NOTE 2 – ACQUISITION

Effective October 25, 2019 (the “Gears Closing Date”) the Company, through a wholly owned subsidiary of Hy-Tech, acquired substantially all the assets comprising the businesses of Blaz-Man Gear, Inc. and Gear Products & Manufacturing, Inc. (the “Gears Acquisition”), each an Illinois-based corporation that manufactured and distributed custom gears. The Company believes that the acquisition of these two businesses will provide added expertise and market exposure into the customized/specialty gears market. The purchase price consisted of an aggregate of approximately $3.5 million in cash, which was funded by Revolver borrowings and the assumption of certain payables and contractual obligations. In addition, the sellers may be entitled to additional consideration based upon sale of certain categories of acquired inventory, which had no fair value at the time of the acquisition, during the two-year period following the Gears Closing Date. Accordingly, the Company, determined that, based primarily upon historical sales information provided, the most likely scenario could result in a payment of contingent consideration of approximately $64,000 and recorded such contingent consideration liability. This liability will be adjusted as needed with changes being recorded in the Company’s consolidated statement of income.

On the Gears Closing Date, Hy-Tech entered into a new five-year lease. This new leased facility, located in Punxsutawney, PA, is approximately 42,000 square feet, with annual lease payments of $165,800. Additionally, Hy-Tech elected to vacate a then existing leased space in Punxsutawney, which housed Hy-Tech’s gear operations prior to the Gears Acquisition. In April 2020, Hy-Tech and the landlord of the vacated facility agreed to terms which released Hy-Tech from the lease in exchange for a payment of $30,000. As a result, in April 2020, Hy-Tech will record a gain of approximately $33,000 on the early settlement of this lease obligation.


	Total
Cash paid at closing	$	3,518,000
Fair value of contingent consideration		64,000
Total estimated purchase price	$	3,582,000

The following table presents purchase price allocation:


Accounts receivable	$	218,000
Inventories		630,000

Machinery, equipment and vehicle		1,437,000
Customer relationships		995,000
Trademarks and trade names		54,000
Non-compete agreements		95,000
Liabilities assumed		(131,000)
Goodwill		284,000
Total estimated purchase price	$	3,582,000

The excess of the total purchase price over the fair value of the net assets acquired, including the value of the identifiable intangible assets, has been allocated to goodwill. Goodwill will be amortized over 15 years for tax purposes, but not deductible for financial reporting purposes. The intangible assets subject to amortization will be amortized over 15 years for tax purposes. For financial reporting purposes their respective useful lives have been determined as follows:


Customer relationships		10 years
Non-Compete agreements		4 years
Trademarks and trade names		indefinite

The following unaudited pro-forma combined financial information gives effect to the Acquisitions as if the transactions were consummated January 1, 2019. This unaudited pro-forma financial information is presented for information purposes only and is not intended to present actual results that would have been attained had the Acquisition been completed as of January 1, 2019 (the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.


	For the Three-Month Period Ended
	March 31, 2019
Revenue	$	15,063,000
Net income	$	109,000
Earnings per share – basic and diluted	$	0.03