5.	Acquisition

On December 21, 2018, the Company completed the acquisition of Mechanical Power Conversion, LLC (“E&M”), a privately held company operating as E&M Power and engaged in the design and manufacture of advanced power emulators (AC and DC) and custom power electronic products, based in Binghamton, New York. The addition of new products from E&M will drive the Company’s revenue potential and increase its product portfolio. The acquisition was consummated pursuant to an asset purchase agreement dated December 21, 2018 for an initial cash purchase price of $4,417,000, including $360,000, which is being held in escrow to be paid to the former owners of E&M, subject to certain working capital adjustments. In addition, the Company is contingently obligated to make additional payments to the former owners of E&M up to an aggregate of $5,200,000 over the next 2-3 years. The preliminary fair value of the contingent consideration obligations as of the acquisition date was $3,560,000 determined using a probability weighted method and a Monte Carlo Simulation model.

The Company preliminarily allocated the initial purchase consideration to identified finite-lived intangible assets as follows: $2,660,000 for developed technology with an estimated useful life of 5 years, $2,630,000 for customer relationships with an estimated useful life of 8 years, and $370,000 to order backlog with an estimated useful life of 6 months. In addition, $1,683,000 was allocated to inventory and $217,000 to other net liabilities. The remaining excess purchase price over identifiable tangible and intangible assets acquired of $851,000 was recorded as goodwill, which is not deductible for income tax purposes. Initial accounting for the acquisition is preliminary as the Company has not finalized the valuation of intangible assets and goodwill. The Company incurred $287,000 in acquisition costs during the nine months ended December 31, 2018, which were recorded in general and administrative expenses. The assets and results of operations of E&M were not significant to the Company’s consolidated financial position or results of operations, and thus pro forma information is not presented.