| 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, net 1,611
Other assets 600
Purchased intangible assets 1,910
Goodwill 2,876
Accounts payable (1,536 )
Other liabilities (1,708 )
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)
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. 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 $11,519,000 in cash and issued approximately 4,279,000 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. 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 recorded Intrinsyc’s tangible and intangible assets
and liabilities based on their estimated fair values as of the Closing Date and allocated the remaining purchase consideration
to goodwill. Our valuation assumptions of acquired assets and assumed liabilities require significant estimates, especially with
respect to intangible assets. The consideration allocation set forth herein is preliminary and may be revised as additional information
becomes available during the measurement period which could be up to 12 months from the Closing Date. Any such revisions or changes
may be material. A summary of the purchase consideration for Intrinsyc is as
follows (in thousands):
Cash consideration to selling shareholders $ 11,022
Cash consideration for vested equity awards 497
Share consideration 15,574
Total purchase consideration $ 27,093 The preliminary purchase price allocation is as follows (in
thousands):
January 16, 2020 (provisional)
Cash and cash equivalents $ 3,190
Accounts receivable 5,524
Inventories, net 5,281
Other assets 2,624
Purchased intangible assets 12,576
Goodwill 3,449
Accounts payable (1,552 )
Other liabilities (3,999 )
Total Consideration $ 27,093 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)
Developed technology $ 2,311 5.0
Customer relationship 8,930 6.0
Order backlog 730 1.2
Non-compete agreements 370 1.0
Trademarks and trade name 235 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 acquisitions of Maestro and Intrinsyc 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 $262,000, (ii)
acquisition related restructuring costs of $2,477,000 and (iii) acquisition-related costs of $2,246,000, with a
corresponding reduction in the fiscal 2020 supplemental proforma data. Additionally, we recorded $2,947,000 of amortization
expense in the fiscal 2019 supplemental pro-forma data, and additional amortization expense of $862,000 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 and
services from the acquisitions of Maestro and Intrinsyc contributed approximately 31% to 35% of net sales for the nine months
ended March 31, 2020. Post-acquisition net sales and earnings on a standalone basis are generally impracticable to determine,
as on the Acquisition Date and Closing Date, we implemented a plan developed prior to the completion of the acquisitions 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:
Nine Months Ended March 31,
2020 2019
(In thousands, except per share amounts)
Pro forma net revenue $ 56,486 $ 63,787
Pro forma net loss $ (4,752 ) $ (8,207 )
Pro forma net loss per share
Basic $ (0.18 ) $ (0.32 )
Diluted $ (0.18 ) $ (0.32 ) |
