Acquisition (Notes)

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

4. Acquisitions

On August 15, 2014, the Company purchased 100% of the outstanding shares of Lumewave, Inc. (“Lumewave”). The acquisition was aimed at expanding the Company’s outdoor lighting business. The purchase price consisted of $1.8 million in cash paid at closing and $715,000 in common stock of the Company distributed at closing. Additionally, if certain gross margin targets for the Lumewave business are achieved during the period from August 16, 2014 through August 15, 2016, an additional $1.3 million in consideration will be payable to the selling shareholders of Lumewave. The fair value of this additional consideration was $925,000 as of September 30, 2014. The purchase price was subject to adjustment based on the final working capital balances. As a result of the final agreed-upon working capital balances, the selling shareholders agreed to repay $225,000. Accordingly, the Company has recorded the $225,000 in other current assets on the accompanying consolidated balance sheet at September 30, 2014 with a corresponding adjustment in the cash purchase price.

The assets acquired and liabilities assumed have been reflected in the Company’s consolidated balance sheet at September 30, 2014, and the results of operations of Lumewave are included in the consolidated statement of operations since August 16, 2014. The following table summarizes the preliminary purchase price allocation based on estimated fair values of assets acquired and liabilities assumed at the acquisition date. The Company is in the process of finalizing the valuation of intangible assets and the income tax effects resulting from the acquisition and accordingly, these amount may be subject to change in the fourth quarter of 2014 (amounts in thousands):

	Amount
Cash and cash equivalents	630
Accounts receivable	107
Inventory	31
Other current assets	259
Property and equipment	23
Identifiable intangible assets	1,500
Goodwill	1,257
Accounts payable	(352	)
Accrued liabilities	(255	)
	3,200

Identifiable intangible assets include $800,000 in developed technology, $500,000 in customer relationships, and $200,000 for trade names. The identifiable intangible assets will be amortized over a period of 5 to 7 years. Transaction costs associated with the acquisition were not material. The method used to value the identified intangibles was an income method approach which incorporated a discount rate ranging from 21% to 22%. Pro forma information for this acquisition is not presented as the results of the acquired business are not material to the Company’s consolidated financial statements.

The contingent consideration was measured at fair value based on management’s estimate of achieving the specified targets and discounted to its present value of $925,000. The contingent consideration is payable 66% in cash and 34% in the Company’s common stock. Both the fair value of the cash and equity portions of the contingent consideration are recorded as a liability and will be remeasured each reporting period, with any change in their fair values recorded to earnings. The equity component of the contingent consideration will ultimately be settled by issuing additional equity upon final determination of the targets being achieved.