2.	Acquisitions:

Value Lighting - On April 17, 2014, the Company completed the acquisition of Value Lighting, a supplier of lighting solutions to the multifamily residential market. The purchase consideration aggregated $39.3 million and consisted of cash of $10.6 million funded with a loan from an affiliate, an unconditional obligation to issue an aggregate of 8,468,192 shares of common stock in four installments at six, twelve, eighteen and twenty-four months from the acquisition date, valued at $20.9 million, and contingent consideration payable in cash or common stock at the option of the Company aggregating up to a total of $11 million, valued at $7.8 million, if certain revenue and EBITDA targets are achieved by Value Lighting during 2014 and 2015. The purchase price has been reduced by $0.1 million based on the closing working capital. The Company acquired Value Lighting for its presence in the multifamily residential and construction markets, the experience of the management team, its customer base, operational and business development synergies.

 

The following amounts represent the determination of the fair value of identifiable assets acquired and liabilities assumed from the Value Lighting acquisition. The excess of the purchase price over the estimated fair value of the net tangible assets acquired was allocated to intangible assets of approximately $20.0 million and goodwill of approximately $18.6 million.

 

(in thousands)
Cash		$	35
Accounts receivable			8,720
Inventory			7,505
Goodwill			18,635
Customer relationships			12,270
Trade names			4,800
Backlog			2,505
Non-compete agreements			260
Other intangibles			116
Other assets			2,901
Assets acquired			57,747
Accounts payable			8,683
Accrued liabilities			1,383
Other current liabilities			1,362
Other liabilities			1,185
Deferred income tax liability			5,825
Liabilities assumed			18,438
Purchase price		$	39,309

 

The acquired intangibles are being amortized consistent with the period the underlying cash flows are generated. All of the goodwill is included in the Lighting Fixtures and Lamps reportable segment. Goodwill is not expected to be deductible for income tax purposes.

Other - On December 18, 2014, the company acquired All Around Lighting, Inc., a supplier of lighting fixtures, for $5.0 million. The purchase price consists of $0.9 million cash, 1,600,000 unregistered shares of the Company’s restricted common stock, and additional cash consideration if certain revenue targets are achieved in 2015 and 2016 (preliminarily valued at $0.3 million). The unregistered shares of restricted common stock have been valued at $1.8 million, and will be issued in eleven installments beginning in May 2015. The shares are subject to a price floor of $2.00 per share (preliminarily valued at $1.9 million), which will terminate when total share consideration received is equal to $3.2 million. The aggregate purchase price of $5.0 million has been preliminarily allocated to $1.7 million of tangible assets, $2.2 million of identifiable intangible assets and $2.8 million of goodwill, reduced by $1.7 million of liabilities assumed. The acquired intangibles are being amortized consistent with the period the underlying cash flows are generated. All of the goodwill is included in the Lighting Fixtures and Lamps reportable segment. Goodwill is not expected to be deductible for income tax purposes. The final determination of the fair value of certain assets and liabilities including income taxes and contingencies will be completed within the one-year measurement period from the date of acquisition as required by ASC Topic 805, “Business Combinations.”

Tri-State – On November 15, 2013, the Company completed the acquisition of Tri-State, a distributor of Seesmart products, for cash at closing of approximately $1.8 million (including a working capital adjustment), an obligation to pay an additional $1.5 million in cash in six months bearing interest at 5% annually, 543,052 shares of common stock valued at approximately $1.6 million, of which one half were issued at closing and an obligation to issue up to 365,628 additional shares contingent on Tri-State achieving specified revenue targets within one year following the acquisition date which has been valued at approximately $0.9 million. Under the terms of the agreement the Company acquired Tri-State debt free and cash free. The Company acquired Tri-State for its management team, its client base in New York, New Jersey and Connecticut and operational and business development synergies. The purchase price exceeds the fair value of the tangible assets acquired and reflects the expected growth of the business.

The following amounts represent the determination of the fair value of identifiable assets acquired and liabilities assumed from the Tri-State acquisition.

