UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): November 14, 2013
REAL GOODS SOLAR, INC.
(Exact Name of Registrant as Specified in its Charter)
Colorado | 001-34044 | 26-1851813 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
833 W. South Boulder Road, Louisville, CO 80027-2452
(Address of Principal Executive Offices, Including Zip Code)
Registrants telephone number, including area code: (303) 222-8400
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 8.01. Other Events.
Real Goods Solar, Inc. (Real Goods Solar) is filing this Current Report on Form 8-K for purposes of incorporating information by reference into existing registration statements filed by Real Goods Solar under the Securities Act of 1933, as amended.
Description of Business and Properties of Mercury Energy, Inc.
As previously disclosed, on August 8, 2013, Real Goods Solar and its wholly-owned subsidiary Real Goods Mercury, Inc. (Merger Sub) entered into an Agreement and Plan of Merger (the Merger Agreement) with Mercury Energy, Inc. (Mercury). Pursuant to the terms of the Merger Agreement, subject to the satisfaction of closing conditions described below, Merger Sub will be merged with and into Mercury (the Merger), with Mercury continuing as the surviving corporation and becoming a wholly-owned subsidiary of Real Goods Solar. Set forth below is selected information about Mercurys business and properties.
Company Overview
Mercury, through its wholly-owned subsidiary, Mercury Solar Systems, Inc., is primarily engaged in the development, design and installation of solar energy systems for utility, commercial, and residential clients in New York, New Jersey, Massachusetts, Connecticut, Maryland, and Pennsylvania. The solar energy systems are primarily photovoltaic systems for the production of electricity. These systems reduce a customers need for third party produced electricity. Mercury, including its predecessors, has designed, installed, and provided related services to more than 2,400 solar customers.
Since its inception in 2008, Mercury has acquired and completed the integration of four local and regional commercial and residential solar integrators. Mercury has also entered four additional states through organic growth. Additionally, Mercury has expanded its business to include solar project development and other related services.
As of November 11, 2013, Mercury had approximately 47 full-time employees, including installation personnel.
Corporate Information
Mercury and Mercury Solar Systems, Inc. were incorporated in Delaware and New York, respectively, in 2008. Mercurys executive office and operations center is located at 36 Midland Ave, Port Chester, NY 10573. Mercurys telephone number is (914) 637-9700. Mercurys website is www.mercurysolarsystems.com. The information on the website is not intended to be a part of or incorporated into this Current Report on Form 8-K, and you should not rely on any of the information provided on Mercurys website.
Real Goods Solar and Mercury Unaudited Pro Forma Condensed Combined Financial Statements
Real Goods Solar and Mercury have prepared the following unaudited pro forma combined condensed financial statements to reflect the combination of Real Goods Solar and Mercury as a result of the Merger in a transaction accounted for in accordance with Financial Accounting Standards Board (FASB) Topic 805, Business Combinations, with Real Goods Solar treated as the acquirer. The unaudited pro forma combined condensed balance sheet combines the historical consolidated balance sheets of Real Goods Solar and Mercury as of September 30, 2013, prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), giving effect to the acquisition as if it occurred on September 30, 2013. The unaudited pro forma combined condensed statement of operations combine the historical consolidated statements of operations of Real Goods Solar and Mercury for the nine months ended September 30, 2013, and the year ended December 31, 2012, prepared in accordance with GAAP, giving effect to the acquisition as if it occurred at the beginning of the period. The pro forma condensed combined balance sheet and statements of operations reflect only pro forma adjustments expected to have a continuing impact on the combined results.
These unaudited pro forma combined condensed financial statements are for informational purposes only. They do not purport to present the results that Real Goods Solar would have reported if Real Goods Solar completed the acquisition on the assumed dates or for the periods presented, or which Real Goods Solar may realize in the future. To produce the pro forma financial information, Real Goods Solar allocated the purchase price of Mercury using its best estimates of fair value. Real Goods Solar based its estimates on the most recently available information. To the extent there are significant changes to Mercurys business, these assumptions and estimates could change significantly. Accordingly, the purchase accounting adjustments reflected in the unaudited pro forma combined condensed financial statements included herein are preliminary and subject to change. The unaudited pro forma combined condensed financial statements are based on the assumptions and adjustments which give effect to events that are: (a) directly attributable to the transaction; (b) expected to have a continuing impact; and (c) factually supportable, as described in the accompanying notes and do not reflect any potential operating efficiencies. It is recommended that you read the unaudited pro forma combined condensed financial statements in conjunction with the historical consolidated financial statements, including the related notes, of each of Real Goods Solar and Mercury covering these periods.
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Nine Months Ended September 30, 2013
(in thousands except per share data)
RGS | Mercury | Pro Forma Adjustments |
Pro Forma Combined |
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Net revenue |
$ | 71,441 | $ | 10,295 | $ | | $ | 81,736 | ||||||||||||
Cost of goods sold |
54,821 | 6,736 | | 61,557 | ||||||||||||||||
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Gross profit |
16,620 | 3,559 | | 20,179 | ||||||||||||||||
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Expenses: |
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Selling and operating |
18,916 | 3,676 | 86 | g | 22,343 | |||||||||||||||
(335 | ) | a | ||||||||||||||||||
General and administrative |
5,681 | 967 | 994 | b | 7,510 | |||||||||||||||
(132 | ) | d | ||||||||||||||||||
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Total expenses |
24,597 | 4,643 | 613 | 29,853 | ||||||||||||||||
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Loss from operations |
(7,977 | ) | (1,084 | ) | (613 | ) | (9,674 | ) | ||||||||||||
Interest and other expense |
802 | 959 | | 1,761 | ||||||||||||||||
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Loss before income taxes |
(8,779 | ) | (2,043 | ) | (613 | ) | (11,435 | ) | ||||||||||||
Income tax benefit |
17 | (528 | ) | | 511 | |||||||||||||||
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Net loss |
$ | (8,796 | ) | $ | (1,515 | ) | $ | (613 | ) | $ | (10,924 | ) | ||||||||
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Net loss per share: |
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Basic and diluted |
$ | (0.31 | ) | $ | (0.31 | ) | ||||||||||||||
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Weighted-average shares outstanding: |
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Basic and diluted |
28,276 | 6,992 | 35,268 | |||||||||||||||||
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Unaudited Pro Forma Condensed Combined Statement of Operations for the
Twelve Months Ended December 31, 2012
(in thousands except per share data)
RGS | Mercury | Pro Forma Adjustments |
Pro Forma Combined |
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Net revenue |
$ | 92,891 | $ | 32,931 | $ | | $ | 125,822 | ||||||||||||
Cost of goods sold |
69,859 | 23,084 | | 92,943 | ||||||||||||||||
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Gross profit |
23,032 | 9,847 | | 32,879 | ||||||||||||||||
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Expenses: |
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Selling and operating |
29,807 | 7,593 | 174 | g | 36,691 | |||||||||||||||
(883 | ) | a | ||||||||||||||||||
General and administrative |
8,909 | 2,577 | 994 | b | 12,480 | |||||||||||||||
Goodwill and other asset impairments |
22,012 | 33,769 | | 55,781 | ||||||||||||||||
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Total expenses |
60,728 | 43,939 | 285 | 104,952 | ||||||||||||||||
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Earnings (loss) from operations |
(37,696 | ) | (34,092 | ) | (285 | ) | (72,073 | ) | ||||||||||||
Interest and other expense |
790 | 48 | | 838 | ||||||||||||||||
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Earnings (loss) before income taxes |
(38,486 | ) | (34,140 | ) | (285 | ) | (72,911 | ) | ||||||||||||
Income tax expense (benefit) |
8,720 | (4,897 | ) | | 3,823 | |||||||||||||||
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Net loss |
$ | (47,206 | ) | $ | (29,243 | ) | $ | (285 | ) | $ | (76,734 | ) | ||||||||
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Net loss per share: |
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Basic and diluted |
$ | (1.77 | ) | $ | (2.22 | ) | ||||||||||||||
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Weighted-average shares outstanding: |
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Basic and diluted |
26,673 | 7,900 | 34,573 | |||||||||||||||||
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Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2013
(in thousands except share data)
RGS | Mercury | Pro Forma Adjustments |
Pro Forma Combined |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
$ | 2,302 | $ | 10,660 | $ | (1,620 | ) | d | $ | 11,042 | ||||||||||
(300 | ) | b | ||||||||||||||||||
Accounts receivable, net |
17,119 | 2,053 | | 19,172 | ||||||||||||||||
Costs in excess of billings on uncompleted contracts |
1,753 | 612 | | 2,365 | ||||||||||||||||
Inventory, net |
6,934 | 1,119 | | 8,053 | ||||||||||||||||
Other current assets |
2,607 | 2,091 | | 4,698 | ||||||||||||||||
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Total current assets |
30,715 | 16,535 | (1,920 | ) | 45,330 | |||||||||||||||
Property and equipment, net |
3,638 | 539 | | 4,177 | ||||||||||||||||
Goodwill and intangibles, net |
2,347 | 3,681 | 5,981 | h | 12,009 | |||||||||||||||
Notes receivable, net |
| 99 | | 99 | ||||||||||||||||
Deferred tax assets |
| 3,833 | | 3,833 | ||||||||||||||||
Other assets |
| 472 | | 472 | ||||||||||||||||
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Total assets |
$ | 36,700 | $ | 25,159 | $ | 4,061 | $ | 65,920 | ||||||||||||
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
