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Note 3 - Acquisition of Intrinsix

9 Months Ended

Sep. 30, 2021

Business Combination Disclosure [Text Block]

NOTE 3: ACQUISITION OF INTRINSIX

On May 31, 2021 (the “closing date”), the Company acquired 100% of the equity shares of Intrinsix Corp. (“Intrinsix”), a leading chip design specialist. The Company acquired Intrinsix pursuant to the Agreement and Plan of Merger, made and entered into on May 9, 2021 (the “Merger Agreement”), by and among the Company, Northstar Merger Sub, Inc., Intrinsix and Shareholder Representative Services LLC, for $33,096 in cash (“the Merger Consideration”), with $26,704 paid at closing, $4,260 delivered to escrow to satisfy indemnification claims, if any, and $2,605 payable to certain Intrinsix executives held back as described below (the “Holdback Merger Consideration”), and after giving effect to post-closing adjustments resulting in a $473 repayment to the Company during the third quarter of 2021. As part of the Merger Agreement, the Company entered into agreements with the Chief Executive Officer and the Chief Technology Officer of Intrinsix pursuant to which the Holdback Merger Consideration, representing 25% of the Merger Consideration payable to each of them in respect of their equity in Intrinsix, is being held back and, subject to their respective continued employment with the Company, released to them over a period of twenty-four (24) months after closing of the acquisition.

In addition, the Company incurred acquisition-related costs in an amount of $57 and $953, which were included in general and administrative expenses for the three and nine months, respectively, ended September 30, 2021.

The acquisition has been accounted in accordance with FASB Accounting Standards Codification (“ASC”) No. 805, “Business Combinations.” Under the acquisition method of accounting, the total purchase price is allocated to the net tangible and intangible assets of Intrinsix acquired in the acquisition, based on their fair values on the closing date. The estimated fair values are preliminary and based on information that was available as of the closing date. The Company believes that the information provides a reasonable basis for estimating the fair values, but the Company is waiting for additional information necessary to finalize these amounts, particularly with respect to the estimated fair value of intangible assets. Thus, the preliminary measurements of fair value reflected are subject to change. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable, but no later than one year from the closing date.

The results of operations of the combined business, including the acquired business, have been included in the condensed consolidated financial statements as of the closing date. The primary rationale for this acquisition was (1) extending the Company’s market reach into the sustainable and sizeable aerospace and defense space, (2) increasing the Company’s content in customers’ designs and accordingly increasing the license and royalty revenue opportunity by offering turnkey IP platforms that can combine the Company’s off-the-shelf connectivity and smart sensing IP with Intrinsix’s NRE design capabilities and IP in RF, mixed-signal, security, high complexity digital design, chiplets and more, and (3) expanding the Company’s IP portfolio with secure processor IP for IoT devices and Heterogeneous SoC interface IP for the growing adoption of chiplets, which offer a faster and less expensive alternative to the high R&D costs and complexities associated with monolithic IC developments. A significant portion of the acquisition price was recorded as goodwill due to the synergies with Intrinsix.

The preliminary purchase price allocation for the acquisition has been determined as follows:

Net assets (including cash in the amount of $600)	$	755
Intangible assets		5,300
Goodwill		24,436
Total assets	$	30,491

The estimated fair value and weighted average estimated useful life of the acquired intangible assets are as follows:

Identifiable Intangible Assets	Estimated Fair Value		Weighted-Average Estimated Useful Life in Years
Customer relationships	$	4,820		5.5
Customer backlog		262		1.5
Patents		218		5.0
Total identifiable intangible assets	$	5,300

The following unaudited pro forma financial information presents combined results of operations for the periods presented, as if the Company had completed the acquisition on January 1, 2020. The unaudited pro forma financial information has been calculated after adjusting the Company’s results and those of Intrinsix, including: (i) Holdback Merger Consideration costs; (ii) amortization expense from acquired intangible assets; and (iii) interest income and unrealized gains on equity securities included in the statement of income of Intrinsix, which were specifically excluded from the acquisition of Intrinsix, and the respective income tax effects of such adjustments. The unaudited pro forma financial information presented below is not necessarily indicative of consolidated results of operations of the combined business had the acquisition occurred at the beginning of the respective fiscal years, nor is it necessarily indicative of future results of operations of the combined company.

	Nine months ended September 30,						Three months ended September 30,
	2021 (unaudited)			2020 (unaudited)			2021 (unaudited)			2020 (unaudited)
Pro forma total revenues	$	97,340		$	88,667		$	32,790		$	31,668
Pro forma net income (loss)		(5,170	)		(3,323	)		(167	)		(238	)