Acquisition of
Marquis Industries, Inc.
On
July 6 and July 7, 2015, the Company entered into a series of agreements in connection with its indirect purchase of Marquis Industries,
Inc., a Georgia corporation, and its subsidiaries (“Marquis”). The Marquis acquisition has been accounted for under
the acquisition method and, accordingly, is included in the consolidated financial statements from the effective date of acquisition.
Initially the Company acquired 80% of Marquis indirectly through a wholly-owned subsidiary, Marquis Affiliated Holdings LLC, a
Delaware limited liability company. Effective November 30, 2015, the Company acquired the remaining 20% interest in Marquis for
$2,000,000.
The
purchase price was paid through a combination of debt financing that was provided by (i) Bank of America through a Term and Revolving
Loan in the aggregate amount of (a) approximately $7.8 million for the term component and (b) approximately $15 million for the
revolving component and (ii) a mezzanine loan in the amount of up to $7.0 million provide by Isaac Capital Fund – see Notes
6 and 7.
A
summary of the final purchase price allocation at fair value is presented below. The Company finalized its estimates after it
was able to determine that it had obtained all necessary information that existed as of the acquisition date related to these
matters.
| |
Total | |
Cash | |
$ | 496,944 | |
Accounts receivable | |
| 7,262,188 | |
Inventory | |
| 11,717,113 | |
Prepaid and other current assets | |
| 1,518,430 | |
Property, plant and equipment | |
| 16,392,695 | |
Customer Relationships | |
| 439,039 | |
Bargain Purchase Gain | |
| (4,573,968 | ) |
Accounts payable | |
| (4,139,830 | ) |
Accrued expenses | |
| (433,989 | ) |
Non-controlling interest | |
| (2,000,000 | ) |
Purchase price | |
$ | 26,678,622 | |
(1)
– includes $4,800,000 of cash, $6,495,825 from a mezzanine loan from Isaac Capital fund, and $15,382,797 from Bank of America
Term and Revolver Loan.
(2)
– Non-controlling interest was valued at the price paid by the Company when it subsequently purchased the remaining 20%
of Marquis.
The
revenue from the Marquis acquisition included in the results of operations from the date of acquisition on July 7, 2015 to September
30, 2015 was $16,006,683.
The estimated
fair value of the Customer Relationships related to Marquis was determined using the income approach, which discounts expected
future cash flows to present value. The Company estimated the fair value of this intangible asset using the residual method and
a present value discount rate of 18%. Customer relationships relate to the Company’s ability to sell existing and future
versions of products. The Company is amortizing the Customer relationships intangible asset on a straight-line basis over an estimated
life of 15 years.
After determining
and recording the fair value associated with the assets and liabilities acquired, the Company recorded a gain on the acquisition
of $4,573,968 included in ―Gain on acquisition in the Consolidated Statement of Operations for the year ended September
31, 2016.
Due to the measurement
period extending into the fourth quarter of fiscal 2016, the following would have been recorded in the Company’s consolidated
statement of operations for year ending September 30, 2015. Instead, according to ASU 2015-16 they are being recorded at the end
of the measurement period in the fourth quarter of fiscal 2016 when management completed its analysis of fair value as it relates
to the Marquis acquisition.
Depreciation expense | |
$ | 227,654 | |
| |
| | |
Amortization expense | |
| 6,117 | |
| |
| | |
Cost sales | |
| 1,080,051 | |
| |
| | |
Bargain Purchase – Gain on Acquisition | |
| 4,573,968 | |
|