United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2014
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission File Number 001-34044
REAL GOODS
SOLAR, INC.
(Exact name of registrant as specified in its charter)
|
|
|
COLORADO |
|
26-1851813 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
833 WEST SOUTH BOULDER ROAD
LOUISVILLE, COLORADO 80027-2452
(Address of principal executive offices)
(303) 222-8400
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities
and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90
days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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¨ |
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Accelerated filer |
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¨ |
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Non-accelerated filer |
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¨ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). YES ¨ NO x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:
|
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Class |
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Outstanding at November 13, 2014 |
Class A Common Stock ($.0001 par value) |
|
52,025,684 |
REAL GOODS SOLAR, INC.
FORM 10-Q
INDEX
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements are neither historical facts nor
assurances of future performance. Instead, they provide our current beliefs, expectations, assumptions and forecasts about future events, and include statements regarding our future results of operations and financial position, business strategy,
budgets, projected costs, plans and objectives of management for future operations. The words anticipate, believe, plan, estimate, expect, strive, future,
intend, may and similar expressions as they relate to us are intended to identify such forward-looking statements. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and
changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not
rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, without limitation, the following:
the continuation and level of government subsidies and incentives for solar energy, the impacts of worsening economic conditions on homeowners and small
commercial operation that may limit their ability and desire to invest in solar systems, changing and updating technologies and the issues presented by these new technologies related to customer demand and our product offering, the rates charged by
electric utilities that may impact the desirability of our product to customers, the impact of a drop in the price of conventional energy on demand for solar energy systems, new regulations impacting solar installations including electric codes,
access to electric grids, the willingness of electric utilities to allow interconnections and other regulations affecting energy consumption by consumers, customers electing to defer the installation dates of systems, adverse weather conditions
inhibiting our ability to install solar systems, our inability to maintain effective internal controls as our business grows, our ability to operate with our existing financial resources and capital available under our debt facility, the impact of
our present indebtedness and projected future borrowings on our financial health, our ability to continue to obtain access to financing and financial concessions when needed from financiers, loss of key personnel and ability to attract necessary
personnel, adverse outcomes arising from litigation and contract disputes, disruption of our supply chain from equipment manufacturers, construction risks and costs, access to sufficient number of third party integrators, competition, continued
access to competitive third party financiers to finance customer solar installations, failure by manufacturers of third party installers to perform under their warranties to us, failure of customers to pay per contractual terms, non-compliance with
NASDAQ continued listing standards, volatile market price of our Class A common stock, possibility of future dilutive issuances of securities, anti-takeover provisions in out organizational documents, the significant ownership and voting power
of our Class A commons stock held by Riverside, and such other factors as discussed throughout Part I, Item 1A, Risk Factors and Part II, Item 7, Managements Discussion and Analysis of Financial Conditions and Results of
Operations of our Annual Report on Form 10-K for the year ended December 31, 2013 and Part I, Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Quarterly Reports on Form 10-Q
for this quarter and the quarters ended March 31, 2014 and June 30, 2014.
Any forward-looking statement made by us in this report is based only
on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a
result of new information, future developments or otherwise.
1
PART I FINANCIAL INFORMATION
Item 1. |
Financial Statements (Unaudited) |
Unaudited Interim Condensed Consolidated Financial Statements
We have prepared our unaudited interim condensed consolidated financial statements included herein pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or
omitted pursuant to these rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, the unaudited interim condensed financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, our consolidated financial position as of September 30, 2014, the interim results of operations for the three and nine months ended
September 30, 2014 and 2013, and cash flows for the nine months ended September 30, 2014 and 2013. These interim statements have not been audited. The balance sheet as of December 31, 2013 was derived from our audited consolidated
financial statements included in our annual report on Form 10-K. The interim condensed consolidated financial statements contained herein should be read in conjunction with our audited financial statements, including the notes thereto, for the year
ended December 31, 2013.
2
REAL GOODS SOLAR, INC.
Condensed Consolidated Balance Sheets
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(in thousands, except share data) |
|
September 30, 2014 |
|
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December 31, 2013 |
|
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(Unaudited) |
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ASSETS |
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Current assets: |
|
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|
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|
|
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Cash |
|
$ |
1,769 |
|
|
$ |
12,449 |
|
Accounts receivable, net |
|
|
11,794 |
|
|
|
10,655 |
|
Inventory, net |
|
|
6,409 |
|
|
|
6,402 |
|
Deferred costs on uncompleted contracts |
|
|
4,861 |
|
|
|
1,318 |
|
Other current assets |
|
|
1,863 |
|
|
|
1,270 |
|
Current assets of discontinued operations |
|
|
12,412 |
|
|
|
6,243 |
|
|
|
|
|
|
|
|
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Total current assets |
|
|
39,108 |
|
|
|
38,337 |
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Property and equipment, net |
|
|
2,153 |
|
|
|
2,750 |
|
Intangibles, net |
|
|
3,321 |
|
|
|
480 |
|
Goodwill |
|
|
11,438 |
|
|
|
1,867 |
|
Other assets |
|
|
29 |
|
|
|
|
|
Noncurrent assets of discontinued operations |
|
|
1,300 |
|
|
|
334 |
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|
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|
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Total assets |
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$ |
57,349 |
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|
$ |
43,768 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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|
Line of credit |
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$ |
4,766 |
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|
$ |
|
|
Accounts payable |
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11,366 |
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|
6,630 |
|
Accrued liabilities |
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3,148 |
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|
2,926 |
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Billings in excess of costs on uncompleted contracts |
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1,306 |
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Term loan |
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|
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|
2,000 |
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Related party debt |
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3,150 |
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|
4,150 |
|
Deferred revenue and other current liabilities |
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1,191 |
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|
844 |
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Current liabilities of discontinued operations |
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10,781 |
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|
8,452 |
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|
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Total current liabilities |
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35,708 |
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|
25,002 |
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Other liabilities |
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1,122 |
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|
446 |
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Common stock warrant liability |
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8,325 |
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15,071 |
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Noncurrent liabilities of discontinued operations |
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578 |
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Total liabilities |
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45,733 |
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40,519 |
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|
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Commitments and contingencies |
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Shareholders equity: |
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Class A common stock, $.0001 par value, 150,000,000 shares authorized, 52,024,684 and 36,415,839 shares issued and outstanding at
September 30, 2014 and December 31, 2013, respectively |
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5 |
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4 |
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Additional paid-in capital |
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139,933 |
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92,808 |
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Business acquisition consideration to be transferred |
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2,173 |
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Accumulated deficit |
|
|
(130,495 |
) |
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|
(89,563 |
) |
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Total shareholders equity |
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11,616 |
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|
3,249 |
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Total liabilities and shareholders equity |
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$ |
57,349 |
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|
$ |
43,768 |
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See accompanying notes.
3
REAL GOODS SOLAR, INC.
Condensed Consolidated Statements of Operations
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For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
(in thousands, except per share data) |
|
2014 |
|
|
2013 |
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|
2014 |
|
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2013 |
|
|
|
(unaudited) |
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|
(unaudited) |
|
Net revenue |
|
$ |
18,900 |
|
|
$ |
16,640 |
|
|
$ |
52,302 |
|
|
$ |
39,584 |
|
Cost of goods sold |
|
|
15,706 |
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|
|
12,324 |
|
|
|
41,793 |
|
|
|
29,148 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Gross profit |
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3,194 |
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|
4,316 |
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|
|
10,509 |
|
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|
10,436 |
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Expenses: |
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Selling and operating |
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7,010 |
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|
4,925 |
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19,883 |
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|
13,781 |
|
General and administrative |
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|
2,650 |
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|
1,547 |
|
|
|
6,245 |
|
|
|
5,072 |
|
Acquisition costs |
|
|
59 |
|
|
|
555 |
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|
876 |
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|
|
555 |
|
Restructuring costs |
|
|
355 |
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|
|
|
|
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|
355 |
|
|
|
|
|
Depreciation and amortization |
|
|
999 |
|
|
|
197 |
|
|
|
2,183 |
|
|
|
628 |
|
Goodwill and other asset impairments |
|
|
1,365 |
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|
|
|
|
|
|
1,365 |
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|
|
|
|
|
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|
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|
|
|
|
|
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Total expenses |
|
|
12,438 |
|
|
|
7,224 |
|
|
|
30,907 |
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|
20,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Loss from continuing operations |
|
|
(9,244 |
) |
|
|
(2,908 |
) |
|
|
(20,398 |
) |
|
|
(9,600 |
) |
Interest and other expense, net |
|
|
(340 |
) |
|
|
(243 |
) |
|
|
(795 |
) |
|
|
(880 |
) |
Change in valuation of warrants |
|
|
6,789 |
|
|
|
(402 |
) |
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|
8,204 |
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|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(2,795 |
) |
|
|
(3,553 |
) |
|
|
(12,989 |
) |
|
|
(10,402 |
) |
Income tax expense (benefit) |
|
|
(287 |
) |
|
|
8 |
|
|
|
(1,496 |
) |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations, net of tax |
|
|
(2,508 |
) |
|
|
(3,561 |
) |
|
|
(11,493 |
) |
|
|
(10,419 |
) |
(Loss)/gain from discontinued operations, net of tax |
|
|
(2,242 |
) |
|
|
1,467 |
|
|
|
(29,439 |
) |
|
|
1,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(4,750 |
) |
|
$ |
(2,094 |
) |
|
$ |
(40,932 |
) |
|
$ |
(8,796 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/gain per share basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations |
|
$ |
(0.05 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.25 |
) |
|
$ |
(0.37 |
) |
From discontinued operations |
|
|
(0.04 |
) |
|
|
0.05 |
|
|
|
(0.63 |
) |
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted |
|
$ |
(0.09 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.88 |
) |
|
$ |
(0.31 |
) |
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
Weighted-average shares outstanding: |
|
|
|
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|
|
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|
|
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|
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|
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Basic and diluted |
|
|
51,055 |
|
|
|
30,044 |
|
|
|
46,599 |
|
|
|
28,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
4
REAL GOODS SOLAR, INC.
Condensed Consolidated Statements of Cash Flows
|
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|
|
For the Nine Months Ended September 30, |
|
(in thousands except share data) |
|
2014 |
|
|
2013 |
|
|
|
(unaudited) |
|
Operating activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(40,932 |
) |
|
$ |
(8,796 |
) |
Loss from discontinued operations |
|
|
(29,439 |
) |
|
|
1,623 |
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(11,493 |
) |
|
|
(10,419 |
) |
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities continuing
operations: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
394 |
|
|
|
724 |
|
Amortization |
|
|
1,789 |
|
|
|
|
|
Share-based compensation |
|
|
1,082 |
|
|
|
284 |
|
Goodwill and other asset impairments |
|
|
1,365 |
|
|
|
|
|
Change in valuation of warrants |
|
|
(8,204 |
) |
|
|
(355 |
) |
Other |
|
|
125 |
|
|
|
|
|
Deferred interest on related party debt |
|
|
406 |
|
|
|
610 |
|
Bad debt expense |
|
|
357 |
|
|
|
|
|
Changes in operating assets and liabilities, net of effects from acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(1,496 |
) |
|
|
920 |
|
Costs in excess of billings on uncompleted contracts |
|
|
|
|
|
|
|
|
Inventory, net |
|
|
(7 |
) |
|
|
(2,425 |
) |
Deferred costs on uncompleted contracts |
|
|
(3,543 |
) |
|
|
|
|
Other current assets |
|
|
(593 |
) |
|
|
|
|
Other assets |
|
|
(29 |
) |
|
|
468 |
|
Accounts payable |
|
|
4,736 |
|
|
|
(292 |
) |
Accrued liabilities |
|
|
(184 |
) |
|
|
(2,500 |
) |
Billings in excess of costs on uncompleted contracts |
|
|
1,306 |
|
|
|
|
|
Deferred revenue and other current liabilities |
|
|
347 |
|
|
|
|
|
Other liabilities |
|
|
676 |
|
|
|
358 |
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities continuing operations |
|
|
(12,966 |
) |
|
|
(12,627 |
) |
Net cash provided by (used in) operating activities discontinued operations |
|
|
(18,333 |
) |
|
|
3,955 |
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(31,299 |
) |
|
|
(8,672 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Cash from acquired businesses |
|
|
11,958 |
|
|
|
|
|
Acquisition of subsidiary, net of cash acquired |
|
|
|
|
|
|
(1,076 |
) |
Purchase of property and equipment |
|
|
(304 |
) |
|
|
(233 |
) |
Proceeds from sale of property and equipment |
|
|
249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities continuing operations |
|
|
11,903 |
|
|
|
(1,309 |
) |
Net cash provided by (used in) investing activities discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
11,903 |
|
|
|
(1,309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Principal borrowings (payments) on revolving line of credit, net |
|
|
4,766 |
|
|
|
(6,498 |
) |
Principal payment on related party debt |
|
|
(1,000 |
) |
|
|
|
|
Principal payments on debt and capital lease obligations, net |
|
|
(2,000 |
) |
|
|
(97 |
) |
Exercise of warrants, net of issuance costs |
|
|
409 |
|
|
|
|
|
Exercise of stock options |
|
|
137 |
|
|
|
74 |
|
Proceeds from the sale of common stock and warrants, net |
|
|
6,404 |
|
|
|
8,414 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
8,716 |
|
|
|
1,893 |
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
|
(10,680 |
) |
|
|
(8,088 |
) |
Cash at beginning of period |
|
|
12,449 |
|
|
|
10,390 |
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
1,769 |
|
|
$ |
2,302 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
|
|
|
$ |
17 |
|
Interest paid |
|
$ |
427 |
|
|
$ |
112 |
|
Non-cash items |
|
|
|
|
|
|
|
|
Issuance of warrants to purchase 82,627 and 212,535 shares, respectively, in conjunction with bank debt extensions |
|
$ |
|
|
|
$ |
278 |
|
Issuance of 11,354,623 shares of Class A common stock in conjunction with the acquisition of businesses |
|
$ |
37,697 |
|
|
$ |
|
|
Change in common stock warrant liability in conjunction with exercise of 167,262 warrants |
|
$ |
622 |
|
|
$ |
|
|
Issuance of 595,214 shares of Class A common stock in conjunction with purchase transaction related retention bonuses |
|
$ |
|
|
|
$ |
|
|
Issuance of 74,860 shares of Class A common stock in conjunction with a purchase transaction related incentive bonus |
|
$ |
141 |
|
|
$ |
|
|
Common stock warrant liability recorded in conjunction with equity funding |
|
$ |
1,957 |
|
|
$ |
4,037 |
|
Issuance of 400,000 shares of Class A common stock issued in conjunction with acquisition of subsidiary |
|
$ |
|
|
|
$ |
916 |
|
Class A common stock issued in conjunction with debt conversion from related party, 62,111 shares |
|
$ |
|
|
|
$ |
100 |
|
See accompanying notes.
