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Note 3 - Acquisitions | 12 Months Ended
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Dec. 31, 2022
Notes to Financial Statements |
Business Combination Disclosure [Text Block] |
(3) | ACQUISITIONS
Z-Sciences On October 6, 2021, we acquired substantially all of the assets of Z-Sciences, a developer of ultra-cold storage solutions for the medical cold chain market. The acquisition of this technology enhanced our medical offerings and increases our presence in the life sciences market which is a key target market for us. Z-Sciences was founded in 2004. Its founder joined us as a consultant and is expected to become an employee in 2023. The purchase price for Z-Sciences was $500 in cash, subject to a customary post-closing working capital adjustment, $300 of which was paid at closing. The remaining balance of the purchase price was paid on the one-year anniversary of closing. In addition to his salary, in connection with his prospective employment, the Z-Sciences founder will receive a multi-year restricted stock award with vesting provisions which would be contingent upon achieving future performance milestones related to sales growth and profitability of products related to the Z-Sciences business for the fiscal years from 2022 through 2026. The award will be valued at a maximum of $1,800. The actual numbers of shares to be awarded will be based on the stock price on the date of grant with a cap of 200,000 shares at the 100% attainment level of the vesting provisions that are defined in the restricted stock award agreement. The value of the award will be recorded as compensation expense in our statement of operations on a straight-line basis over the period in which the shares vest. Total acquisition costs incurred to complete this transaction were $82. Acquisition costs were expensed as incurred and included in general and administrative expense in 2021. The acquisition of Z-Sciences has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Z-Sciences have been included in our consolidated results of operations from the date of acquisition. The allocation of the Z-Sciences’ purchase price was based on estimated fair values at October 6, 2021. The excess of the purchase price over the identifiable intangible and net tangible assets was allocated to goodwill and is deductible for tax purposes. Goodwill is attributed to synergies that are expected to result from the operations of the combined businesses. The total purchase price of $479, which includes $179 for the estimated fair value of contingent consideration, has been allocated as follows:
Goodwill |  | $ | 111 |
Identifiable intangible asset – Customer Relationships |  |  | 389 |
Tangible assets acquired and liabilities assumed: |  |  |  |
Trade accounts receivable |  |  | 24 |
Inventories |  |  | 4 |
Accounts payable |  |  | (21 | )
Accrued expenses |  |  | (28 | )
Total purchase price |  | $ | 479 |
We estimated the fair value of Z-Sciences identifiable intangible asset, which represents customer relationships, using an income approach. The weighted average estimated useful life of this asset is fourteen years. We are amortizing this asset over its estimated useful life based on the pattern in which the economic benefits of the asset are expected to be consumed. For the period from October 6, 2021 to December 31, 2021, Z-Sciences contributed $15 of revenue. Subsequent to the date of acquisition, Z-Sciences was re-branded as North Sciences and is being operated as a product line of our iTS subsidiary. As such, net earnings are not separately tracked. Unaudited pro forma information which would give effect to the acquisition of Z-Sciences as if the acquisition occurred on January 1, 2020 is not presented because the financial results for Z-Sciences prior to our acquisition are considered immaterial. Videology On October 28, 2021, we acquired substantially all of the assets of Videology, a global designer, developer and manufacturer of OEM digital streaming and image capturing solutions. The acquisition of Videology expanded our process technology solutions, diversified our reach into key targeted markets and broadened our customer base. It also builds on our process technology platforms by expanding our automation capabilities to add future product solutions with imaging data and analytical tools. The purchase price for Videology was $12,000 paid in cash at closing subject to a customary post-closing working capital adjustment. Total acquisition costs incurred to complete this transaction were $288. Acquisition costs were expensed as incurred and included in general and administrative expense in 2021. The acquisition of Videology has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Videology have been included in our consolidated results of operations from the date of acquisition. The allocation of the Videology purchase price was based on estimated fair values at October 27, 2021. The excess of the purchase price over the identifiable intangible and net tangible assets was allocated to goodwill and is deductible for tax purposes. Goodwill is attributed to synergies that are expected to result from the operations of the combined businesses. The total purchase price of $12,094 has been allocated as follows:
Goodwill |  | $ | 4,596 |
Identifiable intangible assets |  |  | 5,246 |
Tangible assets acquired and liabilities assumed: |  |  |  |
Cash |  |  | 71 |
Trade accounts receivable |  |  | 771 |
Inventories |  |  | 1,726 |
Other current assets |  |  | 57 |
Property and equipment |  |  | 70 |
Accounts payable |  |  | (281 | )
Accrued expenses |  |  | (162 | )
Total purchase price |  | $ | 12,094 |
We estimated the fair value of identifiable intangible assets acquired using the income approach. Identifiable intangible assets acquired include customer relationships, customer backlog, technology and a tradename. We are amortizing the finite-lived intangible assets acquired over their estimated useful lives based on the pattern in which the economic benefits of the intangible asset are expected to be consumed. The following table summarizes the estimated fair value of Videology’s identifiable intangible assets and their estimated useful lives as of the acquisition date:
|  | Fair Value |  |  | Weighted Average Estimated Useful Life |
|  |  |  |  |  | (in years) |
Finite-lived intangible assets: |  |  |  |  |  |  |  |
Customer relationships |  | $ | 2,960 |  |  |  | 14.0 |
Technology |  |  | 1,050 |  |  |  | 9.0 |
Customer backlog |  |  | 386 |  |  |  | 0.8 |
Total finite-lived intangible assets |  |  | 4,396 |  |  |  | 11.6 |
Indefinite-lived intangible assets: |  |  |  |  |  |  |  |
Tradename |  |  | 850 |  |  |  |  |
Total intangible assets |  | $ | 5,246 |  |  |  |  |