$ | 19,330 | $ | 2,583 | $ | | $ | 21,913 | ||||||||||||
Accrued liabilities |
2,998 | 1,157 | | 4,155 | ||||||||||||||||
Billings in excess of costs on uncompleted contracts |
1,345 | 1,266 | | 2,611 | ||||||||||||||||
Related party debt |
6,600 | | | 6,600 | ||||||||||||||||
Other current liabilities |
1,994 | 10 | | 2,004 | ||||||||||||||||
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Total current liabilities |
32,267 | 5,016 | | 37,283 | ||||||||||||||||
Related party debt |
150 | | | 150 | ||||||||||||||||
Common stock warrant liability |
4,037 | | | 4,037 | ||||||||||||||||
Other liabilities |
357 | 4,352 | (3,514 | ) | c | 1,195 | ||||||||||||||
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Total liabilities |
36,811 | 9,368 | (3,514 | ) | 42,665 | |||||||||||||||
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Commitments and contingencies |
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Shareholders equity: |
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Common stock |
3 | 22 | (22 | ) | e | 10 | ||||||||||||||
7 | f | |||||||||||||||||||
Preferred stock |
| 14,219 | (14,219 | ) | e | | ||||||||||||||
Additional paid-in capital |
86,945 | 26,793 | (26,793 | ) | e | 111,549 | ||||||||||||||
24,604 | f | |||||||||||||||||||
Accumulated deficit |
(87,059 | ) | (25,243 | ) | 3,514 | c | (88,304 | ) | ||||||||||||
21,729 | e | |||||||||||||||||||
(728 | ) | d | ||||||||||||||||||
(300 | ) | b | ||||||||||||||||||
(217 | ) | i | ||||||||||||||||||
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Total shareholders equity |
(111 | ) | 15,791 | 7,575 | 23,255 | |||||||||||||||
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Total liabilities and shareholders equity |
$ | 36,700 | $ | 25,159 | $ | 4,061 | $ | 65,920 | ||||||||||||
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Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
1. Description of Transaction
On August 8, 2013, Real Goods Solar and Mercury executed the Merger Agreement, pursuant to which Real Goods Mercury, Inc. will merge with and into Mercury. Mercury will continue as the surviving corporation and become an indirect wholly-owned subsidiary of Real Goods Solar. In connection with the closing of the Merger, Real Goods Solar will issue the merger consideration, consisting of 7,900,000 shares of Real Goods Solar Class A common stock, subject to adjustments based on the market price of the shares and the amount of Mercurys working capital at closing, to holders of Mercury preferred stock in exchange for their shares of Mercury preferred stock.
The Merger Agreement contains certain termination rights for Real Goods Solar and Mercury, including the right to terminate the Merger Agreement if the Merger has not been completed on or before December 31, 2013, subject to extension in certain situations. Under certain circumstances, Real Goods Solar will be obligated to pay a termination fee of $350,000 or $400,000 and Mercury will be obligated to pay a termination fee of $500,000.
The Merger is expected to be completed during the fourth quarter of 2013 or the first quarter of 2014, subject to the satisfaction of closing conditions.
2. Accounting Policies
Upon consummation of the Merger, Real Goods Solar will review Mercurys accounting policies. As a result of that review, it may become necessary to harmonize the combined entitys financial statements to conform to those accounting policies that are determined to be more appropriate for the combined entity. The unaudited pro forma condensed combined financial statements do not assume any differences in accounting policies.
3. Estimate of Consideration Expected to be Transferred
The following consideration is expected to be transferred in connection with the Merger:
Total Real Goods Solar Class A common shares issued |
6,991,892 | |||
Real Goods Solars stock price |
$ | 3.52 | ||
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Estimated purchase price |
$ | 24,611,459 | ||
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Real Goods Solars assumed stock price used in determining the estimate of consideration expected to be transferred is based on Real Goods Solars average closing price for the 20 trading days ending November 6, 2013 and the closing price of Real Goods Solar Class A common stock on November 8, 2013. The estimated value of the consideration expected to be transferred reflected in these unaudited pro forma condensed combined financial statements does not purport to represent the actual value of the consideration that will be transferred when the Merger is consummated. The fair value of equity securities issued for consideration transferred in the Merger will be measured on the closing date of the Merger at the then-current market price and this requirement may result in a material difference in the value of the consideration transferred in the Merger. The table below represents the effect of a 5% increase or decrease in the volume weighted-average closing price on the estimated purchase price.
5% Decrease in Volume Weighted-Average Closing Price |
5% Increase in Volume Weighted-Average Closing Price |
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Base shares to issue |
4,800,000 | 4,800,000 | ||||||
Decrease in shares to issue* |
(697,436 | ) | (1,088,660 | ) | ||||
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Shares to issue transaction |
4,102,564 | 3,711,340 | ||||||
Shares to issue working capital |
3,100,000 | 3,100,000 | ||||||
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Total shares to issue |
7,202,564 | 6,811,340 | ||||||
Volume weighted-average closing price |
3.52 | 3.52 | ||||||
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Estimated purchase price |
$ | 25,353,025 | $ | 23,975,917 | ||||
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* | The sensitivity analysis shows a decrease in shares to issue in both scenarios as a result of the fact that the volume weighted-average closing price is higher than $3.00. |
4. Estimate of Assets to be Acquired and Liabilities to be Assumed
The following is a preliminary estimate (in thousands) of the assets to be acquired and the liabilities to be assumed in the Merger, reconciled to the estimate of consideration expected to be transferred. The acquisition is accounted for under the purchase method of accounting. These are preliminary estimates and are subject to adjustments.
Acquired tangible assets and liabilities, net (1) |
$ | 18,630 | ||
Goodwill |
5,981 | |||
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Fair value of assets acquired |
$ | 24,501 | ||
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Purchase price |
$ | 24,501 | ||
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(1) | The amount represents the pro forma net book value of Mercury as of September 30, 2013. |
The proportion of the purchase price that relates to goodwill reflects the expected value of the strategic and financial benefits arising from the Merger. Post-Merger, we believe that Real Goods Solar will be:
| Positioned as one of the largest U.S. solar installation companies measured by installed customers; |
| A diversified combined company with significantly greater scale and scope that, when compared to Real Goods Solar on a pre-Merger basis, is expected to have (a) greater financial stability, (b) greater access to capital for project financing, and (c) stronger supplier relationships and increased pricing power; |
| Able to more efficiently and effectively spend its marketing and branding budget in the Northeast region due to the larger base of business; and |
| Benefitting from the addition of former Mercury management and employees to Real Goods Solars ranks in the management, operational and sales and marketing areas, filling certain presently open management level roles at Real Goods Solar. |
5. Pro Forma Adjustments
The pro forma adjustments included in the unaudited pro forma combined condensed financial statements are as follows:
a) To remove Mercurys reported historical depreciation expense.
b) To record incentive compensation expense.
c) To remove dividends payable to holders of Mercury preferred stock, as Real Goods Solar historically has not paid dividends to shareholders.
d) Merger-related transaction costs are not included as a component of consideration transferred but are accounted for as expenses in the periods in which the costs are incurred. Total Merger-related transaction costs expected to be incurred by Real Goods Solar and Mercury are estimated to be approximately $1.5 million, of which $0 had been incurred in the year ended December 31, 2012, and $132,000 had been incurred in the nine months ended September 30, 2013 and are included in the historical financial statements of Real Goods Solar and Mercury, but are removed from the pro forma financial statements. The remaining $1.4 million, which is expected to be incurred in the third and fourth quarters of 2013, is reflected in the unaudited pro forma condensed combined financial statements as a reduction to cash and increase to accumulated deficit.
e) To remove Mercurys common stock, preferred stock, additional paid-in capital and accumulated deficit.
f) Reflects the issuance of 6,991,892 shares of Real Goods Solar Class A common stock to effect the Merger. The volume weighted-average closing price of shares of Real Goods Solar Class A common stock for the 20 trading days ending November 6, 2013, used to calculate the number of shares to issue in the transaction, is $3.70 per share. The closing price of Real Goods Solar Class A common stock on November 8, 2013, the most recent practicable date, is $3.52. As a result, the total purchase price measured at that date is $24.6 million.
g) To record depreciation expense for the fixed assets acquired.
h) To record the purchase price amount in excess of the preliminary fair value of assets acquired and liabilities assumed. Real Goods Solar considers the amount of goodwill recognized reasonable given the similar nature of operations of the two companies and the fact that certain members of Mercurys senior management continue with the combined company.
i) To record equity issue costs.
Mercury Energy, Inc. Historical Financial Information
Attached as Exhibit 99.1, and incorporated herein by reference, is the following financial information of Mercury and Subsidiary for the years ended December 31, 2012 and 2011, (a) consolidated balance sheets, (b) consolidated statements of operations, (c) consolidated statements of changes in shareholders equity, (d) consolidated statements of cash flows, and (e) notes to consolidated financial statements; and the following financial information of Mercury and Subsidiary for the three and nine months ended September 30, 2013, (a) consolidated balance sheets as of September 30, 2013 and December 31, 2012, (b) consolidated statements of operations for the three and nine months ended September 30, 2013, and (c) consolidated statements of cash flows for the nine months ended September 30, 2013.
