BUSINESS COMBINATIONS
 12 Months Ended
Dec. 31, 2016
Business Combinations [Abstract]  
BUSINESS COMBINATIONS

NOTE B – BUSINESS COMBINATIONS

 

2014 Merger

 

On May 5, 2014, in accordance with the terms and conditions of the merger agreement, we merged a wholly-owned subsidiary of Numerex with and into Omnilink Systems Inc. (Omnilink) with Omnilink surviving the merger as a wholly-owned subsidiary of the Company. The purchase price was $37.5 million cash.

 

Omnilink provides tracking and monitoring services for people and valuable assets via Omnilink’s IoT platform that connects hardware, networks, software, and support services. The assets, liabilities and operating results of Omnilink are reflected in our consolidated financial statements commencing from the merger date. Transaction costs of $1.0 million for the year ended December 31, 2014 have been recorded in general and administrative expense in the accompanying consolidated statement of operations and comprehensive (loss) income. 

 

The following table summarizes the fair values of the assets acquired and liabilities assumed as of the closing date of the Omnilink merger (dollars in thousands):

 

    Fair     Estimated
    Value     Useful Lives
Cash   $ 195     n/a
Accounts receivable     2,677     n/a
Inventory     873     n/a
Prepaid and other assets     377     n/a
Property and equipment     1,613     4 (a)
Deferred tax asset     2,600     n/a
Customer relationships     6,056     11
Technology     4,998     14
Trade names     3,632     Indefinite
Goodwill     17,318     Indefinite
Total identifiable assets acquired     40,339      
             
Accounts payable     (1,756 )   n/a
Accrued expenses     (1,037 )   n/a
Deferred revenue     (64 )   n/a
Total liabilities assumed     (2,857 )    
Net assets acquired   $ 37,482      

 

 

(a) The weighted average remaining useful life for all property and equipment is approximately four years.

 

The total purchase consideration for the merger was allocated to identifiable assets purchased and liabilities assumed based on fair value. The estimated fair value attributed to intangible assets, other than goodwill, was based on common valuation techniques. The fair value of acquired software was estimated using a cost approach based on assumptions of our historical software development costs. The fair value of trade names was based on an income approach with key assumptions including estimated royalty rates to license the trade names from a third party. The valuation of customer relationships utilized an income approach and discounted cash flows taking into consideration the number of customer relationships acquired and estimated customer turnover.

 

The value of the deferred tax asset and goodwill as disclosed above reflect a subsequent measurement period adjustment of $0.2 million recorded during the three months ended June 30, 2015 to record the final calculation of acquired deferred tax assets. The residual allocation to goodwill results from such factors as an assembled workforce, expected significant synergies for market growth and profitability as well as Omnilink’s service and product lines contributing to our becoming the market leader in select IoT vertical markets. The total amount of goodwill will not be deductible for income tax purposes.

 

Unaudited Pro forma Results

 

The consolidated statement of operations and comprehensive (loss) income for the year ended December 31, 2014 includes approximately $8.7 million of revenues contributed by Omnilink products and services for the period from May 5, 2014 through December 31, 2014. Immediately upon closing the merger, we began integrating Omnilink’s operations with our existing operations. As a result, the legacy and acquired businesses are now sharing various selling, general and administrative functions. Any measure of stand-alone profitability for Omnilink in the post-acquisition period is not material and cannot be calculated accurately due to the shared cost structure of the acquired and legacy businesses.

 

The following table presents the unaudited pro forma consolidated net revenues, income (loss) from continuing operations before income taxes and net income (loss) for the year ended December 31, 2014, based on the historical statements of operations of Numerex and of Omnilink, giving effect to the Omnilink merger and related financing as if they had occurred on January 1, 2014. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations actually would have been had the acquisition occurred at the beginning of 2014. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined company (in thousands, except per share data).

 

    Unaudited Pro Forma 
Results		  
    Year Ended December 31,  
    2014  
Net revenues   $ 98,134  
Income (loss) from continuing operations, before income tax     2,719  
Net income (loss)     2,147  
Basic and diluted income (loss) per common share     0.11  

 

The unaudited pro forma financial information above gives effect to the following:

 

· Adjust depreciation expense for a 2014 net historical Omnilink reduction of $0.1 million for the effect of recording property and equipment at estimated fair value.
· Adjust amortization expense for a 2014 net increase of $0.3 million for the effect of recording intangible assets at estimated fair value.
· Adjust interest expense for a 2014 net increase of $0.1 million due to the repayment of Omnilink’s debt balances in conjunction with the merger and the merger-related debt incurred by Numerex and related amortization of deferred financing costs.
· Adjust expense by $1.0 million to reclassify expense recorded for merger-related costs in the year ended December 31, 2014.

 

The unaudited pro forma results do not include any revenue or cost reductions that may be achieved through the business combination, or the impact of non-recurring items directly related to the business combination.