For the period from October 27, 2021 to December 31, 2021, Videology contributed $1,434 of revenue and had a net loss of $146. The following unaudited pro forma information gives effect to the acquisition of Videology as if the acquisition occurred on January 1, 2021. These proforma results do not reflect any operating efficiencies or costs savings that may be achieved by the combined businesses. These pro forma results reflect the impact on general and administrative expense of investment advisory costs, legal costs and other costs of $288 incurred by us as a direct result of the transaction as those costs were actually incurred. No adjustment to the timing or amount of these costs have been made in these proforma results. These proforma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been had the acquisition taken place as of that date, nor are they indicative of future consolidated results of operations:
|  | Year Ended December 31, 2021 |
Revenue |  | $ | 92,591 |
Net earnings |  | $ | 9,024 |
Diluted earnings per share |  | $ | 0.84 |
Acculogic On December 21, 2021, we completed our acquisition of Acculogic, a global manufacturer of robotics-based electronic production test equipment and application support services. The Acculogic acquisition added electronics test capabilities with new technologies and services as well as broadened our customer base, furthered our end market diversification and expanded our international footprint. The purchase price for Acculogic was approximately $8,500 paid in cash at closing subject to a customary post-closing working capital adjustment. During the quarter ended June 30, 2022, the post-closing working capital adjustment was finalized and resulted in a reduction in the purchase price of $371 as a result of a reduction in the estimated fair value of accounts receivable acquired. In addition, we may pay the seller up to an additional CAD $5,000 in the five-year period from 2022 through 2026. The additional payments will be based on a percent of net invoices for which payments have been received on systems sold to EV or battery customers in excess of CAD $2,500 per year in each of the five years. The maximum payment is capped at CAD $5,000, which equates to approximately $3,700 at December 31, 2022. There was no payment due to the seller for the year ended December 31, 2022. To estimate the fair value of the contingent consideration at the acquisition date, an option-based income approach using a Monte Carlo simulation model was utilized due to the non-linear payout structure. As of the acquisition date, this resulted in an estimated fair value of $1,430. This amount was recorded as a contingent consideration liability and included in the purchase price as of the acquisition date. We reassess the estimated fair value of this liability annually using this same approach, or more frequently, if we determine that there have been material changes to the assumptions used in the calculation of the probable payout. Changes in the amount of the estimated fair value of the earnouts since the acquisition date will be recorded as operating expenses in our consolidated statement of operations in the quarter in which they occur. At December 31, 2022, there has been no material change in the estimated fair value of the contingent consideration since the date of acquisition. Changes in the fair value represent the impact of changes in foreign exchange rates. The acquisition was completed by acquiring all of the outstanding capital stock of Acculogic. Total acquisition costs incurred to complete this transaction were $1,297. Acquisition costs were expensed as incurred and included in general and administrative expense in 2021. The acquisition of Acculogic has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Acculogic have been included in our consolidated results of operations from the date of acquisition. The allocation of the Acculogic purchase price was based on estimated fair values at December 21, 2021. The excess of the purchase price over the identifiable intangible and net tangible assets was allocated to goodwill and is not deductible for tax purposes. Goodwill is attributed to synergies that are expected to result from the operations of the combined businesses. The total purchase price of $9,426, which includes $1,430 for the estimated fair value of contingent consideration, has been allocated as follows:
Goodwill |  | $ | 3,363 |
Identifiable intangible assets |  |  | 5,123 |
Tangible assets acquired and liabilities assumed: |  |  |  |
Cash |  |  | 312 |
Trade accounts receivable |  |  | 2,259 |
Inventories |  |  | 1,329 |
Other current assets |  |  | 240 |
Property and equipment |  |  | 156 |
Accounts payable |  |  | (406 | )
Accrued expenses |  |  | (2,950 | )
Total purchase price |  | $ | 9,426 |
We estimated the fair value of identifiable intangible assets acquired using the income approach. Identifiable intangible assets acquired include customer relationships, customer backlog, technology and a tradename. We are amortizing the finite-lived intangible assets acquired over their estimated useful lives based on the pattern in which the economic benefits of the intangible asset are expected to be consumed. The following table summarizes the estimated fair value of Acculogic’s identifiable intangible assets and their estimated useful lives as of the acquisition date:
|  | Fair Value |  |  | Weighted Average Estimated Useful Life |
|  |  |  |  |  | (in years) |
Finite-lived intangible assets: |  |  |  |  |  |  |  |
Customer relationships |  | $ | 2,769 |  |  |  | 14.0 |
Technology |  |  | 1,329 |  |  |  | 9.0 |
Customer backlog |  |  | 127 |  |  |  | 0.5 |
Total finite-lived intangible assets |  |  | 4,225 |  |  |  | 12.0 |
Indefinite-lived intangible assets: |  |  |  |  |  |  |  |
Tradename |  |  | 898 |  |  |  |  |
Total intangible assets |  | $ | 5,123 |  |  |  |  |
For the period from December 21, 2021 to December 31, 2021, Acculogic contributed $48 of revenue and had a net loss of $131. The following unaudited pro forma information gives effect to the acquisition of Acculogic as if the acquisition occurred on January 1, 2021. These proforma results do not reflect any operating efficiencies or costs savings that may be achieved by the combined businesses. These pro forma results reflect the impact on general and administrative expense of investment advisory costs, legal costs and other costs of $1,297 incurred by us as a direct result of the transaction as those costs were actually incurred. No adjustment to the timing or amount of these costs have been made in these proforma results. These proforma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been had the acquisition taken place as of that date, nor are they indicative of future consolidated results of operations:
|  | Year Ended December 31, 2021 |
Revenue |  | $ | 95,490 |
Net earnings |  | $ | 7,180 |
Diluted earnings per share |  | $ | 0.67 |

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