Note 4 - Acquisitions

On November 5, 2014 the Company purchased certain assets from Polar Technologies, LLC (“Polar”) related to its refrigerant reclamation business and facilities in Nashville, Tennessee; Ontario, California; and San Juan, Puerto Rico; hiring approximately thirty-two Polar employees associated with the business. The purchase price for this acquisition was $8,035,000. A portion of the purchase price is to be paid in the future pursuant to the purchase agreement. The preliminary asset allocation reflected in the December 31, 2014 financial statements was approximately $5,435,000 of tangible assets, approximately $2,335,000 of intangible assets, and approximately $265,000 of goodwill. The intangible assets will be amortized over a period of 2 to 10 years. The goodwill recognized as part of the acquisition, is deductible for tax purposes.

As of December 31, 2015 the valuation and allocation of the purchase price for Polar was finalized resulting in an increase in tangible assets of $165,000, as well as an increase in goodwill of $170,000 and a decrease in intangible assets of $335,000. This final valuation has been reflected in the December 31, 2015 financial statements.

The results of the Polar operations are included in the Company’s Consolidated Income Statements from the date of acquisition and are not material to the Company’s financial position or results of operations.

On January 16, 2015, the Company acquired certain assets of a supplier of refrigerants and compressed gases, and also hired three employees associated with the business. The purchase price for this acquisition was $2,424,000 cash paid at closing and the assumption of a liability of $20,000, and a maximum of an additional $3,000,000 earn-out. The preliminary asset allocation was approximately $1,606,000 of tangible assets, approximately $1,500,000 of intangible assets, and approximately $2,338,000 of goodwill.

As of December 31, 2015 the valuation and allocation of the purchase price for this acquisition was finalized. As part of that process, it has been determined that the earn-out payable that had been previously recorded at the maximum earn out of $3,000,000 per the purchase agreement was overstated by approximately $1,000,000. This adjustment to the earn-out payable resulted in lowering the purchase price from approximately $5,400,000 to approximately $4,400,000. The final valuation resulted in a reduction in goodwill by approximately $1,900,000, and increase in intangible assets of approximately $800,000 and an increase in current assets of approximately $100,000. This final valuation as well as the respective changes in the amortization of intangibles has been reflected in the December 31, 2015 financial statements.

The adjusted earn-out payable of approximately $2,000,000 consists of approximately $1,100,000 for the fiscal year ended December 31, 2015 and approximately $864,000 for the fiscal year ending December 31, 2016. For the fiscal year ended December 31, 2015, the actual earn-out was approximately $800,000 resulting in a year end adjustment to reduce the payable by approximately $300,000 which has been reflected in the December 31, 2015 Consolidated Statements of Operations as Other income. As of December 31, 2015, approximately $445,000 of the 2015 earn-out has been paid and the remaining balance of $371,000 is recorded in Accrued expenses and other current liabilities on the December 31, 2015 Consolidated Balance Sheet and has been subsequently paid as of September 30, 2016.

The estimated earnout for the fiscal year ending December 31, 2016 of $864,000 was recorded in Other current liabilities on the December 31, 2015 Consolidated Balance Sheet. As of September 30, 2016, as a result of improved performance, the Company increased earnout liability by approximately $594,000, which was recorded as general and administrative expense in the Company’s Consolidated Income Statements during the third quarter of 2016. As of September 30, 2016, approximately $334,000 has been paid and the remaining balance of $1,124,000 is recorded in Accrued expenses and other current liabilities on the September 30, 2016 consolidated balance sheet.

The intangible assets are being amortized over a period ranging from two to ten years. The goodwill recognized as part of the acquisition will be deductible for tax purposes. The transaction also provides for additional employee compensation for years 2017 through 2019, based on certain revenue performance. The total additional employee compensation, if any, cannot exceed $3,000,000.

The results of the acquired business operations are included in the Company’s consolidated statements of operations from the date of acquisition, and are not material to the Company’s financial position or results of operations.

Pro Forma Information

Pro forma revenues and results of operations as if the businesses had been acquired on January 1, 2014 are not presented, as the acquisitions are not material to our financial position or our results of operations.