On December 30, 2010, Castrovilla Energy, Inc., a recently formed California subsidiary of Blue Earth, Inc. (the “Company”) entered into agreements, subject to final Board approval, to acquire substantially all of the assets of Humitech of Northern California, LLC (“Humitech”), a California limited liability company and its related company, Castrovilla, Inc. (the “Castrovilla Acquisition”)  Founded in 2004, Castrovilla, based in Mountain View, California, manufactures, sells and installs commercial refrigerator and freezer gaskets and sells and installs motors and controls.  Castrovilla’s strategy is to sell lighting and HVAC bundled retrofits to its customer base.

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.

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 $528,928.

Proforma adjustment [1] reflects the issuance of 1,011,095 shares of Blue Earth, Inc. common stock to shareholders of Castrovilla, Inc. in exchange for all issued and outstanding shares of Castrovilla and the issuance of 267,857 shares of Blue Earth, Inc. for the net assets of Humitech of NC, LLC.  This entry also reflects the elimination of equity balances, including the common stock of Castrovilla and the partner capital of Humitech, retained earnings of both entities and the allocation of excess purchase price above the market value of the fixed assets acquired and liabilities assumed in the acquisition to the Bay Area Gasket Guy distributorship held by Humitech.

Pro forma earnings per share are computed as though the shares issued to acquire Castrovilla and Humitech were outstanding as of January 1, 2010.

Proforma adjustment [2] reflects the calculation of amortization expense assuming the amortization of the distributorship and customer base over the expected life of 10 years beginning on January 1, 2010.

The proforma, consolidated balance sheets and statements of operations of Blue Earth, Inc. and Castrovilla, Inc. and Humitech of NC, LLC are presented here as of December 31, 2010.

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