(2) ACQUISITIONS

Bassi Unipersonale S.r.l (“Bassi”)

On January 26, 2016, the Company and its wholly-owned indirect subsidiary, Sevcon S.r.l. (“Sevcon Italy”), entered into a Quota Sale and Purchase Agreement with Bassi Holding S.r.l. (“Bassi Holding”), an Italian limited liability company, and the quota owners of Bassi Holding, to acquire all the outstanding quotas of Bassi, a limited liability company located in Lugo, Italy. Bassi designs, manufactures and sells battery chargers for electric vehicles and power management and uninterrupted power source systems for industrial, medical and telecom applications, as well as electronic instrumentation for battery laboratories. The principal reasons for the acquisition were to enable the Company to expand its addressable share of the high-growth electrification market and enhance earnings by adding an immediately accretive business.

In order to fund the cash element of the acquisition price, on January 27, 2016, the Company also entered into a term loan agreement providing for a credit facility with MPS Bank, see note 12. The acquisition closed on January 29, 2016.

Purchase Price

The total purchase price was approximately $19.1 million and included (1) cash consideration of €10.0 million ($10.8 million) and (2) 500,000 shares of the Company’s common stock ($4.8 million at the Company’s closing date stock price of $9.52) and (3) the fair value of assumed dividends payable to the former owner of Bassi, Bassi Holding of €3.23 million ($3.5 million).

Sevcon Italy is required to distribute to the former owner of Bassi, Bassi Holding, outstanding dividends at fair value aggregating €3.23 million (approximately $3.5 million) in increments over a three-year period, post-closing.

During the twelve months ended September 30, 2016, the Company incurred $1.5 million in expenses related to the Company’s acquisition of Bassi that are included in the consolidated statement of operations.

The Company accounted for the transaction using the acquisition method and, accordingly, the consideration has been allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective estimated fair values on the acquisition date. Goodwill resulting from this acquisition is largely attributable to the experienced workforce of Bassi and synergies expected to arise after the integration of Bassi’s products and operations into those of the Company. Goodwill resulting from this acquisition is not deductible for tax purposes. Identifiable intangible assets acquired as part of the acquisition included definite-lived intangible assets for developed technologies, customer relationships, order backlog and trade names, which are being amortized using the straight-line method over their estimated useful lives, as well as goodwill.

The fair value of the total consideration has been allocated based on the estimated fair values of assets acquired and liabilities assumed as follows (in thousands):

	(in thousands of dollars)
					January 29, 2016

Consideration

Cash				$	10,832

Common stock (500,000 shares of Sevcon, Inc.)					4,760

Fair value of pre-acquisition dividends payable to Bassi Holding					3,503

Fair value of total consideration				$	19,095

Recognized amounts of identifiable assets acquired and liabilities assumed:

Cash	$	1,577
Accounts receivable		3,318
Inventory		4,318
Property and equipment		923
Other assets		932
Accounts payable		(3,513	)
Accrued and other current liabilities		(2,020	)
Deferred tax liabilities		(1,882	)
Other long-term liabilities		(1,099	)	$	2,554

Estimated fair value of identifiable intangible assets acquired:

Developed technologies		325
Customer relationships		8,774
Trade name		758
Order backlog		325			10,182

Fair value of assets acquired and liabilities assumed, excluding goodwill					12,736

Goodwill					6,359

Total				$	19,095

The fair values assigned to certain identifiable assets acquired and liabilities assumed, were revised in the fourth quarter of 2016 following a measurement period review by management. Adjustments were made to increase the fair values of inventory and other assets by $135,000 and $217,000, respectively, and to reduce the fair values of deferred tax liabilities and long-term liabilities by $65,000 and $261,000, respectively. The total impact of these adjustments was to increase recognized net assets acquired by $678,000 with an equivalent reduction in goodwill arising on the business combination. Accordingly, the value of goodwill has been revised from a preliminary value $7,037,000 to a final value of $6,359,000.

Valuation of Intangible Assets Acquired

The following table sets forth the components of intangible assets acquired in connection with the Bassi acquisition (dollars in thousands):

	Amount Assigned		Amortization Period (in years)
Definite-lived intangible assets:
Developed technologies	$	325		7.0
Customer relationships		8,774		10.0
Trade name		758		10.0
Order backlog		325		1.0
Total intangible assets acquired	$	10,182

Actual Results of Bassi Acquisition

Bassi’s net revenues and operating loss following the acquisition included in the Company’s operating results for the twelve months ended September 30, 2016 were $13.4 million and $(0.6) million, respectively.

Pro Forma Summary

The unaudited consolidated pro forma results for the twelve-month periods ended September 30, 2016 and 2015 are shown below. The pro forma consolidated results combine the results of operations of the Company and Bassi as though Bassi had been acquired on October 1, 2014 and include amortization charges for the acquired intangibles and interest expense related to the Company’s borrowings to finance the acquisition. The unaudited 2016 pro forma results were adjusted to exclude $1,535,000 of acquisition costs to date related to Bassi, $983,000 of intangible assets amortization expense and $484,000 of expense relating to fair value adjustments to acquisition date inventory, payables, allowance for doubtful accounts and property and equipment. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on October 1, 2014.

	(in thousands of dollars)
	Twelve months ended September 30, 2016			Twelve months ended September 30, 2015
Revenue	$	55,470		$	56,559
Net income (loss)	$	(4,125	)	$	366