HARD ROCK ACQUISITION

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

NOTE 4. HARD ROCK ACQUISITION

Immediately upon closing the Offering, the Company used a portion of the Offering proceeds to fund the purchase of all the interests of Hard Rock from its parent entity, Hard Rock Solutions, Inc. (“HR”) under the terms of a membership interest purchase agreement dated January 28, 2014 (the “Hard Rock Acquisition”). Closing of the Hard Rock Acquisition occurred on May 29, 2014.

Hard Rock operates as a rental tool company of reamer equipment (tools) for oil and gas companies. While the duration of the rents varies by job, these rents are generally less than one month. The tools are rented primarily to entities operating in North Dakota, Wyoming, Texas, Montana, Oklahoma, Utah, New Mexico and Colorado. Before our acquisition of Hard Rock, we received revenue from HR for manufacturing and repairing the reamers, and the reamer royalty income upon rental of the tool.

The Hard Rock Acquisition has been treated as a business acquisition since the Company acquired substantially all of the operating assets of HR. The majority of the purchase price was assigned to intangible assets, which consist of developed technology, customer contracts and relationships, trade names and trademarks and goodwill. The intangible assets will be amortized over the following lives:

Intangible Assets	Live
Developed	7 Years
Customer contracts and	5 Years
Trade names and	9 Years

Consideration consisted of $12.5 million paid at closing of the Offering and a $12.5 million seller’s note (the “Hard Rock Note”). The fair value of the Hard Rock Note was determined to be $11,144,000 which is less than the face value due to a below-market interest rate based on the JP Morgan Chase Bank, N.A. annual prime rate, or 3.25% per annum as of September 30, 2014. Fair value was estimated based on the present value of future cash flows at a market-assumed rate. The fair value of the assets acquired and the Hard Rock Notes are as follows:

Estimated fair value of assets acquired:
Rental	$	832,097
Prepaid expenses		9,000
Fixed assets and equipment		100,000
Intangible assets:
Developed technology		7,000,000
Customer contracts and relationships		6,400,000
Trade names and trademarks.		1,500,000
Goodwill		7,802,903
Total intangible assets		23,644,000
Consideration paid and liabilities assumed:
Cash paid at closing		12,500,000
Note payable		12,500,000
Discount on note payable		(1,356,000)
	$	23,644,000

During the quarter ending September 30, 2014, the Company reviewed the Hard Rock rental tool inventory and determined that many of the tools purchased would need to be scrapped due to the tools not meeting our quality control requirements, and thus the Company removed them from their inventory. It has further been determined that these tools should not have been included in the purchase price, but the value should have been included as part of goodwill. We have retroactively decreased the rental tool fair value estimate from $1,540,000, to $832,097 and increased goodwill from $7,095,000 to $7,802,903 as of the acquisition date. The Company had also depreciated these tools, thus in the financials we have reduced depreciation expense in the amount of $78,656.

Acquisition Related Costs

Acquisition-related transaction costs consisted of various advisory, legal, accounting, valuation and professionals or consulting fees totaling $646,306, for the nine month period ended September 30, 2014. These cost were expensed as incurred and included in general administrative expense on our consolidated condensed statement of operations.

Supplemental Pro Forma Results

Hard Rock’s results of operations have been included in our financial statements for periods subsequent to May 29, 2014, the effective date of the Hard Rock Acquisition. Hard Rock contributed revenues of $3 million to the Company for the period from the closing of the Hard Rock Acquisition (May 29, 2014) through September 30, 2014.

The following unaudited supplemental pro forma results present consolidated information for the nine months ended September 30, 2014 as if the Hard Rock Acquisition had been completed on January 1, 2013. The supplemental pro forma results have been calculated after applying our accounting policies and include, among others, (i) the amortization associated with the fair value of the acquired intangible assets, (ii) interest expense associated with the term loan issued to fund the Hard Rock Acquisition and (iii) the impact of certain fair value adjustments such as a the debt discount. The supplemental pro forma results do not include any potential synergies, non-recurring charges which result directly from the Hard Rock Acquisition, cost savings or other expected benefits of the Hard Rock Acquisition. The supplemental pro forma financial information does not necessarily represent what would have occurred if the transaction had taken place at the beginning of the period presented and should not be taken as representative of our future consolidated results of operations. We have not concluded our integration work. Accordingly, this supplemental pro forma information does not include all costs related to the integration nor the benefits we expect to realize from operating synergies.

	Nine Months Ended September 30,
	2014		2013
	(Unaudited)		(Unaudited)
Revenue	$	15,318,614	$	11,741,218
Net income	$	564,375	$	4,107,058