Acquisition of Subsidiaries | 12 Months Ended |
Dec. 31, 2013 |
Notes | ' |
Acquisition of Subsidiaries | ' |
NOTE 16 - ACQUISITION OF SUBSIDIARIES |
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Castrovilla, Inc. |
Effective January 1, 2011, Castrovilla Energy, Inc., “Energy”, a newly formed subsidiary of Blue Earth Energy Management Services, Inc., which is a subsidiary of Blue Earth, Inc, entered into a merger agreement with Castrovilla, Inc. wherein Energy purchased all of the issued and outstanding shares of Castrovilla, Inc. for 1,011,095 shares of restricted common stock of Blue Earth, Inc. These shares were valued based on the quoted market price on the effective date of the transaction, January 1, 2011, at $1.90 per share, or $1,921,081. |
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Immediately after the transaction, Energy ceased to exist and Castrovilla, Inc. became the surviving corporation, a wholly owned subsidiary of Blue Earth Energy Management Services, Inc.. Simultaneous with this purchase, Energy entered into an asset purchase agreement with Humitech of NC, LLC, “Humitech”, whereby the assets of Humitech and certain related liabilities were sold to Energy for $150,000 cash and 267,857 restricted common shares of Blue Earth, Inc. valued based on the quoted market price on the effective date of the transaction, January 1, 2011, at $1.90 per share or $508,928. The purchase resulted in a distributorship asset and customer base of $2,458,250. The reason for the purchase was to expand the Company’s energy efficiency operations. According to the purchase method of accounting, the acquisition was recorded as follows: |
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Purchase Price | Shares | | | Price | | | Total | | |
Castrovilla | 1,011,095 | | | $ | 1.9 | | | | | 1,921,081 | | |
Humitech | 267,857 | | | $ | 1.9 | | | | | 508,928 | | |
Cash | | | | | | | | | | 150,000 | | |
Total Purchase Price | | | | | | | | | $ | 2,580,009 | | |
Assets at Fair Value | | | | | | | | | | | | |
Cash | | | | | | | | | $ | 466,620 | | |
Accounts receivable | | | | | | | | | | 325,199 | | |
Inventory | | | | | | | | | | 150,627 | | |
Property and equipment | | | | | | | | | | 53,088 | | |
Other assets | | | | | | | | | | 115,804 | | |
Distributorship and customer base | | | | | | | | | | 2,458,250 | | |
Total Assets | | | | | | | | | $ | 3,569,588 | | |
Liabilities Assumed at Fair Value | | | | | | | | | | | | |
Accounts payable and accrued expenses | | | | | | | | | $ | 414,314 | | |
Notes payable | | | | | | | | | | 575,265 | | |
Total Liabilities | | | | | | | | | $ | 989,579 | | |
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Cash | | | | | | | | | | 150,000 | | |
Equity | | | | | | | | | | 2,430,009 | | |
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Total Liabilities and Equity | | | | | | | | | $ | 3,569,588 | | |
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The Company has recognized revenues of $3,858,020 for the year ended December 31, 2011 for Castrovilla. The Company has recognized a net loss $608,367 for the year ended December 31, 2011 for Castrovilla. |
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In the acquisition the Company issued an aggregate of 1,011,095 shares of its Common Stock, initially valued at $1.68 per share or $1,700,000 on the date the agreement was made, to the stockholders of Castrovilla, Inc. in exchange for all of the outstanding capital stock of Castrovilla, Inc. All of the 1,279,762 shares issued in the Castrovilla Acquisition (collectively, the “Company Shares”) are subject to Lock-up/Leak-out and Guaranty Agreements, as amended. The two Castrovilla, Inc. stockholders, John Pink, who continues as President of Castrovilla, Inc. and Adam Sweeney, together with Humitech (the “Stockholders”) could not sell any of the Company Shares for a six-month period beginning on the Effective Date of the Plan of January 1, 2011 and ending on June 30, 2011. Thereafter and ending June 30, 2013, the three stockholders may sell up to 2,461 Company Shares per trading day in the aggregate until all Company Shares are sold (the “Lock-up Period”). |
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The Company contingently guaranteed (the “Guaranty”) to the Stockholders the net sales price of $1.68 per share, provided the Stockholders are in compliance with the terms and conditions of the Lock-up Agreement and the hereinafter described performance criteria are met. |
