Equipois Acquisition |
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| Equipois Acquisition |
4. Equipois Acquisition
On December 1, 2015, the Company acquired substantially all of the assets of Equipois, LLC, a New Hampshire limited liability company (“Equipois”), for an initial payment of approximately $1.1 million of the Company’s common stock pursuant to an asset purchase agreement among the Company, Ekso Bionics, Inc., Equipois and Allard Nazarian Group, Inc. ( the “Asset Purchase Agreement”). The Company will make additional payments in shares of the Company’s common stock or cash upon the achievement of certain financial targets for the period from January 1, 2016 through December 31, 2018. The Company accounted for the acquisition as a business combination by applying the acquisition method, and accordingly, the purchase price of $1,839 was allocated to the assets assumed based on their fair values at the acquisition date. The excess of the purchase price over the assets of $189 was recorded as goodwill. The goodwill recognized is attributed primarily to expected synergies of Equipois with the Company. From the acquisition date and as of December 31, 2016, there were no changes in the recognized amounts of goodwill resulting from the acquisition. For the year ended December 31, 2015, the Company did not recognize any revenue related to the Equipois acquisition. The acquired assets consist of mechanical balance and support arms technologies, including the rights to the zeroG® and X-Ar® products. The acquired assets were integral to the Equipois business and include patents, trademarks and other intellectual property rights as well as certain tools and product designs and specifications. The Company also assumed the rights and obligations of Equipois under certain intellectual property license agreements. The Company did not assume any other obligations of Equipois. The total purchase price is summarized as follows:
The fair value of the 112 shares of common stock issued was determined based on the closing market price of the Company’s common shares on the acquisition date. In connection with the acquisition, the parties entered into a supply agreement pursuant to which Equipois supplied products to the Company during a post-closing transition period expiring December 31, 2016 (the “Supply Agreement”), and a reseller agreement pursuant to which Equipois may purchase and resell the products to certain current Equipois customers for a three-year term (the “Reseller Agreement”). Under the Supply Agreement, the Company was obligated to make a minimum purchase of $157 and a maximum purchase of $521. The fair value of the contingent consideration resulting from the Supply Agreement and Reseller Agreement was recorded at the time of acquisition. The Supply Agreement required the Company to pay $500 in additional shares of the Company’s common stock on December 31, 2016. In addition, the Reseller Agreement requires the Company to pay an annual contingent consideration payment of between $125 and $375 in shares of the Company’s common stock if the Company and Equipois meet certain product sales targets for each of the calendar years 2016, 2017 and 2018. Upon the termination of the Reseller Agreement by the Company without cause, the Company will pay to Equipois a final contingent consideration payment, payable in shares of the Company’s common stock, such that the total consideration received by Equipois under the Asset Purchase Agreement, including the shares issued upon closing, the additional shares issued upon termination of the Supply Agreement and the annual contingent consideration payments are not less than the sum of (a) 7.5 multiplied by 10% of specified product revenues of Equipois during the preceding four complete quarters, plus (b) 7.5 multiplied by 5% of specified product revenues of the Company during the preceding four complete quarters.
The Asset Purchase Agreement also provides for the election of a buyout payment by either the Company or Equipois which is payable in shares of the Company’s common stock. Upon the election of the buyout payment by either party, the Reseller Agreement is terminated and the buyout payment will be considered in lieu of any further annual or final earn-out payments. The buyout payment ranges from total consideration of $1,750 to $3,000 and is based on the timing of the election and whether it is Equipois or the Company who makes the election. The buyout payment provision expires on November 30, 2017. The contingent consideration is valued using the Probability Weighted Value Analysis which considered performance based contingent payments for both the supply and sales functions of the Company, and both buyer and seller options. Multiple forecasted scenarios were evaluated which include (i) a minimum payment case, (ii) an expected payment case and (iii) a maximum payment case. The Company determined the potential deferred payment cash flows of Equipois and the Company based on each scenario. The cash flow payments were converted to a present value using a discount rate of 15% based on the Company’s weighted average cost of capital. Finally, the Company probability weighted each scenario. The Company reviewed the assumptions used to value the contingent consideration from the date of acquisition to December 31, 2015, and noted no change in the initial estimated fair value of the contingent consideration. Any changes in the fair value of this contingent consideration liability are recognized in loss from operations in the period of the change.
For the year ended December 31, 2016, the consideration payout calculated includes the $500 in additional shares of the Company’s common stock related to the Supply Agreement and the annual minimum of $125 under the Reseller Agreement. Due to the price floor of $7.00 per share in the number of shares of common stock issuable to satisfy the payment amount, we reclassified $355 from the contingent consideration liability to accrued liabilities as of December 31, 2016, to be paid in shares of common stock in the first quarter of 2017. The Company also recorded a non-cash gain on the change in fair value of the remaining contingent consideration liability of $196 in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2016. The following table summarizes the fair values of the assets acquired as of the acquisition date:
The Company recorded $1,610 to intangible assets as of the acquisition date and is amortizing the value of the technology, customer relationships and trade name over an estimated useful life of 3 years. Amortization expense related to the acquired intangible assets was $558 and $26 for the years ended December 31, 2016, and 2015, respectively, and was included as a component of operating expenses in the consolidated statement of operations and comprehensive loss. Of the $189 of goodwill, none was expected to be deductible for tax purposes.
Acquired intangible assets as of December 31, 2016 were as follows:
The estimated future aggregate amortization expense is $537 and $489 for the years ended December 31, 2017 and 2018, respectively.
Pro Forma The following unaudited pro forma financial information reflects the Company’s consolidated statement of operations as if the acquisition of Equipois had taken place on January 1, 2014. The pro forma information includes adjustments for royalty revenue, impact from the Supply Agreement, and the amortization of intangible assets. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transaction been effected on the assumed date.
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