Note 15 - Subsequent Events

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Subsequent Events [Text Block]

(15) SUBSEQUENT EVENTS

Acquisition of Z-Sciences

On October 6, 2021, we acquired substantially all of the assets of Z-Sciences Corp. (“Z-Sciences”) pursuant to the Asset Purchase Agreement dated as of that same date. Z-Sciences is a developer of ultra-cold storage solutions for the life sciences cold chain market. The acquisition of the Z-Sciences business will broaden the product line of our Thermal segment. The purchase price for the assets, net of assumed liabilities, was approximately $500 in cash. We placed $200 of the purchase price in escrow to provide security for certain indemnification obligations set forth in the acquisition agreement. In connection with this acquisition, we also entered into a separate management services agreement with Z-Sciences and certain of its employees to provide management, transitional, and administrative services to us. We also expect that the founder of Z-Sciences, Jean Fallacara, will become an employee of inTEST in 2022. In connection with his prospective employment, Mr. Fallacara would 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.

The Z-Sciences acquisition will be accounted for as a purchase business combination and, accordingly, the results will be included in our consolidated results of operations from the date of acquisition. We have not completed our purchase accounting for this transaction and are still in the process of valuing the assets acquired. We expect to complete this process by December 31, 2021. The results of Z-Sciences will be included in our Thermal segment.

Acquisition of Videology

On October 28, 2021, we acquired substantially all of the assets of Videology Imaging Solutions, Inc. and Videology Imaging Solutions Europe B.V. (collectively, “Videology”), pursuant to two separate asset purchase agreements, both of which were dated as of that same date. Videology is a global designer, developer and manufacturer of OEM digital streaming and image capturing solutions. The acquisition of Videology will broaden the product line of our Thermal segment. The purchase price for the assets, net of assumed liabilities, was approximately $12,000 in cash. We placed $1,200 of the purchase price in escrow to provide security for certain indemnification obligations set forth in the asset purchase agreements.

The Videology acquisition will be accounted for as a purchase business combination and, accordingly, the results will be included in our consolidated results of operations from the date of acquisition. We have not completed our purchase accounting for this transaction and are still in the process of valuing the assets acquired. We expect to complete this process by December 31, 2021. The results of Videology will be included in our Thermal segment.

Credit Facility

As discussed in Note 9, on October 15, 2021 (the “Closing Date”), we entered into the October 2021 Agreement with M&T Bank. The October 2021 Agreement includes a $25,000 non-revolving delayed draw term note (the “Term Note”) and a $10,000 revolving credit facility (the “Revolver Note”) and replaces the Loan and Security Agreement, dated April 10, 2020, as amended by the First Amendment to Loan and Security Agreement, dated December 16, 2020, and the Second Amendment to Loan and Security Agreement, dated April 10, 2021. Our domestic subsidiaries, Ambrell, inTEST EMS, inTEST SV and Temptronic, are guarantors under the October 2021 Agreement (collectively, the “Guarantors”). The October 2021 Agreement has a five year contract period that began on the Closing Date and expires on October 15, 2026 (the “Contract Period”), and draws under the delayed draw term note will be permissible for two years.

The principal balance of the revolving credit facility and the principal balance of any amount drawn under the Term Note will accrue interest based on the secured overnight financing rate for U.S. government securities (“SOFR”) or a bank-defined base rate plus an applicable margin, depending on leverage. Currently, this equates to a rate of approximately 2.2%. Each draw under the delayed draw term note will have an option for us of either (i) up to a five year amortizing term loan with a balloon due at maturity, or (ii) up to a five year term with up to seven years amortization with a balloon due at maturity. Any amortization greater than five years will be subject to an excess cash flow recapture. The October 2021 Agreement also allows us to enter into hedging contracts with M&T, including interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, or any other agreements or that are designed to protect us against fluctuations in interest rates or currency exchange rates.

The October 2021 Agreement contains customary default provisions, including but not limited to the failure by us to repay obligations when due, violation of provisions or representations provided in the October 2021 Agreement, bankruptcy by us, suspension of our business or any of our subsidiaries and certain material judgments. After expiration of the Contract Period or if a continued event of default occurs, interest will accrue on the principal balance at a rate of 2% in excess of the then applicable non-default interest rate. The October 2021 Agreement includes customary affirmative, negative and financial covenants, including a maximum ratio of consolidated funded debt to consolidated EBITDA and a fixed charge coverage ratio. Our obligations under the October 2021 Agreement are secured by liens on substantially all of our tangible and intangible assets that are owned as of the Closing Date or acquired thereafter.

On October 28, 2021, we drew $12,000 under the Term Note to finance the acquisition of Videology discussed above. We also entered into an interest rate swap agreement with M&T as of this date which is designed to protect us against fluctuations in interest rates during the five year repayment and amortization period. As a result, the annual interest rate we expect to pay for this draw under the Term Note is fixed at approximately 3.2% based on current leverage. On October 28, 2021, the October 2021 Agreement was amended to include our subsidiary, Videology Imaging Corporation, as a subsidiary guarantor thereunder.