6.	ACQUISITIONS

The purchase method of accounting in accordance with FASB ASC

805,

“Business Combination,” was applied for all acquisitions. This requires the cost of an acquisition to be allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition with the excess cost accounted for as goodwill. Goodwill arising from the acquisitions is attributable to expected sales synergies from combining the operations of the acquired business with those of the Company.

Future Contingent Payments

As of

December 28, 2019,

the Company had

two

active acquisition agreements whereby additional contingent consideration

may

be earned by the former shareholders:

) effective

October 1, 2017,

the Company acquired all of the stock of PSR Engineering Solutions d.o.o. Beograd (Voždovac) (“PSR”) and

) effective

September 30, 2018,

the Company acquired certain assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC (together, “TKE”). The Company estimates future contingent payments at

December 28, 2019

as follows:

Fiscal Year Ending	Total
January 2, 2021	$	344
January 1, 2022		1,438
December 31, 2022		1,276
Estimated future contingent consideration payments	$	3,058

Estimates of future contingent payments are subject to significant judgment and actual payments

may

materially differ from estimates. Potential future contingent payments to be made to all active acquisitions after

December 28, 2019

are capped at a cumulative maximum of

$6.3

million. The Company estimates future contingent consideration payments based on forecasted performance and recorded the fair value of those expected payments as of

December 28, 2019.

During the

fifty-two

week period ended

December 28, 2019,

the Company measured the intangibles acquired at fair value on a non-recurring basis. Contingent consideration related to acquisitions are recorded at fair value (level

) with changes in fair value recorded in other (expense) income, net.

For acquisitions that involve contingent consideration, the Company records a liability equal to the fair value of the estimated contingent consideration obligation as of the acquisition date. The Company determines the acquisition date fair value of the contingent consideration based on the likelihood of paying the additional consideration. The fair value is estimated using projected future operating results and the corresponding future earn-out payments that can be earned upon the achievement of specified operating objectives and financial results by acquired companies using Level

inputs and the amounts are then discounted to present value. These liabilities are measured quarterly at fair value, and any change in the fair value of the contingent consideration liability is recognized in the consolidated statements of comprehensive income. During the measurement period, which

may

be up to

one

year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in the consolidated statements of comprehensive income.

The Company paid contingent consideration of

$0.6

million and

$0.3

million during the

fifty-two

week periods ended

December 28, 2019

and

December 29, 2018,

respectively.

The changes in the liability for contingent consideration from acquisitions for the

fifty-two

week periods ended

December 28, 2019

and

December 29, 2018

are as follows:

Balance as of December 30, 2017	$	2,091

Contingent payments made		(300	)
Increase to contingent payment estimates		2,935
Other changes in contingent payments		47

Balance as of December 29, 2018	$	4,773

Contingent payments made		(598	)
Reduction in final purchase price recorded		(1,178	)
Other changes in contingent consideration		61

Balance as of December 28, 2019	$	3,058

TKE

Effective

September 30, 2018,

the Company acquired the business operations of Thermal Kinetics Engineering, PLLC, a New York professional limited liability company and Thermal Kinetics Systems, LLC, a New York limited liability company (together, “TKE”). TKE is an established Buffalo-based engineering company providing full service process equipment supply, engineering, development and design services for construction and industrial customers. TKE provides engineering services on construction and industrial processes. TKE engineers and builds optimal thermal integrations and unique separations approaches for industrial processes and equipment, with clients primarily in the chemical, oil and gas, renewable fuels, pharmaceutical, and industrial manufacturing industries. TKE will complement and expand the Company’s services offerings, providing a stronger depth of experienced engineering resources and capabilities. The Company estimated the contingent consideration to be paid to TKE as of the acquisition date and indicated such estimate resulted in a preliminary purchase price and allocation. Those estimates were highly dependent on uncertain estimates. The Company has finalized the purchase price by reducing its original estimate of contingent consideration by

$1.2

million. The final estimated fair value of assets acquired and liabilities assumed is as follows:

Cash	$	1,066
Common stock of the Company		1,878
Contingent consideration, at fair value		1,757
Total consideration	$	4,701

The shareholders of TKE are eligible to receive post-closing contingent consideration upon the business exceeding certain base levels of operating income, potentially earned over

three

years. The amount recorded for the contingent consideration represents the acquisition date fair value of expected consideration to be paid based on TKE’s forecasted operating income during the

three

year period. Expected consideration was valued based on different possible scenarios for projected operating income. Each case was assigned a probability which was used to calculate an estimate of the forecasted future payments. Then a discount rate was applied to these forecasted future payments to determine the acquisition date fair value to be recorded. At the time of the acquisition, the book and tax basis of assets and liabilities acquired are the same. The acquisition has been accounted for under the purchase method of accounting. The total purchase price has been allocated as follows:

Fixed assets	$	12
Restricted covenants		50
Customer relationships		720
Goodwill		4,669
Less: net liabilities assumed		(750	)
Total consideration	$	4,701

The results of operations of TKE have been included in the consolidated statement of operations as of the effective date of acquisition. The following revenue and operating loss of TKE are included in the Company’s consolidated results of operations:

	Year Ended			Year Ended
	December 28, 2019			December 29, 2018
Revenues	$	4,469		$	2,575
Operating income	$	(55	)	$	463

The following table represents the pro forma revenue and earnings for the year ended

December 29, 2018:

	Year Ended December 29, 2018
	Historical		Pro Forma Combined (Unaudited)
Revenues	$	200,352	$	205,732
Operating income	$	5,415	$	6,333
Diluted net income per share	$	0.22	$	0.26

The combined pro forma revenue and operating income for the fiscal year ended

December 29, 2018

was prepared as though the TKE Acquisition had occurred as of

January 1, 2018.

The pro forma results do

not

include any anticipated cost synergies or other effects of the planned integration of TKE. This summary is

not

necessarily indicative of what the results of operations would have been had the TKE Acquisition occurred during such period, nor does it purport to represent results of operations for any future periods.