8,068,549 | ) |
Basic net loss per share | | $ | (0.38 | ) | | $ | (0.39 | ) | | $ | (0.17 | ) |
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The pro forma information presented above does not purport to present what actual results would have been had the acquisitions actually occurred at the beginning of 2013, 2012 and 2011 nor does the information project results for any future period. |