Note 3 — Etratech Acquisition

Etratech designs, develops, manufactures and sells electronic control modules and control systems to customers across a range of industries, including automotive, recreational vehicles and marine, HVAC systems and medical, amongst others. Each function is part of an integrated, customer-focused process designed to exceed customer expectations for product quality, reliability and cost. Etratech’s global manufacturing footprint will enable us to provide customers with scalable and flexible manufacturing solutions across a variety of application and geographies.

Results of operations for Etratech are included in the Company’s consolidated condensed financial statements beginning November 1, 2017. Etratech contributed $15,201 and $30,389 in product revenues and $678 and $426 in net income for the three and six-month periods ended June 30, 2018, respectively.

Note 3 – Etratech Acquisition – Continued

Purchase Price Allocation

The purchase price of $65,009, net of cash acquired of $670, has been allocated to the values of assets acquired and liabilities assumed as of November 1, 2017. The purchase price allocation was finalized March 31, 2018. The purchase price allocation as of November 1, 2017 was as follows:


Accounts receivable	$	12,654
Inventory		7,014
Prepaid expenses and other assets		535
Property and equipment		6,205
Customer relationships		24,774
Technology		8,588
Goodwill		14,881
Assumed liabilities		(9,642	)
Net assets acquired		65,009
Cash acquired		670
Purchase price	$	65,679

The gross contractual amount due of accounts receivable is $12,654, all of which is expected to be collectible.

Supplemental Pro Forma Information

The unaudited pro forma combined historical results including the amounts of Etratech revenue and earnings that would have been included in the Company’s consolidated statements of income had the acquisition date been January 1, 2017 is as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2017		2017
Product revenues	$	257,526	$	519,476
Net income	$	9,072	$	34,846
Basic earnings per share	$	0.25	$	0.95
Diluted earnings per share	$	0.25	$	0.95

The pro forma information includes adjustments for the effect of the amortization of intangible assets recognized in the acquisition. This pro forma information is not indicative of future operating results.

Goodwill

We recorded goodwill of approximately $14,881 arising from the acquisition. The acquired goodwill represents intangible assets that do not qualify for separate recognition. It is estimated that approximately $8,651 of the goodwill recognized will not be deductible for income tax purposes.

Intangible Assets

In conjunction with the acquisition, intangible assets of $33,362 were recorded. The Company’s estimate of the fair value of these assets at the time of the acquisition was determined with the assistance of an independent third-party valuation firm. As part of the estimated valuation, an estimated useful life for the assets was determined.

Note 3 – Etratech Acquisition – Continued

Intangible assets, net consisted of the following (balances are lower as of June 30, 2018 than as of November 1, 2017, the acquisition date, due to fluctuations in foreign currency exchange rates totaling $1,027):

	June 30, 2018
	Gross Value		Accumulated Amortization		Net Value		Useful Life
Customer relationships	$	24,006	$	1,378	$	22,628	8 -12 yrs
Technology		8,329		1,084		7,245	5 -6 yrs
Total	$	32,335	$	2,462	$	29,873

Amortization expenses of $889 and $1,847 during the three and six months ended June 30, 2018, respectively, were recognized in our consolidated condensed statement of income as follows:

	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Product revenues	$	498	$	1,034
Cost of sales		391		813

Amortization expense for the prospective five years is expected to be as follows:

July 1, 2018 through December 31, 2018	$	1,844
2019	$	3,688
2020	$	3,688
2021	$	3,627
2022	$	3,208
2023	$	2,546

Property, Plant & Equipment

Property and equipment consist of the following:

Asset category	Useful life	Amount
Leasehold improvements	10 yrs	$	342
Machinery and equipment	4-11 yrs		5,248
Furniture and fittings	4 yrs		230
Motor vehicles	3 yrs		25
Computer hardware and software	1 yrs		360

		$	6,205