Acquisition

12 Months Ended

Dec. 31, 2013

Acquisition

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. The Company also moved its operations to a 5,000 square foot facility owned by one of the sellers in Scottsdale, Arizona. The Company has been using the facility rent free on a short term basis but expects to negotiate a lease on fair market terms.

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 option 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 – Intellectual Property	$	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 period ending December 31, 2013, amortization expense was $219,813 and accumulated amortization of the intangible asset-intellectual property was $384,673.

Future amortization of the intangible asset – intellectual property was as follows as of December 31, 2013:

Year ending December 31:
2014	$	219,814
2015		54,953
Total	$	274,767