5
Notes to Condensed Consolidated Financial Statements
1. Organization, Nature of Operations, and Principles of Consolidation
Real Goods Solar, Inc. (the Company or RGS) is a leading residential and commercial solar energy engineering,
procurement, and construction firm. The Company incorporated in Colorado on January 29, 2008 under the name Real Goods Solar, Inc. The Companys initial public offering of common stock occurred on May 7, 2008. On January 15,
2014, the Company began doing business as RGS Energy and changed its ticker symbol to RGSE on February 24, 2014.
The condensed consolidated
financial statements include the accounts of RGS and its wholly-owned subsidiaries. The Company has prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted
in the United States, or GAAP. Intercompany transactions and balances have been eliminated. The Company has included the results of operations of acquired companies from the effective date of each acquisition.
Certain prior period amounts have been reclassified to conform to the current period presentation.
Discontinued Operations
On September 30, 2014, the
Company committed to a strategic shift of its business resulting in a plan to sell certain net assets and rights, and attrition of substantially completed contracts over the following twelve months comprising its large commercial installations
business. Accordingly, the assets and liabilities, operating results, and operating and investing activities cash flows for the entire Commercial segment are presented as a discontinued operation, separate from the Companys continuing
operations, for all periods presented in these condensed consolidated financial statements and footnotes, unless indicated otherwise. See Note 14. Discontinued Operations.
Liquidity and Financial Resources Update
The Company has
experienced recurring losses in recent years, including $11.3 million for the calendar year ended December 31, 2013 and losses from continuing operations of $2.5 million and $11.5 million for the three and nine months ended September 30,
2014, respectively, including a non-cash goodwill and other assets impairment charge of $1.3 million.
As a result of losses, the Company was in technical
default of certain covenants contained in its credit facility with Silicon Valley Bank (SVB) as of September 30, 2014. On November 19, 2014, the Company and certain of its subsidiaries entered into a Waiver Agreement with SVB
with respect to those defaults. See Note 4. Revolving Line of Credit and Term Loan.
The Company is required to satisfy the financial covenants discussed
above, as well as others, as of the end of each fiscal quarter. There can be no assurance that the Company will be able to satisfy these covenants in future fiscal periods. The Company will need to negotiate with SVB to amend the SVB Loan (Note
4. Revolving Line of Credit and Term Loan) to reset the financial covenants for 2015. There can be no assurance that the Company will be successful in doing so or that such amendments will be on favorable terms to the Company. If the Company fails
to meet these covenants in future fiscal periods and SVB does not waive such failure, SVB will have the ability to call an event of default under the SVB Loan and require the Company to repay all outstanding indebtedness under the SVB Loan or to
exercise other rights under the SVB Loan, including collecting default interest, no longer extending credit to the Company, and exercising its rights with respect to the collateral securing the obligations under the SVB Loan. The Company believes
that it presently has sufficient funds or the ability to raise future funds, either through a borrowing or the sale of additional equity, to repay the outstanding indebtedness under the SVB Loan. However, no assurance can be given that the Company
will be able to raise future funds on terms as favorable as the present SVB credit facility or in an amount sufficient to fund its future growth. In addition, while the Company has been successful in the past in obtaining new financing,
At September 30, 2014, the Company had cash and available borrowings aggregating $3.5 million. In connection with obtaining a waiver from its principal
lender for its non-compliance with financial covenants, the Companys loan commitment was reduced from $6.5 million to $5.5 million.
The company has
prepared its business plan for 2015 and believes it has sufficient financial resources to operate for the ensuing 12-month period from September 30, 2014. This plan has the objective of reducing the companys present operating losses and
returning the company to profitable operations in the future. Elements of this plan include, among others, (i) realizing operating costs savings from reductions in staff, (ii) the positive impact of the strategic decision to exit the large
commercial segment which operated at both a substantial cash and operating loss, (iii) expanding the companys sales teams in select markets for additional revenue, (iv) expanding the companys construction capability both
through additional in-house construction crews and authorized third-party integrators to realize the revenue from installation of the companys backlog, (v) changing the mix of marketing expenditures to achieve a lower cost of acquisition
than that employed in prior periods, and (vi) focused internal efforts to convert the Companys accounts receivable to cash.
6
there is no assurance that it will be able to raise any new funds in the future. If the Companys operational initiatives are not successful in significantly reducing its historical loss
from continuing operations, or if the Company encounters unplanned operational difficulties, it may not have sufficient funds to repay any outstanding borrowings as they come due or to fund its operating cash needs for the next twelve months. These
circumstances would require the Company to obtain financing from another source or raise additional capital through debt or equity financing, if available to the Company. There can be no assurance that the Company will successfully obtain new
financing.
2. Significant Accounting Policies
The Company made no changes to its significant accounting policies during the nine months ended September 30, 2014.
Use of Estimates and Reclassifications
The preparation
of the condensed consolidated financial statements in accordance with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company
bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ
materially from those estimates.
Certain amounts in the 2013 financial statements have been reclassified to conform to the current year presentation.
Goodwill and Intangibles
The following table sets
forth the changes in goodwill for the period December 31, 2013 through September 30, 2014 by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Residential Segment |
|
|
Sunetric Segment |
|
|
Total |
|
|
|
|
|
Balance at December 31, 2013 |
|
$ |
1,867 |
|
|
$ |
442 |
|
|
$ |
1,867 |
|
Adjustment (a) |
|
|
(130 |
) |
|
|
|
|
|
|
(130 |
) |
Acquisitions (b) |
|
|
|
|
|
|
9,658 |
|
|
|
9,658 |
|
Impairments (c) |
|
|
(399 |
) |
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2014 |
|
$ |
1,338 |
|
|
$ |
10,100 |
|
|
$ |
11,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
On May 12, 2014, the terms of the purchase agreement for certain net assets of Syndicated were amended to, among other things, reduce the number of shares of the Companys Class A common stock given as
consideration from 400,000 to 325,140, resulting in a reduction in goodwill of $0.2 million based on the closing market price of the Companys stock on August 8, 2013, the date immediately prior to when the Company took financial control
of the net assets. Additionally, during June 2014, the Company reduced the fair value of tangible assets acquired by $0.1 million due to a change in estimated acquisition date fair value. See Note 11. Business Combinations. See Note 12. Goodwill and
Other Asset Impairments. On September 30, 2014 the Company recorded and income tax benefit related to Sunetric. |
(b) |
Represents preliminary estimated goodwill of $9.7 million related to the acquisitions of Elemental Energy LLC, doing business as Sunetric (Sunetric). See Note 11. Business Combinations. |
(c) |
On June 30, 2014, the Company impaired $0.4 million of the Syndicated goodwill related to its small commercial operations. |
7
The following table represents intangibles subject to amortization by major class at September 30, 2014 and
December 31, 2013.
|
|
|
|
|
|
|
|
|
(in thousands) |
|
September 30, 2014 |
|
|
December 31, 2013 |
|
Customer-related: |
|
|
|
|
|
|
|
|
Gross carrying amount |
|
$ |
4,840 |
|
|
|
1,080 |
|
Accumulated amortization |
|
|
(2,803 |
) |
|
|
(600 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,037 |
|
|
|
480 |
|
|
|
|
|
|
|
|
|
|
Marketing-related: |
|
|
|
|
|
|
|
|
Gross carrying amount |
|
$ |
1,370 |
|
|
|
|
|
Accumulated amortization |
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangibles |
|
|
3,321 |
|
|
|
480 |
|
|
|
|
|
|
|
|
|
|
The amortization periods range from 12 to 120 months. Amortization expense was $0.9 million and zero for the three months
ended September 30, 2014 and 2013, respectively, and $1.8 million and zero for the nine months ended September 30, 2014 and 2013, respectively. On June 30, 2014, the Company impaired $0.3 million of the customer-related
intangibles. See Note 12. Goodwill and Other Asset Impairments.
Common Stock Warrant Liability
The Company accounts for common stock warrants and put options in accordance with applicable accounting guidance provided in Financial Accounting Standards
Board (FASB) ASC 480, Liabilities Distinguishing Liabilities from Equity, as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement. Certain of the
Companys warrants are accounted for as liabilities due to provisions either allowing the warrant holder to request redemption, at the intrinsic value of the warrant, upon a change of control and/or providing for an adjustment to the number of
shares of the Companys Class A common stock underlying the warrants and the exercise price in connection with dilutive future funding transactions. The Company classifies these derivative liabilities on the condensed consolidated balance
sheets as long term liabilities, which are revalued at each balance sheet date subsequent to their initial issuance. The Company used a Monte Carlo pricing model to value these derivative liabilities. The Monte Carlo pricing model, which is based,
in part, upon unobservable inputs for which there is little or no market data, requires the Company to develop its own assumptions.
The Company used the
following assumptions for its common stock warrants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance Date |
|
|
|
June 3, 2013 |
|
|
November 15, 2013 |
|
|
June 6, 2014 |
|
|
July 9, 2014 |
|
|
|
At Issuance (a) |
|
|
September 30, 2014 (a) |
|
|
At Issuance |
|
|
September 30, 2014 |
|
|
At Issuance |
|
|
September 30, 2014 |
|
|
At Issuance |
|
|
September 30, 2014 |
|
Exercise price |
|
$ |
2.75 |
|
|
$ |
2.45 |
|
|
$ |
3.41 |
|
|
$ |
3.41 |
|
|
$ |
2.36 |
|
|
$ |
2.36 |
|
|
$ |
3.19 |
|
|
$ |
3.19 |
|
Class A common stock closing market price |
|
$ |
2.70 |
|
|
$ |
1.72 |
|
|
$ |
3.40 |
|
|
$ |
1.72 |
|
|
$ |
2.35 |
|
|
$ |
1.72 |
|
|
$ |
2.55 |
|
|
$ |
1.72 |
|
Risk-free rate (b) |
|
|
1.03 |
% |
|
|
1.32 |
% |
|
|
1.54 |
% |
|
|
1.66 |
% |
|
|
2.18 |
% |
|
|
2.14 |
% |
|
|
1.79 |
% |
|
|
1.85 |
% |
Market price volatility |
|
|
102.37 |
% |
|
|
109.12 |
% |
|
|
102.37 |
% |
|
|
100.23 |
% |
|
|
101.72 |
% |
|
|
100.71 |
% |
|
|
99.69 |
% |
|
|
97.02 |
% |
Expected average term of warrants (years) |
|
|
5.00 |
|
|
|
3.73 |
|
|
|
5.50 |
|
|
|
4.69 |
|
|
|
7.00 |
|
|
|
6.68 |
|
|
|
5.50 |
|
|
|
5.35 |
|
Expected dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Probability of change in control |
|
|
15.0 |
% |
|
|
15.0 |
% |
|
|
15.0 |
% |
|
|
15.0 |
% |
|
|
15.0 |
% |
|
|
15.0 |
% |
|
|
15.0 |
% |
|
|
15.0 |
% |
8
(a) |
The warrants issued on June 3, 2013 had an original exercise price of $2.75. The warrants contain an anti-dilution provision that requires the Company to adjust the number of shares of the Companys
Class A common stock underlying the warrants and the exercise price in the event a subsequent funding transaction results in dilution of the shares. In conjunction with the November 15, 2013 warrant issuance, the exercise price of the
warrants was adjusted to $2.50 and the number of warrants issued increased by 172,111 as a result of the anti-dilution provision. Then, related to the July 9, 2014 warrant issuance, the previously adjusted exercise price was adjusted again to
$2.45 and the number of warrants issued was increased by another 31,859 as a result of the anti-dilution provision. |
(b) |
The risk-free rate is based on the Daily Treasury Yield Curve Rates, as calculated by the U.S. Department of the Treasury, for borrowings of the same term. |
To reflect changes in the fair values of its outstanding warrants, the Company recorded to its common stock warrant liability, net noncash changes of
approximately $6.8 million decrease and $0.4 million increase during the three months ended September 30, 2014 and 2013, respectively, and noncash decreases of $8.2 million and $0.1 million during the nine months ended September 30,
2014 and 2013, respectively. In the event warrants are exercised or expire without being exercised, the fair value is reduced by the number of warrants exercised or expired multiplied by the fair value of each warrant at the time of exercise or
expiration, with a credit to additional paid-in capital.