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A number of shares equal in value to fifty percent (50%) of the profits, if any, from the sale of shares above $3.36 per share during the Lock-up Period will be returned to the Company. Any deficit from sales below $1.68 per share shall be paid (i) 50% in cash, and (ii) the remaining 50% in either cash or shares of Common Stock of the Company provided certain Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) performance criteria are achieved as discussed in the next paragraph (at their then current fair market value, or any combination thereof, at the sole discretion of the party making the payment). |
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In the event that Castrovilla Inc.'s EBITDA during the Lock-up Period is less than the budgeted amount of $722,000 of EBITDA per year for each of the years ended December 31, 2012 and 2013, the $1.68 per share guaranteed price shall be decreased by the same percentage decrease that EBITDA is below the projected $722,000 of EBITDA. All of such calculations will be in accordance with GAAP and derived from the Company’s reviewed financial statements for the first three fiscal quarters of the fiscal year and audited financial statements for the full year. The targeted EBITDA for the 12-month period from July 1, 2011 to June 30, 2012 is $722,000, or $180,500 per quarter (the quarterly rate of $180,500 is a constant for each quarter through to the end of the Lock-up/Guarantee period). Therefore, the Targeted EBITDA for the 12-months ended December 31, 2011, was $722,000. The targeted EBITDA for each subsequent 12 month period shall be $722,000, which shall be compared to the actual performance for the most recent 12 month reporting period as illustrated above and multiplied times $1.68 to arrive at the guaranteed share price, if any. These targeted amounts may be reduced if a majority of the Board of Directors agree on budget changes which require an acceleration of expenses thereby affecting a current year’s budgeted EBITDA. No adjustment in the targeted amounts for guarantee purposes will be made. |
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In addition, under the Plan, the Company paid $50,000 to an unaffiliated third party for an existing obligation of Castrovilla, Inc. The above described Castrovilla Acquisition was completed on January 19, 2011, with an effective date of January 1, 2011. Pursuant to the terms and conditions of the Plan described above, Castrovilla Energy, Inc., a wholly-owned subsidiary of the Company, was merged with and into Castrovilla, Inc., the Surviving Corporation, on January 21, 2011. |
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Xnergy, Inc. and Subsidiary |
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On September 7, 2011 the Company acquired 100% of the outstanding common stock of Xnergy, Inc. and its wholly-owned subsidiary HVAC Controls & Specialties, Inc., a Carlsbad, California based energy services company (“Xnergy’). Simultaneously, the Company purchased all of the membership interests of ecoLegacy, LLC (“eco”), a California limited liability company, which serves as a financing vehicle for Xnergy. Xnergy provides a broad range of energy solutions including specialized mechanical engineering and the design, construction and implementation of energy savings projects, energy conservation, energy infrastructure outsourcing, power generation and energy supply and risk management. Xnergy also provides comprehensive maintenance and service programs, including every aspect of heating, ventilation and air-conditioning (HVAC), mechanical systems for design-build to repair and retrofit services. |
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Xnergy had an alternative energy project pipeline opportunity of approximately $585 million. The projects are all located in California and the target clients are those that have a premium credit rating and have large energy needs. These candidates include hotels/casinos, industrial manufacturing, life sciences, telecommunications, medical, churches, pharma and public facilities. The $585 million alternative energy project pipeline is comprised of designing, building, implementing and servicing three cutting-edge alternative energy technologies: Solar PV, Geothermal and Fuel Cells, all of which is subject to obtaining project financing. |
