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Note 3 - Acquisitions

12 Months Ended

Dec. 31, 2021

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 enhances 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 2022. 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 $200, adjusted for the final working capital amount, will be paid on the one-year anniversary of closing based on the seller complying with the terms of his employment agreement, as discussed below. This amount has been recorded as a contingent consideration liability on our balance sheet at December 31, 2021 as our current assumption is that this liability will be paid out in October 2022. It is included in Other Current Liabilities. The fair value of this liability at December 31, 2021 approximates its cost due to the short maturity. In addition to his salary, in connection with his prospective employment, 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.

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 as of 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 expands our process technology solutions, diversifies our reach into key targeted markets and broadens 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.

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 as of October 27, 2021.

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, 2020. These proforma summaries do not reflect any operating efficiencies or costs savings that may be achieved by the combined businesses. These proforma summaries 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:

	Years Ended December 31,
	2021		2020

Revenue	$	92,591	$	63,422
Net earnings	$	9,024	$	1,167
Diluted earnings per share	$	0.84	$	0.11

The pro forma results shown above do not 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.

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 adds electronics test capabilities with new technologies and services as well as broadens our customer base, furthers our end market diversification and expands our international footprint. The purchase price for Acculogic was approximately $9,000 paid in cash at closing subject to a customary post-closing working capital adjustment. 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 $4,000 at December 31, 2021. 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.

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 purchase price for Acculogic is not yet complete. The preliminary allocation of the Acculogic purchase price was based on estimated fair values as of December 21, 2021. We are currently working with third-party valuation specialists to assist us with our purchase accounting. The information that needs to be gathered from multiple sources, including the records and personnel at Acculogic, is not yet fully assembled. As a result, the values reflected below are preliminary and we expect that they may change. In particular, we expect that the total value assigned to our patents, technology and customer relationships and the related deferred tax liabilities, the fair value of acquired accounts receivable, inventory, certain accrued expenses as well as our liability for contingent consideration may all change as we finalize our assessments. In addition, the final working capital adjustment has also not yet been completed. Adjustments to these preliminary amounts will be included in the final allocation of the purchase price for Acculogic, which we expect to finalize in the second quarter of 2022. These adjustments could be material.

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 $9,297, which includes $930 for the estimated fair value of contingent consideration, has been allocated as follows:

Goodwill	$	2,912
Identifiable intangible assets		5,074
Tangible assets acquired and liabilities assumed:
Cash		312
Trade accounts receivable		2,630
Inventories		1,329
Other current assets		240
Property and equipment		156
Accounts payable		(406	)
Accrued expenses		(2,950	)
Total purchase price	$	9,297

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	$	2,761		14.0
Technology		1,300		9.0
Customer backlog		135		0.5
Total finite-lived intangible assets		4,196		12.0

Indefinite-lived intangible assets:
Tradename		878
Total intangible assets	$	5,074

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, 2020. These proforma summaries do not reflect any operating efficiencies or costs savings that may be achieved by the combined businesses. These proforma summaries 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:

	Years Ended December 31,
	2021		2020

Revenue	$	95,490	$	66,484
Net earnings	$	7,180	$	842
Diluted earnings per share	$	0.67	$	0.08

The pro forma results shown above do not 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.