Acquisitions

12 Months Ended

Dec. 31, 2011

Acquisition [Abstract]

ACQUISITIONS

NOTE 4 — ACQUISITIONS

The Company accounts for acquisitions using the purchase method in accordance with ASC 805, “Business Combinations.” The results of operations of each acquisition have been included in the accompanying consolidated financial statements as of the dates of the acquisition. Total cash paid for acquisitions in 2011 was $10.4 million. In addition, the Company recognized $0.7 million of total acquisition related costs that were included in general and administrative expense primarily during the fourth quarter of 2011 in the consolidated statement of operations.

Co-eXprise

On September 13, 2011, the Company acquired certain contracts and assumed certain liabilities of the Co-eXprise, Inc. (“Co-eXprise”) energy procurement business for $4.0 million. Co-eXprise, located in Wexford Pennsylvania, is a leading provider of enterprise sourcing software solutions for discrete manufacturers, enabling companies to effectively manage sourcing activities for direct material and complex indirect spend categories.

The acquisition-date fair value of the consideration transferred totaled $4.0 million, which consisted of the following:

	Purchase price
Cash	$	4,000,000

The following table summarizes the estimated fair values of the assets and liabilities assumed at the acquisition date:

	Allocations
Unbilled accounts receivable	$	412,609
Current liabilities		(4,000	)
Intangible assets		1,760,000
Goodwill		1,831,391
Net assets acquired	$	4,000,000

The fair value of accounts receivable acquired on September 13, 2011 was approximately $413,000. The gross contractual amount of these accounts receivable was approximately $460,000, of which $47,000 was not expected to be collected.

The purchase price was allocated to the tangible and intangible assets and liabilities assumed based on estimates of their respective fair values at the date of acquisition with the remaining unallocated purchase price recorded as goodwill. Fair value of intangible assets was determined using a combination of the income approach and cost approach. The goodwill recognized is attributable primarily to expected synergies of Co-eXprise and is expected to be deductible for tax purposes over a period of 15 years. As of December 31, 2011, there were no changes in the recognized amounts of goodwill. Acquisition costs of approximately $0.2 million were recorded in general and administrative expense in 2011.

Management is responsible for the valuation of net assets acquired and considered a number of factors, including valuations and appraisals, when estimating the fair values and estimated useful lives of acquired assets and liabilities. At December 31, 2011 the allocation of purchase price had been finalized. The intangible assets, excluding goodwill, are being amortized on a straight-line basis over their weighted average lives as follows:

	Fair Value		Weighted Average Lives
Non-compete agreements	$	170,000	5 years
Customer relationships		580,000	7 years
Customer contracts		1,010,000	2.5 years
	$	1,760,000

NES

On October 13, 2011, the Company acquired substantially all of the assets and certain obligations of Northeast Energy Solutions, LLC (“NES”) for a maximum purchase price of $4.8 million. NES, located in Cromwell Connecticut, focuses on turn-key electrical and mechanical energy efficiency measures serving commercial, industrial and institutional customers.

The acquisition-date fair value of the consideration transferred totaled $4.6 million, which consisted of the following:

	Purchase price
Cash	$	1,004,131
Common stock (83,209 shares)		252,122
Notes payable to seller		3,000,000
Contingent consideration		357,813
Total consideration	$	4,614,066

The fair value of the 83,209 common shares issued was determined based on the closing market price of the Company’s common shares on the acquisition date.

The fair value of the Notes payable to seller was recorded at the face amount of the notes entered into at the date of acquisition due to their short-term maturity and market rate of interest. The Notes payable to seller bear interest at 5% and are due in three equal installments as follows:

Due Date	Amount
July 2, 2012	$	1,000,000
October 1, 2012		1,000,000
December 28, 2012		1,000,000
Total notes payable	$	3,000,000

Interest is payable on each tranche at the respective due dates. These notes are unsecured and are subordinated to our credit facility with Silicon Valley Bank (“SVB”).

