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Note 4 - Significant Transactions | 12 Months Ended
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Mar. 31, 2020
Notes to Financial Statements |
Significant Transactions [Text Block] | Note 4. Significant Transactions GPT Acquisition On October 31, 2019, we completed the acquisition of 100% of the outstanding shares of GPT, which has been accounted for as a new reportable segment - Biopharmaceutical Development. The acquisition of GPT expands our presence into a new market--immunoassays and peptide synthesis solutions--that accelerate the discovery, development, and manufacturing of biotherapeutic drugs. GPT systems include laboratory instruments, consumables, kits, and software that maximize laboratory productivity by miniaturizing and automating immunoassays at nanoliter scale. Protein detection is used most frequently by pharmaceutical and biotech companies who are developing protein-based drugs. This division also provides instruments, consumables, and software for the chemical synthesis of peptides from amino acids which are used in the discovery of new peptide-based drug therapies. After adjustments, we paid cash consideration of $181,547 to the sellers in the transaction. We used cash on hand to finance the acquisition, which we raised from an equity offering and a convertible debt issuance during the three months ended September 30, 2019. The results of GPT have been included from November 1, 2019. The acquisition was considered a stock purchase for tax purposes. Preliminary Allocation of Purchase Price We accounted for the GPT Acquisition as the purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of GPT will be recorded as of the acquisition date, at their respective estimated fair values, and consolidated with those of Mesa. The estimated consideration and preliminary purchase price allocation has been prepared using a preliminary valuation. We obtained the information used to prepare the preliminary valuation during due diligence and from other sources. Only items identified as of the acquisition date are considered for subsequent adjustment. The preparation of the valuation required the use of Level 3 inputs, which are subject to significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that we believe to be reasonable; however, actual results may differ from these estimates. We adjusted the preliminary allocation of the purchase price for the GPT acquisition during the three months ended March 31, 2020. The significant items that changed were ( 1 ) inventory decreased $1,140 and we recorded a cumulative-effect release in cost of products sold of $834 and ( 2 ) customer relationship intangibles increased $42,873 and we recorded a cumulative-effect increase in amortization of intangibles acquired from a business combination of $1,706. These adjustments have been reflected in the preliminary allocations of the purchase price. The impacts of all adjustments have been reflected in the accompanying Consolidated Financial Statements as of and for the year ended March 31, 2020. The final purchase price allocation will be completed within one year of the closing of the transaction, and may be refined further in the coming months as we learn more about GPT and therefore we can more accurately allocate the purchase price. The following table summarizes the allocation of the preliminary purchase price:
| Note |  | Fair Value at October 31, 2019 |
Cash and cash equivalents |  | $ | 4,654 |
Accounts receivable, net | (a) |  |  | 6,663 |
Inventories, net | (b) |  |  | 16,274 |
Prepaid income taxes |  |  | 477 |
Prepaid expenses and other |  |  | 13,649 |
Property, plant and equipment, net |  |  | 645 |
Other assets |  |  | 1,469 |
Deferred taxes |  |  | 10,340 |
Intangible assets: |  |  |  |  |
Customer relationships | (c) |  |  | 89,705 |
Trade name | (c) |  |  | 2,321 |
Non-compete agreements | (c) |  |  | 156 |
Acquired technology | (c) |  |  | 7,720 |
Goodwill | (d) |  |  | 77,162 |
Total Assets acquired |  | $ | 231,235 |
Accounts payable |  |  | 599 |
Accrued salaries and payroll taxes |  |  | 10,735 |
Other short-term liabilities |  |  | 157 |
Unearned revenues |  |  | 2,089 |
Other accrued expenses |  |  | 5,068 |
Deferred taxes |  |  | 25,421 |
Other long-term liabilities |  |  | 965 |
Total liabilities assumed |  | $ | 45,034 |
Total closing amount, net of cash acquired |  | $ | 181,547 |
| (a) | Accounts receivable is composed of trade accounts receivable, net, which is expected to be collected.
| (b) | Finished goods inventory of GPT includes $11,818 of inventory-step up, which is required to report inventory at fair value at the time of acquisition. These costs are being amortized to cost of products over approximately nine months following the acquisition date, which will result in a temporary reduction in gross profit for the business. During the period from November 1, 2019 until March 31, 2020, we recorded $8,502 of amortization of inventory step-up costs in cost of products on the Consolidated Statements of Operations.
| (c) | Customer relationships and acquired technology are currently expected to be amortized on a straight line basis over a 10 year period; non-compete agreements are currently expected to be amortized over a five year period. The weighted average useful life of intangibles acquired as part of the GPT acquisition is 9.9 years. Amortization expense for customer relationships and non-compete agreements is being amortized to general and administrative expenses; amortization expense for acquired technology is being recorded to cost of products. During the period from November 1, 2019 until March 31, 2020, $3,742 of amortization expense was recorded to general and administrative costs and $314 of amortization expense was recorded to cost of goods sold and allocated to the Biopharmaceutical Development Division. The estimated fair value of identifiable intangible assets was determined primarily using the income approach, which requires a forecast of all the expected future cash flows associated with the identified intangible assets. Once our final valuation is complete, the amount of amortization expense will be trued up and amortization will be based on our final allocation. Trademarks associated with this acquisition are considered indefinite-lived intangibles.
| (d) | Acquired goodwill is allocated to the Biopharmaceutical Development reportable segment and represents the value expected to arise from organic revenues growth projections that are expected to exceed that of our legacy divisions, and the opportunity to expand into a new market with well-established market share. The goodwill acquired is not deductible for income tax purposes.
