Acquisition

12 Months Ended

Dec. 31, 2012

Acquisition [Abstract]

Acquisition

4. Acquisition

On September 11, 2011, we completed the acquisition of MPC, a United Kingdom based provider of embedded software engineering services.

We acquired all outstanding shares of MPC preferred and common stock in exchange for total consideration of $7.0 million, which included an earn-out with an estimated fair value of $810,000 on the acquisition date. The actual amount of the payout was $631,000 which occurred in the fourth quarter of 2012. We also acquired $1.5 million in cash and cash equivalents as part of the acquisition, for a net estimated total cash price at acquisition of $5.5 million.

In connection with the business combination, we incurred merger-related costs, including legal, consulting, accounting and other costs, of $193,000 during 2011 which we recognized as expense.

The business combination was accounted for using the acquisition method of accounting, which requires an acquirer to recognize the assets acquired and liabilities assumed at the acquisition date measured at their fair values, including intangible assets acquired consisting of trade names and trademarks, non-compete agreements, and customer relationships. The acquisition of MPC was structured as a stock purchase and therefore the values assigned to the intangible assets and goodwill are not deductible for tax purposes. Deferred tax liabilities of $233,000 were recognized as part of the transaction. The excess of the acquisition consideration, including the estimated fair value of the earn-out, over the fair value of net assets acquired was recorded as goodwill. Our allocation of the acquisition consideration to the assets acquired and liabilities assumed was as follows (in thousands):

Acquisition consideration	$	7,038
Net assets acquired:
Cash and cash equivalents		1,481
Other current assets		1,124
Property, equipment, and furniture		103
Intangible assets—customer relationships		973
Intangible assets—non-compete agreements		206
Intangible assets—trade names and trademarks		96
Current liabilities		(473	)
Long-term tax liabilities		(210	)
Net assets acquired		3,300
Goodwill	$	3,738

Of the intangible assets acquired, customer relationships have a weighted-average useful life of 10 years, non-compete agreements have a weighted-average useful life of 2 years, and trade names and trademarks have a weighted-average useful life of 1 year.

Unaudited Pro Forma Results of Operations

The unaudited pro forma results of operations are being furnished solely for informational purposes and are not intended to represent or be indicative of the consolidated results of operations that we would have reported had the MPC acquisition been completed as of the dates and for the periods presented, nor are they necessarily indicative of future results.

The unaudited pro forma results of operations data are derived from our consolidated financial statements and MPC and include pro forma adjustments relating to the MPC acquisition that are of a recurring nature representing pro forma amortization of intangible assets. Included in the 2011 pro forma results are revenue of $1.4 million and net income of $96,000 related to MPC since the date of acquisition. The pro forma results were adjusted to assume all of acquisition expenses directly related to MPC were incurred on January 1, 2011. These pro forma results of operations do not give effect to any cost savings, revenue synergies, integration or restructuring costs.

The unaudited pro forma combined condensed results of operations are presented below as if the MPC acquisition had occurred on January 1, 2011 (in thousands, except per share amounts):

	Year Ended December  31, 2011
Net sales	$	100,638
Gross profit	$	21,157
Income (loss) from operations	$	(1,032	)
Income (loss) before income taxes	$	(624	)
Net income (loss)	$	(445	)
Basic earnings (loss) per share	$	(0.05	)
Diluted earnings (loss) per share	$	(0.05	)