Note 4 - BUSINESS COMBINATION

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Note 4 - BUSINESS COMBINATION

4. BUSINESS COMBINATION

On December 1, 2020 (the “Acquisition Date”), the Company acquired all the stock of Cimetrix Incorporated (“Cimetrix”). Total payment made for this acquisition in 2020 amounted to $28.6 million, net of cash acquired, and was funded from the available cash of the Company. In 2020, the Company held back $3.5 million of the purchase price (the “Holdback Amount”) to satisfy adjustments and claims for indemnity arising out of breaches of certain representations, warranties and covenants, and certain other enumerated items in the merger agreement. During the first quarter of 2021, the Company recorded a measurement period adjustment as described below which reduced the Holdback Amount to $3.0 million. This reduction was released from the restricted cash on the Company’s Condensed Consolidated Balance Sheet. The Holdback Amount, as adjusted, is expected to be paid to the participating equity holders on approximately the twelve-month anniversary of the Acquisition Date. The Holdback Amount is recorded under accrued and other current liabilities account in the Condensed Consolidated Balance Sheets.

The Company is required to maintain cash specifically designated to pay for the Holdback Amount, which the Company has classified as restricted cash. Restricted cash amounted to $3.0 million and $3.5 million as of September 30, 2021 and December 31, 2020, respectively, and is included in the “Prepaid expenses and other current assets” account in the Company’s Condensed Consolidated Balance Sheets.

The Company is still finalizing the allocation of the purchase price to the individual assets acquired. Accordingly, the estimates set forth below are preliminary and are subject to change during the measurement period, which is not to exceed one year from the acquisition date. During the measurement period, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. During the first quarter of 2021, the Company recorded a measurement period adjustment to the estimated fair values initially recorded in 2020, which resulted in a reduction in Holdback Amount of $0.5 million with a corresponding change to goodwill. The measurement period adjustment did not have an impact on the Company’s Condensed Consolidated Statements of Comprehensive Loss during the three and nine months ended September 30, 2021.

As of September 30, 2021, the allocation of the purchase price for this acquisition is as follows (in thousands, except amortization period):

			Amortization
	Amount		Period (Years)
Assets
Fair value of tangible assets (including cash of $5,900)	$	8,403
Fair value of intangible assets:
Developed technology		12,541	8
In-process R&D		3,635	N/A
Customer relationships		1,967	10
Noncompetition agreements		848	3
Tradenames and trademarks		808	10
Goodwill		13,012	N/A
Total assets acquired	$	41,214
Liabilities
Accounts payable and accrued expenses	$	1,437
Deferred revenue		391
Operating lease liabilities		132
Deferred tax liabilities		1,743
Total liabilities assumed	$	3,703
Total purchase price allocation	$	37,511

Pursuant to the merger agreement, the Company will also pay approximately $1.4 million to certain employees, subject to their continued employment with Cimetrix or the Company, at various scheduled payout dates through the second quarter of 2024. This amount will be recognized as compensation expense over the period as services are rendered. As of September 30, 2021, the estimated remaining total cash payout is approximately $0.9 million. The accrued compensation balance included under accrued compensation and related benefits account in the Company’s Condensed Consolidated Balance Sheet was $0.4 million and $0.3 million as of September 30, 2021 and December 31, 2020, respectively.

Transaction expenses related to the acquisition of Cimetrix amounted to $1.6 million in 2020. These costs consist of professional fees and administrative costs and were expensed as incurred in the Company’s Condensed Consolidated Statement of Comprehensive Loss. No transaction costs were incurred during the three months ended September 30, 2021. Transaction costs were immaterial during the nine months ended September 30, 2021.

The financial results of the acquisition of Cimetrix were considered immaterial for purposes of unaudited pro forma financial disclosures.