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The Company issued 4,500,000 shares of its common stock for all of the outstanding shares of Xnergy valued at $3.00 per share in the merger agreement. However, the common shares were subsequently valued at $1.72 per share for accounting purposes based upon the average closing price of the Company’s common stock from September 8, 2011 through trading on September 26, 2011. The Company also assumed the obligation of $1,415,088 due to a former shareholder of Xnergy for the purchase of his shares by the exchanging shareholders of Xnergy. The Company assumed $143,681 of debt as the consideration for the purchase of ecoLegacy, a California limited liability company. Hence, for valuation purposes, the proper price/share for accounting purposes is $1.72/share or $7,740,000 for the shares plus the cash component as stated above. |
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The purchase resulted in a distributorship asset and customer base of $9,137,225. The reason for the purchase was to expand the Company’s energy efficiency operations. According to the purchase method of accounting, the acquisition was recorded as follows: |
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Purchase Price | Shares | | | Price | | | Total | | | |
Xnergy, Inc. and HVAC Controls & Specialties, Inc. | 4,500,000 | | | $ | 1.72 | | | $ | 7,740,000 | | | |
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Assets at Fair Value | | | | | | | | | | | | |
Cash | | | | | | | | $ | 1,442,319 | | | |
Receivables | | | | | | | | | 710,437 | | | |
Other current assets | | | | | | | | | 150,278 | | | |
Property and equipment | | | | | | | | | 86,548 | | | |
Related party receivable | | | | | | | | | 2,632,192 | | | |
Customer base | | | | | | | | | 9,137,225 | | | |
Total Assets | | | | | | | | $ | 14,158,999 | | | |
Liabilities Assumed at Fair Value | | | | | | | | | | | | |
Accounts payable | | | | | | | | $ | 379,227 | | | |
Accrued liabilities | | | | | | | | | 1,606,074 | | | |
Notes payable | | | | | | | | | 4,433,698 | | | |
Total Liabilities | | | | | | | | $ | 6,418,999 | | | |
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Equity | | | | | | | | | 7,740,000 | | | |
Total Liabilities and Equity | | | | | | | | $ | 14,158,999 | | | |
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The Company has recognized revenues of $1,457,643 for the four months ended December 31, 2011 for Xnergy and HVAC. The Company has recognized a net loss $962,723 for the four months ended December 31, 2011 for Xnergy and HVAC. |
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The table below presents, on a retroactive basis the condensed consolidated statements of operations for the periods presented to include the operations of Castrovilla and Xnergy. In the above referenced acquisitions Castrovilla and Xnergy were not considered the predecessor for accounting purposes. The pro forma condensed consolidated statements of operations are presented below for comparative purposes and to provide additional information and disclosure to the reader. |
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Pro forma Condensed Consolidated Statement of Operations |
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| | December 31, | | | | | | | | | |
| | 2011 | | | | | | | | | |
Revenues | | $ | 8,682,109 | | | | | | | | | |
Net Loss | | $ | -7,244,198 | | | | | | | | | |
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IPS Power Engineering, Inc. |
As of July 15, 2013, the Company, together with its wholly-owned subsidiary IPS Acquisition Corp., simultaneously entered into and completed an Agreement and Plan of Merger (the “Agreement”) dated as of July 15, 2013, with IPS Power Engineering Inc. (“IPS”), Global Renewable Energy Group, Inc. (“GREG”) and the Stockholders of IPS and GREG (the “Acquisitions”). IPS is an EPCM company (engineering, procurement, construction and management) and GREG is an affiliated renewable energy company, which companies specialize in the combined heat and power (“CHP”) alternative energy space. The Company plans to build seven power plants and sell the thermal and electric power generated to one large customer and to local utilities through long-term power purchase agreements. Pursuant to the terms of the Agreement, an aggregate of 15,550,000 shares of Blue Earth Common Stock (the “Merger Consideration”) was issued to the former stockholders of IPS and GREG (the “Stockholders”). The Merger Consideration was determined by the parties based on the mutually agreed upon future revenues and earnings forecast prepared by management of IPS and GREG. The Merger Consideration consists