2. Acquisition

On May 6, 2011, the Company entered into and consummated transactions pursuant to the Purchase Agreement. Pursuant to the Purchase Agreement, the Company purchased (i) all of the outstanding equity of FAPL, (ii) all of the outstanding equity of Introcan, Inc., a Delaware corporation (“Introcan”), and (iii) 1% of the outstanding equity of Fapco S.A. de C.V., a Mexican variable capital company (“Fapco”) (collectively, “Fenco”). Since FAPL owned 99% of Fapco prior to these acquisitions, the Company now owns 100% of Fapco.

In consideration for the acquisition of Fenco, the Company issued Holdings 360,000 shares of the Company's common stock (the “MPA Shares”). For a period of 18 months following the closing of the acquisition, the MPA Shares shall be (i) subject to transfer restrictions pursuant to a Hold Agreement between the Company and Holdings, dated May 6, 2011 (the “Hold Agreement”), and (ii) held in escrow in order to secure certain indemnification obligations under the Purchase Agreement pursuant to an Escrow Agreement by and among Holdings, Stikeman Elliott LLP, certain other individuals, and the Company, dated May 6, 2011 (the “Escrow Agreement”).

The estimated fair value of tangible and intangible assets acquired and liabilities assumed are based on preliminary estimates and assumptions. These preliminary estimates and assumptions could change significantly during the purchase price measurement period as the valuations of the net tangible assets and intangible assets are finalized. Any change could result in material variances between the Company's future financial results and the amounts presented below, including variances in fair values recorded, as well as expenses associated with these items. The preliminary estimate of assets acquired and the liabilities assumed by the Company in connection with the acquisition, reconciled to the consideration transferred, are provided below:

	US$
Consideration
Stock issued (1)	$	4,946,000
Total	$	4,946,000
Purchase price allocation				Estimated Useful Life
Accounts receivable, net of allowances	$	24,729,000
Inventory		84,117,000
Long-term core inventory		79,163,000
Inventory unreturned		8,631,000
Prepaid expenses		2,356,000
Trademarks		19,663,000		20 years
Customer contracts		21,531,000		10 years
Non-compete agreements		84,000		2 years
Plant and equipment, net		6,643,000
Revolving loan		(49,458,000	)
Accounts payable and accrued liabilities		(96,778,000	)
Customer core returns accruals (2)		(76,707,000	)
Income taxes payable		(223,000	)
Customer finished goods returns accrual		(16,857,000	)
Capital lease obligations		(417,000	)
Debenture loan - due to registrant		(4,891,000	)
Term loan		(1,042,000	)
Fair value of net assets acquired		544,000
Goodwill on acquisition	$	4,402,000

(1)	Based on the Company's May 5, 2011, closing common stock price of $13.74 per share.

(2)	The estimated fair value of the customer core return liabilities assumed by the Company in connection with the acquisition is included in accrued liabilities in the accompanying balance sheet at June 30, 2011.

The preliminary estimated fair value of the net assets acquired was less than the fair value of the consideration transferred of $4,946,000. The $4,402,000 excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill on acquisition in the accompanying consolidated balance sheet as of June 30, 2011.

The unaudited pro forma financial information presented below assumes the acquisition had occurred on April 1, 2010 and 2009, respectively. The unaudited pro forma information presented is for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the acquisition had been completed on the date indicated, nor is it indicative of future operating results. The following historical financial information has been adjusted to give effect to pro forma events that are (i) directly attributable to the acquisition, (ii) factually supportable, and (iii) with respect to statements of operations, expected to have a continuing impact on the combined results, including the amortization of the fair value of the identifiable intangible assets and the cost of goods sold impact related to the fair value step-up of inventory acquired. The unaudited pro forma information does not reflect any operating efficiencies, associated cost savings or additional costs that the Company may achieve with respect to the combined companies.

	Three Months Ended June 30,
	2011			2010

Net sales	$	96,918,000		$	88,221,000
Operating income		1,695,000			2,964,000
Loss before income tax expense		(4,192,000	)		(947,000	)
Net loss		(6,107,000	)		(2,240,000	)
Basic net loss per share	$	(0.50	)	$	(0.18	)
Diluted net loss per share	$	(0.50	)	$	(0.18	)