Certain Relationships and Related Transactions
The information below updates previously disclosed information about certain transactions between Real Goods Solar and persons considered related persons under SEC disclosure rules applicable to Real Goods Solar.
Based on Forms 4, as amended, filed by Gaiam, Inc. (Gaiam), Real Goods Solar understands that Gaiam has sold an aggregate of 7,062,111 shares of Real Goods Solars Class A common stock on May 28, 2013, September 13, 2013 and October 1, 2013, reducing its ownership to approximately 9.9% of the issued and outstanding shares of Real Goods Solars Class A common stock as of November 8, 2013.
Registration Rights Agreement
On November 5, 2013, Gaiam ceased to be a party to the Amended and Restated Registration Rights Agreement, dated December 19, 2011, among Real Goods Solar, Gaiam and Riverside Renewable Energy Investments, LLC (Riverside) pursuant to the terms of an Agreement, dated November 5, 2013, among the parties, as previously disclosed.
Shareholders Agreement
On November 5, 2013, Gaiam ceased to be a party to the Shareholders Agreement, dated December 19, 2011, among Real Goods Solar, Gaiam and Riverside pursuant to the terms of an Agreement, dated November 5, 2013, among the parties, as previously disclosed. As a result of the termination of Gaiams rights under the Shareholders Agreement, Gaiam no longer has the right to designate a nominee for election to Real Goods Solars board of directors. Prior to the termination of the Shareholders Agreement, Gaiam requested, and Real Goods Solars board of directors nominated, Pavel Buska to serve as Gaiams designee on the slate of directors included in Real Goods Solars Definitive Proxy Statement for its 2013 annual meeting of shareholders. Following the termination of Gaiams rights under the Shareholders Agreement, Real Goods Solars board of directors has withdrawn the nomination of Pavel Buska as a Gaiam designee, and has nominated Mr. Buska as a company designee.
December 2011 Loan Commitment under Shareholders Agreement and November 2012 Loan Commitment
On November 5, 2013, Real Goods Solar repaid all its outstanding indebtedness owed to Gaiam under the $1.7 million loan commitment set forth in the Shareholders Agreement, dated December 19, 2011, among Real Goods Solar, Gaiam and Riverside (as amended pursuant to certain amended and restated promissory notes) and the $1.0 million Loan Commitments with Gaiam and Riverside, dated November 13, 2012 (as amended pursuant to certain amended and restated promissory notes), pursuant to the terms of an Agreement, dated November 5, 2013, among the parties, as previously disclosed. As of the date of repayment, Real Goods Solar owed Gaiam $1.6 million under the loan extended pursuant to the $1.7 million loan commitment and Real Goods Solar had paid an aggregate of $295,000 of interest on that loan over the term of the loan, and Real Goods Solar owed Gaiam $1.0 million under the loan extended pursuant to the $1.0 million Loan Commitment and Real Goods Solar had paid an aggregate of $81,000 of interest on that loan over the term of the loan.
Intercorporate Services Agreement
Under Real Goods Solars Intercorporate Services Agreement with Gaiam, Gaiam historically provided to it certain services that included business and facilities management, human resources and employee benefits, payroll, internal audit and risk management, treasury and cash management, tax, legal, accounts payable, telecommunications services, including call center support, and information technology services. Gaiam made each service available to Real Goods Solar on an as-needed basis. Real Goods Solar relied less on Gaiams services under the Intercorporate Services Agreement in 2012 and 2013 than historically and, upon Real Goods Solars request, Gaiam ceased to perform services under the agreement as of September 30, 2013. The Intercorporate Services Agreement terminates on December 19, 2013 by its terms. Real Goods Solar paid a service charge that generally reflected the same payment terms, and was calculated using the same cost allocation methodologies for the particular service, as those associated with its historical costs, and Real Goods Solar reimbursed Gaiam for any out-of-pocket expenses, including the cost of any third-party services required. Real Goods Solar and Gaiam agreed on the aggregate annual amount for a particular year that Real Goods Solar owed Gaiam for the services expected to be performed that year based upon the parties good faith estimates of those required services and the fees for such services. Real Goods Solar incurred an aggregate of $316,000 and $120,000, respectively, of service charges during 2012 and 2013 under the Intercorporate Services Agreement. The annual fee amount, as well as any changes, must be approved in writing by the disinterested members of each of Real Goods Solars and Gaiams boards of directors.
Nomination of Richard D. White to Real Good Solars Board of Directors
As previously disclosed, on August 8, 2013, Real Goods Solar, Merger Sub and Mercury entered into the Merger Agreement. One of the closing conditions under the Merger Agreement is that Richard D. White, a member of Mercurys board of directors, or another nominee designated by Mercury, shall have been nominated to Real Goods Solars board of directors as a director for election at its 2013 annual meeting of shareholders. Real Goods Solar nominated Richard D. White for election to its board of directors at its 2013 annual meeting of shareholders. At this time, it is likely that the Real Goods Solar 2013 annual meeting of shareholders will occur prior to the closing of the Merger. Accordingly, Mr. White has executed a conditional resignation from Real Goods Solars board of directors that becomes effective automatically without any further action in the event that following Mr. Whites election to Real Goods Solars board of directors, the Merger Agreement is terminated prior to a closing of the Merger in accordance with its terms.
Forward-Looking Statements
This Current Report on Form 8-K includes forward-looking statements relating to matters that are not historical facts. Forward-looking statements may be identified by the use of words such as expect, intend, believe, will, should or comparable terminology or by discussions of strategy. While Real Goods Solar, Inc. believes its assumptions and expectations underlying forward-looking statements are reasonable, there can be no assurance that actual results will not be materially different. Risks and uncertainties that could cause materially different results include, among others, receiving shareholder approval for the transaction described herein, successfully closing the transaction described herein, realizing synergies and other benefits from the transaction described herein, introduction of new products and services, completion and integration of acquisitions, the possibility of negative economic conditions, and other risks and uncertainties included in Real Goods Solar, Inc.s filings with the Securities and Exchange Commission. Real Goods Solar, Inc. assumes no duty to update any forward-looking statements.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. |
Description | |
23.1 | Consent of UHY LLP, independent registered public accounting firm of Mercury Energy, Inc. | |
99.1 | Consolidated financial statements of Mercury Energy, Inc. and Subsidiary |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
REAL GOODS SOLAR, INC. | ||
By: | /s/ Anthony DiPaolo | |
Anthony DiPaolo | ||
Chief Financial Officer |
Date: November 14, 2013
EXHIBIT INDEX
Exhibit No. |
Description | |
23.1 | Consent of UHY LLP, independent registered public accounting firm of Mercury Energy, Inc. | |
99.1 | Consolidated financial statements of Mercury Energy, Inc. and Subsidiary |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Registration No. 333-153642), Registration Statement on Form S-8 (Registration No. 333-186722), Registration Statement on Form S-3 (Registration No. 333-189500) and Registration Statement on Form S-3 (Registration No. 333-190050) of our report dated April 30, 2013, relating to the consolidated financial statements of Mercury Energy, Inc. and Subsidiary, as of December 31, 2012 and 2011. We also consent to the reference to our firm under the heading Experts in such Registration Statements.
