BUSINESS ACQUISITION

9 Months Ended

Sep. 30, 2015

Business Combinations [Abstract]

BUSINESS ACQUISITION

NOTE 2.   BUSINESS ACQUISITIONS

IPG Acquisition

On March 26, 2015, GCS, a wholly-owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “IPG APA”) by and among the Company, GCS and Iron Protection Group, LLC, a Colorado limited liability company (“IPG” or the “Seller”), whereby GCS agreed to acquire substantially all of the assets of Seller (the “IPG Acquisition”). Pursuant to the terms of the IPG APA, the Company will deliver to Seller 500,000 restricted shares of the Company’s common stock, which will vest over a one-year period (100,000 shares vest on October 1, 2015; 200,000 shares vest on January 1, 2016; and 200,000 shares vest on April 1, 2016).

In addition, the Company delivered to Seller three-year warrants (the “IPG Warrants”) to purchase an aggregate of 500,000 shares of the Company’s common stock at an exercise price of: (i) $4.50 for warrants to purchase 250,000 shares of the Company’s common stock, and (ii) $5.00 for warrants to purchase another 250,000 shares of the Company’s common stock. The IPG APA contains certain provisions that require Seller to forfeit a portion of the stock consideration in the event that Seller violates its obligations under the IPG APA relating to non-competition and non-disclosure. The closing date of the IPG Acquisition was March 26, 2015 and the Company has initially calculated the purchase price of the IPG Acquisition to be approximately $1,887,000. At the acquisition date and pursuant to the IPG APA, the Company did not assume any of the Seller’s liabilities and there were no tangible assets of significance.

The aggregate consideration was as follows:

Common stock payable	$	1,054,000
Warrants issued with $4.50 exercise price		421,000
Warrants issued with $5.00 exercise price		412,000
	$	1,887,000

The 500,000 shares of common stock were valued based on the closing price per share on March 26, 2015, or $2.48, reduced by a discount of 15% due to restrictions in the ability to trade the Company’s shares.  The $1,054,000 value of stock consideration is included in accrued stock payable on the condensed consolidated balance sheet as of September 30, 2015.  See Note 8 for a discussion of the warrants.

The preliminary purchase price allocation is as follows:

Intangible assets:
Customer relationship intangible	$	1,000,000
Marketing-related intangibles		200,000
Non-compete agreements		200,000
Goodwill		487,000
	$	1,887,000

The purchase price allocation is preliminary as of September 30, 2015 as the Company finalizes its evaluation of the value of the customer relationships and marketing-related intangibles.  Management anticipates completing the Company’s purchase price allocation as soon as reasonably possible, not to exceed one year from the acquisition date. 

In connection with the Company’s acquisition of IPG, the Company will issue to the sole shareholder of the Seller 100,000 fully vested warrants to purchase shares of the Company’s stock if revenues of the Security segment exceed $3,000,000 for the year ended December 31, 2015.  If the warrants are issued, they will have an exercise price of $2.48, which was the Company’s closing share price on March 26, 2015.  Should the sole shareholder of the Seller cease employment with the Company, the right to receive these warrants will be forfeited.  At March 26, 2015, the fair value of the warrants was calculated to be approximately $188,000.  This has not been included in the purchase price or accrued as contingent compensation at September 30, 2015.

Chiefton Acquisition

On September 25, 2015, the Company closed an asset purchase agreement for the purchase of substantially all the assets of Chiefton Supply Co., a Colorado corporation, and established a dba within GCC of Chiefton.

The Company acquired the Chiefton assests for consideration of 80,000 shares of the Company’s common stock. The shares shall remain in escrow for six months for the exclusive purpose of being available to indemnify the Company for any claims that may be made by any person or governmental entity related to or arising from Chiefton’s intellectual property during the six month period after closing. After such period, the shares will be released if no claims have been made, provided that if any claims have been made the shares will remain in escrow until the claim is resolved, at which time the shares will be released less the value of any and all settlement amounts, penalties, damages or other liabilities arising from the claim.

The aggregate consideration was as follows:

Cash	$	12,249
Common stock		69,400
Aggregate consideration	$	81,649

10

The value of the common stock consideration was estimated based on the Company’s closing stock price on September 25, 2015, or $1.02 per share, reduced by a discount of 15% due to restrictions in the ability to trade the Company’s shares.  The $69,400 value of stock consideration is included in accrued stock payable on the condensed consolidated balance sheet as of September 30, 2015.

The preliminary purchase price allocation is as follows:

Inventory	$	12,249
Intangible assets – intellectual property		69,400
	$	81,649

The purchase price allocation is preliminary as of September 30, 2015 as the Company finalizes its evaluation of the nature and value of the acquired intangibles.  Management anticipates completing the Company’s purchase price allocation as soon as reasonably possible, not to exceed one year from the acquisition date.