Note 5 - Acquisition

6 Months Ended

Jun. 30, 2013

Business Combinations [Abstract]

Acquisition

Note 5 – Acquisition

On March 30, 2012, the Company purchased 100% of the membership interests of Cornerstone Conservation Group LLC (“Cornerstone”) pursuant to a Membership Interest Purchase Agreement (the “Agreement”). Cornerstone’s main asset is its proprietary Combined Cooling, Heating and Power (“CCHP”) technology, which utilizes waste heat from commercial and residential heating, ventilation air conditioning and refrigeration (“HVACR”) systems.

Cornerstone also has substantial experience and technology relating to geothermal or ground source heat pumps. In January 2012, the Company moved its operations to a 5,000 square foot facility in Scottsdale, Arizona, owned by one of the sellers, who became an officer and director in connection with the Cornerstone transaction. The Company used the facility rent free of charge for two months. Since March 2012, the Company has been using the facility at a cost of $700 per month which covers overhead costs.

In consideration for the 100% membership interests in Cornerstone, the Company issued 2,260,000 shares of the Company’s common stock (valued at $1.37 per share, the closing price on March 30, 2012) to the selling members of Cornerstone and issued to the sellers fully vested three–year warrants to purchase an aggregate of 300,000 shares of the Company’s common stock as follows:

(i) 100,000 shares at an exercise price of $2.00 per share, exercisable beginning January 1, 2012, through December 31, 2016;

(ii) 100,000 shares at an exercise price of $3.00 per share, exercisable beginning July 1, 2012, through June 30, 2017; and

(iii) 100,000 shares at an exercise price of $4.00 per share, exercisable beginning January 1, 2013, through December 31, 2017.

The estimated fair value of the total warrants issued in connection with the acquisition of Cornerstone was $201,000 which was calculated using the Black-Scholes valuation method with the following assumptions: a risk free interest rate of 1.04 percent, an estimated volatility of 79.1 percent and no dividend yield.  The total present value of all consideration expected to be paid as part of this agreement was $3,297,200.

The following summarizes the fair values of the assets acquired:

Intangible asset - Research and Development	$	659,440
Goodwill		2,637,760
Total assets acquired	$	3,297,200
Aggregate purchase price	$	3,297,200

The assets acquired were recorded based on estimates of their fair values determined by management, based on information then available and on assumptions as to future operations.

Due to the departure of a key employee and as part of the Company’s annual impairment analysis, the goodwill associated with this acquisition was determined to be impaired at December 31, 2012 and accordingly, it was written off in that period.

For the six months ended June 30, 2013, amortization expense was $109,907 and accumulated amortization of the intangible asset- intellectual property was $274,767 at June 30, 2013.

Future amortization of the intangible asset – intellectual property was as follows as of June 30, 2013:

Year ending December 31:
2013	$	109,907
2014		219,813
2015		54,953
Total	$	384,673