Acquisition

3 Months Ended

Mar. 31, 2012

Acquisition

Note 2 – Acquisition

On March 11, 2011, we acquired 100% of the capital stock of F2O which was renamed Tii Fiber Optics Inc. (“Tii Fiber”) for an initial cash payment of $750,000, and two contingent cash payments of $125,000 each to be made based on the achievement of certain performance criteria in 2011 and 2012, which were included in the purchase price based on the assessment that the achievement of these targets was highly probable. The performance criteria were achieved for 2011 and $125,000 of the contingent consideration was paid in March 2012. Tii Fiber, headquartered in Frederick, Maryland, manufactures a wide variety of high performance fiber optic cable assemblies, wall and rack mounted fiber distribution panels, and miscellaneous fiber accessories and services. This acquisition was made in order to expand our fiber optic product offerings.

The following is a summary of the fair value of the net assets acquired, exclusive of $33,000 of acquired cash, as a result of the acquisition of F2O:

Assets
Accounts receivable	$	251,000
Inventories		175,000
Prepaid expenses and other assets		4,000
Property and equipment		31,000
Goodwill		460,000
Customer relationships		332,000
Liabilities
Accounts payable		(101,000	)
Accrued expenses		(54,000	)
Deferred tax liability		(131,000	)
Total net purchase price, including $250,000 in accrued contingent consideration	$	967,000

We recorded the F2O acquisition in our interim reporting periods in 2011 based on a preliminary estimate of the fair value of the net assets acquired. We completed our assessment of fair values during the fourth quarter of 2011 and reallocated fair values based on that assessment. The only change was to reclassify $181,000 from goodwill to identifiable intangible assets subject to amortization. The customer relationships intangible asset is being amortized over its estimated useful life of five years and, since the amortization is not deductible for income tax purposes, we recorded a related deferred tax liability.

On a pro forma basis, had the F2O acquisition taken place as of January 1, 2011, our results of operations since then would not have been materially affected.