The table below summarizes the Companys warrant activity for the nine months ended
September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except number of warrants) |
|
Original Warrant Issuance Date |
|
|
|
|
|
|
June 3, 2013 |
|
|
November 15, 2013 |
|
|
June 6, 2014 |
|
|
July 9, 2014 |
|
|
Total |
|
Value of warrants at December 31, 2013 |
|
$ |
3,717 |
|
|
$ |
11,354 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15,071 |
|
Value of warrants issued |
|
|
|
|
|
|
|
|
|
|
123 |
|
|
|
1,957 |
|
|
|
2,080 |
|
Changes in fair value, net |
|
|
(1,515 |
) |
|
|
(5,938 |
) |
|
|
(43 |
) |
|
|
(709 |
) |
|
|
(8,204 |
) |
Value of warrants exercised and reclassified to equity |
|
|
(622 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(622 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of warrants at September 30, 2014 |
|
$ |
1,580 |
|
|
$ |
5,416 |
|
|
$ |
80 |
|
|
$ |
1,248 |
|
|
$ |
8,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at December 31, 2013 |
|
|
1,655,103 |
|
|
|
5,015,000 |
|
|
|
|
|
|
|
|
|
|
|
6,670,103 |
|
Issuances |
|
|
|
|
|
|
|
|
|
|
82,627 |
|
|
|
1,313,686 |
|
|
|
1,396,313 |
|
Anti-dilution adjustments |
|
|
31,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,859 |
|
Exercises |
|
|
(167,262 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(167,262 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at September 30, 2014 |
|
|
1,519,700 |
|
|
|
5,015,000 |
|
|
|
82,627 |
|
|
|
1,313,686 |
|
|
|
7,931,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain of the warrants also give the holder the right to require the Company to redeem the warrant for the then fair value of
the warrant in the event of a change in control (the Put Option Component). The Company used 10,000 simulations in the Monte Carlo pricing model to value the warrants and the Put Option Component. If factors change and different
assumptions are used, the warrant liability and the change in estimated fair value could be materially different. Changes in the fair value of the warrants are reflected in the condensed consolidated balance sheet as change in fair value of
warrant liability, with an offsetting non-cash entry recorded as change in valuation of warrants.
9
Recently Issued Accounting Standards
ASU 2014-08
On April 10, 2014, the FASB issued
Accounting Standards Update No. 2014-08 (ASU 2014-08), Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components
of an Entity. The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of
discontinued operations guidance in U.S. GAAP.
Under the new guidance, only disposals representing a strategic shift in operations should be presented as
discontinued operations. Those strategic shifts should have a major effect on the organizations operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method
investment.
In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial users with more
information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for
discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organizations results from continuing operations.
The amendments in ASU 2014-08 are effective for the Company in the first quarter of 2015. The Company has early adopted ASU 2014-08, as permitted on a
prospective basis, applying its guidance to the Companys discontinued operation occurring on September 30, 2014.
ASU 2014-09
On May 28, 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which created Topic 606, Revenue From
Contracts With Customers (Topic 606) and superseded the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance. In addition, ASU 2014-09
superseded the cost guidance in Subtopic 605-35, Revenue RecognitionConstruction-Type and Production-Type Contracts, and created new Subtopic 340-40, Other Assets and Deferred CostsContracts with
Customers. In summary, the core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods or services.
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the
transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The amendments in ASU 2014-09 are effective for the Company on January 1, 2017. The Company is assessing the impact of ASU 2014-09 on its
consolidated financial statements.
ASU 2014-15
On
August 27, 2014, the FASB issued Accounting Standards Update No. 2014-15 (ASU 2014-15), Presentation of Financial Statements Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability
to Continue as a Going Concern. ASU 2014-15 is intended to define managements responsibility to evaluate whether there is substantial doubt about an organizations ability to continue as a going concern and to provide related footnote
disclosures.
Under GAAP, financial statements are prepared with the presumption that the reporting organization will continue to operate as a going
concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes
the fundamental basis for measuring and classifying assets and liabilities.
10
Currently, GAAP lacks guidance about managements responsibility to evaluate whether there is substantial
doubt about the organizations ability to continue as a going concern or to provide related footnote disclosures. ASU 2014-15 provides guidance to an organizations management, with principles and definitions that are intended to reduce
diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes.
The amendments
in ASU 2014-15 are effective for the Company on January 1, 2017, with early application permitted for unissued financial statements. The Company is currently assessing the impact of ASU 2014-15 on its consolidated financial statements.
3. Fair Value Measurements
The Company complies with the provisions of FASB ASC No. 820, Fair Value Measurements and Disclosures (ASC
820), in measuring fair value and in disclosing fair value measurements at the measurement date. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements required under
other accounting pronouncements. FASB ASC No. 820-10-35, Fair Value Measurements and Disclosures- Subsequent Measurement (ASC 820-10-35), clarifies that fair value is an exit price, representing the amount 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. ASC 820-10-35 also requires that a fair value measurement reflect the assumptions market
participants would use in pricing an asset or liability based on the best information available. Such assumptions include the risks inherent to a particular valuation technique (such as a pricing model) and/or the risks inherent to the
inputs to the model.
ASC 820-10-35 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present
value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value into three broad levels. The following is a brief description of those three levels:
Level 1 Level 1 inputs are
unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an
ongoing basis.
Level 2 Level 2 inputs are inputs other than quoted prices included within Level 1. Level 2 inputs are observable
either directly or indirectly. These inputs include: (a) Quoted prices for similar assets or liabilities in active markets; (b) Quoted prices for identical or similar assets or liabilities in markets that are not active, such as when there
are few transactions for the asset or liability, the prices are not current, price quotations vary substantially over time or in which little information is released publicly; (c) Inputs other than quoted prices that are observable for the
asset or liability; and (d) Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 Level 3 inputs are unobservable inputs for an asset or liability. These inputs should be used to determine fair value only when
observable inputs are not available. Unobservable inputs should be developed based on the best information available in the circumstances, which might include internally generated data and assumptions being used to price the asset or liability.
When determining the fair value measurements for assets or liabilities required or permitted to be recorded at and/or marked to fair value, the Company
considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to
price identical assets. When identical assets are not traded in active markets, the Company looks to market observable data for similar assets.
11
The following tables summarize the basis used to measure certain financial assets and liabilities at fair value
on a recurring basis in the condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2014 (in thousands) |
|
Total |
|
|
Quoted Prices in Active Markets for Identical Items (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
Common stock warrant liability |
|
$ |
8,325 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Companys Level 3 measures, which represent common stock warrants, fair value is based on a Monte Carlo pricing
model that is based, in part, upon unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions (See Note 2. Significant Accounting Policies). The Company used a market approach to valuing
these derivative liabilities.
The following table shows the reconciliation from the beginning to the ending balance for the Companys common stock
warrant liability measured at fair value on a recurring basis using significant unobservable inputs (i.e. Level 3) for the nine months ended September 30, 2014:
|
|
|
|
|
(in thousands) |
|
Fair Value Measurements Using Significant Unobservable Inputs |
|
Fair value of common stock warrant liability at December 31, 2013 |
|
$ |
15,071 |
|
Issuance of common stock warrants |
|
|
2,080 |
|
Exercise of common stock warrants |
|
|
(622 |
) |
Change in the fair value of common stock warrant liability, net |
|
|
(8,204 |
) |
|
|
|
|
|
Fair value of common stock warrant liability at September 30, 2014 |
|
$ |
8,325 |
|
|
|
|
|
|
4. Revolving Line of Credit and Term Loan
Under a loan agreement, as amended (the SVB Loan), with SVB, the Company has a revolving line of credit that provides for
advances not to exceed $5.5 million based upon a borrowing base availability of 75% of eligible accounts receivable as defined in the SVB Loan. Borrowings bear interest at the greater of (a) the greater of the banks prime rate or 4.00%,
plus 4.00%, and (b) 8.00%. The interest rate accruing on borrowings is the greater of (i) the greater of the banks prime rate or 4.00%, plus 2.00%, and (ii) 6.00%. The amended maturity date for the SVB Loan is currently
January 31, 2015. The line of credit has a facility fee of 0.5% per year of the average daily unused portion of the available line of credit during the applicable calendar quarter. The Company may reserve up to $500,000 for stand-by
letters of credit under the line of credit. The SVB Loan contains various covenants, including a covenant requiring compliance with a liquidity ratio.
The Term Loan portion of the facility matured on September 29, 2014, at which time the Company repaid the then outstanding balance of $2.0 million in
full.
12
On June 6, 2014, the Company entered into a Joinder and Sixth Loan Modification Agreement (the Sixth
Loan Modification Agreement) with SVB. The Sixth Loan Modification Agreement extended the maturity date of the SVB Loan to January 31, 2015, added the Companys new subsidiaries as borrowers to the SVB Loan, and reset certain
financial covenants. For the Sixth Loan Modification Agreement, the Company paid SVB modification and extension fees of $80,000 on September 29, 2014, plus reimbursed SVB for certain expenses. The Company was also required to pay a final fee of
$150,000 on September 29, 2014 when the Term Loan was repaid in full.
Also in connection with the Sixth Loan Modification Agreement, the Company
issued to SVB a warrant (SVB Warrant), pursuant to which SVB has the right to purchase 82,627 shares of the Companys Class A common stock at an exercise price of $2.36 per share, subject to adjustment. The SVB Warrant expires
June 5, 2021. See Note 2. Common Stock Warrant Liability. The SVB Warrant is recognized as a discount to the SVB Loan and is being amortized as interest expense over the remaining term of the SVB Loan on a straight-line basis, which
approximates the interest method.
On November 19, 2014, the Company obtained a waiver for non-compliance as of September 30, 2014 in a reduced
EBITDA-based financial covenant through December 31, 2014 (the Seventh Loan Modification Agreement) with SVB. The Seventh Loan Modification Agreement reduces the borrowing availability from $6.5 million to $5.5 million and the
borrowing base is reduced to 75% of eligible accounts receivable less $1.0 million. As of September 30, 2014, the Company had outstanding borrowings under the revolving line of credit of $4.8 million. See Note 15. Subsequent Events.
Borrowings under the SVB Loan are collateralized by a security interest in substantially all of the Companys assets other than its.
5. Related Party Transactions
Debt
On April 30, 2014, the
Company repaid the $1.0 million Riverside note, plus accrued interest in the amount of $139,000. At September 30, 2014, the Companys outstanding related party debt consisted of $3.15 million payable to Riverside, with an amended maturity
date of March 31, 2015. The loans bear interest at 10% and are subordinated to the SVB Loan.
Accrued interest on the Companys related party
debt was $0.8 million and $0.7 million at September 30, 2014 and December 31, 2013, respectively, and is reported in accrued liabilities on the Companys condensed consolidated balance sheet.
Riverside holds approximately 15.1% of the Companys outstanding Class A common stock as of September 30, 2014. Pursuant to the terms of a
Shareholders Agreement, Riverside has the right to designate a certain number of individuals for appointment or nomination to our Board of Directors, tied to its ownership of the Companys Class A common stock.
Sale of Retail and Catalog Business
On October 30,
2014, the Board of Directors approved the sale of its retail and catalog business on or around November 30, 2014 (see Note 15, Subsequent Events) to a purchase group lead by John Schaeffer, a member of the Board of Directors (the
Buyer). The retail and catalogue business has not been profitable and was not projected to be cash flow positive in the near future. Terms of the sale include the transfer of real estate, inventory, retail, and distribution business
located in Hopland, California, with a book value of $2.3 million for $1.0 million; and in the event the Hopland business, or any material asset thereof is sold within one year following the closing date, the Buyer will remit to RGS, 50% of the net
profits realized. As of September 30, 2014, the Company recorded an impairment charge related primarily to real property and inventory of $1.3 million.
13
6. Commitments and Contingencies
The Company leases offices and warehouse space through non-cancelable operating leases. One such office space is sublet to a third party.
Some of these leases contain escalation clauses, based on increases in property taxes and building operating costs, and renewal options ranging from one month to five years.
The Company also leases a fleet of vehicles classified as operating leases. The lease terms range from 36 to 48 months.
The following schedule represents the remaining future minimum payments of all leases as of September 30, 2014:
|
|
|
|
|
(in thousands) |
|
Years Ending December 31, |
|
2014 |
|
$ |
469 |
|
2015 |
|
|
1,321 |
|
2016 |
|
|
800 |
|
2017 |
|
|
175 |
|
2018 |
|
|
51 |
|
|
|
|
|
|
|
|
$ |
2,816 |
|
|
|
|
|
|
The Company incurred rent expense of $0.4 million and $0.2 million for the three months ended September 30, 2014 and
2013, respectively; and $1.1 million and $0.9 million for the nine months ended September 30, 2014 and 2013, respectively.
The Company is subject to
risks and uncertainties in the normal course of business, including legal proceedings; governmental regulation, such as the interpretation of tax and labor laws; and the seasonal nature of its business due to weather-related factors. The Company has
accrued for probable and estimable costs that may be incurred with respect to identified risks and uncertainties based upon the facts and circumstances currently available. Due to uncertainties in the estimation process, actual costs could vary from
the amounts accrued.
7. Shareholders Equity
During the nine months ended September 30, 2014, the Company issued 128,480 shares of its Class A common stock to employees upon
the exercise of stock options and issued 167,262 shares of its Class A common stock pursuant to the exercise of warrants.
On January 14, 2014,
the Company issued 7,604,035 shares of its Class A common stock with an estimated fair value of $29.1 million based on the closing market price of $3.83 per share for the Companys Class A common stock on January 13, 2014 as
provisional purchase consideration transferred for Mercury. Of this issuance, 467,249 shares were initially placed into escrow to fund potential indemnification claims and closing working capital true-up adjustments. Also in conjunction with this
acquisition of Mercury, the Company placed into escrow another 744,018 shares of its Class A common stock as potential post-acquisition retention compensation to employees of Mercury. At September 30, 2014, 313,235 shares of the
provisional purchase consideration transferred and 247,978 shares of the retention compensation remained in escrow. See Note 8. Share-Based Compensation and Note 11. Business Combinations.
On May 12, 2014, the Company issued 325,140 shares of its Class A common stock, with an estimated fair value of $0.7 million based on the closing
market price of $2.29 per share for the Companys Class A common stock on August 8, 2013, under an amendment to the net asset purchase agreement dated August 9, 2013 with Syndicated. Also under the terms of the amendment, the
former owner of Syndicated, who became an employee of the Company for a certain period of time, was issued 74,860 shares of the Companys Class A common stock during the three months ended September 30, 2014 in return for assisting
the Company with the collection of certain accounts receivable related to the Syndicated business. See Note 11. Business Combinations.
