Note

Business Acquisition

In fiscal

2010,

the Company entered into an agreement with a private software company to invest

$1.5

million in exchange for a

36%

equity interest therein. In the

third

quarter of fiscal

2017,

the Company entered into a new agreement to invest an additional

$3.6

million for an additional

63%

of equity in the company. The Company paid

$1.8

million in cash at closing and is obligated to pay an additional

$1.8

million in cash

three

years subsequent to closing (discounted to

$1.6

million on the purchase date). In addition, the agreement provides for the former owners to receive a

30%

share of operating profits of the business over the next

three

years so long as they remain employed by the Company.

The acquisition has been accounted for as a business combination and the financial results of the company have been included in our consolidated financial statements as of the date of acquisition. Under the acquisition method of accounting, the purchase price was allocated to net tangible and intangible assets based upon their estimated fair values as of the acquisition date. The Company expects to finalize the valuation in the

fourth

quarter of

2017

The table below presents the preliminary allocation of the purchase price to the acquired net assets (in thousands):

Cash	$	509
Accounts receivable		273
Inventories		243
Other current assets		18
Deferred software development costs		2,397
Fixed assets		47
Goodwill		2,618
Deferred tax liability		(647	)
Accounts payable & current liabilities		(80	)
Purchase Price (1)	$	5,378

(1)

$1,833

1,555

($1.8

million discounted at

5%)

$3,388

purchase price divided by

63%

$5.378

million

Pro-forma financial information has not been presented for this acquisition because it is not considered material to the Company’s financial position or results of operations.