of: 5,000,000 Blue Earth shares issued at closing to the Stockholders, which vested immediately but are subject to lock-up agreements; 150,000 Blue Earth shares issued as a finder’s fees; and 10,500,000 Blue Earth shares issued at closing to the Stockholders, and held in escrow, and which will vest at the rate of 1,500,000 Blue Earth shares per Initial Project (as defined) on the date that each of the Initial Projects or substituted similar value as mutually agreed to by Blue Earth and IPS, commences producing commercial power. The 10,500,000 Blue Earth shares will be released, pro rata, from escrow upon the commercial operation date of each Initial Project, however, subject to the terms and conditions of the Lock-Up Agreements. At the Closing the Stockholders exchanged 100% of the outstanding shares of IPS and GREG for the Merger Consideration. Through the Agreement, IPS Acquisition Corp. and GREG merged with and into IPS, with IPS as the surviving entity, in accordance with the Utah Revised Business Corporation Act. IPS will be operated as a wholly-owned subsidiary of the Company. |
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The purchase resulted in a construction in progress asset of $44,029,229. The reason for the purchase was to expand the Company’s energy efficiency operations. According to the purchase method of accounting, the acquisition was recorded as follows: |
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Purchase Price | | Shares | | | Price | | | Total | |
IPS Power Engineering, Inc. and Global Renewal Energy Group, Inc. | | | 15,500,000 | | | $ | 2.84 | | | $ | 44,035,500 | |
Assets at Fair Value | | | | | | | | | | | | |
Cash | | | | | | | | | | | $ 2,733 | |
Accounts receivable | | | | | | | | | | | 2,500 | |
Prepaid expenses | | | | | | | | | | | 665 | |
Property and equipment | | | | | | | | | | | 3,725 | |
Construction in progress | | | | | | | | | | | 44,029,229 | |
Total Assets | | | | | | | | | | $ | 44,038,852 | |
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Liabilities Assumed at Fair Value | | | | | | | | | | | | |
Accounts payable and accrued expenses | | | | | | | | | | $ | 3,352 | |
Equity | | | | | | | | | | $ | 44,035,500 | |
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Total Liabilities and Equity | | | | | | | | | | $ | 44,038,852 | |
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The Company has recognized revenues of $11,444 for the year ended December 31, 2013 for IPS and GREG. The Company has recognized a net loss $319,931 for the year ended December 31, 2013 for IPS and GREG. |
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Intelligent Power, Inc. |
As of July 24, 2013 the Company, together with its wholly-owned subsidiary Intelligent Power Acquisition, Inc. simultaneously entered into and completed an Agreement and Plan of Merger (the “Agreement”), with Intelligent Power, Inc. (“IP”), and the Stockholders of IP (the “Acquisition”). IP owns patented demand response, cloud based, real-time energy management technology. Pursuant to the terms of the Agreement, an aggregate of 1,383,400 shares of the Company’s Common Stock (the “Merger Consideration”) was issued to the former stockholders of IP (the “Stockholders”). At the Closing the Stockholders exchanged 100% of the outstanding shares of IP for the Merger Consideration. Through the Agreement, Intelligent Power Acquisition, Inc. merged with and into IP, with IP as the surviving entity, in accordance with the Oregon Business Corporations Act. IP will be operated as a wholly- owned subsidiary of the Company. |
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The purchase resulted in a patent and technology asset of $4,147,832. The reason for the purchase was to expand the Company’s energy efficiency operations. According to the purchase method of accounting, the acquisition was recorded as follows: |
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Purchase Price | Shares | | | Price | | | Total | | | |
Intelligent Power, Inc. | 1,383,400 | | | $ | 2.88 | | | $ | 3,984,192 | | | |
Assets at Fair Value | | | | | | | | | | | | |
Cash | | | | | | | | $ | 911 | | | |
Prepaid expenses | | | | | | | | | 2,000 | | | |
Property and equipment | | | | | | | | | 3,464 | | | |
Patent costs | | | | | | | | | 48,442 | | | |
Technology | | | | | | | | | 4,147,832 | | | |
Total Assets | | | | | | | | $ | 4,202,649 | | | |
Liabilities Assumed at Fair Value | | | | | | | | | | | | |
Accounts payable | | | | | | | | $ | 14,600 | | | |
