B. Business Combination

On September 2, 2016, PTF acquired certain assets and assumed certain liabilities of Precise Time and Frequency, Inc. ("PTF Inc.") for cash consideration of $295,000 (the "PTF Acquisition"). The PTF Acquisition was accounted for under the acquisition method of accounting for business combinations pursuant to the provisions of ASC 805, Business Combinations. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their fair values as of the closing date of the acquisition.

The acquired assets include intellectual property and equipment that will support the Company's strategy to be a broader based supplier of highly engineered products for the generation, synchronization and control of timing and frequency. The intangible assets acquired are being amortized over a weighted average period of ten years. The Company believes this product line will complement the complete line of frequency control products that MtronPTI currently provides.

The following is a summary of the preliminary purchase price allocation to the estimated fair values of assets acquired and liabilities assumed in the PTF Acquisition (in thousands):

Purchase consideration	$	295
Net assets acquired:
Current assets		45
Fixed assets		85
Intangible assets		214
Current liabilities		(45	)
Net assets acquired	$	299
Bargain purchase gain	$	(4	)

The assets acquired and liabilites assumed by PTF were done through the distressed sale of PTF Inc. and resulted in a bargain purchase gain which is recorded in other income (expense), net in the accompanying consolidated statement of operations for the year ended December 31, 2016.

Management estimated the fair value of net assets acquired using valuation techniques including income, cost and market approaches. In estimating the fair value of acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenues and cash flows, expected future growth rates and estimated discount rates.

The following table sets forth certain unaudited pro forma information for the year ended December 31, 2016 assuming that the PTF Acquisition occurred prior to January 1, 2016 (in thousands, except per share data):

	Year Ended December 31, 2016
	Historical		Pro Forma Adjustments		Pro Forma
Revenue	$	21,129	$	—	$	21,129
Net income	$	136	$	25	$	161
Basic net income per share	$	0.05	$	0.01	$	0.06
Diluted net income per share	$	0.05	$	0.01	$	0.06

The pro forma adjustments include amortization expense related to the acquired intangible assets and an adjustment to remove acquisition related expenses incurred in 2016 that for pro forma purposes should be reflected in a prior period.

The net sales included in the Company's consolidated statement of operations which were generated by the PTF Acquisition from the acquisition closing date of September 2, 2016 through December 31, 2016 was $200,000. The losses included in the Company's consolidated statement of operations derived from the PTF Acquisition's business from the acquisition closing date to December 31, 2016 were ($57,000).

Acquisition-related costs are those costs the acquirer incurs to effect a business combination, including advisory, legal, accounting, valuation, and other professional or consulting fees. The Company incurred a total of approximately $38,000 of acquisition-related costs which were charged to engineering, general and administrative expenses during the year ended December 31, 2016.