SeaBotix Inc. Acquisition

6 Months Ended

Dec. 31, 2011

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Note 3 – SeaBotix Inc. Acquisition

On January 6, 2011, Bolt acquired all of the outstanding shares of capital stock of SeaBotix Inc. effective January 1, 2011. SBX develops, manufactures and sells underwater remotely operated robotic vehicles used for a variety of underwater tasks. Bolt acquired SBX because it believes that, within its market category, its products have superior qualities and usefulness to customers, including those in the oil and gas industry. Bolt also acquired SBX on the strength of developed technology that, it believes, could result in incremental shareholder value.

At closing, $9,500,000 was paid and a $500,000 purchase price holdback was recorded by Bolt. Earnout payments not anticipated to exceed $20,000,000 will be due if SBX achieves certain revenue levels during the four-year period ending December 31, 2014. The Company has paid or accrued $5,000,000 of these earnout purchase price payments. The additional earnout payments in the aggregate of up to approximately $15,000,000 are payable if SBX generates revenues of approximately $141,000,000 over the four-year period ended December 31, 2014 and maintains a gross profit percentage of at least 50% per year. The Company has determined that no further earnout liability needs to be recorded at December 31, 2011, in connection with the acquisition, based on management’s assessment of the likelihood that the earnout targets will be achieved requiring payment of such amounts. At the acquisition date, SBX had $539,000 of debt, which the Company repaid prior to June 30, 2011.

SBX’s results of operations were consolidated with Bolt effective January 1, 2011 and this subsidiary constitutes a separate reportable segment. Refer to Note 13 to Consolidated Financial Statements (Unaudited) for SBX segment information.

The total purchase price paid or accrued through December 31, 2011 consists of the following:

Cash paid at closing on January 6, 2011	$	9,500,000
Cash paid on March 2, 2011 for attainment of a certain revenue target		2,000,000
Cash paid on September 15, 2011 for holdback and pro forma working capital adjustment		1,560,000
Amount accrued for attainment of a certain revenue target		3,000,000
Total purchase price	$	16,060,000

The purchase price allocation is as follows:

Net current assets, including cash acquired of $316,000 and accounts receivable of $1,342,000	$	4,963,000
Non-current assets (mainly property and equipment)		796,000
Intangible assets		8,500,000
Goodwill		6,270,000	*
Accounts payable and accrued expenses		(1,010,000	)
Debt assumed		(539,000	)
Deferred tax liability (non-current)		(2,920,000	)
Total purchase price allocation	$	16,060,000

* None of the goodwill is deductible for income tax purposes.

The fair values of SBX’s assets and liabilities as of acquisition date were determined based on estimates and assumptions which management believes are reasonable. During the three month period ended September 30, 2011, the preliminary estimate of goodwill relating to the SBX acquisition was increased by $301,000 from the amounts previously reported in the Company’s filing on Form 10-K for the fiscal year ended June 30, 2011. This change was due to an increase in the actual pro forma working capital adjustment over the preliminary amount included in accrued expenses at June 30, 2011. In accordance with ASC 805, “Business Combinations,” the balances for goodwill and accrued expenses in the Consolidated Balance Sheet for June 30, 2011 have been retrospectively adjusted to include the effect of this measurement period adjustment, which was based on information obtained subsequent to the acquisition date and June 30, 2011. The final determination of the fair value of certain assets and liabilities has been completed and there have been no further changes to the fair values of SBX’s assets and liabilities after the previously reported $301,000 adjustment. Goodwill related to the SBX acquisition was tested for impairment at December 31, 2011 and the test indicated no impairment of the goodwill balance.

The estimate of fair value of SBX’s identifiable intangible assets was determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows either through the use of the multi-period excess earnings method or the relief-from-royalty method. Some of the more significant assumptions inherent in the development of intangible asset values include: the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows, the assessment of the intangible asset’s life cycle, as well as other factors. The following table summarizes key information underlying SBX’s identifiable intangible assets related to the acquisition:

Category	Life	Amount		Annual Amortization
Tradename	Indefinite	$	1,200,000	$	-
Acquired technology	6-15 years		5,900,000		583,000
Customer and distributor relationships	7 years		1,400,000		200,000
Total		$	8,500,000	$	783,000

The following table summarizes, on an unaudited pro forma basis, the consolidated results of operations of the Company for the six month period ended December 31, 2010 assuming the acquisition of SBX was made on July 1, 2010:

	Six Months Ended
	December 31, 2010
Sales	$	22,820,000
Net income	$	3,033,000
Basic earnings per share	$	0.36
Diluted earnings per share	$	0.36
Average number of common shares outstanding:
Basic		8,506,385
Diluted		8,521,635

The foregoing unaudited pro forma results are for information purposes only and are not necessarily indicative of the actual results of operations that might have occurred had the acquisition occurred on July 1, 2010, nor are they necessarily indicative of future results. The pro forma results do not include any cost savings or operational synergies that may be generated or realized due to the acquisition of SBX. The following pro forma adjustments were made:

1.	Reduction of Bolt interest income.
2.	Reduction of SBX interest expense.
3.	Inclusion of amortization expense of $392,000 ($783,000 per year) relating to identifiable intangible assets with definite lives acquired in the purchase of SBX.
4.	Inclusion of the tax impact of the foregoing Bolt and SBX pro forma adjustments at an effective tax rate of 32% and 40%, respectively.

Refer to Notes 6, 7 and 13 to Consolidated Financial Statements (Unaudited) for additional information concerning SBX.