14
On May 14, 2014, the Company issued 3,425,393 shares of its Class A common stock with an estimated fair
value of $9.4 million based on the closing market price of $2.75 per share for the Companys Class A common stock on May 13, 2014 as partial provisional purchase consideration transferred for Sunetric. As additional provisional
purchase consideration transferred, the Company reserved another 604,711 shares of its Class A common stock with an estimated fair value of $1.7 million based on the closing market price of $2.75 for the Companys Class A common stock
on May 13, 2014 to fund potential indemnification claims and closing working capital true-up adjustments. At September 30, 2014, these reserved shares, along with provisional estimated contingent consideration of $0.5 million that is
potentially payable in shares of the Companys Class A common stock are reported in business acquisition consideration to be transferred. Also in conjunction with the acquisition of Sunetric, on May 28, 2014, the Company issued
217,076 shares of its Class A common stock with an estimated fair value of $0.5 million based on the closing market price of $2.39 per share for the Companys Class A common stock on May 27, 2014 in fulfillment of an assumed
liability for employee retention bonus obligations through the closing date of the Sunetric acquisition. See Note 11. Business Combinations.
At
September 30, 2014, the Company had the following shares of Class A common stock reserved for future issuance:
|
|
|
|
|
Stock options outstanding under incentive plans |
|
|
3,083,590 |
|
Stock options outstanding under plans not approved by security holders |
|
|
90,000 |
|
Sunetric provisional purchase consideration to be transferred |
|
|
604,711 |
|
Common stock warrants outstanding - derivative liability |
|
|
7,931,013 |
|
Common stock warrants outstanding - equity security |
|
|
70,000 |
|
|
|
|
|
|
Total shares reserved for future issuance |
|
|
11,779,314 |
|
|
|
|
|
|
8. Share-Based Compensation
During the nine months ended September 30, 2014, the Company granted 2,363,000 stock options and cancelled 1,189,140 stock options
under its 2008 Long-Term Incentive Plan and cancelled 210,000 stock options under its non-shareholder approved grants. The new stock options vest at 2% per month for the 50 months beginning with the first day of the eleventh month after date of
grant.
On May 12, 2014, the Company extended the exercisability period from July 30, 2014 to March 15, 2015 for 270,000 vested options
held by John Schaeffer, a former officer and current director of the Company. On August 18, 2014, the Company extended the exercisability period from September 18, 2014 to February 18, 2016 for 190,000 vested options held by Kam
Mofid, a former officer and director of the Company. As a result of these option modifications, the Company recognized $0.1 million and $0.2 million of incremental share-based compensation expense during the three and nine months ended
September 30, 2014, respectively.
In connection with the acquisition of Mercury, the Company is obligated to issue up to 744,018 shares of its
Class A common stock in periodic distributions to certain employees upon satisfaction of their continued employment with the Company through October 2014. As a result, the Company issued 173,614 and 496,040 of these shares and recorded $0.2
million and $1.6 million of estimated earned share-based compensation expense during the three and nine months ended September 30, 2014, respectively. See Note 7. Shareholders Equity.
Total share-based compensation expense recognized was $0.6 million and $0.1 million for the three months ended September 30, 2014 and 2013, respectively,
and $2.7 million and $0.3 million for the nine months ended September 30, 2014 and 2013, respectively. Share-based compensation expense is reported in general and administrative expenses on the Companys condensed consolidated statements
of operations.
15
9. Income Taxes
The Company performed assessments of the realizability of its net deferred tax assets generated during each reporting period, considering
all available evidence, both positive and negative. As a result of these assessments, the Company concluded that it was more likely than not that none of its net deferred tax assets would be recoverable through the reversal of temporary differences
and near term normal business results. The Company, during the nine months ended September 30, 2014 and 2013, increased its valuation allowance by $17.4 million and $9.3 million, respectively. The portion of the change in the valuation
allowance related to the preliminarily estimated net deferred tax liabilities established as part of the provisional purchase consideration transferred allocation for Sunetric was reported as an income tax benefit of $1.7 million for each of the
three and nine months ended September 30, 2014. The Company recognized no income tax benefit for losses incurred during the three and nine months ended September 30, 2014.
10. Net Loss Per Share
Basic net loss per share excludes any dilutive effects of options or warrants. The Company computes basic net loss per share using the
weighted average number of shares of its Class A common stock outstanding during the period. The Company computes diluted net loss per share using the weighted average number of shares of its Class A common stock and common stock
equivalents outstanding during the period. The Company excluded common stock equivalents of 11,684,000 and 2,400,000 for the three months ended September 30, 2014 and 2013, respectively, and 10,058,000 and 2,500,000 for the nine
months ended September 30, 2014 and 2013, respectively, from the computation of diluted net loss per share because their effect was antidilutive.
16
The following table sets forth the computation of basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands, except per share data) |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Net loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(2,508 |
) |
|
$ |
(3,561 |
) |
|
$ |
(11,493 |
) |
|
$ |
(10,419 |
) |
(Loss)/gain from discontinued operations |
|
|
(2,242 |
) |
|
|
1,467 |
|
|
|
(29,439 |
) |
|
|
1,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(4,750 |
) |
|
$ |
(2,094 |
) |
|
$ |
(40,932 |
) |
|
$ |
(8,796 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for basic and diluted net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for basic net loss per share |
|
|
51,055 |
|
|
|
30,044 |
|
|
|
46,599 |
|
|
|
28,276 |
|
Effect of dilutive securities - weighted average of stock options, restricted stock awards, and warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for basic and diluted net loss per share |
|
|
51,055 |
|
|
|
30,044 |
|
|
|
46,599 |
|
|
|
28,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(0.05 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.25 |
) |
|
$ |
(0.37 |
) |
Loss from discontinued operations |
|
|
(0.04 |
) |
|
|
0.05 |
|
|
|
(0.63 |
) |
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(0.09 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.88 |
) |
|
$ |
(0.31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Business Combinations
Syndicated
On August 9, 2013, the
Company purchased certain assets and assumed certain current liabilities of Syndicated. The acquired assets include executed end user customer agreements together with associated solar energy systems in various stages of completion and software
systems used by Syndicated to acquire new customers. The Company acquired, at fair value, tangible net assets totaling negative $1.1 million and intangible assets of $2.3 million, which consisted of $0.5 million in backlog and $1.7 million of
goodwill. The purchase consideration transferred, as amended on May 12, 2014, was comprised of cash of $0.3 million and 325,140 shares of the Companys Class A common stock, with an aggregate fair value of $0.7 million based on the
closing price of the Companys Class A common stock on August 8, 2013. The goodwill associated with this acquisitions commercial operations was impaired on June 30, 2014. See Note 12. Goodwill and Other Asset Impairments.
Mercury
On January 14, 2014, the Company
acquired 100% of the voting equity interests of Mercury through a merger. The provisional purchase consideration transferred was comprised of approximately 7.6 million shares of the Companys Class A common stock with an estimated
fair value of $29.1 million based on the closing price of $3.83 per share for the Companys Class A common stock on January 13, 2014. The provisional purchase consideration transferred is preliminary and is subject to a working
capital true-up adjustment based on the determined final closing balances and other revisions. Excluded from the provisional purchase consideration transferred is estimated acquisition-related costs to date of $2.8 million, which was reported as
acquisition-related and other costs in the Companys consolidated or condensed consolidated statements of operations as follows: $1.2 million for the year ended December 31, 2013; and $1.6 million for the nine months ended
September 30, 2014.
The Company believed that the acquisition of Mercury would provide strategic and financial benefits to the Company by
positioning RGS as one of the largest U.S. solar installation companies (when measured by number of installed customers); increasing the Companys financial stability, access to capital, and purchasing power with suppliers; expanding the
Companys existing brand presence in the Northeastern market of the United States; and realizing potential cost savings through centralization of certain functions and the reduction of redundant costs.
17
These qualitative factors have led to the initial recognition of acquired goodwill, which is not expected to be
deductible for tax purposes. As of September 30, 2014, these qualitative factors have not been realized by the Company. See Note 12. Goodwill and Other Asset Impairments.
The acquisition of Mercury has been accounted for in accordance with the acquisition method of accounting. The amounts in the table below represent the
preliminary allocation of the provisional purchase consideration transferred and are allocated to Mercurys assets and liabilities based on their estimated fair value as of January 14, 2014. The final determinations of the purchase
consideration transferred allocations may be significantly different from the preliminary estimates used in these unaudited condensed consolidated financial statements. Changes to separately identified tangible and intangible assets and liabilities
may result in corresponding adjustments to goodwill. The Company utilized a third-party valuation study to value these acquired assets and assumed liabilities.
|
|
|
|
|
In thousands |
|
Amount |
|
Assets: |
|
|
|
|
Cash |
|
$ |
11,773 |
|
Accounts receivable |
|
|
1,817 |
|
Costs in excess of billings on uncompleted contracts |
|
|
2,513 |
|
Inventory |
|
|
1,535 |
|
Deferred costs on uncompleted contracts |
|
|
253 |
|
Other current assets |
|
|
315 |
|
|
|
|
|
|
Total current assets |
|
|
18,206 |
|
Property and equipment |
|
|
399 |
|
Intangibles (a) |
|
|
500 |
|
Goodwill (a) |
|
|
18,096 |
|
Other assets |
|
|
554 |
|
|
|
|
|
|
Total assets acquired |
|
$ |
37,755 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Accounts payable |
|
$ |
5,499 |
|
Accrued liabilities |
|
|
733 |
|
Billings in excess of costs on uncompleted contracts |
|
|
1,728 |
|
Deferred revenue and other current liabilities |
|
|
70 |
|
|
|
|
|
|
Total current liabilities |
|
|
8,030 |
|
Accrued liabilities |
|
|
601 |
|
|
|
|
|
|
Total liabilities assumed |
|
|
8,631 |
|
|
|
|
|
|
Total provisional purchase consideration transferred |
|
$ |
29,124 |
|
|
|
|
|
|
(a) |
The preliminary estimated goodwill and intangibles related to this acquisition were completely impaired on June 30, 2014. See Note 12. Goodwill and Other Asset Impairments. |
The Company has included Mercurys financial results in its condensed consolidated financial statements from January 14, 2014. Consequentially, $4.9
million of net revenue and $21.7 million of net losses, including a goodwill and other assets impairment charge of $18.5 million, attributable to Mercury are included in the Companys condensed consolidated statement of operations.
Sunetric
On May 14, 2014, the Company acquired 100%
of the equity interests of Elemental Energy LLC, dba, Sunetric, pursuant to the terms of a Membership Interest Purchase Agreement entered into on March 26, 2014 and amended on May 14, 2014. The provisional purchase consideration
transferred totaled $11.6 million and consisted of approximately 4.0 million unregistered shares of the Companys Class A common stock with an estimated fair value of $11.1 million based on the closing price of $2.75 per share for the
Companys Class A common stock on May 13, 2014 and $0.5 million of estimated probable contingent consideration. The provisional purchase consideration transferred is subject to a working capital true-up adjustment based on the
determined final closing balances. The contingent consideration gives the sellers the potential to earn up to $3.0 million in additional earn-out payments, to
18
be paid in unregistered shares of the Companys Class A common stock, upon the achievement of certain revenue and income earn-out targets for 2014 and 2015. The total provisional
purchase consideration transferred is preliminary and subject to further revisions. Excluded from the provisional purchase consideration transferred is estimated acquisition-related costs to date of $0.8 million, which was reported as
acquisition-related and other costs in the Companys condensed consolidated statements of operations.
Sunetric is one of the largest and most
experienced solar developers and integrators in Hawaii. As a full-service solar energy firm, they handle every stage of the design, development and installation of photovoltaic systems. The acquisition provides the Company with an immediate
entry into a major market that has the highest electricity rates in the U.S. three times higher than the national average. These high rates provide compelling economics for homeowners and businesses to adopt solar photovoltaic systems. These
qualitative factors have led to the recognition of acquired goodwill, which is not expected to be deductible for tax purposes.
The acquisition of
Sunetric has been accounted for in accordance with the acquisition method of accounting. The amounts in the table below represent the preliminary allocation of the provisional purchase consideration transferred and are allocated to Sunetrics
assets and liabilities based on their estimated fair value as of May 14, 2014. The final determinations of the purchase consideration transferred allocations may be significantly different from the preliminary estimates used in these unaudited
condensed consolidated financial statements. Changes to separately identified tangible and intangible assets and liabilities may result in corresponding adjustments to goodwill. The Company is in the process of finalizing third-party valuation
studies of these acquired assets and assumed liabilities. The Company believes the separately identifiable intangibles include non-compete agreements, production backlogs, and trademarks. Since the valuations of these intangibles have not been
finalized, the amortization expense recorded for these intangibles was estimated for all periods presented in these unaudited condensed consolidated financial statements.
|
|
|
|
|
In thousands |
|
Amount |
|
Assets: |
|
|
|
|
Cash |
|
$ |
367 |
|
Accounts receivable |
|
|
1,466 |
|
Costs in excess of billings on uncompleted contracts |
|
|
1,517 |
|
Inventory |
|
|
1,690 |
|
Other current assets |
|
|
176 |
|
|
|
|
|
|
Total current assets |
|
|
5,216 |
|
Property and equipment |
|
|
168 |
|
Intangibles |
|
|
4,630 |
|
Goodwill |
|
|
9,658 |
|
Other assets |
|
|
555 |
|
|
|
|
|
|
Total assets acquired |
|
$ |
20,227 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Accounts payable |
|
$ |
3,086 |
|
Accrued liabilities |
|
|
753 |
|
Billings in excess of costs on uncompleted contracts |
|
|
1,552 |
|
Deferred revenue and other current liabilities |
|
|
36 |
|
|
|
|
|
|
Total current liabilities |
|
|
5,427 |
|
Other liabilities |
|
|
3,207 |
|
|
|
|
|
|
Total liabilities assumed |
|
|
8,634 |
|
|
|
|
|
|
Total provisional purchase consideration transferred |
|
$ |
11,593 |
|
|
|
|
|
|
The estimated acquired intangibles, based on preliminary third-party valuation studies, are comprised of a customer-related
intangible, production backlog, of $2.86 million, and marketing-related intangibles, such as trademarks of $1.24 million and a non-compete agreement of $0.13 million, the fair values of which were preliminarily estimated using traditional discounted
future cash flow models. The preliminary estimated useful lives assigned to these intangibles are as follows: production backlog 12 months; trademarks 120 months; and non-compete agreement 24 months. The production backlog and
non-compete agreement intangibles are amortized on a straight-line basis and the trademarks are amortized as their benefits are realized based on discounted future cash flow analyses.