Accrued liabilities | | | | | | | | | 203,857 | | | |
Total Liabilities | | | | | | | | $ | 218,457 | | | |
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Equity | | | | | | | | | 3,984,192 | | | |
Total Liabilities and Equity | | | | | | | | $ | 4,202,649 | | | |
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The Company has recognized revenues of $0 for the year ended December 31, 2013 for IP. The Company has recognized a net loss $556,775 for the year ended December 31, 2013 for IP. |
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Millennium Power Solutions, LLC |
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As of August 23, 2013, the Company, together with its wholly-owned subsidiary MPS Acquisition Corp., simultaneously entered into and completed an Agreement and Plan of Merger (the “Agreement”) Millennium Power Solutions LLC (“MPS”) and the Key Members of MPS (the “Acquisition”). MPS designs and manufactures intelligent, digital, rechargeable battery products and backup systems with twice the energy of lead acid batteries in a smaller space. The environmentally friendly product is completely recyclable with no issues of hazardous out-gassing, corrosion, flammable or explosive characteristics. The initial, patent pending, intelligent Battery Backup System designed and manufactured by MPS was created for signalized intersections when loss of utility power occurs. The UltraPower Stealth Battery Backup System (UPStealthTM ) can be formed in various configurations that allow the intelligent battery to bend around corners and fit into spaces that cannot be accessed by traditional battery backup systems. Pursuant to the terms of the Agreement, an aggregate of 3,694,811 shares of the Company’s common stock (the “Merger Consideration”) was issued to the former members of MPS (the “Members”). In addition, the principals of MPS are entitled to receive a per-year earn-out equal to ten (10%) percent of the profits of MPS as a separate wholly-owned subsidiary of the Company payable in shares of the Company’s common stock valued at the then current fair market value. The earn-out is limited to a five year period and has an aggregate cap of $3,572,199. At the closing the stockholders exchanged 100% of the outstanding membership interests of MPS for the Merger Consideration. Through the Agreement, MPS Acquisition Corp. was merged with and into MPS, with MPS as the surviving entity, in accordance with the Oregon Business Corporations Act. |
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Purchase Price | Shares | | | Price | | | Total | | | |
Millennium Power Solutions, LLC | 3,694,811 | | | $ | 2.95 | | | $ | 10,899,692 | | | |
Assets at Fair Value | | | | | | | | | | | | |
Cash | | | | | | | | $ | 531,460 | | | |
Receivables | | | | | | | | | 35,019 | | | |
Inventory | | | | | | | | | 113,138 | | | |
Property and equipment | | | | | | | | | 203,756 | | | |
Battery technology | | | | | | | | | 10,039,872 | | | |
Total Assets | | | | | | | | $ | 10,923,245 | | | |
Liabilities Assumed at Fair Value | | | | | | | | | | | | |
Accounts payable | | | | | | | | $ | 21,894 | | | |
Accrued liabilities | | | | | | | | | 1,659 | | | |
Total Liabilities | | | | | | | | $ | 23,553 | | | |
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Equity | | | | | | | | | 10,899,692 | | | |
Total Liabilities and Equity | | | | | | | | $ | 10,923,245 | | | |
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The Company has recognized revenues of $107,253 for the year ended December 31, 2013 for MPS. The Company has recognized a net loss $236,014 for the year ended December 31, 2013 for MPS. |
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The table below presents, on a retroactive basis the condensed consolidated statements of operations for the periods presented to include the operations of IPS, GREG, IP and MPS. In the above referenced acquisitions IPS, GREG, IP and MPS were not considered the predecessor for accounting purposes. The pro forma condensed consolidated statements of operations are presented below for comparative purposes and to provide additional information and disclosure. |
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Pro forma Condensed Consolidated Statement of Operations |
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| | December 31, | | | | | | | | | |
| | 2013 | | | | | | | | | |
Revenues | | $ | 10,466,736 | | | | | | | | | |
Net Loss | | $ | -26,615,595 | | | | | | | | | |
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