As part of the total consideration, NES can earn up to $500,000 in contingent consideration if certain performance criteria are met post-acquisition. This potential contingent consideration consists of two equal amounts of $250,000 and are due on January 15, 2012 (the “2011 NES Contingent Consideration”) and March 31, 2013 (the “2012 NES Contingent Consideration”), respectively. The fair value of the contingent consideration was based on the weighted probability of achievement of certain performance milestones. The 2011 NES Contingent Consideration was tied to World Energy achieving designation as an authorized vendor for the Small Business Energy Advantage program of Connecticut Light & Power by December 31, 2011. The Company initially valued this contingent payment at $237,500, which has been recorded as Accrued contingent consideration on the accompanying consolidated balance sheet. The 2012 NES Contingent Consideration is tied to the achievement of certain revenue and net income milestones for the year ending December 31, 2012. The Company initially valued this contingent payment at $120,312, which has been recorded as Accrued contingent consideration, net of current portion as part of long-term liabilities on the accompanying consolidated balance sheet. In initially measuring the fair value of the contingent consideration, the Company assigned probabilities to these performance criteria, based among other things on the nature of the performance criteria and the Company’s due diligence performed at the time of the acquisition. As of December 31, 2011, the Company determined that the 2011 NES Contingent Consideration was met and recorded a $12,500 charge to general and administrative expense during the fourth quarter. As of December 31, 2011, there were no changes in the recognized amounts of the 2012 NES Contingent Consideration.

The following table summarizes the estimated fair values of the assets and liabilities assumed at the acquisition date:

	Allocations
Current assets	$	1,875
Fixed assets		168,530
Capital leases		(53,709	)
Intangible assets		2,962,500
Goodwill		1,534,870
Net assets acquired	$	4,614,066

The purchase price was allocated to the tangible and intangible assets and liabilities assumed based on estimates of their respective fair values at the date of acquisition with the remaining unallocated purchase price recorded as goodwill. Fair value of intangible assets was determined using a combination of the multi-period excess earnings method, the income approach and the cost replacement approach. The goodwill recognized is attributable primarily due to future revenue generation resulting from expanded product lines and new markets and is expected to be deductible for tax purposes over a period of 15 years. As of December 31, 2011, there were no changes in the recognized amounts of goodwill. Acquisition costs of approximately $0.1 million in 2011 were recorded in general and administrative expenses.

Management is responsible for the valuation of net assets acquired and considered a number of factors, including valuations and appraisals, when estimating the fair values and estimated useful lives of acquired assets and liabilities. At December 31, 2011 the allocation of purchase price had been finalized. The intangible assets, excluding goodwill, are being amortized on a straight-line basis over their weighted average lives as follows:

	Fair Value		Weighted Average Lives
Customer relationships	$	991,600	9 years
Customer relationships — indefinite life		1,736,000	N/A
Non-compete agreements		234,900	5 years
	$	2,962,500

GSE:

On October 31, 2011, the Company acquired substantially all of the assets and certain obligations of GSE for a maximum purchase price of $13.1 million. GSE is a Texas based energy management and procurement company. The purchase price was $8.6 million, consisting of $3.9 million in cash, $1.5 million in cash to pay off GSE debt, and 1.0 million shares of our common stock valued at $3.2 million. In addition, GSE may earn up to $4.5 million of contingent consideration in cash based on the achievement of certain annualized new booking and renewal rate targets to be measured over a two-year period through October 2013.

The acquisition-date fair value of the consideration transferred totaled $12.9 million, which consisted of the following:

	Purchase price
Cash	$	5,400,251
Common stock (1,000,000 shares)		3,210,000
Contingent consideration		4,328,000
Total consideration	$	12,938,251

The fair value of the 1,000,000 common shares issued was determined based on the closing market price of the Company’s common shares on the acquisition date.

