NOTE 2 – ACQUISITIONS

Exhaust Technologies Inc.

On July 1, 2014, the Company acquired Exhaust Technologies, Inc. (“ETI”), a developer and distributor of pneumatic tools, through a merger between a newly formed wholly-owned subsidiary of Florida Pneumatic and ETI. ETI markets its AIRCAT and NITROCAT brand pneumatic tools primarily to the automotive market. ETI’s business will operate through Florida Pneumatic. The purchase price for this acquisition consisted of $10,377,000 in cash plus the assumption of certain payables. The Company financed this acquisition from the Company's Revolver Loan (“Revolver”) provided for within the Credit Agreement with Capital One Business Credit Corp. (“COBC”), which is further described in Note 6 to these Consolidated Financial Statements.

Universal Air Tool Company Limited

On July 29, 2014, the Company acquired all of the outstanding shares of Universal Air Tool Company Limited (“UAT”), a distributor of pneumatic tools. The purchase price for this acquisition consisted of approximately $1,947,000 in cash and is subject to a post-closing working capital adjustment. In addition, there is a potential contingent consideration payment due to the former shareholders of UAT of a maximum of £250,000. UAT, which is located in High Wycombe, England, markets pneumatic tools to the automotive market sector primarily in the United Kingdom and Ireland. The Company financed this acquisition from the Company's Revolver, which is further described in Note 6 to these Consolidated Financial Statements.

Air Tool Service Company

On August 13, 2014, a newly formed wholly owned subsidiary of Hy-Tech, acquired substantially all of the assets comprising the business of Air Tool Service Company (“ATSCO”), an Ohio based corporation engaged in the design, manufacture and distribution of pneumatic tools and parts. The purchase price consisted of approximately $7,659,000 in cash and the assumption of certain payables and liabilities, and is subject to a post-closing working capital adjustment. The Company financed this acquisition from the Company's Revolver and a new Term Loan provided for within the Credit Agreement with COBC, which is further described in Note 6 to these Consolidated Financial Statements.

The purchase price for the acquisitions completed during 2014 was as follows:

	ETI		UAT		ATSCO		Total
Cash paid at closing	$	9,850,000	$	1,947,000	$	7,659,000	$	19,456,000
Net asset adjustments		484,000		(142,000)		—		342,000
Excess liabilities assumed		43,000		—		—		43,000
Fair value of contingent consideration		—		425,000		—		425,000
Total purchase price	$	10,377,000	$	2,230,000	$	7,659,000	$	20,266,000

The following table presents the estimated fair values of the net assets acquired, liabilities assumed and the amount allocated to goodwill:

	ETI		UAT		ATSCO		TOTAL
Cash	$	—	$	14,000	$	—	$	14,000
Accounts receivable		1,086,000		732,000		190,000		2,008,000
Inventories		1,669,000		852,000		600,000		3,121,000
Other current assets		911,000		4,000		—		915,000
Property and equipment		140,000		167,000		581,000		888,000
Identifiable intangible assets:
Customer relationships		4,560,000		339,000		3,260,000		8,159,000
Trademarks and trade names		1,160,000		478,000		240,000		1,878,000
Non-compete agreements		115,000		134,000		130,000		379,000
Engineering drawings		—		—		120,000		120,000
Patents		1,205,000		—		—		1,205,000
Total assets acquired		10,846,000		2,720,000		5,121,000		18,687,000

Less: Liabilities assumed		1,489,000		535,000		345,000		2,369,000
Deferred income taxes		2,708,000		189,000		—		2,897,000
Total fair value of net assets acquired		6,649,000		1,996,000		4,776,000		13,421,000
Goodwill		3,728,000		234,000		2,883,000		6,845,000
Total estimated purchase price	$	10,377,000	$	2,230,000	$	7,659,000	$	20,266,000

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 attributable to ATSCO is deductible for tax purposes. Goodwill attributable to ETI and UAT is not deductible for tax purposes. The ATSCO intangible assets subject to amortization will be amortized over fifteen years for tax purposes. The ETI and UAT intangible assets are not subject to amortization for tax purposes. For financial reporting purposes, useful lives have been assigned as follows:

	ETI	UAT	ATSCO

Customer relationships	12 years	12 years	12 years
Trademarks and trade names	Indefinite	Indefinite	Indefinite
Non-compete agreements	4 years	3 years	5 years
Engineering drawings	—	—	5 years
Patents	3-10 years	—	—

All three acquisitions are included as a part of the Company’s Tool Business Segment.

Goodwill recognized on the above acquisitions represents value the Company expects to be created by combining the various operations of the acquired businesses with the Company’s operations, including the expansion into markets within existing business segments, access to new customers and potential cost savings and synergies.

The following unaudited pro-forma combined financial information gives effect to the acquisition of ETI, UAT and ATSCO as if they were consummated January 1, 2013. 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 acquisitions been completed as of January 1, 2013 (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 year ended		For the year ended
	December 31, 2014		December 31, 2013
	(Unaudited)		(Unaudited)
Revenues	$	83,355,000	$	89,962,000
Net income	$	3,107,000	$	4,328,000
Earnings per share - basic	$	0.84	$	1.17
Earnings per share - diluted	$	0.80	$	1.11

In connection with these acquisitions, the Company recorded acquisition-related costs in Selling, general and administrative expense, that totaled approximately $764,000 for the year ended December 31, 2014.

Due to integration of ETI and UAT into the business operations of Florida Pneumatic, and the integration of ATSCO into the business operations of Hy-Tech, since their respective date of acquisition it is impracticable to determine the specific revenue and earnings directly attributable to any of the acquired businesses.