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Acquisition of Quest Solution, Inc., Note
3 Months Ended
Mar. 31, 2014
Notes  
Acquisition of Quest Solution, Inc., Note

NOTE 2 - ACQUISITION OF QUEST SOLUTION, INC.

 

On January 10, 2014, the Company completed the purchase of Quest Solution, Inc. ("Quest"), an Oregon corporation in the technology, software, and mobile data collection systems business.

 

The purchase price for Quest was $16,000,000.

 

The consideration given to the shareholders of Quest Solution, Inc. were as follows:

 

A.  A promissory note for $4,969,000, which payments are to be a minimum of 45.0% of the cash earned from EBITDA of Quest Solutions, Inc. during the prior quarter.  Once the Holder has received $3,375,000, the principal and interest payments on the promissory note are to be a minimum of 22.5% of the cash earned from EBITDA of Quest Solutions, Inc. during the prior quarter. 

 

The balance of the promissory note is expected to be paid before February 18, 2016, or twenty five (25) months from the date of execution of this agreement. Should the cash flow and payments from EBITDA during the term of this agreement not be sufficient to pay off the loan prior to its maturation, the loan will extend for additional twelve (12) months periods till paid off. 

 

The holder of the note is permitted to convert up $1,594,000 of the Promissory Note into common shares of the Company at a ratio of one share for every $1.00 of promissory note converted.  This conversion feature is non-transferrable without written consent from the Company. 

 

B.  A promissory note for $11,031,000, which payments are to be payments on the promissory  note are  to  be a minimum of forty five percent (45%) of the cash earned from EBITDA of Quest Solutions, Inc. during the prior quarter.  Once the first promissory note ($4.97mm) has received $3,375,000, the principal and interest payments on this promissory note are to be a minimum of 67.5% of the cash earned from EBITDA of Quest Solutions, Inc. during the prior quarter. 

 

The balance of the promissory note is expected to be paid before January 18, 2017, or three (3) years from the date of execution of this agreement.  Should the cash flow and payments from EBITDA during the term of this agreement not be sufficient to pay off the loan prior to its maturation, the loan will extend for additional twelve (12) months periods till paid off. 

 

The holders of the notes are permitted to convert up to $4,781,000 of the Promissory Note into common shares of the Company at a ratio of one share for every $1.00 of promissory note converted. This conversion feature is non-transferrable without written consent from the Company. 

 

The prior owners of Quest shall retain a security interest in the subsidiary until the promissory note is satisfied. 

 

In accordance with ASC 805-10-25-13, the following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition and the preliminary allocation of the purchase price to the fair value of net assets acquired:

 

Cash

$

1,950,121

Accounts receivable, net

3,444,744

Prepaid expenses, related party

1,273,292

Note receivable, related party

688,677

Other assets

 

 

196,794

Goodwill

 

 

13,429,857

Accounts payable and accrued liabilities

(4,983,485)

Total purchase price allocated

$

16,000,000