19
The Company has included Sunetrics financial results in its condensed consolidated financial statements
from May 14, 2014. Consequentially, $6.9 million of net revenue and $1.5 million of net losses attributable to Sunetric are included in our condensed consolidated statement of operations for the three and nine months ended September 30,
2014.
The following is supplemental unaudited interim pro forma information for the Mercury and Sunetric acquisitions as if the Company had issued
11.6 million shares of its Class A common stock to acquire these businesses on January 1, 2013. Pro forma net losses reflect, among other adjustments, the following significant adjustments:
|
1) |
Decreased by $872,000 and $1,309,000 for the three and nine months ended September 30, 2014 respectively, to remove historical amortization expense related to acquired intangibles; |
|
2) |
Increased by $65,000 and $1,005,000 for the three months ended September 30, 2014 and 2013, respectively, and $194,000 and $3,015,000 for the nine months ended September 30, 2014 and 2013, respectively, to
reflect pro forma amortization expense related to acquired intangibles; and |
|
3) |
Decreased by $81,000 and $2,516,000 for the three and nine months ended September 30, 2014, to exclude historical nonrecurring acquisition-related costs. |
All pro forma adjustments are based on currently available information and upon assumptions that we believe are reasonable in order to reflect, on a
supplemental pro forma basis, the impact of these acquisitions on our historical financial information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Pro Forma (Unaudited) |
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands, except per share data) |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Net revenue |
|
$ |
33,309 |
|
|
$ |
46,354 |
|
|
$ |
90,632 |
|
|
$ |
105,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (a) |
|
$ |
(3,861 |
) |
|
$ |
(3,201 |
) |
|
$ |
(36,983 |
) |
|
$ |
(12,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted |
|
$ |
(0.07 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.75 |
) |
|
$ |
(0.33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a) |
The net loss for the three and nine months ended September 30, 2014 includes $1.3 million and $20.1 million, respectively, of goodwill and other asset impairment charges. See Note 12. Goodwill and Other Asset
Impairments. |
12. Goodwill and Other Asset Impairments
Due to the continuing significant losses generated by, and the forecast for, the Companys commercial segment, the Company performed
impairment analyses of its goodwill and other intangibles. Based on discounted future cash flows valuation analyses, as adjusted by judgmental qualitative factors (level 3 of the fair value hierarchy), the Company determined that all of the Mercury
preliminary estimated goodwill and intangibles of $18.1 million and $0.3 million, respectively, plus $0.4 million of the Syndicated goodwill related to its commercial operations were impaired at June 30, 2014. On September 30, 2014, the
Company committed to a strategic shift of its business resulting in a plan to sell certain net assets and rights comprising its large commercial installations business, resulting in the commercial segment impairment charges of $18.8 million to be
recorded in loss/gain from discontinued operations, net of tax for the nine months ended September 30, 2014.
During the three months ended
September 30, 2014, an assessment of the fair value of the Hopland, California store and decision by the Board of Directors to sell the retail and catalog business (see Notes 5 and 15, Related Party Transactions and Subsequent Event) resulted
in an adjustment to and the impairment of assets totaling $1.3 million. Accordingly, impairment charges of $1.3 million were reported in goodwill and other asset impairments on the Companys condensed consolidated statements of operations for
the three and nine months ended September 30, 2014.
20
13. Segment Information
On September 30, 2014, the Company discontinued its entire former Commercial segment. As a result of this major strategic shift, the
Company now operates as three reportable segments: (1) Residential the installation of solar systems for homeowners, including lease financing thereof, and for small businesses (small commercial) in the continental U.S.;
(2) Sunetric the installation of solar systems for both homeowners and small business owners (small commercial) in Hawaii; and (3) Other retail store and corporate operations; however, see Note 15 for subsequent sale of this
segment.
Financial information for the Companys segments and a reconciliation of the total of the reportable segments income (loss) from
operations (measures of profit or loss) to the Companys consolidated net loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
14,358 |
|
|
$ |
15,425 |
|
|
$ |
43,573 |
|
|
$ |
36,903 |
|
Sunetric |
|
|
3,803 |
|
|
|
|
|
|
|
6,875 |
|
|
|
|
|
Other |
|
|
739 |
|
|
|
1,215 |
|
|
|
1,854 |
|
|
|
2,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net revenue |
|
|
18,900 |
|
|
|
16,640 |
|
|
|
52,302 |
|
|
|
39,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
(3,393 |
) |
|
|
185 |
|
|
|
(10,123 |
) |
|
|
(902 |
) |
Sunetric |
|
|
(1,396 |
) |
|
|
|
|
|
|
(1,580 |
) |
|
|
|
|
Other |
|
|
(4,455 |
) |
|
|
(3,093 |
) |
|
|
(8,695 |
) |
|
|
(8,698 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated loss from continuing operations |
|
|
(9,244 |
) |
|
|
(2,908 |
) |
|
|
(20,398 |
) |
|
|
(9,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of consolidated loss from operations to consolidated net loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other expense, net |
|
|
(340 |
) |
|
|
(243 |
) |
|
|
(795 |
) |
|
|
(880 |
) |
Change in valuation of warrants |
|
|
6,789 |
|
|
|
(402 |
) |
|
|
8,204 |
|
|
|
78 |
|
Income tax expense/(benefit) |
|
|
(287 |
) |
|
|
8 |
|
|
|
(1,496 |
) |
|
|
17 |
|
(Loss)/gain from discontinued operations, net of tax |
|
|
(2,242 |
) |
|
|
1,467 |
|
|
|
(29,439 |
) |
|
|
1,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(4,750 |
) |
|
$ |
(2,094 |
) |
|
$ |
(40,932 |
) |
|
$ |
(8,796 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following is a reconciliation of reportable segments assets to the Companys consolidated total
assets. The Other segment includes certain unallocated corporate amounts.
|
|
|
|
|
|
|
|
|
(in thousands) |
|
September 30, 2014 |
|
|
December 31, 2013 |
|
Total assets continuing operations: |
|
|
|
|
|
|
|
|
Residential |
|
$ |
21,780 |
|
|
$ |
21,588 |
|
Sunetric |
|
|
19,487 |
|
|
|
|
|
Other |
|
|
2,371 |
|
|
|
15,603 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
43,638 |
|
|
$ |
37,191 |
|
|
|
|
|
|
|
|
|
|
Total assets discontinued operations: |
|
|
|
|
|
|
|
|
Commercial |
|
|
13,711 |
|
|
|
6,577 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,711 |
|
|
$ |
6,577 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
57,349 |
|
|
$ |
43,768 |
|
|
|
|
|
|
|
|
|
|
22
14. Discontinued Operations
On September 30, 2014, the Company committed to a plan to sell certain net assets and rights comprising its large commercial
installations business, otherwise known as its former Commercial segment, and focus its efforts and resources of its Residential and Sunetric segments. This represents a strategic shift that will have a major effect on the Companys operations
and financial results. The Company will continue with in-process large commercial installations, but will not accept any new contracts and will commence various other exit activities. The company has entered into a contract to sell portions of its
commercial pipeline for cash, with the consideration to be paid dependent upon the completion of the buyers due diligence.
Accordingly, the assets
and liabilities, operating results, and operating and investing activities cash flows for the former Commercial segment are presented as a discontinued operation separate from the Companys continuing operations, for all periods presented in
these consolidated financial statements and footnotes, unless indicated otherwise.
The following is a reconciliation of the major line items constituting
pretax loss of discontinued operations to the after-tax loss of discontinued operations that are presented in the condensed consolidated statements of operations as indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
(in thousands) |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Major line items constituting pretax loss of discontinued operations: |
|
|
|
|
|
|
|
|
Net revenue |
|
$ |
14,409 |
|
|
$ |
17,343 |
|
|
$ |
38,329 |
|
|
$ |
31,857 |
|
Cost of goods sold |
|
|
13,018 |
|
|
|
14,997 |
|
|
|
37,098 |
|
|
|
27,469 |
|
Selling and operating (a) |
|
|
3,253 |
|
|
|
870 |
|
|
|
6,699 |
|
|
|
2,730 |
|
General and administrative (b) |
|
|
277 |
|
|
|
|
|
|
|
3,065 |
|
|
|
|
|
Depreciation and amortization |
|
|
81 |
|
|
|
9 |
|
|
|
500 |
|
|
|
35 |
|
Acquisition related costs |
|
|
22 |
|
|
|
|
|
|
|
1640 |
|
|
|
|
|
Goodwill and other asset impairments |
|
|
|
|
|
|
|
|
|
|
18,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax (loss)/gain of discontinued operations |
|
|
(2,242 |
) |
|
|
1,467 |
|
|
|
(29,439 |
) |
|
|
1,623 |
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/gain on discontinued operations |
|
$ |
(2,242 |
) |
|
$ |
1,467 |
|
|
$ |
(29,439 |
) |
|
$ |
1,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Included in the selling and operating expense for the three and nine months ended September 30, 2014 is $1.2 million related to the write-off of a certain account receivable. |
(b) |
Included in the general and administrative costs for the nine months ended September 30, 2014 is $1.6 million of share based compensation expense. |
23
The following is a reconciliation of the carrying amounts of major classes of assets and liabilities of the
discontinued operations to the total assets and liabilities of the discontinued operations presented separately in the condensed consolidated balance sheets as indicated:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
September 30, 2014 |
|
|
December 31, 2013 |
|
|
|
|
Carrying amounts of major classes of assets included as part of discontinued operations: |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
5,176 |
|
|
|
1,270 |
|
Costs in excess of billings on uncompleted contracts |
|
|
4,472 |
|
|
|
4,556 |
|
Inventory, net |
|
|
2,492 |
|
|
|
314 |
|
Deferred costs on uncompleted contracts |
|
|
97 |
|
|
|
103 |
|
Other current assets |
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total major classes of current assets of the discontinued operations |
|
|
12,412 |
|
|
|
6,243 |
|
|
|
|
|
|
|
|
|
|
Noncurrent assets: |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
261 |
|
|
|
334 |
|
|
|
|
|
|
|
|
|
|
Total major classes of noncurrent assets of the discontinued operations |
|
|
261 |
|
|
|
334 |
|
Other noncurrent assets |
|
|
1,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent assets of discontinued operations |
|
|
1,300 |
|
|
|
334 |
|
|
|
|
|
|
|
|
|
|
Total assets of the discontinued operations in the balance sheet |
|
$ |
13,712 |
|
|
$ |
6,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts of major classes of liabilities included as part of discontinued operations: |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
8,427 |
|
|
|
7,429 |
|
Accrued liabilities |
|
|
1,446 |
|
|
|
628 |
|
Billings in excess of costs on uncompleted contracts |
|
|
673 |
|
|
|
395 |
|
Deferred revenue and other current liabilities |
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities of discontinued operations |
|
|
10,781 |
|
|
|
8,452 |
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities: |
|
|
|
|
|
|
|
|
Other liabilities |
|
|
578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total major classes of noncurrent liabilities of the discontinued operations |
|
|
578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of the discontinued operations in the balance sheet |
|
$ |
11,359 |
|
|
$ |
8,452 |
|
|
|
|
|
|
|
|
|
|
24
15. Subsequent Events
On October 30, 2014, the Board of Directors approved the sale of its retail and catalog business on or around November 30, 2014
(see Note 15, Subsequent Events) to a purchaser group led by John Schaeffer, a member of the Board of Directors (the Buyer). The retail and catalogue business has not been profitable and was not projected to be cash flow positive in the
near future. Terms of the sale include the transfer of real estate, inventory, retail, and distribution business located in Hopland, California, with a book value of $2.3 million for $1.0 million; and in the event the Hopland business, or any
material asset thereof is sold within one year following the closing date, the Buyer will remit to RGS, 50% of the net profits realized. As of September 30, 2014, the Company recorded an impairment charge related primarily to real property and
inventory of $1.3 million.
On November 19, 2014, the Company obtained a waiver for non-compliance as of September 30, 2014 in a reduced
EBITDA-based financial covenant through December 31, 2014 (the Seventh Loan Modification Agreement) with SVB. The Seventh Loan Modification Agreement reduces the borrowing availability from $6.5 million to $5.5 and the borrowing
base is reduced to 75% of eligible accounts receivable less $1.0 million. As of September 30, 2014, the Company had outstanding borrowings under the revolving line of credit of $4.8 million. See Note 4.
As of November 5, 2014, the Company has entered into a contract to sell portions of its commercial pipeline for cash, with consideration to be paid
dependent upon the completion of the buyers due diligence.
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
We recommend
users read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this document. This section is
designed to provide information that will assist in understanding our condensed consolidated financial statements, changes in certain items in those statements from period to period, the primary factors that caused those changes and how certain
accounting principles, policies and estimates affect the condensed consolidated financial statements.
Discontinued Operations
On September 30, 2014, we committed to a plan to sell certain net assets and rights comprising our large commercial installations business, otherwise
known as our former Commercial segment. We now report this business as a discontinued operation, separate from our continuing operations. The following management discussion and analysis of financial condition and results of operations is for our
continuing operations, unless indicated otherwise.
