Quarterly report pursuant to Section 13 or 15(d)

Acquisition and Discontinued Operations

v3.8.0.1
Acquisition and Discontinued Operations
9 Months Ended
Sep. 30, 2017
Business Combinations [Abstract]  
Acquisition and Discontinued Operations
Note 9. Acquisition and Discontinued Operations:
 
Acquisition:
 
On September 12, 2016, the Company completed the strategic acquisition of BDI, a privately-held entity. Pursuant to a purchase agreement (the "Purchase Agreement"), through a wholly-owned subsidiary ("Venaxis Sub"), the Company acquired all of the outstanding shares of Series 1 Preferred Stock of BDI from the selling shareholders (the "Seller"), representing more than 98% of the outstanding voting stock of BDI, and BDI thereupon become a majority owned subsidiary of the Company.
 
Under the terms of the Purchase Agreement, the consideration consisted of an aggregate of 627,010 shares of the Company's common stock (the "Shares") which Shares were distributed in accordance with the liquidation preferences set forth in BDI's Fifth Amended and Restated Certificate of Incorporation, as amended.  The Shares were valued at approximately $2,577,000 (based upon the closing value of our common stock on the acquisition date) and the issuance represented approximately 14% of the Company’s then outstanding common stock at the closing. The Purchase Agreement contained customary representations and warranties of the parties, including BDI, and the Sellers have customary indemnification obligations to the Company relating to BDI, which are subject to certain limitations described further in the Purchase Agreement. The issuance of the Shares was effected as a private placement of securities.  The Company also entered into a registration rights agreement with the Sellers.
 
The total consideration transferred consisted of the 627,010 shares of the Company's common stock with a value of $2,577,000.
 
Under the acquisition method of accounting, the total estimated purchase consideration was allocated to the acquired tangible and intangible assets and assumed liabilities based on their estimated fair values as of the acquisition date. Following was the allocation of the purchase consideration:

Cash and cash equivalents
 
$
17,000
 
Accounts receivable
   
21,000
 
Inventory
   
379,000
 
Prepaid and other assets
   
51,000
 
Equipment
   
1,000
 
Identifiable intangible assets:
       
  Trademarks (5 year estimated useful life)
   
99,000
 
  Customer base (6 year estimated useful life)
   
37,000
 
  Developed technology (4 year estimated useful life)
   
1,864,000
 
Total identifiable intangible assets
   
2,000,000
 
Goodwill
   
430,000
 
Accounts payable
   
(118,000
)
Accrued and other liabilities
   
(175,000
)
Non-controlling interest
   
(29,000
)
Purchase price
 
$
2,577,000
 
 
Intangible assets acquired consisted of the following as of December 31, 2016:
 
Trademarks
 
$
99,000
 
Customer base
   
37,000
 
Developed technology
   
1,864,000
 
Total
   
2,000,000
 
Less accumulated amortization
   
(148,264
)
Balance at December 31, 2016
 
$
1,851,736
 
 
As of November 30, 2016, the Company paid approximately $29,000 to acquire the non-controlling interest in BDI, which was accounted for as an equity transaction.

The unaudited supplemental pro forma information for the nine months ended September 30, 2016, as if the BDI acquisition had occurred as of January 1, 2016, would have reflected total revenue of $174,000, net loss of $2,102,000 and loss per share of $0.47. These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments to reflect the pro forma results of operations as if the acquisition had occurred as of the beginning of the periods presented, such as increased amortization for the fair value of acquired intangible assets. The pro forma information does not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.
 
As of December 31, 2016 inventories, included with current assets of discontinued operations, totaled approximately $416,000, consisting of $188,000 in raw materials and $228,000 in finished goods, all associated with the BDI operations. As of September 30, 2017 no inventories were on hand.
 
Discontinued operations:
 
During the quarter ended March 31, 2017, the Company made the decision to discontinue the operations of its wholly-owned subsidiary BDI. BDI had developed a proprietary Enhanced Surface Plasmon Resonance technology platform for the detection of molecular interactions. The decision to adopt this plan was made following an evaluation by the Company's Board of Directors in January 2017 of the estimated results of operations projected during the near to mid-term period for BDI, including consideration of product development required and updated sales forecasts, and estimated additional cash resources required. The Company expects to dispose of the assets and operations during 2017 by selling the assets and licensing the intellectual property rights.   The Company has recognized the exit of BDI in accordance with Accounting Standards Codification (ASC) 205-20, Discontinued Operations. As such, the historical results of BDI, following its 2016 acquisition, have been classified as discontinued operations.
 
The Company's historical financial statements have been revised to present the operating results of the BDI business as a discontinued operation. Assets and liabilities related to the discontinued operations of BDI are approximately as follows as of September 30, 2017 and December 31, 2016:
 
 
 
September 30, 2017
   
December 31, 2016
 
 Current assets:
           
   Accounts receivable
 
$
8,000
   
$
5,000
 
   Inventories
   
-
     
416,000
 
   Prepaid expenses
   
4,000
     
66,000
 
Total current assets
 
$
12,000
   
$
487,000
 
 
               
Equipment and furnishings, net
 
$
-
   
$
36,000
 
Intangible assets, net
   
-
     
2,281,000
 
Deposit
   
-
     
37,000
 
Total noncurrent assets
 
$
-
   
$
2,354,000
 
 
               
Current liabilities:
               
   Accounts payable
 
$
37,000
   
$
174,000
 
   Accrued expenses
   
28,000
     
85,000
 
   Deferred revenue
   
137,000
     
-
 
Total current liabilities
 
$
202,000
   
$
259,000
 
 
Summarized results of the discontinued operation are as follows for the three and nine months ended September 30, 2017:
 
 
 
Three Months
   
Nine Months
 
 
           
Sales
 
$
7,000
   
$
37,000
 
Cost of sales
   
2,000
     
6,000
 
  Gross margin
   
5,000
     
31,000
 
Operating expenses (credit)
   
(26,000
)
   
975,000
 
  Operating income (loss)
   
31,000
     
(944,000
)
Escrow forfeiture gain
   
-
     
135,000
 
Impairment (loss)
   
-
     
(2,754,000
)
 
               
Income (loss) from discontinued operations
 
$
31,000
   
$
(3,563,000
)
 
               
 
Included in the impairment loss recognized for the nine months ended September 30, 2017 on the discontinuance of BDI are impairment losses recognized on inventories of $453,000, equipment and furnishings of $29,000, identifiable intangible assets of $1,833,000, goodwill of $430,000, and a $9,000, net expense from all other items, all associated with the assets and operations of BDI. For the three and nine months ended September 30, 2016 the loss from discontinued operations of $236,000, consisted of revenues of $2,000, less operating and other expenses totaling $238,000, including amortization and depreciation of $24,000.  Additional costs associated with the exit of operations of the Company's subsidiary BDI may be incurred as strategic options for BDI are evaluated.