/s/ UHY LLP
New York, New York
November 14, 2013
Exhibit 99.1
INDEX TO FINANCIAL STATEMENTS OF
MERCURY ENERGY, INC. AND SUBSIDIARY
Consolidated Financial Statements for the Years Ended December 31, 2012 and 2011 |
||||
Report of Independent Registered Public Accounting Firm |
F-1 | |||
Consolidated Balance Sheets |
F-2 | |||
Consolidated Statements of Operations |
F-3 | |||
Consolidated Statements of Changes in Shareholders Equity |
F-4 | |||
Consolidated Statements of Cash Flows |
F-5 | |||
Notes to Consolidated Financial Statements |
F-6 | |||
Consolidated Financial Statements for the Three Months and Nine Months Ended September 30, 2013 (Unaudited) |
||||
Consolidated Balance Sheets September 30, 2013 and December 31, 2012 |
F-18 | |||
Consolidated Statements of Operations Three and nine months ended September 30, 2013 |
F-19 | |||
Consolidated Statements of Cash Flows Nine months ended September 30, 2013 |
F-20 |
To the Board of Directors and Shareholders of Mercury
Energy, Inc. and Subsidiary
We have audited the accompanying consolidated financial statements of Mercury Energy, Inc. and Subsidiary (the Company), which comprise the consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of operations, changes in stockholders equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mercury Solar Systems, Inc. and Subsidiary as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ UHY LLP
New York, New York
April 30, 2013
F-1
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) |
December 31, 2012 | December 31, 2011 | ||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 8,756 | $ | 12,611 | ||||
Restricted cash |
66 | 50 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $993 and $990 as of December 31, 2012 and 2011, respectively |
4,436 | 7,801 | ||||||
Costs and estimated earnings in excess of billings |
3,219 | 5,871 | ||||||
Inventory, net |
1,725 | 3,967 | ||||||
Current deferred tax asset |
535 | 366 | ||||||
Other current assets |
677 | 838 | ||||||
|
|
|
|
|||||
Total current assets |
19,414 | 31,504 | ||||||
Property and equipment, net |
1,111 | 2,041 | ||||||
Intangible assets, net |
17 | 47 | ||||||
Goodwill |
3,665 | 37,434 | ||||||
Other assets |
255 | 93 | ||||||
Deferred tax asset |
3,769 | | ||||||
|
|
|
|
|||||
Total assets |
$ | 28,231 | $ | 71,119 | ||||
|
|
|
|
|||||
Liabilities and Shareholders Equity |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 4,091 | $ | 7,942 | ||||
Accrued expenses |
1,533 | 1,375 | ||||||
Deferred revenue and customer deposits |
1,491 | 2,557 | ||||||
Due to sellers |
| 325 | ||||||
Billings in excess of costs and estimated earnings |
356 | 8,140 | ||||||
|
|
|
|
|||||
Total current liabilities |
7,471 | 20,339 | ||||||
Non-current liabilities |
||||||||
Deferred tax liability |
| 898 | ||||||
Dividends (Note 11) |
2,831 | 1,954 | ||||||
|
|
|
|
|||||
Total liabilities |
$ | 10,302 | $ | 23,191 | ||||
|
|
|
|
|||||
Shareholders equity |
||||||||
Preferred stock, $.001 par value per share Series 1 convertible 5% cumulative and participating, 25,000,000 shares authorized, 15,575,000 shares issued at December 31, 2012 and 2011, respectively, liquidation preference of $29,333 and 26,218 at December 31, 2012 and 2011, respectively |
$ | 14,219 | $ | 14,219 | ||||
Common stock, 50,000,000 shares authorized, 22,555,058 shares issued at December 30, 2012 and 2011, respectively |
23 | 23 | ||||||
Additional paid-in capital |
27,409 | 28,166 | ||||||
Retained earnings (accumulated deficit) |
(23,722 | ) | 5,520 | |||||
|
|
|
|
|||||
Total shareholders equity |
17,929 | 47,928 | ||||||
|
|
|
|
|||||
Total liabilities and shareholders equity |
$ | 28,231 | $ | 71,119 | ||||
|
|
|
|
See notes to consolidated financial statements.
F-2
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, |
||||||||
(in thousands) |
2012 | 2011 | ||||||
Net revenues |
$ | 32,931 | $ | 84,523 | ||||
Cost of revenues |
23,084 | 67,953 | ||||||
|
|
|
|
|||||
Gross profit |
9,847 | 16,570 | ||||||
|
|
|
|
|||||
Operating expenses: |
||||||||
Sales and marketing |
3,267 | 6,697 | ||||||
Other operating |
3,443 | 3,531 | ||||||
General and administrative |
2,210 | 3,749 | ||||||
Depreciation and amortization |
883 | 1,214 | ||||||
Non-cash stock based compensation expense |
119 | 195 | ||||||
|
|
|
|
|||||
Total operating expenses before impairment of goodwill, contingent consideration from business combinations, and severance expense |
9,922 | 15,387 | ||||||
|
|
|
|
|||||
(Loss) income from operations before impairment of goodwill, contingent consideration from business combinations, and severance expense |
(75 | ) | 1,183 | |||||
|
|
|
|
|||||
Impairment of goodwill |
33,769 | | ||||||
Contingent consideration from business combinations |
| 390 | ||||||
Severance expense |
248 | | ||||||
|
|
|
|
|||||
Total impairment of goodwill, contingent consideration from business combinations and severance expense |
34,017 | 390 | ||||||
|
|
|
|
|||||
(Loss) income from operations |
(34,092 | ) | 793 | |||||
Other expenses: |
||||||||
Interest expense, net of interest income |
3 | 9 | ||||||
Loss on sale of fixed assets |
45 | 70 | ||||||
|
|
|
|
|||||
Total other expenses |
48 | 79 | ||||||
|
|
|
|
|||||
Loss (income) before income taxes |
34,139 | 715 | ||||||
Income tax (benefit) expense |
(4,897 | ) | 432 | |||||
|
|
|
|
|||||
Net (loss) income |
$ | (29,242 | ) | $ | 283 | |||
|
|
|
|
See notes to consolidated financial statements.
F-3
MERCURY ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Years Ended December 31, 2012 and 2011
Cumulative Participating | Common Stock | Additional Paid-In Capital |
Contingent Consideration |
Retained Earnings |
Total Shareholders Equity |
|||||||||||||||||||||||||||
Preferred Stock | ||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
(in thousands, except for shares) | ||||||||||||||||||||||||||||||||
Balance at January 1, 2011 |
15,575,000 | $ | 14,219 | 16,683,972 | $ | 17 | $ | 19,363 | $ | 9,087 | $ | 5,237 | $ | 47,923 | ||||||||||||||||||
Issuance of common stock in connection with contingent consideration |
| | 195,434 | | 362 | | | 362 | ||||||||||||||||||||||||
Non-cash stock based compensation |
| | | | 195 | | | 195 | ||||||||||||||||||||||||
Dividends |
| | | | (835 | ) | | | (835 | ) | ||||||||||||||||||||||
Contingent stock consideration |
| | 5,675,652 | 6 | 9,081 | (9,087 | ) | | | |||||||||||||||||||||||
Net income |
| | | | | | 283 | 283 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at December 31, 2011 |
15,575,000 | 14,219 | 22,555,058 | 23 | 28,166 | | 5,520 | 47,928 | ||||||||||||||||||||||||
Non-cash stock based compensation |
| | | | 119 | | | 119 | ||||||||||||||||||||||||
Dividends |
| | | | (876 | ) | | | (876 | ) | ||||||||||||||||||||||
Net income |
| | | | | | (29,242 | ) | (29,242 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at December 31, 2012 |
15,575,000 | $ | 14,219 | 22,555,058 | $ | 23 | $ | 27,409 | $ | | $ | (23,722 | ) | $ | 17,929 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
MERCURY ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, |
||||||||
(in thousands) |
2012 | 2013 | ||||||
Net (loss) income |
$ | (29,242 | ) | $ | 283 | |||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities |
||||||||
Depreciation and amortization |
943 | 1,267 | ||||||
Bad debt expense |
203 | 252 | ||||||
Non-cash stock based compensation expense |
119 | 195 | ||||||
Loss in disposal of fixed assets |
45 | 70 | ||||||
Deferred income tax |
(4,836 | ) | 307 | |||||
Impairment of goodwill |
33,769 | | ||||||
Non-cash settlement of contingent consideration for prior year acquisition |
| 362 | ||||||
Changes in operating assets and liabilities, net of effects of acquisitions |
||||||||
Accounts receivable |
3,162 | (238 | ) | |||||
Costs and estimated earnings in excess of billings |
2,652 | 1,894 | ||||||
Inventory |
2,242 | 7,428 | ||||||
Other current and non-current assets |
(1 | ) | 192 | |||||
Accounts payable |
(3,850 | ) | (7,045 | ) | ||||
Accrued expenses |
158 | 346 | ||||||
Deferred revenue and customer deposits |
(1,066 | ) | 1,491 | |||||
Income taxes payable |
| (20 | ) | |||||
Billings in excess of costs and estimated earnings |
(7,784 | ) | 4,521 | |||||
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
(3,486 | ) | 11,305 | |||||
|
|
|
|
|||||
Investing activities |
||||||||
Purchases of property and equipment |
(28 | ) | (741 | ) | ||||
Cash paid to sellers |
(325 | ) | (1,327 | ) | ||||
Increase in restricted cash |
(16 | ) | | |||||
|
|
|
|
|||||
Net cash used in investing activities |
(369 | ) | (2,068 | ) | ||||
|
|
|
|
|||||
Net (decrease) increase in cash and cash equivalents |
(3,855 | ) | 9,237 | |||||
Cash and cash equivalents, beginning of period |
12,611 | 3,374 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 8,756 | 12,611 | |||||
|
|
|
|
|||||
Supplemental cash flow information |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 11 | $ | 9 | ||||
|
|
|
|
|||||
Income taxes |
$ | 271 | $ | 134 | ||||
|
|
|
|
|||||
Supplemental non-cash information |
||||||||
Common stock issued in settlement of contingent consideration liability |
$ | | $ | 9,449 | ||||
|
|
|
|
|||||
Dividends accrued |
$ | 876 | $ | 835 | ||||
|
|
|
|
See notes to consolidated financial statements.
F-5
1. | Nature of Business and Organization: |
Mercury Energy Inc., through its wholly-owned subsidiary, Mercury Solar Systems, Inc. (collectively the Company) is primarily engaged in the design and installation of solar energy systems for utility, commercial, and residential clients in New York, New Jersey, Massachusetts, Connecticut, Maryland, and Pennsylvania. The solar energy systems are primarily Photovoltaic (PV) systems for the production of electricity. These systems reduce a customers need for third party produced electricity.
The Company was incorporated under the laws of the State of New York in June 2008 and began operations in July 2008.