Overview
We are a leading residential and small commercial solar energy engineering, procurement and construction firm. We also perform most of our own sales and
marketing activities to generate leads and secure projects. We offer turnkey services, including design, procurement, permitting, build-out, grid connection, financing referrals and warranty and customer satisfaction activities. Our solar energy
systems use high-quality solar photovoltaic modules. We use proven technologies and techniques to help customers achieve meaningful savings by reducing their utility costs. In addition, we help customers lower their emissions output and reliance
upon fossil fuel energy sources.
We, including our predecessors, have more than 35 years of experience in residential solar energy and trace our roots to
1978, when Real Goods Trading Corporation sold the first solar photovoltaic panels in the United States. We have designed and installed tens of thousands of residential and commercial solar systems since our founding. Our focused customer
acquisition approach and our efficiency in converting customer leads into sales enable us to have what we believe are competitive customer acquisition costs that we continuously focus on improving.
On September 30, 2014, we discontinued our entire former Commercial segment. As a result of this major strategic shift, we now operate as three
reportable segments: (1) Residential the installation of solar systems for homeowners, including lease financing thereof, and for small businesses (small commercial) in the continental U.S.; (2) Sunetric the installation of
solar systems for both homeowners and small business owners (small commercial) in Hawaii; and (3) Other retail store and corporate operations; see Note 15. We believe this new structure will enable us to more effectively manage our
operations and resources.
25
We continue to expect strong demand for residential and small commercial solar installations, including lease
financing of such installations.
Recent Developments
On September 30, 2014, we committed to a plan to sell certain net assets and rights comprising our large commercial installations business, otherwise
known as our former Commercial segment, and focus our efforts and resources of our Residential and Sunetric segments. This represents a strategic shift that will have a major effect on our operations and financial results. We will continue with in
process large commercial installations, but will not accept any new contracts and will commence various other exit activities.
26
Results of Operations
The following table sets forth certain financial data as a percentage of revenue for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Net revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of goods sold |
|
|
83.1 |
% |
|
|
74.1 |
% |
|
|
79.9 |
% |
|
|
73.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
16.9 |
% |
|
|
25.9 |
% |
|
|
20.1 |
% |
|
|
26.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and operating |
|
|
37.1 |
% |
|
|
29.6 |
% |
|
|
38.0 |
% |
|
|
34.8 |
% |
General and administrative |
|
|
14.0 |
% |
|
|
9.3 |
% |
|
|
11.9 |
% |
|
|
12.8 |
% |
Acquisition-related and other costs |
|
|
0.3 |
% |
|
|
3.3 |
% |
|
|
1.7 |
% |
|
|
1.4 |
% |
Restructuring costs |
|
|
1.9 |
% |
|
|
|
% |
|
|
0.7 |
% |
|
|
|
% |
Depreciation and amortization |
|
|
5.3 |
% |
|
|
1.2 |
|
|
|
4.2 |
|
|
|
1.6 |
|
Goodwill and other asset impairments |
|
|
7.2 |
% |
|
|
|
% |
|
|
2.6 |
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
65.8 |
% |
|
|
43.4 |
% |
|
|
59.1 |
% |
|
|
50.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(48.9 |
)% |
|
|
(17.5 |
)% |
|
|
(39.0 |
)% |
|
|
(24.3 |
)% |
Interest and other expense, net |
|
|
(1.8 |
)% |
|
|
(1.5 |
)% |
|
|
(1.5 |
)% |
|
|
(2.2 |
)% |
Change in valuation of warrants |
|
|
35.9 |
% |
|
|
(2.4 |
)% |
|
|
15.7 |
% |
|
|
0.2 |
% |
Loss before income taxes |
|
|
(14.8 |
)% |
|
|
(21.4 |
)% |
|
|
(24.8 |
)% |
|
|
(26.3 |
)% |
Income tax (expense) benefit |
|
|
(1.5 |
)% |
|
|
0.0 |
% |
|
|
(2.9 |
)% |
|
|
(0.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(13.3 |
)% |
|
|
(21.4 |
)% |
|
|
(22.0 |
)% |
|
|
(26.3 |
)% |
Loss from discontinued operations, net of tax |
|
|
(11.9 |
)% |
|
|
(8.8 |
)% |
|
|
(56.3 |
)% |
|
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(25.1 |
)% |
|
|
(12.6 |
)% |
|
|
(78.3 |
)% |
|
|
(22.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013
Net revenue. Net revenue increased $2.3 million, or 13.6%, to $18.9 million during the three months ended September 30, 2014 from $16.6 million
during the three months ended September 30, 2013. Net revenue for our residential segment decreased $2.2 million, or 13.5%, to $14.4 million during the three months ended September 30, 2014 from $16.6 million during three months ended
September 30, 2013, principally due to the state rebates expiring in Colorado and Missouri markets and our subsequent exit from these markets. The residential segment increased megawatts installed by 213.0 megawatts, or 6.5%, to 3,510.2
megawatts during the three months ended September 30, 2014 from 3,297.2 megawatts during the three months ended September 30, 2013. Net revenue for our Sunetric segment was $3.8 million and represents the installment of 293.0 kilowatts for
the three months ended September 30, 2014.
27
Gross profit. Gross profit decreased $1.1 million, or 26.0%, to $3.2 million or 16.9% of net revenue
during the three months ended September 30, 2014 from $4.3 million or 25.9% of net revenue during the three months ended September 30, 2013. Gross profit for our residential segment decreased $1.9 million, or 41.0%, to $2.8 million or
19.7% of net revenue during the three months ended September 30, 2014 from $4.8 million or 28.9% of net revenue during the three months ended September 30, 2013. The decrease in the residential segments gross profit margin percentage
was due to three main components (i) the proportionate greater absorption of fixed costs associated with the decline in revenue of $1 million from the prior year quarter (ii) the prior year quarter benefited from expiring 1603 Investment
Tax Credit programs and (iii) a current quarter provision to adjust inventory to the lower of cost or market. Gross profit for our Sunetric segment was $0.2 million or 4.0% of net revenue during the period since acquisition reflecting the local
utility not approving interconnection requests in a timely manner.
Selling and operating expenses. Selling and operating expenses increased $2.1
million, or 42.3%, to $7.0 million or 37.1% of net revenue during the three months ended September 30, 2014 from $4.9 million or 29.6% of net revenue during the three months ended September 30, 2013. Selling and operating expenses for our
residential segment increased $1.1 million, or 25.3%, to $5.6 million or 39.2% of net revenue during the three months ended September 30, 2014 from $4.5 million or 27.0% of net revenue during the three months ended September 30, 2013. The
increase in the residential segments selling and operating expenses was in part attributable to managements decision to increase marketing spend to offset the known loss of the Missouri and Colorado markets as well as our continued
investments in sales and sales support infrastructure. Selling and operating expenses for our Sunetric segment were $0.7 million or 17.2% of net revenue during the period since acquisition.
General and administrative expenses. General and administrative expenses increased $1.1 million, or 42.3%, to $2.7 million or 14.0% of net revenue
during the three months ended September 30, 2014 from $1.6 million or 9.3% of net revenue during the three months ended September 30, 2014. General and administrative expenses for our residential segment increased $0.3 million, or 100.0%,
to $0.3 million or 1.8% of net revenue during the three months ended September 30, 2014. General and administrative expenses for our Sunetric segment were $0.0 million or 0.1% of net revenue during the period since acquisition. General and
administrative expenses for our other segment increased $0.8 million, or 53.7%, to $2.3 million or 321.6% of net revenue during the three months ended September 30, 2014 from $1.5 million or 127.3% of net revenue during the three months ended
September 30, 2013. The increase in the other segments general and administrative expenses was primarily due to corporate overhead, such as noncash share-based compensation, related to the integration of business acquisitions including
managing a larger enterprise.
Acquisition-related and other costs. Acquisition-related and other costs were $0.1 million during the three months
ended September 30, 2014 and $0.6 million during the three months ended September 30, 2013 and were comprised of acquisition and integration costs related to Sunetric and Syndicated, respectively.
Restructuring costs. Restructuring costs were $0.4 million during the three months ended September 30, 2014 and $0.0 million during the three
months ended September 30, 2013 and were comprised of costs incurred for our continuing operations and reflects managements decision to seek cost efficiencies and severance paid to departing executives.
Depreciation and Amortization. Depreciation and Amortization were $1.0 million during the three months ended September 30, 2014 and $0.2 million
during the three months ended September 30, 2013.
Goodwill and other asset impairments. Goodwill and other asset impairments were $1.3
million during the three months ended September 30, 2014 and represents a write down of our book value associated with the land used exclusively by our retail store in Hopland, CA; see Subsequent Event Note 15.
Interest and other expense, net. Interest and other expense, net increased $0.1 million to $0.3 million during the three months ended
September 30, 2014 from $0.2 million during the three months ended September 30, 2013. The increase reflects the greater use of the line of credit during this period.
Change in valuation of warrants. We recorded noncash income of $6.8 million during the three months ended September 30, 2014 primarily due to
decreasing stock prices resulting in adjustments to the carrying value of the common stock warrant liabilities.
28
Income tax benefit. Income tax benefit was $(0.3) million during the three months ended September 30,
2014 and zero during the three months ended September 30, 2013 primarily as a result of changes to tax valuation allowances. The 2014 income tax benefit represents the portion of the change in the tax valuation allowance related to the
preliminary estimated net deferred tax liabilities established as part of the provisional purchase consideration transferred allocation for Sunetric.
Net loss from continuing operations. As a result of the above factors, our net loss from continuing operations during the three months ended
September 30, 2014 was $2.6 million, or $(0.05) per share, as compared to a net loss from continuing operations of $3.6 million, or $(0.12) per share, during the three months ended September 30, 2013.
Net loss from discontinued operations. Our net loss from discontinued operations during the three months ended September 30, 2014 was $2.2
million, or $(0.04) per share, as compared to a net gain from discontinued operations of $1.5 million, or $0.05 per share, during the three months ended September 30, 2013. The loss for this segment arises from competitive pricing pressures
within the large commercial marketplace, the Company not realizing the cost synergies it expected from commercial companies it acquired resulting in higher operating cost prior to the Company exiting this business segment, and adverse contract
disputes and liquidating damage charges.
Net loss. Our net loss during the three months ended September 30, 2014 was $4.7 million, or
$(0.09) per share, as compared to a net loss of $2.1 million, or $(0.07) per share, during the three months ended September 30, 2013.
Nine
Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013
Net revenue. Net revenue increased $12.7
million, or 32.1%, to $52.3 million during the nine months ended September 30, 2014 from $39.6 million during the nine months ended September 30, 2013. Net revenue for our residential segment increased $6.7 million, or 18.1%, to $43.6
million during the nine months ended September 30, 2014 from $36.9 million during nine months ended September 30, 2013, primarily due to our realization of revenue associated with the Sunetric acquisition, the complete integration of
Syndicated Solar and organic growth from our sales and construction forces. The residential segment increased megawatts installed by 2.5 megawatts, or 28.0%, to 11.3 megawatts during the three months ended September 30, 2014 from 8.8 megawatts
during the nine months ended September 30, 2013. Net revenue for our Sunetric segment was $6.9 million and represents the installment of 294.0 megawatts since we acquired it on May 14, 2014.
Gross profit. Gross profit decreased $0.1 million, or 0.7%, to $10.5 million or 20.1% of net revenue during the nine months ended September 30,
2014 from $10.4 million or 26.4% of net revenue during the nine months ended September 30, 2013. Gross profit for our residential segment decreased $0.7 million, or 7.6%, to $9.0 million or 20.7% of net revenue during the nine months ended
September 30, 2014 from $9.7 million or 26.4% of net revenue during the nine months ended September 30, 2013. As previously mentioned, the three main components (i) the proportionate greater absorption of fixed costs associated with
the decline in revenue of $1 million from the prior year quarter (ii) the prior year quarter benefited from expiring 1603 Investment Tax Credit programs and (iii) a current quarter provision to adjust inventory to the lower of cost or
market. Gross profit for our Sunetric segment was $1.0 million or 25.2% of net revenue during the period since acquisition.
Selling and operating
expenses. Selling and operating expenses increased $6.1 million, or 44.3%, to $19.9 million or 38.0% of net revenue during the nine months ended September 30, 2014 from $13.8 million or 34.8% of net revenue during the nine months ended
September 30, 2013. Selling and operating expenses for our residential segment increased $6.8 million, or 64.3%, to $17.5 million or 40.1% of net revenue during the nine months ended September 30, 2014 from $10.6 million or 28.8% of net
revenue during the nine months ended September 30, 2013. The increase in the residential segments selling and operating expenses was attributable to infrastructure investments in sales and operations, specifically a conscious decision to
increase marketing spend to offset the foreseen loss of our Colorado and Missouri markets. Selling and operating expenses for our Sunetric segment were $1.2 million or 17.1% of net revenue during the period since acquisition.
General and administrative expenses. General and administrative expenses increased $1.2 million, or 23.1%, to $6.3 million or 11.9% of net revenue
during the nine months ended September 30, 2014 from $5.1 million or 12.8% of net revenue during the nine months ended September 30, 2014. General and administrative expenses for our residential segment increased $1.3 million or 3.0% of
net revenue during the nine months
29
ended September 30, 2014. General and administrative expenses for our Sunetric segment were $0.1 million or 0.8% of net revenue during the period since acquisition. General and
administrative expenses for our other segment decreased $0.1 million, or (3.1)%, to $4.9 million or 264.5% of net revenue during the nine months ended September 30, 2014 from $5.1 or 189.2% of net revenue during the nine months ended
September 30, 2013. The increase in the other segments general and administrative expenses was primarily due to corporate overhead, such as noncash share-based compensation, related to the acquisition and integration of business
acquisitions.
