SeaBotix Inc. Acquisition

12 Months Ended

Jun. 30, 2012

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Note 2 — SeaBotix Inc. Acquisition

The Company 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 in the oil and gas industry. 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 for SBX segment information.

At closing, $9,500,000 was paid and a $500,000 purchase price holdback was accrued by the Company. Additional post-closing earnout payments are to be made if SBX achieves certain revenue levels during the four-year period ending December 31, 2014.

The total purchase price paid or accrued, after the measurement period adjustment of $301,000 in fiscal year 2012, consisted of the following:

Cash paid	$	9,500,000
Accrual for contingent earnout payments		5,000,000
Accrual for holdback and proforma working capital adjustment		1,560,000
Total Purchase Price	$	16,060,000

The final purchase price allocation was as follows:

Net current assets, including cash acquired of $316,000 and accounts receivable acquired of $1,342,000	$	4,963,000
Non-current assets (mainly property and equipment)		796,000
Goodwill		6,270,000*
Other intangible assets		8,500,000
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 that 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 Annual Report 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 contingent earnout liability in the Consolidated Balance Sheet for June 30, 2011 have been retroactively 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 was completed and there were no further changes to the fair values of SBX’s assets and liabilities after the previously reported $301,000 adjustment.

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.

In the fourth quarter of fiscal year 2012, the Company increased the contingent earnout liability by $4,500,000 and the amount was charged to the Consolidated Statement of Income. This charge is a non-cash item and is not deductible for income tax purposes. This amount is not included in the total purchase price of $16,060,000.

Set forth below is a summary of the activity in the contingent earnout liability (all amounts represent fair values) from the date of closing to June 30, 2012:

	Contingent Earnout Liability
Balance at closing	$	5,000,000
Earnout paid in fiscal year 2011		(2,000,000	)
Balance at June 30, 2011		3,000,000
Earnout paid in fiscal year 2012		(2,500,000	)
Increase to contingent earnout liability in June 2012		4,500,000
Balance at June 30, 2012	$	5,000,000*

* Refer to Note 9 to Consolidated Financial Statements for further information concerning the SBX contingent earnout liability.

As of June 30, 2012, the Company has paid $4,500,000 in earnout payments and has an accrual of $5,000,000 to cover anticipated earnout payments over the remaining earnout period which ends on December 31, 2014.

Future earnout payments equal to 15.5% of annual gross revenues are payable if SBX generates annual gross revenues in excess of $10,000,000 and maintains a certain gross profit percentage for calendar years 2012 through 2014. If the Company estimates that it is more likely than not that these future earnout payments will exceed $5,000,000, the Company would have to increase the contingent earnout liability by the anticipated additional amount of the earnout payments (up to $10,500,000). Such increase would result in a non-cash charge to the Consolidated Statement of Income.

The $5,000,000 contingent earnout liability at June 30, 2012 was estimated by the Company based upon projected SBX revenues for calendar years 2012, 2013 and 2014 and an analysis that probability weighted three performance outcomes. The performance outcomes were then discounted using an appropriate discount rate commensurate with the risk associated with SBX to arrive at the fair value of the contingent earnout liability at June 30, 2012. The Company is required to reassess the fair value of the contingent earnout liability on a recurring basis. Should a determination be made that the contingent earnout liability requires adjustment, a charge or credit will made in the Consolidated Statement of Income in the period in which the adjustment is required.

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