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Note 11 - Significant Transaction | 9 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Significant Transactions [Text Block] | Note 11 . Significant Transactions GPT Acquisition On October 31, 2019, we completed the acquisition of 100% of the outstanding shares of GPT, which will be 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. The automated systems that they develop and sell 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. The final purchase price allocation will be completed within one year of the closing of the transaction, and may be refined in the coming months as we learn more about GPT and therefore we can more accurately allocate the purchase price. 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. The following table summarizes the allocation of the preliminary purchase price as of October 31, 2019:
| Note |  | Fair Value at October 31, 2019 |
Cash and cash equivalents |  |  | $ | 4,654 |
Accounts receivable, net | (a) |  |  | 6,663 |
Inventories, net | (b) |  |  | 17,414 |
Prepaid income taxes |  |  |  | 477 |
Prepaid expenses and other |  |  |  | 13,649 |
Property, plant and equipment, net |  |  |  | 645 |
Other assets |  |  |  |  |
Intangible assets: |  |  |  |  |
Customer relationships | (c) |  |  | 46,832 |
Trade name | (c) |  |  | 2,321 |
Non-compete agreements | (c) |  |  | 156 |
Acquired technology | (c) |  |  | 7,720 |
Goodwill | (d) |  |  | 119,130 |
Total Assets acquired |  |  | $ | 219,661 |
Accounts payable |  |  |  | 599 |
Accrued salaries and payroll taxes |  |  |  | 10,735 |
Other short-term liabilities |  |  |  | 157 |
Unearned revenues |  |  |  | 2,089 |
Other accrued expenses |  |  |  | 4,564 |
Deferred taxes |  |  |  | 15,316 |
Total liabilities assumed |  |  | $ | 33,460 |
Total closing amount, net of cash acquired |  |  | $ | 181,547 |
| (a) | Accounts receivable is composed of $6,663 of trade accounts receivable, net which is due from customers and is expected to be collected.
| (b) | Finished goods inventory of GPT includes $12,958 of inventory-step up, which is required to report inventory at fair value at the time of acquisition. These costs will be amortized to cost of revenues over approximately six 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 December 31, 2019, we recorded $5,134 of amortization of inventory step-up costs in cost of revenues on the Condensed Consolidated Statement of Operations.
| (c) | Customer relationships, trade names, 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. Amortization expense for customer relationships, trade names and non-compete agreements will be amortized to general and administrative expenses; amortization expense for acquired technology will be recorded to cost of revenues. During the period from November 1, 2019 until December 31, 2019, $794 of amortization expense was recorded to general and administrative costs and $124 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 is 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.
| (d) | Acquired goodwill of $119,130, all of which is allocated to the Biopharmaceutical Development reportable segment, 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.
This preliminary purchase price allocation is subject to adjustment as purchase accounting is finalized. 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 $1,200 for the nine months ended December 31, 2019 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 Condensed Consolidated Statement of Operations in general and administrative expenses. Unaudited Pro Forma Information GPT's operations contributed $5,637 to revenues and ( $4,997 ) of net loss to our consolidated results during the three months ended December 31, 2019. We included the operating results of GPT in our Condensed 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.
|  | Nine Months Ended December 31, |
|  | 2019 |  |  | 2018 |
Pro forma total revenues (1) |  | $ | 102,184 |  |  | $ | 101,425 |
Pro forma net income (2) |  |  | 15,205 |  |  |  | 11,530 |
( 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 nine months ended December 31, 2019.
| ● | Excludes interest expense attributable to GPT's external debt that was paid off as part of the acquisition.
| ● | Additional amortization expense of $4,289 for the nine months ended December 31, 2018 and $3,336 for the nine months ended December 31, 2019 based on the increased fair value of amortizable intangible assets acquired.
| ● | Additional charge to cost of revenues of $12,958 was included in the nine months ended December 31, 2018 based on the step up value of inventory. $5,134 was excluded from the nine months ended December 31, 2019 based on the step up value of inventory which would have been included and fully amortized within the first nine months of the acquisition.
| ● | 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% ).
Prior to the GPT Acquisition, GPT did not generate monthly or quarterly financial statements in accordance with U.S. GAAP, as such, it is impracticable for us to present pro forma financial results for the three months ended December 31, 2019. IBP Acquisition In April 2019, we completed a business combination (the “IBP Acquisition”) whereby we acquired 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 nine months ended December 31, 2019, 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. 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 nine months ended December 31, 2019, 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 nine months ended December 31, 2019, we assisted our customers in transitioning their business to other packaging vendors and we stopped purchasing new inventory. During the three months ended December 31, 2019, we completed the process of liquidating our remaining inventory and exiting the business. 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. As of December 31, 2019, we have $132 of accounts receivable, net of allowances that we expect to substantially collect during the three months ending March 31, 2020. 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.

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