2. | Summary of Significant Accounting Policies: |
Basis of Presentation. The consolidated financial statements include the accounts of Mercury Energy, Inc. (the Parent) and its wholly-owned subsidiary Mercury Solar Systems, Inc. (MSS). The consolidated financial statements are consolidated in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). All significant intercompany transactions have been eliminated.
Cash Equivalents. Cash and cash equivalents includes investments in highly liquid investments with original maturities of three months or less. Cash is maintained in money market accounts and FDIC insured accounts at credit qualified financial institutions. At times, such amounts may exceed the FDIC insurance limits. At December 31, 2012 uninsured cash balances totaled approximately $8,268.
Restricted Cash. Certain of the Companys contracts require the Company to maintain minimum cash balances in escrow. These cash amounts are classified in the balance sheets depending on when the cash will be contractually released. At December 31 2012 and 2011, such restricted cash amounts were $66 and $50, respectively.
Revenue Recognition. Revenue is derived from the installation of solar energy system contracts. These contracts require the Company to perform certain project-related tasks necessary to facilitate installations, procure and deliver system components on behalf of the customer, and complete installations that deliver a functioning solar power system. Systems are generally installed within three to twelve months from contract signing. The Company anticipates longer installation times as it continues to build larger systems. Revenue from the installation of a system is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred and/or services have been rendered, (3) the sales price is fixed or determinable and (4) collection of the resulting receivable is reasonably assured.
The Company recognizes revenue in accordance with the revenue recognition guidance of the FASB Codification. Revenue arising from fixed price contracts is recognized as work is performed based on the percentage of incurred costs to estimated total forecasted costs utilizing the most recent estimates of total costs incurred to date and those anticipated to be incurred through the completion of the project. If instances arise where current estimates of total revenue for contracts indicate a loss, a provision for the entire loss on the contract would be recorded.
Cost of revenues include all direct material, labor and subcontract costs. Job materials are considered installed materials when they are permanently attached or fitted to the solar power system as required by the jobs engineering design. Shipping and handling costs are included in the cost of revenues.
Costs and Estimated Earnings in Excess of Billings represent revenue recognized in excess of amounts billed. Billings in Excess of Costs and Estimated Earnings represents billings and payments in excess of revenue recognized.
F-6
Accounts Receivable and Allowance for Doubtful Accounts. Accounts receivable consist of trade receivables due from customers and subsidies due from various federal, state and local agencies. Subsidies due from federal, state and local agencies include rebates (the Solar Rebates) and other incentives (the Solar Incentives) and are generally paid after the installation of a pre-approved solar system. Most contracts include some form of subsidy. Subsidies may be paid by the agencies directly to the Company or to the Customer, who then pays the Company.
The Company regularly evaluates the collectability of its accounts receivable. An allowance for doubtful accounts is maintained for estimated credit losses. When estimating the adequacy of its reserve, the Company considers a number of factors including the aging of a customers account, creditworthiness of specific customers, historical trends and other information. The Company considers the collectability of outstanding subsidy amounts to be low credit risk even though certain amounts may take over one year from the start of a project before they are finally collected. Receivables are eliminated from the allowance when management assesses a customer balance is no longer collectible.
Costs and Estimated Earnings in Excess of Billings. Costs and estimated earnings in excess of billings, principally on uncompleted contracts, arise in the consolidated balance sheets when revenues have been recognized but the amounts cannot be billed under the terms of the contracts. Such amounts are recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract.
Billings in Excess of Costs and Estimated Earnings. Billings in excess of costs and estimated earnings on contracts in the accompanying consolidated balance sheets is comprised of cash collected from clients and billings to clients on contracts in advance of work performed, advance payments negotiated as a contract condition and estimated losses on uncompleted contracts. The majority of the unearned project-related costs are expected to be earned over the next twelve months.
We record provisions for estimated losses on uncompleted contracts in the period in which such losses become known. The cumulative effects of revisions to contract revenues and estimated completion costs are recorded in the accounting period in which the amounts become evident and can be reasonably estimated. These revisions can include such items as the effects of change orders and claims, warranty claims, liquidated damages or other contractual penalties.
Concentration of Credit Risk. The financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. As of December 31, 2012, a portion of the Companys cash and cash equivalents of approximately $2,060 have been invested in money market funds through the Companys account with Oppenheimer and Co. Inc. (OPCO).
Significant Customers. For the year ended December 31, 2012, 39% of the Companys revenue was attributed to four customers. For the year ended December 31, 2011, 18% of the Companys revenue was attributed to one customer. The revenue from these customers amounted to $13,250 and $15,394 in 2012 and 2011, respectively.
Significant Vendors. During 2012, the Company had one vendor who accounted for 20% of purchases. During 2011, the Company had one vendor who accounted for 10% of purchases. Total purchases from these vendors amounted to $7,282 and $7,794 in 2012 and 2011, respectively.
Fair Value of Financial Instruments. In accordance with accounting for Fair Value Measurements and Disclosures, the FASB Codification (the Codification) defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurement.
F-7
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value, as required by the Codification, must maximize the use of observable inputs and minimize the use of unobservable inputs.
The Company measures certain financial assets and liabilities at fair value on a recurring basis in the financial statements. The hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires financial assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:
| Level 1 quoted prices in active markets for identical assets and liabilities; |
| Level 2 inputs other than Level 1 quoted prices that are directly or indirectly observable; and |
| Level 3 unobservable inputs that are not corroborated by market data. |
Inventory. Inventory, principally purchased goods, are stated at the lower of cost or market using the first-in first-out (FIFO) method.
Property and Equipment. Property and equipment is stated at cost less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the following estimated useful lives:
Construction equipment |
4 years | |||
Vehicles |
4 years | |||
Computer software and equipment |
3 years | |||
Furniture and office equipment |
4 years |
Intangible Assets. Intangible assets consist of customer relationships, non-compete and solicitation agreements and trade names that were acquired or arose from the Companys acquisitions. Intangible assets are amortized on a straight line basis as follows:
Customer relationships |
18 months | |||
Non-compete agreements |
2 3 years | |||
Trade names |
15 years |
Long-lived Asset. Management reviews long-lived assets, including definite lived intangibles and property, for possible impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted cash flows of the asset.
If the carrying amount of an asset may not be recoverable, a write-down to fair value is recorded. Fair values are determined based on discounted cash flows, quoted market values or external appraisals, as applicable. Long-lived assets are reviewed for impairment at the individual asset or the asset group level for which the lowest level of independent cash flows can be identified. Management has determined that no impairment charge was necessary as of December 31, 2012 and 2011.
Goodwill. Goodwill represents the excess of acquisition cost over the fair value of net assets acquired using the purchase method of accounting in accordance with accounting for Business Combinations. Goodwill will be reviewed for impairment annually, or when events arise that could indicate that an impairment exists. The Company tests for goodwill impairment using a two-step process. The first step compares the fair value of the reporting unit with the units carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the units goodwill may be impaired, and accordingly, the second step must be completed to measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting units goodwill is compared with the carrying amount of the units goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value. The fair values of the reporting units are estimated using the income approach net present value of discounted cash flows generated by each reporting unit.
F-8
Managements judgment regarding the existence of potential impairment is based on factors such as adverse changes in the Companys operating results, cash flows, and unfavorable changes in the market conditions and other economic factors. During 2012, the Company determined that a change in circumstances had occurred which indicated that the carrying value of goodwill may not be recoverable. Accordingly, during the fourth quarter of 2012, the Company recognized an impairment loss of $33,769, in its consolidated statement of operations for the year ended December 31, 2012. Management believes there was no impairment to the carrying value of goodwill as of December 31, 2011.
Manufacturer and Installation Warranties. The Company provides its customers with a warranty against defects in material or installation workmanship. Solar panels, inverters and racking systems (Major System Components) are covered under manufacturer warranties. In the event that a Major System Component needs to be replaced within the manufacturers warranty period, the Company will replace the defective item and is reimbursed for its services by the manufacturer. Manufacturer warranties on Major System Components have a warranty range of 5 to 25 years. The Company assists customers in the event that a manufacturers warranty needs to be used to replace a defective Major System Component.
The Company provides for a workmanship warranty on the installation of a system and all equipment and incidental supplies other than the Major System Components that are covered under manufacturer warranties. The warranty period is typically 5 years; however, in certain instances, the Company may increase this warranty up to 10 years. The Company evaluates the need for a provision for the installation warranty, within costs of revenues, based on historical experience and future expectations of the probable cost to be incurred in honoring its warranty commitment.
Due to Sellers. Due to sellers represents the cash portion of amounts accrued and unpaid for contingent consideration related to the Companys acquisitions.
Income Taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
In accordance with Accounting for Income Taxes, the Codification prescribes the minimum recognition threshold an income tax position is required to meet before being recognized in the financial statements and applies to all income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. The Company records income tax related interest and penalties as a component of the provision for income tax expense.
Advertising Expenses. All advertising costs, which are included in sales and marketing expense, are expensed as incurred. Advertising expense amounted to approximately $150 and $332 in 2012 and 2011, respectively.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Share-Based Compensation Expense. The Company recognizes all share-based payments to employees and to non-employee directors as compensation for service on the Board of Directors in the consolidated financial statements based on the fair values of such payments. Stock-based compensation expense is recognized based on the estimated fair value of share-based payment awards and amortized over the service period. Forfeitures are estimated at the time of grant and revised, if necessary in subsequent periods if actual forfeitures differ from those estimates.