The final purchase price allocation will be determined when we have completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include, but not be limited to: ( 1 ) changes in allocations to intangible assets such as trade names, technology and customer relationships as well as goodwill ( 2 ) changes to inventory and ( 3 ) other changes to assets and liabilities. Acquisition related costs of $1,399 for the year ended March 31, 2020 are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred and are reflected on the Consolidated Statements of Operations in general and administrative expenses. Unaudited Pro Forma Information GPT's operations contributed $13,830 to revenues and ( $7,433 ) of net loss to our consolidated results during the year ended March 31, 2020. We included the operating results of GPT in our Consolidated Statements of Operations beginning on November 1, 2019, subsequent to the acquisition date. The following pro forma financial information presents the combined results of operations of Mesa and GPT as if the acquisition had occurred on April 1, 2018 after giving effect to certain pro forma adjustments. The pro forma adjustments reflected only include those adjustments that are directly attributable to the GPT Acquisition, factually supportable and have a recurring impact; they do not reflect any adjustments for anticipated expense savings resulting from the acquisition and are not necessarily indicative of the operating results that would have actually occurred had the transaction been consummated on April 1, 2018 or of future results.
|  | Year Ended March 31, |
|  | 2020 |  |  | 2019 |
Pro forma total revenues (1) |  | $ | 149,578 |  |  | $ | 134,843 |
Pro forma net income (loss) (2) |  |  | 7,636 |  |  |  | (7,269 | )
( 1 ) Net revenues were adjusted to include net revenues of GPT. ( 2 ) Pro forma adjustments to net earnings attributable to Mesa include the following:
| ● | Excludes acquisition-related transaction costs incurred in the year ended March 31, 2020.
| ● | Excludes interest expense attributable to GPT's external debt that was paid off as part of the acquisition.
| ● | Additional amortization expense of $ 9,774 for each of the years ended March 31, 2020 and March 31, 2019 based on the adjusted fair value of amortizable intangible assets acquired.
| ● | Additional charge to cost of revenues of $11,818 was included in the year ended March 31, 2019 based on the step up value of inventory. $8,502 was excluded from the year ended March 31, 2020 based on the step up value of inventory which would have been included and fully amortized within the first year of the acquisition.
| ● | Removal of non-cash impairment of goodwill in the amount of $20,676 recorded during GPT's fiscal year ended December 31, 2018, which would not have been taken had the acquisition occurred on January 1, 2018.
| ● | Additional stock based compensation expense representing expense for performance share units awarded to certain key GPT employees.
| ● | Income tax effect of the adjustments made at a blended federal and state statutory rate (approximately 25% ).
IBP Acquisition On April 1, 2019, we completed a business combination (the “IBP Acquisition”) whereby we acquired all of the common stock of IBP Medical GmbH, a company whose business manufactures medical meters used to test various parameters of dialysis fluid (dialysate), and the proper calibration and operation of a dialysis machine. During the year ended March 31, 2020, we allocated the purchase price according to the fair value of assets acquired and liabilities assumed using information obtained during due diligence and through the use of financial and other information available to us. Fair value of the assets and liabilities acquired was determined using Level 3 inputs (unobservable inputs) based on a discounted cash flow method. Under the terms of the IBP agreement, we are required to pay contingent consideration if the company is able to achieve certain regulatory milestones. The potential undiscounted consideration payable ranges from $0 to $490, depending on whether units being developed are certified for sale by U.S. and foreign regulatory bodies. We currently believe that it is more likely than not that all aspects of the contingency will be achieved and as part of purchase accounting, we recorded $490 of contingent consideration payable on the Consolidated Balance Sheets, which is our estimate of the amount that will be paid. Any changes to the contingent consideration ultimately paid will result in additional income in our Consolidated Statements of Operations. Dissolution of Packaging Division During the year ended March 31, 2019, we made the decision to exit the packaging business (the Cold Chain Packaging Reportable Segment) by or before March 31, 2020 because it has historically been our least profitable segment and was no longer aligned with our long-term strategic goals. During the year ended March 31, 2020, we stopped providing consulting services, and we stopped seeking or accepting new customers. We reduced the division's costs by relocating most of the administrative functions to our headquarters in Lakewood, Colorado, and eliminating the division's sales force. Throughout the year ended March 31, 2020, we assisted our customers in transitioning their business to other packaging vendors and we stopped purchasing new inventory. We substantially completed liquidating our inventory and exiting the business during the third quarter of our fiscal year 2020. As a result of completing our final sales in the division, we wrote off the remaining value of intangibles and goodwill, resulting in a charge to impairment of goodwill and long-lived assets of $276. We incurred $51 and $150 of severance and facility closure expenses during the years ended March 31, 2020 and March 31, 2019, respectively. All amounts have been paid and no further exit costs are expected to be incurred. Additionally, during the year ended March 31, 2020, we released $187, the balance of currency translation adjustment, from equity into other (income) expense, net on the Consolidated Statements of Operations. Disposal of the Packaging Division reportable segment represents a strategic shift in our business; however, since the division represents our smallest reportable segment with no major effect on our operations or financial results, we have not accounted for the exit as a discontinued operation. Beginning with this annual report, we have stopped presenting Cold Chain Packaging as a reportable segment, instead presenting the results of it operations as part of Corporate and Other, which aligns with Management's approach in evaluating the business.

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