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 $12,070 and $42,459 in product revenues and $2,529 and $2,103 in net losses for the three- and nine-month periods ended September 30, 2018, respectively.

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 was subsequently collected.

Note 3 – Etratech Acquisition – Continued

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 September 30,		Nine Months Ended September 30,
	2017		2017
Product revenues	$	250,369	$	769,845
Net income	$	6,411	$	41,257
Basic earnings per share	$	0.17	$	1.12
Diluted earnings per share	$	0.17	$	1.12

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. Approximately $8,787 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.

Intangible assets, net consisted of the following (balances are lower as of September 30, 2018 than as of November 1, 2017, the acquisition date, due to fluctuations in foreign currency exchange rates totaling $464):

	September 30, 2018
	Gross Value		Accumulated Amortization		Net Value		Useful Life
Customer relationships	$	24,424	$	1,909	$	22,515	8 -12 yrs
Technology		8,474		1,501		6,973	5 -6 yrs
Total	$	32,898	$	3,410	$	29,488

Amortization expenses of $943 and $2,790 during the three- and nine-month periods ended September 30, 2018, respectively, were recognized in our consolidated condensed statement of income as follows:

	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
Product revenues	$	528	$	1,562
Cost of sales		415		1,228

Note 3 – Etratech Acquisition – Continued

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

October 1, 2018 through December 31, 2018	$	938
2019	$	3,753
2020	$	3,753
2021	$	3,691
2022	$	3,264
2023	$	2,590

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