F-9
There were 350,000 options granted during 2012 and 800,000 options granted in 2011. The fair value of the stock options was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:
For the Year Ended December 31, | ||||
2012 |
2011 | |||
Expected dividend yield |
| | ||
Risk-free interest rate |
0.67% - 1.93% | 2.24% | ||
Expected term (in years) |
5 to 10 years | 5 years | ||
Expected volatility |
54.54% - 62.98% | 50.00% | ||
Weighted-average grant date fair value per share |
$0.03 | $0.03 |
Reclassifications. Certain reclassifications have been made to prior year financial statements to conform to the current year presentation.
Subsequent Events. For purposes of preparing this consolidated financial statement the Company considered events through April 30, 2013, the date the consolidated financial statements were available for issuance.
3. | Contingent Consideration: |
The Company completed acquisitions in years prior to 2011 for EOS Energy Solutions (EOS), K Star Corp. of NY (K Star), and Mercury Solar Systems, LLC (Mercury). Under the respective agreements for these transactions, certain contingent consideration was earned. During 2011, the Company entered into settlement agreements with the sellers of Mercury with regard to the final cash and stock payments due as contingent consideration. The fair value of the cash portion of the contingent consideration amounted to $325 for Mercury and was classified as a liability under the caption due to sellers on the balance sheet as of December 31, 2011. The fair value of the share portion of the contingent consideration amounted to $44 and $9,043 for K Star and Mercury, respectively, and was paid in Parent stock as of December 31, 2011.
The Companys acquisition of EOS provided for supplemental consideration (the Incentive Consideration) to be paid in two incentive payments. The additional consideration above the estimated amount that was required as a result of the final determination of the Incentive Consideration was considered an expense and presented on the consolidated statement of operations. The expense in the consolidated statement of operations for consideration paid above the estimated amount was $390 for the year ended December 31, 2011.
4. | Costs and Estimated Earnings: |
Costs and estimated earnings on uncompleted contracts and related amounts billed as of December 31, 2012 and 2011 were as follows:
2012 | 2011 | |||||||
Costs incurred on uncompleted contracts |
$ | 19,165 | $ | 26,620 | ||||
Estimated earnings, thereon |
8,204 | 10,255 | ||||||
|
|
|
|
|||||
27,369 | 36,875 | |||||||
Less: billings to date |
24,506 | 39,144 | ||||||
|
|
|
|
|||||
$ | 2,863 | $ | (2,269 | ) | ||||
|
|
|
|
Such amounts were included in the accompanying Balance Sheets at December 31, 2012 and 2011 under the following captions:
2012 | 2011 | |||||||
Costs and estimated earnings in excess of billings on uncompleted contracts |
$ | 3,219 | $ | 5,871 | ||||
Billings in excess of costs and estimated earnings on uncompleted contracts |
(356 | ) | (8,140 | ) | ||||
|
|
|
|
|||||
$ | 2,863 | $ | (2,269 | ) | ||||
|
|
|
|
F-10
5. | Inventory: |
Inventory consists primarily of solar panels, inverters, racking, and balance of systems. A valuation allowance is provided for obsolete and slow moving inventory to write cost down to net realizable value (market), if necessary. At December 31, inventory, net consisted of the following:
2012 | 2011 | |||||||
Inventory |
$ | 2,221 | $ | 4,030 | ||||
Less: Allowance |
(496 | ) | (63 | ) | ||||
|
|
|
|
|||||
$ | 1,725 | $ | 3,967 | |||||
|
|
|
|
6. | Property and Equipment: |
Property and equipment consist of the following at December 31:
2012 | 2011 | |||||||
Vehicles |
$ | 1,612 | $ | 1,673 | ||||
Furniture and office equipment |
1,013 | 1,006 | ||||||
Computer software and equipment |
786 | 783 | ||||||
Construction equipment |
378 | 368 | ||||||
|
|
|
|
|||||
3,790 | 3,830 | |||||||
Less: accumulated depreciation |
(2,678 | ) | (1,789 | ) | ||||
|
|
|
|
|||||
$ | 1,111 | $ | 2,041 | |||||
|
|
|
|
Depreciation expense for the years ended December 31, 2012 and 2011 was approximately $914 and $942, respectively. For the years ended December 31, 2012 and 2011, approximately $60 and $53 of depreciation expense was included in cost of revenues.
7. | Intangible Assets: |
Intangible assets are summarized as follows:
Amortization Period |
Balance at January 1, 2012 |
Amortization/ Impairment charge |
Balance at December 31, 2012 |
|||||||||||
Amortized intangible assets: |
||||||||||||||
Non-compete agreements |
2 - 3 years | $ | 27 | $ | (27 | ) | $ | | ||||||
Trade names |
15 years | 19 | (2 | ) | 17 | |||||||||
|
|
|
|
|
|
|||||||||
Total amortized intangible assets |
$ | 46 | $ | (29 | ) | $ | 17 | |||||||
|
|
|
|
|
|
Amortization Period |
Balance at January 1, 2011 |
Amortization/ Impairment charge |
Balance at December 31, 2011 |
|||||||||||
Amortized intangible assets: |
||||||||||||||
Customer relationships |
18 months | $ | 8 | $ | (8 | ) | $ | | ||||||
Non-compete agreements |
2 - 3 years | 342 | (315 | ) | 27 | |||||||||
Trade names |
15 years | 21 | (2 | ) | 19 | |||||||||
|
|
|
|
|
|
|||||||||
Total amortized intangible assets |
$ | 371 | $ | (325 | ) | $ | 47 | |||||||
|
|
|
|
|
|
Amortization expense was approximately $29 and $325 for the years ended December 31, 2012 and 2011, respectively.
F-11
Estimated future annual amortization expense is as follows:
Years Ending December 31, |
||||
2013 |
$ | 2 | ||
2014 |
2 | |||
2015 |
2 | |||
2016 |
2 | |||
2017 |
2 | |||
Thereafter |
7 | |||
|
|
|||
$ | 17 | |||
|
|
8. | Goodwill: |
The changes in the carrying amount of goodwill are as follows at December 31:
2012 | 2011 | |||||||
Balance at beginning of year |
$ | 37,434 | $ | 37,434 | ||||
Impairment loss |
(33,769 | ) | | |||||
|
|
|
|
|||||
Balance at end of year |
$ | 3,665 | $ | 37,434 | ||||
|
|
|
|
Based on the results of the annual test for impairment of goodwill, an impairment loss of $33,769 was recognized for the goodwill associated with the acquisitions of Energy Enterprises, Inc., EOS Energy Solutions, K-Star Corp. of NY and Mercury Solar Systems, LLC for the year ended December 31, 2012. The impairment resulted from a combination of factors including adverse changes in the Companys operating results, cash flows, and unfavorable changes in market conditions and other economic factors.
9. | Warranties: |
The following summarizes the changes in the Companys aggregate liability under product warranties, included in accrued expenses on the Companys balance sheet as of December 31:
2012 | 2011 | |||||||
Beginning balance |
$ | 418 | $ | 343 | ||||
Accrual for warranties issued during the period, net |
79 | 75 | ||||||
|
|
|
|
|||||
Ending balance |
$ | 497 | $ | 418 | ||||
|
|
|
|
10. | Income Taxes: |
Income tax (benefit) expense consists of the following at December 31:
2012 | 2011 | |||||||
Current: |
||||||||
Federal |
$ | (122 | ) | $ | 17 | |||
State |
61 | 109 | ||||||
|
|
|
|
|||||
(61 | ) | 126 | ||||||
|
|
|
|
|||||
Deferred: |
||||||||
Federal |
(4,170 | ) | 259 | |||||
State |
(666 | ) | 47 | |||||
|
|
|
|
|||||
(4,836 | ) | 306 | ||||||
|
|
|
|
|||||
Income tax (benefit) expense |
$ | (4,897 | ) | $ | 432 | |||
|
|
|
|
F-12
The expected income tax rate was 34% whereas the actual rate was 14.3% and 61.9% for the years ended 2012 and 2011, respectively. The total income tax rate differs from the expected income tax rate principally due to accrual to return adjustments, permanent differences and changes in the blended state income tax rate.
The Companys deferred income tax assets and liabilities are as follows as of December 31:
2012 | 2011 | |||||||
Current deferred tax assets: |
||||||||
Bad debt allowances and other |
$ | 469 | $ | 363 | ||||
Accrued bonus |
54 | | ||||||
Inventory |
12 | 3 | ||||||
|
|
|
|
|||||
Total current deferred tax asset |
$ | 535 | $ | 366 | ||||
|
|
|
|
|||||
Non-current deferred tax assets (liabilities): |
||||||||
Goodwill |
3,949 | (532 | ) | |||||
Plant and equipment |
(394 | ) | (551 | ) | ||||
Intangibles |
178 | 185 | ||||||
Net operating loss |
36 | | ||||||
|
|
|
|
|||||
Total non-current deferred tax assets (liabilities) |
$ | 3,769 | $ | (898 | ) | |||
|
|
|
|
The Company generated a net operating loss of $170 in 2012 which will be applied to reduce the Companys tax liability in previous years. The expected tax refund is approximately $58 and is recorded in other current assets on the balance sheet at December 31, 2012.
