Annual report pursuant to Section 13 and 15(d)


12 Months Ended
Dec. 31, 2014
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]


In April 2014, the Company entered into a stock purchase agreement pursuant to the terms of which the Company purchased all of the outstanding membership interests of UEC from the seller of UEC, a company owned by UEC’s two top managers (the “Acquisition”). UEC develops and manufactures electronic components and subsystems primarily for military, aerospace and industrial customers.  The Company’s management considered the purchase of UEC to be an accretive addition to the Power Systems Division.

The Acquisition was accounted for under the acquisition method accounting. Accordingly, all assets and liabilities acquired, along with the potential $5.5 million earn out (with an estimated fair value of $4.5 million at the acquisition date) were recorded at their estimated fair market values as of the date of acquisition. The liability for the earn out was recorded in other accounts payable and accrued expenses ($2.2 million) and other long-term liabilities ($2.3 million) and then adjusted in the fourth quarter to $2.5 million in accrued expenses and zero in long term liabilities since the 2014 earn-out will be paid in April 2015 and the 2015 earn-out is no longer expected to be achieved. The fair value measurements were based on significant inputs that were not observable in the market which are Level 3 inputs in the fair value hierarchy. The results of UEC’s operations have been included in the consolidated financial statements commencing on the date of acquisition. Included in the Company’s Consolidated Statements of Comprehensive Income for the year ended December 31, 2014 are net sales of approximately $27.2 million and income before provision for income taxes of approximately $5.0 million since the April 1, 2014 acquisition of UEC. The total consideration of $37.9 million, after the net working capital adjustment, for the membership interests purchased consisted of (i) cash in the amount of $29,206,245, (ii) 775,000 shares of the Company’s common stock, valued at $4,216,000, and (iii) contingent consideration with an estimated fair value at April 1, 2014 of $4.5 million.

Based upon a valuation of tangible and intangible assets acquired, the Company has allocated the cost of the Acquisition to UEC’s net assets as follows (unaudited):

Tangible assets acquired:
               Accounts receivable and unbilled revenues
               Other current assets
               Property and equipment, net
Intangible assets
Customer list
Contracts in place (backlog)
Covenant not to compete.
Goodwill (intangibles that did not qualify for separate recognition)
Total asset value
Less: liabilities assumed
Net fair value of assets acquired

These fair value measurements are provisional based on third-party valuations that are currently under review and are subject to refinement for up to one year after the acquisition date based on additional information that may be obtained by the Company that existed as of the acquisition date.

Intangible assets in the amount of $13.1 million have a weighted-average useful life of approximately five years.

Goodwill arising from acquisitions is not be amortized. In lieu of amortization, the Company is required to perform an annual impairment test. If the Company determines, through the impairment review process, that goodwill has been impaired, it will record the impairment charge in its statement of comprehensive income. The Company will also assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. This goodwill is deductible for tax purposes.

Pro forma financial information

In April 2014, the Company acquired UEC, as more fully described above (the “Acquisition”). The following summary pro forma information includes the effects of the Acquisition on the operating results of the Company. The pro forma data for the years ended December 31, 2014 and 2013 are presented as if the Acquisition had been completed on January 1, 2013. This pro forma financial information does not purport to be indicative of the results of operations that would have occurred had the Acquisition taken place on January 1, 2013, nor do they purport to be indicative of the results of operations that will be obtained in the future.

Year Ended December 31,
  $ 116,113,345     $ 120,854,708  
Income – continuing operations before income tax
  $ 8,050,164     $ 2,562,522  
Net income
  $ 7,026,327     $ 1,388,183  
Basic net income per share
  $ 0.32     $ 0.08  
Diluted net income per share
  $ 0.31     $ 0.08  
Weighted average number of shares used in computing basic net income per share
    22,127,751       17,282,848  
Weighted average number of shares used in computing diluted net income per share
    22,730,491       17,885,588  

Pro forma results presented above reflect: (1) amortization relating to fair value estimates of intangible assets; (2) elimination of UEC expenses that were not part of the transaction; and (3) incremental interest expense on new long term debt incurred in connection with the transaction as though the transaction occurred as of January 1, 2013.

Additionally, acquisition related expenses of approximately $813,000 recognized as general and administrative expenses in the year ended December 31, 2014 are reflected in the pro forma results above as though they were recognized during the year ended December 31, 2013 and have been removed from the pro forma results for the year ended December 31, 2014.