18. ACQUISITIONS

During the year ended December 28, 2019 the Company completed three different asset purchase transactions, acquiring the assets of four operating businesses. On May 20, 2019 the Company acquired the assets of Serenity and Fastrac, both based in Colorado Springs, Colorado, using available cash reserves. Serenity is a proprietary sliding door system providing superior sound attenuation, sold primarily into healthcare markets across the country. Fastrac is a leading supplier of commercial doors and hardware to healthcare and hospitality customers across the country. Serenity continues to operate as a stand-alone business while Fastrac operations were consolidated with the Company’s existing portfolio company, McKinney Door and Hardware, which has similar operations. The results of the acquisition of Serenity and Fastrac are included in the Company’s Consolidated Financial Statements from the date of acquisition. Both companies are included in the Door segment for reporting purposes.

On June 3, 2019 the Company acquired the assets of American Wheatley HVAC and Global Flow Products (together “GFP”), based in Broken Arrow, Oklahoma using available cash reserves. GFP sells American Wheatley HVAC branded products, including a broad line of ASME pressure vessels, custom fabricated products, valves, strainers and other hydronic accessories to commercial HVAC customers. The results of the acquisition of GFP are included in the Company’s Consolidated Financial Statements from the date of acquisition. GFP is included in the HVAC segment for reporting purposes.

These two transactions are not considered material individually. However, they are considered material in the aggregate. The total purchase price paid for these transactions was $12,855,000, which included a traditional post-closing working capital adjustment for $608,000, with approximately $12,163,000 paid in cash at closing. The Company will pay additional contingent consideration, if earned, in the form of an earn out amount pursuant to the terms of earn out agreements in amounts of up to $4,300,000, the payment of which is subject to certain conditions and the successful achievement of gross profit growth targets for the acquired businesses following the closing of the transactions over a period of twenty-four (24) to thirty-six (36) months. Approximately $1,300,000 has been accrued based on estimated fair values of these earn out agreements. We acquired trade receivables of $1,916,000, inventory of $1,745,000, property and equipment of $2,530,000, other assets of $256,000, intangibles of $4,000,000 and goodwill of $3,614,000 and retained liabilities of $1,205,000. The current value assigned to trade receivables represents fair market value. The working capital adjustment has been finalized on both transactions and final valuation of the fair value of assets and liabilities including receivables, inventory, fixed assets, intangibles, goodwill and accounts payable has been recorded as of December 28, 2019. Transaction costs included in Selling and administrative expenses on the Consolidated Statements of Operations for the year ended December 28, 2019 was $1,229,000.

On June 17, 2019 the Company acquired the assets of InOvate, a supplier of commercial and residential dryer and HVAC venting systems and components. The total purchase price for the net assets acquired was $11,206,000, including a post-closing working capital adjustment of $84,000, with approximately $11,050,000 paid in cash at closing, using available cash reserves. The Company will pay additional contingent consideration, if earned, in the form of an earn out amount pursuant to the terms of an earn out agreement in an amount of up to $1,250,000, the payment of which is subject to certain conditions and the successful achievement of gross profit growth targets for the acquired business following the closing of the transaction over a period of twelve (12) months. Approximately $240,000 has been accrued based on an estimated fair value of this earn out agreement. The results of the acquisition of InOvate are included in the Company’s Consolidated Financial Statements from the date of acquisition. Transaction costs included in Selling and administrative expense on the Consolidated Statement of Operations for the year ended December 28, 2019 were $536,000.

In accordance with GAAP, the total purchase price has been allocated to the tangible and intangible net assets acquired based on their fair values. The working capital adjustment was finalized in the fourth quarter of 2019. The condensed balance sheet of InOvate at the acquisition date was as follows:


Purchase price	$	11,206

Accounts receivable, net		1,448
Other tangible assets		984
Intangible assets		8,808
Right of use asset		387
Accounts payable and accrued expenses		(1,353)
Right of use liability		(387)
Total identifiable net assets		9,887
Goodwill	$	1,319

Accounts receivable are valued at anticipated fair market value and are not materially different from contracted value.

The following table presents selected unaudited pro forma information for the Company assuming the acquisition of InOvate had occurred as of December 31, 2017. This pro forma information does not purport to represent what the Company’s actual results would have been if the acquisition had occurred as of the date indicated or what such results would be for any future periods.


	Year Ended
	DECEMBER 28,		DECEMBER 29,
	2019		2018
Revenue	$	120,439	$	114,535
Pre-tax loss from continuing operations	$	(21,505)	$	(7,127)
Basic and diluted loss per share:
Loss from continuing operations	$	(9.59)	$	(3.04)
Average shares outstanding		1,711		1,697

Per ASC 805, the chart below summarizes the comparative financial statements for revenue and earnings as if all the acquisitions occurred at the beginning of the respective period.


	Year Ended
	DECEMBER 28,		DECEMBER 29,
	2019		2018
Revenue	$	129,615	$	126,613
Pre-tax loss from continuing operations	$	(19,325)	$	(4,838)

Revenue of the acquired companies’ increased total revenue by 18.5% for the year ended 2019. The impact of the acquired companies on earnings for the current year was not material. Total goodwill added to the Consolidated Balance Sheet due to acquisition activity during fiscal 2019 was $4,932,000. The goodwill is attributable to the skills and technical talent of the established work force at each of the acquired businesses and synergies expected to be achieved from integrating the individual acquired business operations in to the Company’s existing consolidated business portfolio. This amount is attributable to the HVAC and Door segments in the amounts of $2,734,000 and $2,198,000, respectively. Goodwill that is deductible for tax purposes, over the next fifteen years, is $3,092,000. The goodwill amounts were finalized in the fourth quarter of 2019.