| Business Combinations | 2. Business Combinations Acquisition of Maestro On July 5, 2019 (the "Acquisition Date"), Lantronix
acquired all outstanding shares of Maestro Wireless Solutions Limited, a Hong Kong private company limited by shares (“MWS”),
Fargo Telecom Asia Limited, a Hong Kong private company limited by shares (“FTA” and together with MWS and their respective
subsidiaries, the “Acquired Companies” or “Maestro”) for $5,355,000 in cash. The acquisition provides complementary
cellular connectivity technologies to our portfolio of IoT solutions.
July 5, 2019 (provisional)
Cash and cash equivalents 282
Accounts receivable 1,320
Inventories 1,611
Prepaid expense and other current assets 283
Property and equipment 108
Amortizable intangible assets 1,910
Other non-current assets 213
Goodwill 2,970
Accounts payable (1,568 )
Accrued payroll and related expenses (249 )
Other current liabilities (1,361 )
Other non-current liabilities (164 )
Total consideration $ 5,355 The factors that contributed to a purchase price resulting in
the recognition of goodwill include our belief that the acquisition will create a more diverse IoT company with respect to product
offerings and our belief that we are committed to improving cost structures in accordance with our operational and restructuring
plans which should result in a realization of cost savings and an improvement of overall efficiencies. Acquisition-related costs were expensed in the periods in which
the costs were incurred. The valuation of identifiable intangible assets and their estimated
useful lives are as follows:
Asset Fair Value Weighted-Average Useful Life (years)
(In thousands, except for useful life)
Developed technology $ 1,530 5.0
Customer relationship 100 2.0
Order backlog 110 1.0
Non-compete agreements 30 2.0
Trade name 140 1.0 The intangible assets are amortized on a straight-line
basis over the estimated weighted-average useful lives. Supplemental Pro Forma Information The following supplemental pro forma data summarizes the Company’s
results of operations for the periods presented, as if we completed the acquisition of Maestro as of the first day of fiscal
2019. The supplemental pro forma data reports actual operating results adjusted to include the pro forma effect and timing of the
impact in amortization expense of identified intangible assets, restructuring costs, the purchase accounting effect on inventories
acquired, and transaction costs. In accordance with the pro forma acquisition date, we recorded in the fiscal 2019 supplemental
pro forma data (i) cost of goods sold from manufacturing profit in acquired inventory of $171,000, (ii) Maestro related restructuring
costs of $651,000 and (iii) acquisition-related costs of $724,000, with a corresponding reduction in the fiscal
2020 supplemental proforma data. Additionally, we recorded $295,000 of amortization expense in the fiscal 2019 supplemental
pro-forma data, and reversed amortization expense of $110,000 in the fiscal 2020 supplemental pro forma data to represent the amount
related to assets that would have been fully amortized. Net sales related to products from the
acquisition of Maestro contributed approximately 24% to 28% of net sales for the six months ended December
31, 2019. Post-acquisition net sales and earnings on a standalone basis are generally impracticable to determine, as on the Acquisition
Date, we implemented a plan developed prior to the completion of the acquisition and began to immediately integrate the acquisition
into existing operations, engineering groups, sales distribution networks and management structure. Supplemental pro forma data is as follows:
Six Months Ended December 31,
2019 2018
(In thousands, except per share amounts)
Pro forma net revenue $ 25,969 $ 29,702
Pro forma net loss $ (2,165 ) $ (2,221 )
Pro forma net loss per share
Basic $ (0.09 ) $ (0.11 )
Diluted $ (0.09 ) $ (0.10 ) Acquisition of Intrinsyc On January 16, 2020 (the “Closing Date”), we completed
the previously announced acquisition of Intrinsyc Technologies Corporation (“Intrinsyc”), a company existing under
the laws of British Columbia, Canada. Pursuant to the terms of the agreement, dated October 30, 2019 (the “Agreement”),
by and between Lantronix and Intrinsyc, all of the outstanding common shares of Intrinsyc were acquired by Lantronix. Under the
Agreement, we paid $0.50 and 0.2275 of a share of our common stock for each issued and outstanding common share of Intrinsyc. Pursuant
to the Agreement, we paid, in the aggregate, approximately $11,000,000 in cash and issued approximately 4,300,000 shares of Lantronix
common stock to Intrinsyc shareholders. Following the acquisition, Intrinsyc shareholders owned just under 16% of the outstanding
shares of Lantronix common stock. Additionally, pursuant to the Agreement, Lantronix agreed to exchange certain options to purchase
Intrinsyc shares and restricted stock units (“RSUs”) for cash payments, Lantronix common stock options or RSUs or a
combination thereof, as further outlined in the Agreement. The acquisition provides us with complementary IoT computing
and embedded product development capabilities and expands our IoT market opportunity. We are currently evaluating the fair value of acquired assets
and liabilities, including any identifiable intangible assets. We have not yet completed the initial accounting related to this
acquisition as we are compiling and evaluating all the necessary information. We expect to present a preliminary allocation of
the fair value of the acquired assets and liabilities and pro forma disclosure in our Form 10-Q filing for the quarter ending March
31, 2020. |