As part of the total consideration, GSE can earn up to $4.5 million in contingent consideration if certain performance criteria are met post-acquisition. These potential contingent payments are as follows:

Due Date	Amount
January 31, 2012 (“GSE 2011 Contingent Consideration”)	$	2,000,000
January 15, 2013 (“GSE 2012 Contingent Consideration”)		1,500,000
January 15, 2014 (“GSE 2013 Contingent Consideration”)		1,000,000
Total contingent consideration	$	4,500,000

The fair value of the contingent consideration was based on the weighted probability of achievement of certain performance milestones. These contingent considerations were tied to the achievement of certain New Bookings and Renewal Rate achievement for the 3-months ended December 31, 2011 and the twelve months ending October 31, 2012 and 2013, respectively. The Company initially valued these contingent payments at $4.3 million of which $2.0 million has been recorded as Accrued contingent consideration within current liabilities and $2.3 million was recorded as Accrued contingent consideration, net of current portion in long-term liabilities on the accompanying consolidated balance sheet. In initially measuring the fair value of the contingent consideration, the Company assigned probabilities to these performance criteria, based among other things on the nature of the performance criteria and the Company’s due diligence performed at the time of the acquisition. As of December 31, 2011, the Company determined that the GSE 2011 Contingent Consideration was met and recorded a $25,000 charge to general and administrative expense during the fourth quarter. As of December 31, 2011, there were no changes in the recognized amounts of the GSE 2012 and 2013 Contingent Consideration amounts. The GSE 2012 Contingent Consideration and the GSE 2013 Contingent Consideration earn interest at 4% per annum, which is payable at each respective due date.

The following table summarizes the estimated fair values of the assets and liabilities assumed at the acquisition date:

	Allocations
	(As Restated)
Current assets	$	8,699
Fixed assets		100,088
Other assets		15,030
Capital leases		(27,858	)
Intangible assets		7,080,000
Goodwill		5,762,292
Net assets acquired	$	12,938,251

The purchase price was allocated to the tangible and intangible assets and liabilities assumed based on estimates of their respective fair values at the date of acquisition with the remaining unallocated purchase price recorded as goodwill. Fair value of intangible assets was determined using a combination of the multi-period excess earnings method, the comparative business valuation method and the relief from royalty method. The goodwill recognized is attributable primarily to future revenue generation resulting from expected synergies, expanded product lines and new markets and is expected to be deductible for tax purposes over a period of 15 years. As of December 31, 2011, there were no changes in the recognized amounts of goodwill. Acquisition costs of approximately $0.4 million in 2011 were recorded in general and administrative expenses.

Management is responsible for the valuation of net assets acquired and considered a number of factors, including valuations and appraisals, when estimating the fair values and estimated useful lives of acquired assets and liabilities. At December 31, 2011 the allocation of purchase price had been finalized. The intangible assets, excluding goodwill, are being amortized on a straight-line basis over their weighted average lives as follows:

	Fair Value		Weighted Average Lives
Non-compete agreements		1,280,000	5 years
Customer relationships		3,480,000	10 years
Customer contracts		1,650,000	3 years
Tradenames		670,000	4 years
	$	7,080,000

The amount of revenue and earnings from these acquisitions included in our consolidated income statement for 2011 were not material. The NES acquisition operating results have been included within our Energy Efficiency Services segment since the date of acquisition. The Co-eX contracts and GSE operation were integrated into our energy procurement segment from the respective dates of acquisition and, therefore, discrete operating results are not maintained for those operations. The revenue impact from these acquisitions for the year ended December 31, 2011 represented less than 10% of our consolidated revenue. The following unaudited pro forma information assumes that the acquisitions of Co-eXprise and GSE had been completed as of the beginning of 2010, and acquisition of NES had been completed at March 31, 2010 (inception):

	Years Ended December 31,
	2011		2010
	(As Restated)
	(Unaudited)		(Unaudited)
Revenues	$	31,963,421	$	28,168,693
Net income (loss)		2,210,899		(408,456	)
Net income (loss) per share:
Net income (loss) per share — basic	$	0.19	$	(0.04	)
Net income (loss) per share — diluted	$	0.19	$	(0.04	)
Weighted average shares outstanding — basic		11,416,998		10,130,241
Weighted average shares outstanding — diluted		11,478,718		10,130,241

The pro forma financial information is not necessarily indicative of the results to be expected in the future as a result of the acquisitions of the Co-eXprise, NES and GSE.