 

(in thousands)
Accounts receivable		$	468
Inventory			310
Goodwill			2,786
Customer relationships			1,680
Non-compete agreements			480
Other intangibles			738
Other assets			38
Assets acquired			6,500
Accounts payable			440
Accrued liabilities			208
Other current liabilities			80
Liabilities assumed			728
Purchase price		$	5,772

The acquired intangibles are being amortized consistent with the period the underlying cash flows are generated. All of the goodwill is included in the Lighting Fixtures and Lamps reportable segment. Goodwill is expected to be deductible for income tax purposes. Goodwill was retroactively adjusted by $25,000 to reflect a working capital adjustment finalized in 2014.

Relume – On August 22, 2013 the Company purchased all the equity interests of Relume pursuant to the terms of the Agreement and Plan of Merger, dated as of August 9, 2013 (the “Relume Merger Agreement”) for $5.0 million in cash (approximately $4.3 million net of an estimated working capital adjustment) and 2,174,000 shares of common stock valued at approximately $7.3 million based on the market price of the Company’s stock on the closing date. The consideration paid is subject to further adjustment to the extent that the working capital (as defined in the Relume Merger Agreement) differs from the amount specified in the agreement. The amount of such adjustment has not been finalized. The cash portion of the purchase consideration was funded from the proceeds of the issuance of Series F Senior Convertible Redeemable Preferred Stock (the “Series F Preferred Stock”) to RVL for $5.0 million in cash, of which approximately $0.7 million was retained for working capital purposes. Under the terms of the Relume Merger Agreement, the Company acquired the Relume business debt free, except for capital lease obligations.

 

The following amounts represent the determination of the fair value of identifiable assets acquired and liabilities assumed from the Relume acquisition.

 

(in thousands)
Cash		$	61
Accounts receivable			851
Inventory			1,935
Goodwill			8,624
Technology			2,020
Trademarks			1,200
Customer relationships			680
Other assets			838
Assets acquired			16,209
Accounts payable			2,574
Accrued liabilities			1,891
Other current liabilities			26
Capital lease obligations			110
Liabilities assumed			4,601
Purchase price		$	11,608

All of the goodwill is included in the Lighting Fixtures and Lamps reportable segment. None of the goodwill is expected to be deductible for income tax purposes. Goodwill was retroactively adjusted in 2014 by $454,000 to reflect a provision for unfavorable firm purchase commitments for inventory components.

Elite – On March 8, 2013, LIT, a wholly owned subsidiary of the Company, acquired certain assets of Elite LED Solutions (“Elite”) for $500,000 in cash, and 300,000 shares of the Company’s common stock, valued at $356,250, contingent on certain performance criteria that ultimately were not fulfilled. Concurrently, the Company entered into a five-year sales consulting agreement with the principals of the sellers pursuant to which the Company is obligated to pay a $20,000 monthly fee, additional fees based on achieving specified operational targets, and 850,000 shares of the Company’s common stock, which were to vest over the five-year term of the agreement.

The transaction has been accounted for as a business combination and the issuance of the common shares vesting over five years was to have been accounted for as compensation pursuant to ASC 505-50 “Equity-Based Payments to Non-Employees.” The following summarizes the purchase price allocation to the acquired assets:

 

(in thousands)
Customer revenue contracts		$	1,599
Gain on bargain purchase			(743	)
Purchase price		$	856

The Company acquired the business primarily for the unfulfilled customer revenue contracts acquired and the estimated operating synergies expected to be realized with Seesmart. The Company amortized the acquired contracts over the periods of the cash flows that they generated. Substantially all the contracts were amortized in 2013.

On October 9, 2013 the Company notified Elite of the termination of the sales consulting agreement and, accordingly, cancelled the 850,000 unvested shares of common stock. As a result, no stock-based compensation expense has been recognized related to these shares.