The Company does not currently anticipate any significant increase or decrease of the total amount of unrecognized tax benefits within the next 12 months.
The Company files a consolidated U.S. federal income tax return, as well as income tax returns in various states. None of the Companys income tax returns are currently under examination by the Internal Revenue Service (IRS) or state authorities. However, fiscal years 2009 and later remain subject to examination by the IRS and respective states.
11. | Shareholders Equity: |
Series 1 Convertible 5% Cumulative Preferred Stock. In July 2008, in conjunction with the acquisitions, the Company issued 15,575,000 shares in Series 1 Convertible 5% Preferred Stock (the Series 1 Preferred Stock) to investors for approximately $15,400 in cash and the conversion of notes payable due to affiliates of certain founding investors.
A summary of certain of the rights and preferences held by the Series 1 Preferred Stockholders are as follows:
Dividends. Commencing after July 31, 2009, the Series 1 Preferred Stockholders are entitled to receive dividends at the rate of 5% of the original purchase price per share, per annum, compounded annually, payable, when and if declared by the Companys board of directors in cash and/or common stock at the option of the Company. Such dividends shall be cumulative, to the extent unpaid, whether or not they have been declared and whether or not the Corporation may legally pay the dividends. At December 31, 2012, the Company has accrued $2,831 in dividends payable.
Conversion. All outstanding shares of Series 1 Preferred Stock may be converted at any time at the option of the holder. Additionally, all outstanding shares of Series 1 Preferred Stock are required to be automatically converted into shares of Company Common Stock, at the then applicable conversion price (i) upon the vote of 67% of the outstanding shares of Series 1 Preferred Stock, or (ii) on the date of the closing of the sale of shares of Common
F-13
Stock of the Company in a public offering pursuant to an effective registration statement resulting in at least $25 million of aggregate gross proceeds (before deduction for underwriters discounts or expenses relating to the issuance) to the Company at a price per share of at least $3.00 (subject to adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock).
Voting Rights. So long as at least 50% of the originally issued shares of Series 1 Preferred Stock are outstanding, the consent of the holders of at least 67% of the then outstanding shares of Series 1 Preferred Stock, voting separately as a class, shall be required for the following actions, among other actions:
(i) | the amendment of the Companys certificate of incorporation or by-laws in a manner which affects the designations, powers, rights, preferences or privileges, or the qualifications, limitations or restrictions of the Series 1 Preferred Stock; |
(ii) | the creation, authorization or issuance of shares having any preference or priority to the Series 1 Preferred Stock; |
(iii) | effecting a Change of Control; |
(iv) | increasing or decreasing the size of the Board of Directors; |
(v) | unless the Board of Directors otherwise approves, |
a. | increasing or decreasing the authorized number of shares of Series 1 Preferred Stock, |
b. | materially changing the nature of the Companys business, or |
c. | making any acquisitions of capital stock or assets of another entity, and |
(vi) | other actions as set forth in the certificate of incorporation. |
On all other matters, the Series 1 Preferred Stock shall vote on an as-converted basis together with the Common Stock.
Liquidation and Redemption. In the event of (i) any voluntary or involuntary liquidation, dissolution or winding up of the Company, or (ii) change of control as defined in the Companys amended and restated certificate of incorporation, the holders of Series 1 Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, but before any payment shall be made to the holders of Common Stock, an amount in cash or other property equal to the greater of:
a. | (i) the price paid for the Series 1 Preferred Stock (Series 1 Original Issue Price) plus, |
(ii) an amount equal to 20% per annum (in lieu of any accrued dividend) of the Series 1 Original Issue Price, without adjustment, multiplied by the number of shares of Series 1 Preferred Stock issued as of the Series 1 Original Issue Date (Series 1 Initial Investment) up to 100% of such Series 1 Initial Investment (collectively, the amounts determined under (i) and (ii) is referred to as the Accreted Liquidation Preference), or
b. | an amount equal to the pro rata share of any assets available for distribution to such holders had all shares of Series 1 Preferred Stock been converted into Common Stock. Any remaining assets after such distributions to the holders of Series 1 Preferred Stock shall be distributed among the holders of Common Stock, in proportion to the shares of Common Stock then held by such holders. |
The total liquidation preference as of December 31, 2012 amounted to $29,333 (including $13,758 in lieu of accrued dividends) or $1.88 per share. The total liquidation preference existing at December 31, 2011 amounted to $26,218 (including $10,643 in lieu of accrued dividends) or $1.68 per share.
Common Stock. In March of 2008, the Company sold 136.13 shares of its Common stock for proceeds of $12 to an affiliate of OPCO. Prior to the Companys offering of the Series 1 Preferred Stock and issuing the shares for the acquisitions, the Company increased its authorized common shares to 50,000,000 and executed a stock split
F-14
of approximately 8,325 to 1, thereby increasing its outstanding common shares to 2,798,333. During 2010, the Company issued 67,567 shares as part of the acquisition of EOS valued at $125 and issued 11,324,322 shares valued at $17,090 as part of contingent consideration for prior acquisitions bringing the total common shares outstanding as of December 31, 2010 to 16,683,972. During 2011, the Company issued 5,871,086 shares valued a
$9,443 in connection with the contingent consideration for prior acquisitions bringing the total common shares outstanding as of December 31, 2011 to 22,555,058. During 2012, the Company issued no common shares.
Warrants. In connection with a private placement in 2008, the Company issued warrants to the placement agent for the purchase of 898,500 shares of the Companys common stock at an exercise price per share of $1.10 and an expiration date of July 31, 2013. The fair value of these warrants ($0) was estimated using the Black-Scholes pricing model with the following weighted average assumptions: a risk-free interest rate of 0.23%, an expected life of five years, an expected volatility factor of 62.98% and a dividend yield of 0.0%. As of December 31, 2012 and 2011, these warrants were outstanding and exercisable.
12. | Stock Options: |
During 2008, the Companys board of directors approved an Incentive Stock Option Plan (the Plan) pursuant to which 750,000 shares of Common Stock were reserved for the grant of options to officers, directors, employees, and consultants at terms and prices to be determined by the board of directors. In August 2009, the board increased the number of shares of Common Stock reserved to 1,500,000. The Plan specifies that the exercise price of incentive stock options cannot be less than 100% of the fair market value of the stock on the date of grant. Options granted under the Plan generally vest over a three or four-year period. The employee must be employed by the Company on the vesting date in order to vest in any shares that period. Vested options are exercisable for five years from the date of grant; however, if the employee is terminated for cause, any unvested options as of the date of termination will be forfeited. The Plan provides for certain exercise rights of the optionee for reasons other than cause.
Consolidated share-based compensation expense related to the Plan was approximately $119 and $195 for the years ended December 31, 2012 and 2011, respectively.
Additional information with respect to this stock option plan is summarized as follows:
Number of common shares | ||||||||||||
Weighted- Avg. Exercise Price |
||||||||||||
Available for Grant |
||||||||||||
Outstanding | ||||||||||||
Balance at January 1, 2011 |
791,509 | 708,471 | $ | 1.54 | ||||||||
Granted |
800,000 | (800,000 | ) | 0.70 | ||||||||
Forfeited |
(48,848 | ) | 48,848 | 1.74 | ||||||||
Cancelled |
(32,138 | ) | 32,138 | 1.42 | ||||||||
|
|
|
|
|||||||||
Balance at December 31, 2011 |
1,510,523 | (10,543 | ) | $ | 1.09 | |||||||
|
|
|
|
|||||||||
Granted |
350,000 | (350,000 | ) | 0.66 | ||||||||
Forfeited |
(89,617 | ) | 89,617 | 1.49 | ||||||||
Cancelled |
(190,906 | ) | 190,906 | 1.18 | ||||||||
|
|
|
|
|||||||||
Balance at December 31, 2012 |
1,580,000 | (80,020 | ) | $ | 0.94 | |||||||
|
|
|
|
The Company issued stock options in excess of the available shares of the Plan in December 2012 and 2011 of 80,020 and 10,543, respectively.
F-15
The weighted average remaining contractual life of options issued at December 31, 2012 and 2011 is 3.9 and 2.6 years, respectively. The total number of options vested at December 31, 2012 and 2011 is 1,023,368 and 600,757, respectively. Compensation cost of approximately $41 has not yet been recognized on non-vested awards. The weighted average period over which it is expected to be recognized is 1.1 years.
