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Acquisition
 12 Months Ended
Dec. 31, 2011
Acquisition [Abstract]  
Acquisition
  3. Acquisition

On December 31, 2009, the Company acquired 100% of the members’ interest of SRC, a Tennessee limited liability company, from TLC Investments, LLC (“TLC”), a Tennessee limited liability company for a combination of cash, convertible debt, a contingent based earn-out, and shares of the Company’s common stock. SRC is a lighting retro fit company and an energy systems and solutions provider located in Nashville Tennessee. SRC provides the Company with the reputation and strong brand recognition within in the existing public sector buildings market based upon its 20 years of experience serving these markets.

The Company acquired approximately $4.7 million in assets, including accounts receivable, fixed assets, and other intangible assets. Of the purchase price, $0.7 million was recorded on the Company’s Consolidated Balance Sheet as goodwill. Purchase price consideration was paid in the form of $1.5 million of cash, 1,000,000 shares of Energy Focus common stock, and a $0.5 million promissory note convertible into 500,000 shares of the Company’s common stock. The transaction also included performance-related contingent consideration including a 2.5% payout on the annual revenues of SRC over 42 months, and a $0.5 million fee if the market price of the Company’s common stock is not equal to or greater than $2.00 per share for at least twenty trading days between June 30, 2010 and June 30, 2013.

The acquisition was accounted for as a stock purchase and, accordingly, was included in the financial statements of the Company as of December 31, 2009. Due to the absence of activity between the purchase date, December 31, 2009, and the date of the Company’s financial statements, there were no results of operations to be reported in 2009. In addition, comparative pro forma information was not presented as SRC was not a comparable stand-alone entity prior to the acquisition.

The purchase price was allocated based on the fair value of the assets acquired leading to the purchase price allocation as follows (in thousands):

 

             

Assets acquired:

   Amortization
Life (in years)		   Amount  

Accounts receivable

       $ 1,258  

Property and equipment

         20  

Goodwill

   n/a     672  

Intangible assets:

            

Tradename

   10     500  

Client relationships

   5     2,250  
       

 

 

  

Total purchase price

       $ 4,700  
       

 

 

  

The purchase price in excess of the fair value of the tangible assets acquired has been allocated to intangible assets and goodwill. The Company engaged an independent third-party expert to assist in the allocation of the purchase price to the various specific separately identifiable intangible assets. The methods utilized by this third-party are based upon generally accepted accounting valuation conventions used in acquisition-related valuations and include peer volatility analysis, discounted cash flow analysis, annuity stream valuation and earnings based valuation techniques. These conventions were reviewed and approved by management. Of the intangible assets acquired, $0.7 million was assigned to goodwill.