Seesmart – On December 20, 2012, the Company purchased all the equity interests of Seesmart pursuant to the terms of the Seesmart Merger Agreement (the “Agreement”), dated as of December 1, 2012 , for consideration of approximately $10.1 million in cash funded by the issuance of shares of Series C Senior Convertible Preferred Stock (the “Series C Preferred Stock”), approximately 7.7 million shares of common stock valued at approximately $5.0 million and 11,915 shares of Series D Preferred Stock, valued at approximately $1.0 million. A working capital adjustment reduced the purchase price by approximately $1.2 million, which has been reflected in the financial statements as a reduction of goodwill. As described below, the Company settled outstanding convertible note obligations of Seesmart, which resulted in a total purchase price of $18.3 million for the enterprise value of the business. In accordance with the relevant accounting standard, the Company’s December 31, 2012 balance sheet has been retroactively adjusted to reduce goodwill and the Seesmart purchase price obligations liability by approximately $1.3 million.

Under the Agreement, the Company was required to distribute additional consideration to Seesmart shareholders. During the year ended December 31, 2013, the Company issued 738 shares of Series D Preferred Stock and 1,992,996 shares of common stock and paid approximately $3.5 million in cash.

 

On the acquisition date, Seesmart had outstanding convertible notes payable. In accordance with the terms of the notes, they were converted into the right to receive cash equal to the principal, a 20% premium on the principal, plus accrued interest. On the acquisition date, the Company’s cash obligation totaled approximately $3.4 million. During the first quarter of 2013, holders representing approximately $1 million of the cash obligation elected to receive a total of 1,479,947 shares of common stock. The remaining holders elected to be paid in cash and received approximately $2.4 million. The Seesmart convertible notes payable were completely extinguished during the first quarter of 2013.

The following amounts represent the final determination of the fair value of identifiable assets acquired and liabilities assumed from the Seesmart acquisition.

 

(in thousands)
Cash		$	69
Accounts receivable			1,048
Inventory			1,352
Goodwill			10,166
Customer relationships			7,273
Trademarks			3,434
Other assets			334
Assets acquired			23,676
Accounts payable			2,692
Accrued liabilities			1,137
Deferred revenue			104
Customer deposits			1,467
Liabilities assumed			5,400
Purchase price		$	18,276

All the goodwill is included in the Lighting Fixtures and Lamps reportable segment. None of the goodwill is expected to be deductible for income tax purposes.

Pro forma information. The following unaudited supplemental proforma information assumes the 2014 and 2013 acquisitions referred to above had been completed as of January 1, 2013 and is not indicative of the results of operations that would have been achieved had the transactions been consummated on such date or of results that might be achieved in the future.

 

(in thousands)		Year Ended December 31, 2014				Year Ended December 31, 2013
Revenues		$	96,190			$	84,584
Operating loss		$	(9,837	)		$	(13,709	)
Net Loss		$	(4,393	)		$	(20,992	)

The pro forma operating loss and net loss also reflect the following charges and credits directly attributable to the acquisitions:

 

(in thousands)		Year Ended December 31, 2014				Year Ended December 31, 2013
Recorded by Company:
Gain on bargain purchase of business		$	—			$	743
Recorded by Relume pre-acquisition:
Fees incurred by the sellers			—				(350	)
Change in control payment from sellers to management			—				(737	)
Loss on settlement of debt from proceeds of merger			—				(4,157	)
Gain on deconsolidation of subsidiary in bankruptcy proceedings			—				1,573
Recorded by Value Lighting pre-acquisition:
Fee paid by sellers in connection with the transaction			(528	)			—
Pro Forma charge for amortization of the intangible assets related to acquired backlog, not expected to recur after the first year following the year of acquisition			—				(2,370	)
		$	(528	)		$	(5,298	)

 

The pro forma loss from continuing operations and net loss for the year ended December 31, 2013 reflect a charge of $7.0 million representing the change in fair value of embedded derivative, which is included in the historical results of the Company and not directly attributed to the acquisitions.

The revenue of the 2014 acquisitions, included in our 2014 actual results operations from their respective acquisition dates through December 31, 2014 totaled $46.2 million. The net income of the 2014 acquisitions, included in our 2014 actual results of operations, from their respective acquisition dates through December 31, 2014 totaled $1.6 million.

The revenue of the 2013 acquisitions, included in our 2013 actual results operations from their respective acquisition dates through December 31, 2013 totaled $15.3 million. The net income of the 2013 acquisitions, included in our 2013 actual results of operations, from their respective acquisition dates through December 31, 2013 totaled $0.4 million.