Nonvested Options |
Weighted Average Fair Value |
|||||||
Nonvested options at January 1, 2011 |
458,822 | $ | 0.82 | |||||
Granted |
800,000 | 0.20 | ||||||
Vested |
(400,208 | ) | 0.20 | |||||
Forfeited |
(48,848 | ) | 0.18 | |||||
|
|
|
|
|||||
Nonvested options at December 31, 2011 |
809,766 | $ | 0.38 | |||||
Granted |
350,000 | | ||||||
Vested |
(481,380 | ) | 0.18 | |||||
Forfeited |
(89,617 | ) | 0.11 | |||||
|
|
|
|
|||||
Nonvested options at December 31, 2012 |
588,769 | $ | 0.07 | |||||
|
|
|
|
13. | Commitments and Contingencies: |
Non-cancelable Operating Leases. The Company has various non-cancelable operating leases for its locations in Port Chester, NY, Long Island, NY, Mays Landing, NJ, and Philadelphia, PA with terms ranging through September 2014. The Company also rents additional office space in New York, and New Jersey on a month-to-month basis. Total rent expense for the years ended December 31, 2012 and 2011 was approximately $736 and $771, respectively.
The future minimum lease payments on non-cancellable operating leases at December 31, 2012 are as follows:
Years Ending December 31, |
||||
2013 |
$ | 455 | ||
2014 |
252 | |||
|
|
|||
$ | 707 | |||
|
|
Computer Application Service Fees. The Company signed an agreement (the Agreement) with Salesforce.com whereby Salesforce.com provides a web-based customer relationship management software. The term of the Agreement is for three years, effective May 4, 2011, and provides for a retainer in the amount of $52 to be paid quarterly.
Contingencies. The Company is the defendant in a number of claims relating to matters arising in the normal course of business. The amount of liability, if any, from the claims cannot be determined with certainty; however, the Company has reserved for probable costs that may be incurred based upon managements opinion of the outcome of the claims. Due to the uncertainties in the settlement processes, it is at least reasonably possible that managements estimate of the outcome will change within in the next year.
14. | Related Party Transactions: |
OPCO. OPCO served as the exclusive placement agent for a private placement consummated during 2008 and earned a placement agent fee of $0.6 million that was paid from the proceeds of the private placement. In addition to the cash fee earned, OPCO (the Registered Holder) on behalf of its financial advisor received a warrant to purchase 898,500 of the Companys common shares at an exercise price of $1.10 per share (the Registered Holder Warrant). At its option, on or before July 31, 2013 (the Exercise Period), the Registered Holder may exercise its right to purchase common shares on a cash or cashless basis. The Registered Holder Warrant will be automatically exercised on a cashless basis at the conclusion of the Exercise Period.
F-16
As of December 31, 2012 and 2011, approximately $2,060 and $2,001, respectively, of the Companys cash and cash equivalents were held in a money market fund at OPCO.
ECNY Electrical Contractors, Inc. (ECNY) and Mr. Anthony Coshigano. On July 31, 2008, the Company entered into a services agreement with ECNY, which is owned by Mr. Coshigano, who is one of the Companys executives and a stockholder. The agreement provides the Company with supplemental electrical services personnel to support its solar installation efforts. The Company has no obligation to use ECNY and is only billed for services under executed statements of work. This agreement is for an initial term of two years which ended on July 31, 2010 and includes automatic one- year renewals unless either party notifies the other of its intention not to renew the agreement. The contract was renewed in 2012. The services purchased in 2012 and 2011 under the agreement amounted to approximately $4 and $89, respectively.
15. | Retirement Plan |
In May 2012, the Company established the Mercury Solar Systems 401(k) Plan (the Plan) which is available to all employees. The Company may make a discretionary matching contribution of a percentage determined by the Company that shall apply to all eligible persons for the entire Plan year. The Company did not contribute to the Plan as of December 31, 2012.
F-17
MERCURY ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) |
September 30, 2013 | December 31, 2012 | ||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 10,606 | $ | 8,756 | ||||
Restricted cash |
54 | 66 | ||||||
Accounts receivable, net |
2,292 | 4,436 | ||||||
Costs and estimated earnings in excess of billings |
612 | 3,219 | ||||||
Inventory, net |
1,119 | 1,725 | ||||||
Project assets |
239 | | ||||||
Current deferred tax asset |
1,406 | 535 | ||||||
Other current assets |
448 | 677 | ||||||
|
|
|
|
|||||
Total current assets |
16,776 | 19,414 | ||||||
Property and equipment, net |
539 | 1,111 | ||||||
Intangible assets, net |
16 | 17 | ||||||
Goodwill |
3,665 | 3,665 | ||||||
Other assets |
570 | 255 | ||||||
Deferred tax assets |
3,833 | 3,769 | ||||||
|
|
|
|
|||||
Total assets |
$ | 25,399 | $ | 28,231 | ||||
|
|
|
|
|||||
Liabilities and Shareholders Equity |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 2,583 | $ | 4,091 | ||||
Accrued expenses |
1,157 | 1,533 | ||||||
Billings in excess of costs and estimated earnings |
1,209 | 356 | ||||||
Other current liabilities |
307 | 1,491 | ||||||
|
|
|
|
|||||
Total current liabilities |
5,256 | 7,471 | ||||||
Other liabilities |
4,352 | 2,831 | ||||||
|
|
|
|
|||||
Total liabilities |
$ | 9,608 | $ | 10,302 | ||||
|
|
|
|
|||||
Shareholders equity: |
||||||||
Preferred stock, $0.001 par value per share Series 1 convertible 5% cumulative and participating, 25,000,000 shares authorized, 15,575,000 shares issued at September 30, 2013 and December 31, 2012, respectively, liquidation preference of $30,890 and $29,333 at September 30, 2013 and December 31, 2012 |
$ | 14,219 | $ | 14,219 | ||||
Common stock, 50,000,000 shares authorized, 22,555,058 shares issued at June 30, 2013 and December 31, 2012 respectively |
23 | 23 | ||||||
Additional paid-in capital |
26,793 | 27,409 | ||||||
Retained earnings (accumulated deficit) |
(25,244 | ) | (23,722 | ) | ||||
|
|
|
|
|||||
Total shareholders equity |
15,791 | 17,929 | ||||||
|
|
|
|
|||||
Total liabilities and shareholders equity |
$ | 25,399 | $ | 28,231 | ||||
|
|
|
|
F-18
MERCURY ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||
(in thousands, except share and per share data) |
2013 | 2013 | ||||||
(unaudited) | (unaudited) | |||||||
Net revenue |
$ | 2,616 | $ | 10,295 | ||||
Cost of goods sold |
1,129 | 6,695 | ||||||
|
|
|
|
|||||
Gross profit |
1,487 | 3,600 | ||||||
|
|
|
|
|||||
Expenses: |
||||||||
Selling and operating |
1,176 | 3,676 | ||||||
General and administrative |
267 | 967 | ||||||
Depreciation and amortization |
150 | 514 | ||||||
Non-cash, stock-based compensation |
18 | 66 | ||||||
Severance expense |
| | ||||||
|
|
|
|
|||||
Total expenses |
1,611 | 5,223 | ||||||
|
|
|
|
|||||
Loss from operations |
(124 | ) | (1,623 | ) | ||||
Interest and other expense |
(6 | ) | (10 | ) | ||||
Transaction-related expense |
(411 | ) | (411 | ) | ||||
|
|
|
|
|||||
Loss before income taxes |
(541 | ) | (2,044 | ) | ||||
Income tax benefit |
529 | 529 | ||||||
|
|
|
|
|||||
Net loss |
$ | (12 | ) | $ | (1,515 | ) | ||
|
|
|
|
|||||
Net loss per share: |
||||||||
Basic |
$ | (0.03 | ) | $ | (0.10 | ) | ||
|
|
|
|
|||||
Diluted |
$ | (0.03 | ) | $ | (0.10 | ) | ||
|
|
|
|
|||||
Weighted-average shares outstanding: |
||||||||
Basic |
22,555 | 22,555 | ||||||
|
|
|
|
|||||
Diluted |
22,555 | 22,555 | ||||||
|
|
|
|
F-19
MERCURY ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended | ||||
(in thousands, except share data) |
September 30, 2013 | |||
Net (loss) income |
$ | (1,515 | ) | |
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities |
||||
Depreciation and amortization |
514 | |||
Bad debt expense |
(223 | ) | ||
Non-cash stock based compensation expense |
66 | |||
Loss on disposal of fixed assets |
34 | |||
Deferred income tax |
(941 | ) | ||
Changes in operating assets and liabilities |
||||
Accounts receivable |
2,367 | |||
Costs and estimated earnings in excess of billings |
2,607 | |||
Inventory |
606 | |||
Other current and non-current assets |
(325 | ) | ||
Accounts payable |
(1,508 | ) | ||
Accrued expenses |
(376 | ) | ||
Billings in excess of costs and estimated earnings |
853 | |||
Other liabilities |
(345 | ) | ||
|
|
|||
Net cash provided by (used in) operating activities |
1,814 | |||
|
|
|||
Investing activities |
||||
Purchases of property and equipment |
24 | |||
Cash paid to sellers |
| |||
|
|
|||
Net cash used in investing activities |
24 | |||
|
|
|||
Net (decrease) increase in cash and cash equivalents |
1,838 | |||
Cash and cash equivalents, beginning of period |
8,822 | |||
|
|
|||
Cash and cash equivalents, end of period |
$ | 10,660 | ||
|
|
|||
Supplemental cash flow information |
||||
Cash paid during the period for: |
||||
Interest |
$ | 6 | ||
|
|
|||
Supplemental non-cash information |
||||
Dividends accrued |
$ | 684 | ||
|
|
F-20