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Acquisitions

9 Months Ended

Sep. 30, 2023

Acquisitions

Note 3 – Acquisitions

Acquisition of Assets of SPEC Sensors and KWJ Engineering

On December 16, 2022, we acquired substantially all of the assets of SPEC Sensors, LLC (“SPEC”), and KWJ Engineering, Inc. (“KWJ”) (collectively, “SPEC/KWJ”), two designers and manufacturers of gas, air and environmental quality sensors that were under common ownership, pursuant to an Asset Purchase Agreement, dated as of December 16, 2022 (the “Asset Purchase Agreement”), by and among the Company, SPEC/KWJ, and the respective equity holders of SPEC and KWJ. The Asset Purchase Agreement contains customary representations, warranties and covenants, including non-competition covenants. Under the terms of the Asset Purchase Agreement, the purchase price for both companies’ assets was $2,000,000 plus the amount by which the combined companies’ net working capital at closing was more than $1,350,000. At closing, the purchase price was preliminarily calculated as $2,269,000, of which $1,519,000 was paid to SPEC/KWJ, and $750,000 was paid into escrow against purchase price adjustments and potential claims for breaches of representations and warranties by SPEC/KWJ or the equity holders. Subsequent to the closing, the parties reached an agreement pursuant to which (i) the purchase price was reduced to $2,102,313 resulting from the determination that the closing date net working capital was $166,687 lower than was preliminarily calculated, with such funds having been distributed back to the Company from the escrow account in May 2023, and (ii) the remaining funds in the escrow account were released to SPEC/KWJ in May 2023 without prejudice to the Company’s rights in respect of breaches of representations, warranties or covenants.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date, giving effect to the post-closing purchase price adjustment (in thousands).


Cash		$	541
Accounts receivable			306
Inventories			952
Prepaid expenses and other current assets			52
Property and equipment			50
Deposits			16
Accounts payable and accrued liabilities			(415)
Net identifiable tangible assets acquired			1,502
Developed technology			134
Customer relationships			96
Tradenames and trademarks			47
In-process research and development			29
Non-compete agreements			26
Order backlog			22
Goodwill			246
Net assets acquired		$	2,102

The fair value of accounts receivable is equal to the $306,000 gross contractual amount, as we expect the entire balance to be collectible.

The goodwill recognized is attributable primarily to expected synergies and the assembled workforces of SPEC/KWJ. The goodwill is expected to be deductible for income tax purposes.

Acquisition of Calman Technology Limited

On March 17, 2023, we acquired all of the outstanding shares in Calman Technology Limited (“Calman”), a Scotland-based designer and manufacturer of membrane keypads, graphic overlays and printed electronics, pursuant to a Share Purchase Agreement (the “Share Purchase Agreement”) by and among the Company’s wholly owned United Kingdom subsidiary, Interlink Electronics Limited, and the shareholders of Calman. The Share Purchase Agreement contains customary representations, warranties and covenants, including non-competition covenants on the part of the sellers, who continue to be employed by Calman. Under the terms of the Share Purchase Agreement, the purchase price was GB£4,127,000 (approximately $4,912,000), of which GB£3,627,000 (approximately $4,317,000) was paid at closing and the remaining GB£500,000 (approximately $595,000) is being held back for up to nine months against potential claims for breaches of representations and warranties (subject to certain deductibles and caps). The purchase price was subject to adjustment based on the extent, if any, to which Calman’s net working capital at closing was more or less than GB£600,000 (approximately $714,000), which resulted in additional purchase consideration of approximately GB£1,292,000 (approximately $1,538,000).

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands). We are in the process of identifying and measuring the fair value of certain property and equipment assets, intangible assets, and working capital balances, and accordingly the following measurements of these assets and goodwill are provisional and subject to change.


Cash		$	1,577
Accounts receivable			656
Inventories			622
Prepaid expenses and other current assets			12
Property, plant, and equipment			146
Right-of-use assets			91
Accounts payable and accrued liabilities			(615)
Lease liabilities			(91)
Net identifiable tangible assets acquired			2,398
Goodwill			4,052
Net assets acquired		$	6,450

The fair value of accounts receivable is equal to the $656,000 gross contractual amount, as we expect the entire balance to be collectible.

The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Calman. The goodwill is not expected to be deductible for income tax purposes.

The following represents the pro forma consolidated statement of operations as if both SPEC/KWJ and Calman had been included in our consolidated results for the periods ended September 30, 2023 and 2022 (unaudited):


		Pro Forma						Pro Forma
		Three Months Ended September 30,						Nine Months Ended September 30,
		2023			2022			2023			2022

		(in thousands)
Revenue		$	3,075		$	3,866		$	11,163		$	12,042
Net income (loss)		$	(125)		$	(93)		$	552		$	815