Acquisition-related and other costs. Acquisition-related and other costs were $0.8 million during the nine months ended
September 30, 2014 and $0.6 million during the nine months ended September 30, 2013 and were comprised of acquisition and integration costs related to Sunetric and Syndicated, respectively.
Restructuring Costs. Restructuring costs were $0.4 million during the nine months ended September 30, 2014 and zero during the nine months ended
September 30, 2013 and were comprised primarily of costs incurred for our continuing operations and reflects managements decision to seek cost efficiencies and severance paid to departing executives.
Depreciation and Amortization. Depreciation and amortization were $2.2 for the nine months ended September 30, 2014 and were $0.6 million during
the nine months ended September 30, 2013 and reflects the amortization of intangible assets associated with the purchase of Sunetric.
Goodwill
and other asset impairments. Goodwill and other asset impairments were $1.3 million during the nine months ended September 30, 2014 and represent a write down of our book value associated with the land used exclusively by our retail
store in Hopland, CA.
Interest and other expense, net. Interest and other expense, net increased $.2 million to $(0.7) million during the nine
months ended September 30, 2014 from $(0.9) million during the nine months ended September 30, 2013. The increase reflects the greater use of the line of credit during this period.
Change in valuation of warrants. We recorded noncash income of $8.2 million during the nine months ended September 30, 2014 due primarily to
decreasing stock prices resulting in adjustments to the carrying value of the common stock warrant liabilities.
Income tax benefit. Income tax
benefit was $1.5 million during the nine months ended September 30, 2014 and 0.0 million during the nine months ended September 30, 2013 primarily as a result of changes to tax valuation allowances. The 2014 income tax benefit represents
the portion of the change in the tax valuation allowance related to the preliminary estimated net deferred tax liabilities established as part of the provisional purchase consideration transferred allocation for Sunetric.
Net loss from continuing operations. As a result of the above factors, our net loss from continuing operations during the nine months ended
September 30, 2014 was $(11.5) million, or $(0.25) per share, as compared to a net loss from continuing operations of $(10.4) million, or $(0.37) per share, during the nine months ended September 30, 2013.
Net loss from discontinued operations. As a result of the factors discussed above, and a write off of goodwill for this segment (See Note 12), our
net loss from discontinued operations during the nine months ended September 30, 2014 was $(29.4) million, or $(0.63) per share, as compared to a net gain from discontinued operations of $1.6 million, or $0.06 per share, during the nine months
ended September 30, 2013.
Net loss. Our net loss during the nine months ended September 30, 2014 was $(40.9) million, or $(0.88)
per share, as compared to a net loss of $8.8 million, or $(0.31) per share, during the nine months ended September 30, 2013.
Seasonality
Our quarterly net revenue and operating results for solar energy system installations are difficult to predict and have, in the past, and may, in the future,
fluctuate from quarter to quarter as a result of changes in state, federal, or private utility company subsidies, as well as weather, economic trends and other factors. We have historically experienced seasonality in our solar installation business,
with the first quarter representing our slowest installation quarter of the year.
30
Liquidity and Capital Resources
Our capital needs arise from working capital required to fund operations, including procurement of materials such as photovoltaic panels and invertors,
operating and back office infrastructure maintenance, expansion and improvement, and future growth. These capital requirements depend on numerous factors, including business acquisitions, the ability to attract new solar energy system installation
customers, market acceptance of our product offerings, the cost of ongoing upgrades to our product offerings necessary to remain competitive in the marketplace, the level of expenditures for sales and marketing, the level of investment in support
systems and facilities and other factors. The timing and amount of these capital requirements are variable and may fluctuate from time to time, as well as varying based on seasonality. We did not have any material commitments for capital
expenditures as of September 30, 2014, and we do not presently have any plans for future material capital expenditures.
Several of our wholly owned
subsidiaries are parties to a Loan and Security Agreement, dated December 19, 2011, with Silicon Valley Bank (as amended thereafter as described in Footnote 4 and Part II, Item 5, the Loan Agreement)
As amended, the amount of available credit under the revolving line of credit is $5.5 million, subject to the Borrowing Base (as defined in the Loan
Agreement) of 75% of Eligible Accounts (as defined in the Loan Agreement minus $1.0 million). The interest rate on borrowings under the revolving line of credit is the greater of (a) the greater of the banks prime rate or 4.00%, plus
4.00 and (b) 8.00%. The interest rate accruing on borrowings under the revolving line of credit during a Streamline Period (as defined in the Loan Agreement) is the greater of (i) the greater of the banks prime rate or 4.00%, plus
2.00%, and (ii) 6.00%. Streamline Periods and the more favorable terms applicable during Streamline Periods are currently unavailable to the borrowers.
31
As of September 30, 2014, the borrowers under the Loan Agreement were not in compliance with the covenants
requiring us to comply with the minimum liquidity ratio covenant and two separate minimum EBITDA financial covenants for the compliance period ended September 30, 2014 and October 31, 2014, as applicable. On November 17, 2014, Silicon Valley
Bank waived these defaults in connection with amending the Loan Agreement.
We are required to satisfy the financial covenants discussed above, as well as
others, as of the end of each fiscal quarter. There can be no assurance that we will be able to satisfy these covenants in future fiscal periods. We will need to negotiate with Silicon Valley Bank to amend the Loan Agreement to reset the
financial covenants for 2015. There can be no assurance that we will be successful in doing so or that such amendments will be on favorable terms to us. If we fail to meet these covenants in future fiscal periods and Silicon Valley Bank does not
waive such failure, Silicon Valley Bank will the ability to call an event of default under the Loan Agreement and require us to repay all outstanding indebtedness thereunder or to exercise other rights under the Loan Agreement, including collecting
default interest, no longer extending credit to us, and exercising its rights with respect to the collateral securing the obligations under the Loan Agreement. We believe that we presently have sufficient funds or the ability to raise future funds,
either through a borrowing or the sale of additional equity, to repay the outstanding indebtedness under the Loan Agreement. However, no assurance can be given that we will be able to raise future funds on terms as favorable as the present revolving
line of credit under the Loan Agreement or in an amount sufficient to fund our future growth. In addition, while we have been successful in the past in obtaining new financing, there is no assurance that we will be able to raise any new funds in the
future. If our operational initiatives are not successful in significantly reducing our historical loss from operations, or if we encounter unplanned operational difficulties, we may not have sufficient funds to repay any outstanding borrowings as
they come due or to fund our operating cash needs for the next twelve months. These circumstances would require us to obtain financing from another source or raise additional capital through debt or equity financing, if available to us.
We have also received loans from Riverside. Riverside loaned us $3.0 million on May 4, 2012 and $150,000 on June 20, 2012. The maturity dates for
both of these loans have been extended to March 31, 2015. The loans bear interest at a rate of 10%. As of September 30, 2014, we owed $4.0 million to Riverside on these loans, including $0.8 million of accrued interest. We have not paid
any interest or principal on Riversides loan. On April 30, 2014, we repaid in full the principal amount plus accrued interest, totaling $1.1 million, on another loan from Riverside extended to us under the Loan Commitment, dated as of
November 13, 2012. Riverside owns approximately 15.1% of our Class A common stock. Pursuant to the terms of a Shareholders Agreement, Riverside has the right to designate a certain number of individuals for appointment or nomination to our
board of directors, tied to its ownership of our Class A common stock.
On July 9, 2014, we closed a private placement of equity securities in
which we issued units consisting of an aggregate of 2,919,301 shares of our Class A common stock and warrants to purchase up to 1,313,686 additional shares of our Class A common stock for net proceeds of approximately $6.4 million. We used
the net proceeds for general working capital purposes and to support the launch of our residential leasing platform.
At September 30, 2014, there
was approximately $1.7 million of available borrowing capacity under our revolving line of credit with Silicon Valley Bank. We also had $3.4 million of net working capital, including $1.8 million of cash. We continue to
pursue operational improvements to reduce our operating cash requirements. As of November 13, 2014, the Company had cash on hand of approximately $0.9 million.
The company has prepared its business plan for 2015 and believes it has sufficient financial resources to operate for the ensuing 12-month period from
September 30, 2014. This plan has the objective of reducing the companys present operating losses and returning the company to profitable operations in the future. Elements of this plan include, among others, (i) realizing operating
costs savings from reductions in staff, (ii) the positive impact of the strategic decision to exit the large commercial segment which operated at both a substantial cash and operating loss, (iii) expanding the companys sales teams in
select markets for additional revenue, (iv) expanding the companys construction capability both through additional in-house construction crews and authorized third-party integrators to realize the revenue from installation of the
companys backlog, (v) changing the mix of marketing expenditures to achieve a lower cost of acquisition than that employed in prior periods, and (vi) focused internal efforts to convert the companys accounts receivable to cash.
32
Cash Flows
The following table summarizes our primary sources (uses) of cash during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, |
|
(in thousands) |
|
2014 |
|
|
2013 |
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities continuing operations |
|
$ |
(12,966 |
) |
|
$ |
(12,627 |
) |
Operating activities discontinued operations |
|
|
(18,333 |
) |
|
|
3,995 |
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
(31,299 |
) |
|
|
(8,672 |
) |
|
|
|
|
|
|
|
|
|
Investing activities continuing operations |
|
|
11,903 |
|
|
|
(1,309 |
) |
Investing activities discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
11,903 |
|
|
|
(1,309 |
) |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
8,716 |
|
|
|
1,893 |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
$ |
(10,680 |
) |
|
$ |
(8,088 |
) |
|
|
|
|
|
|
|
|
|
Continuing Operations
Operating activities. Our operating activities used net cash of $13.0 million and $12.6 million during the nine months ended September 30, 2014 and
2013, respectively. Our net cash used in operating activities during the nine months ended September 30, 2014 was primarily due to our net loss, as adjusted by noncash items of $14.2 million, increased accounts receivable of
$1.5 million, deferred costs on uncompleted contracts of $3.5 million, and a net change in other assets and liabilities of $0.2 million, partially offset by a decrease in accounts payable of $4.7 million, and billings in excess of
costs and deferred revenue of $1.7 million. Net cash used in operating activities includes approximately $2.2 million related to the payment of acquired Sunetric liabilities. Our net cash used in operating activities during the nine months
ended September 30, 2013 was primarily due to decreased accounts payable and accrued liabilities of $2.8 million, increased inventory of $2.4 million and our net loss as adjusted by noncash items of $9.1 million, partially offset by decreased
accounts receivable of $0.9 million and a net change in other assets and liabilities of $0.8 million.
Investing activities. Our investing
activities provided net cash of $11.9 million and used $1.3 million during the nine months ended September 30, 2014 and 2013, respectively. Our net cash provided by investing activities during the nine months ended September 30, 2014
was primarily the result of cash of $12.0 million from acquired businesses, partially offset by acquisition of property and equipment, net of proceeds on disposals of $0.1 million. Our net cash used in investing activities during the nine months
ended September 30, 2013 was to acquire property and equipment for $0.2 million and our investment in the acquisition of Syndicated Solar, Inc. for $1.1 million.
Financing activities. Our financing activities provided net cash of $8.7 million and $1.9 million during the nine months ended September 30,
2014 and 2013, respectively. Our net cash provided by financing activities during the nine months ended September 30, 2014 reflected the net issuance of Class A common stock and warrants of $6.4 million, net borrowings on our revolving
line of credit of $4.8 million and proceeds from the exercise of warrants and options of $0.6 million, partially offset by the repayment of a $2.0 million term loan to Silicon Valley Bank and the repayment of a related party debt of $1.0 million.
Our net cash provided by financing activities during the nine months ended September 30, 2013 reflected the net issuance of Class A common stock and warrants of $8.4 million, repayments of our line of credit of $6.5 million and other
debt and capital lease obligations of $97,000, partially offset by proceeds from the exercise of stock options of $74,000.
Discontinued Operations
Operating activities. Our operating activities used net cash of $18.3 million and provided $3.9 million during the nine months ended
September 30, 2014 and 2013, respectively. Our net cash used in operating activities during the nine months ended September 30, 2014 was primarily due to our net loss, as adjusted by noncash items, of $12.4 million, increased by cost
in excess of billings of $2.9 million, accounts payable and accrued expenses of $4.4 million, and billings in excess of costs of $1.5 million, partially offset by accounts receivable of $2.1 million, and a net change in other
assets and liabilities of $0.2 million. Our net cash provided by operating activities during the nine months ended September 30, 2013 was primarily due to our net income of $1.6 million, decreased accounts receivable of
$3.6 million and increased billings in excess of costs of $1.6 million, partially offset by accounts payable and accrued liabilities of $1.6 million, costs in excess of billings on uncompleted contracts of $4.6 million and
inventory of $1.2 million.
33
Off-Balance Sheet Arrangements
We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as special purpose entities or
variable interest entities, which have been established for the purpose of facilitating off-balance sheet arrangements or other limited purposes.
Risk
Factors
We caution that there are risks and uncertainties that could cause our actual results to be materially different from those indicated by
forward-looking statements that, from time-to-time, we make in filings with the Securities and Exchange Commission, news releases, reports, proxy statements, registration statements and other written communications as well as oral forward-looking
statements made by our representatives, from time to time. These risks and uncertainties include, but are not limited to, those risks listed in our Annual Report on Form 10-K for the year ended December 31, 2013. Except for the historical
information contained herein, the matters discussed in this analysis are forward-looking statements that involve risk and uncertainties, including, but not limited to, general economic and business conditions, competition, pricing, brand reputation,
consumer trends, and other factors which are often beyond our control. We do not undertake any obligation to update forward-looking statements except as required by law.
Investing in our securities involves significant risks. You should carefully read the risk factors in the section entitled RISK FACTORS in our
Annual Report on Form 10-K for the year ended December 31, 2013, which is on file with the SEC. Before making an investment decision, you should carefully consider these risks as well as other information we include or incorporate by reference
in this prospectus and any prospectus supplement. The risks and uncertainties we have described are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also
affect our business operations. We do not undertake any obligation to update forward-looking statements except as required by law.
34
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
Not applicable.
Item 4. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Principal Accounting Officer, evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act)) at the end of the period covered by this report. Based on such evaluation, our management concluded that,
at the end of such period, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
No changes in our internal control over financial reporting occurred during the three and nine months ended September 30, 2014 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART
II OTHER INFORMATION
Item 1. |
Legal Proceedings |
From time to time, we are involved in legal proceedings that we consider to be in the
normal course of business. We do not believe that any of these proceedings will have a material adverse effect on our business.
As disclosed in Footnote
14. The Company has resolved the previously disclosed matter related to one of its commercial customers.
There have been no material changes from the risk factors disclosed in Item 1A of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
On each of September 30, 2014 and August
22, 2014, we issued 37,430 shares of our Class A common stock to Syndicated Solar, Inc. pursuant to the terms of the Asset Purchase Agreement, dated as of August 9, 2013, by and among us, Real Goods Syndicated, Inc., two Syndicated Solar, Inc.
entities and Justin Pentelute, the owner of Syndicated Solar, Inc., as amended by the Settlement and Release Agreement, dated as of May 12, 2014 (as amended, the Syndicated Asset Purchase Agreement), as previously reported in our
Quarterly Report on Form 10-Q filed on May 15, 2014. The September 30, 2014 issuance was the final tranche of our Class A common stock issuable pursuant to the Syndicated Asset Purchase Agreement.
Item 5. |
Other Information |
On November 19, 2014, our wholly-owned subsidiaries Real Goods Energy Tech, Inc.,
Real Goods Trading Corporation, Alteris Renewables, Inc., Real Goods Syndicated, Inc., Mercury Energy, Inc., Real Goods Solar, Inc.Mercury Solar, Elemental Energy, LLC and Sunetric Management LLC (collectively, the Borrowers)
entered into a Seventh Loan Modification Agreement (the Loan Agreement Amendment) with Silicon Valley Bank pursuant to which the parties thereto agreed to certain amendments to the Loan Agreement.
The Loan Agreement Amendment reduced the amount of available credit under the revolving line of credit to $5.5 million, reduced the borrowing base by $1
million, made Streamline Periods (as defined in the Loan Agreement) and the more favorable terms applicable during Streamline Periods unavailable, reset financial covenants and made other conforming and administrative amendments to the Loan
Agreement.
In the Loan Agreement Amendment, Silicon Valley Bank also waived our failure to comply with the minimum liquidity and two separate EBITDA
financial covenants contained in Section 6.9 of the Loan Agreement for the quarterly compliance periods ended September 30, 2014 and October 31, 2014, as applicable.
In connection with the Loan Agreement Amendment, the Company issued to Silicon Valley Bank a Warrant to Purchase Stock (the Warrant), pursuant to
which Silicon Valley Bank has the right to purchase 203,704 shares of the Companys Class A Common Stock with an exercise price of $0.81 per share, subject to adjustment. The Warrant expires November 18, 2021.
In connection with the Loan Agreement Amendment, the Borrowers paid to Silicon Valley Bank a non-refundable modification fee of $10,000. Borrowers shall also
reimburse Silicon Valley Bank for certain expenses incurred in connection with entering into the Loan Agreement Amendment.
|
|
|
Exhibit
No. |
|
Description |
|
|
4.1* |
|
Form of Warrant issued to the Investors under the Securities Purchase Agreement, dated July 2, 2014, among Real Goods Solar, Inc. and such Investors (incorporated by reference to Exhibit 4.1 to Real Goods Solar, Inc.s Current
Report on Form 8-K filed July 3, 2014 (No. 001-34044)) |
|
|
10.1* |
|
Securities Purchase Agreement, dated July 2, 2014, among Real Goods Solar, Inc. and the Investors party thereto (incorporated by reference to Exhibit 10.1 to Real Goods Solar, Inc.s Current Report on Form 8-K filed July 3,
2014 (No. 001-34044)) |
35
|
|
|
|
|
10.2* |
|
Form of Registration Rights Agreement among Real Goods Solar, Inc. and the Investors under the Securities Purchase Agreement, dated July 2, 2014, among Real Goods Solar, Inc. and such Investors (incorporated by reference to
Exhibit 10.2 to Real Goods Solar, Inc.s Current Report on Form 8-K filed July 3, 2014 (No. 001-34044)) |
|
|
10.3* |
|
Confidential Separation Agreement and Release, dated August 18, 2014, between Real Goods Solar, Inc. and Kamyar (Kam) Mofid |
|
|
10.4* |
|
Form of Third Amended and Restated Promissory Note issued to Riverside Fund III, L.P. on August 18, 2014 in the principal amounts of $3.0 million and $150,000, respectively |
|
|
10.5* |
|
Waiver Agreement, dated August 19, 2014, among Real Goods Energy Tech, Inc., Real Goods Trading Corporation, Alteris Renewables, Inc., Real Goods Syndicated, Inc., Mercury Energy, Inc., Real Goods Solar, Inc. Mercury Solar,
Elemental Energy, LLC, Sunetric Management, LLC and Silicon Valley Bank |
|
|
31.1* |
|
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 |
|
|
31.2* |
|
Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 |
|
|
32.1** |
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
32.2** |
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
101.INS |
|
XBRL Instance Document. |
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema. |
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase. |
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase. |
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase. |
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase. |
36
SIGNATURES
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, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
Real Goods Solar, Inc. |
|
|
|
|
(Registrant) |
|
|
|
|
Date: November 19, 2014 |
|
|
|
By: |
|
/s/ Dennis Lacey |
|
|
|
|
|
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Dennis Lacey |
|
|
|
|
|
|
Chief Executive Officer (authorized officer and
acting principal financial officer) |
|
|
|
|
Date: November 19, 2014 |
|
|
|
By: |
|
/s/ Alan Fine |
|
|
|
|
|
|
Alan Fine |
|
|
|
|
|
|
Treasurer and Principal Accounting Officer |
37
EXHIBIT INDEX
|
|
|
Exhibit
No. |
|
Description |
|
|
4.1* |
|
Form of Warrant issued to the Investors under the Securities Purchase Agreement, dated July 2, 2014, among Real Goods Solar, Inc. and such Investors (incorporated by reference to Exhibit 4.1 to Real Goods Solar, Inc.s Current
Report on Form 8-K filed July 3, 2014 (No. 001-34044)) |
|
|
10.1* |
|
Securities Purchase Agreement, dated July 2, 2014, among Real Goods Solar, Inc. and the Investors party thereto (incorporated by reference to Exhibit 10.1 to Real Goods Solar, Inc.s Current Report on Form 8-K filed July 3,
2014 (No. 001-34044)) |
|
|
10.2* |
|
Form of Registration Rights Agreement among Real Goods Solar, Inc. and the Investors under the Securities Purchase Agreement, dated July 2, 2014, among Real Goods Solar, Inc. and such Investors (incorporated by reference to Exhibit
10.2 to Real Goods Solar, Inc.s Current Report on Form 8-K filed July 3, 2014 (No. 001-34044)) |
|
|
10.3* |
|
Confidential Separation Agreement and Release, dated August 18, 2014, between Real Goods Solar, Inc. and Kamyar (Kam) Mofid |
|
|
10.4* |
|
Form of Third Amended and Restated Promissory Note issued to Riverside Fund III, L.P. on August 18, 2014 in the principal amounts of $3.0 million and $150,000, respectively |
|
|
10.5* |
|
Waiver Agreement, dated August 19, 2014, among Real Goods Energy Tech, Inc., Real Goods Trading Corporation, Alteris Renewables, Inc., Real Goods Syndicated, Inc., Mercury Energy, Inc., Real Goods Solar, Inc. Mercury Solar,
Elemental Energy, LLC, Sunetric Management, LLC and Silicon Valley Bank |
|
|
31.1* |
|
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 |
|
|
31.2* |
|
Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 |
|
|
32.1** |
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
32.2** |
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
101.INS |
|
XBRL Instance Document. |
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema. |
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase. |
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase. |
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase. |
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase. |
Exhibit 10.3
CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE
This CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE (this Agreement) dated August 18, 2014, is made by and between Real
Goods Solar, Inc., a Colorado corporation (the Company), and Kamyar (Kam) Mofid (Employee).
WHEREAS, the Company and Employee are parties to the Restated Employment Letter, dated December 21, 2012 (the Employment
Agreement);
WHEREAS, the Company and Employee are parties to certain stock option agreements (collectively, the Option
Agreements);
WHEREAS, the parties desire to terminate Employees employment relationship with the Company (the
Separation) with such termination to be effective as of the date hereof (the Separation Date);
NOW,
THEREFORE, in consideration of the mutual promises and covenants described below, the parties agree as follows:
1. EFFECTIVE DATE.
The effective date of this Agreement is the date that is seven days after the date that Employee executes this Agreement (Effective Date), unless earlier revoked pursuant to Section 18.
2. RESIGNATION. Effective upon the Separation Date, Employee hereby voluntarily resigns from his employment and any and all other
positions with the Company and its subsidiaries.
3. PAYMENTS TO EMPLOYEE. The Company shall pay to Employee all wages due and
owing through the Separation Date in accordance with the Companys regular payroll practices, less all authorized deductions and withholdings for applicable federal, state and local taxes and health insurance premiums. Employee shall be
reimbursed for any business expenses incurred by him on behalf of the Company through the Separation Date which have not been previously paid, provided such expenses are incurred and submitted in accordance with the Companys expense
reimbursement policies. Notwithstanding the foregoing, Employee will continue to provide transition services to the Company through September 12th 2014, during which time, Employee will be
compensated through the Companys regularly scheduled payroll by drawing down his accrued paid time off of 124 hours.
3.1 Within
thirty (30) days following the Separation Date, the Company shall pay to Employee a lump sum cash severance payment equal to $300,000, subject to all applicable payroll deductions. In addition, if Employee timely elects continuation coverage
under the Companys group health plan pursuant to Code Section 4980B (COBRA Coverage) following the Separation, Employee will be entitled to such COBRA Coverage at active employee rates, as amended from time to time, for
up to
twelve (12) months following the Separation. All other benefits, including but not limited to health insurance, life insurance, disability insurance, etc., shall cease effective as of the
Separation Date.
3.2 Employee hereby waives the right to receive any bonus payments in connection with Employees relationship with
the Company (except to the extent any such bonuses have already been paid) and any other severance payments or other benefits to which Employee may have been eligible under the Employment Agreement except as set forth herein.
3.3 The Company and Employee acknowledge and agree that, except as expressly provided herein, the Employment Agreement is terminated effective
as of the Separation Date and the parties shall have no further rights or obligations thereunder.
4. OPTION AGREEMENTS.
Employee acknowledges and agrees that effective upon the Separation Date, the options to purchase shares of the Companys stock issued pursuant to the Option Agreements shall cease to vest, and the Employees rights to exercise vested
stock options shall be subject to the terms and conditions of the each of the Option Agreements; provided, however, the Company and Employee agree that Employee shall have the right to exercise any vested options under the Option Agreements for the
time period that is the lesser of (a) eighteen (18) months from the Separation Date, or (b) the expiration of the latest date available to exercise the options under the Option Agreements. To the extent the terms of this paragraph
conflict with the Option Agreements, this Agreement shall be deemed an amendment to the Option Agreements. Company agrees to allow Employee to avail himself of the services of the Companys SEC counsel to effectuate the exercise and disposition
of Employees shares in accordance with SEC rules and regulations in accordance with the Companys standard practices.
5.
DISPARAGING STATEMENTS. Employee agrees that Employee will not make false or misleading statements to any person or entity regarding the Company or any of its current officers or directors,. The Company agrees that the Company (including,
during his employment with the Company, the directors of the Companys Board, the CEO, CFO and the Director of Human Resources) will not make false or misleading statements to any person or entity regarding Employee; provided however, nothing
herein shall prohibit the Company from making any disclosures otherwise required by law.
6. COOPERATION. Following the Effective
Date and upon the request of the Company (with reasonable advance notice), Employee agrees to reasonably cooperate with and assist the Company with respect to matters known to or handled by Employee during his relationship with the Company.
2
7. RELEASES.
7.1 Employee hereby releases and forever discharges the Company, and the Companys affiliates, subsidiaries, parents, successors, assigns
and other affiliated entities, past present and future, and each of them, as well as its and their officers, directors, attorneys, managers, agents and employees (collectively, the Company Releasees) from all claims, known or
unknown, which Employee ever had or now has or may hereafter claim to have had as of or prior to the date of this Agreement with respect to the Separation or Employees relationship by the Company and any other action, event or matter (the
Released Claims), except to the extent arising or relating to this Agreement. These claims may include, but are not limited to, claims based on (a) the Age Discrimination in Employment Act of 1967, 29 U.S.C. 621 et seq., as
amended; The Older Workers Benefit Protection Act, Pub. Law 101-433, 104 Stat. 978 (1990); Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000-e, as amended; the Americans with Disabilities Act; the Civil Rights Acts of 1866, 1871, and
1991; the Family and Medical Leave Act; the Equal Pay Act of 1963; the Employee Retirement and Income Security Act of 1974; The Occupational Safety and Health Act, as amended; The Fair Labor Standards Act, as amended; the Consolidated Omnibus Budget
Reconciliation Act of 1985; (b) any and all claims under Colorado or any other states statutory or decisional law, including, but not limited to, the Colorado Anti-Discrimination Act, pertaining to employment discrimination or harassment,
wrongful discharge or breach of public policy; (c) state, federal or common law relation to breach of express or implied contract, wrongful termination, employment discrimination or harassment, emotional distress, privacy rights, fraud or
misrepresentation, defamation, negligence, infliction of emotional distress, any intentional torts, and outrageous conduct; and (d) any and all claims for any of the following: money damages, including actual, compensatory, liquidated or
punitive damages, equitable relief such as reinstatement or injunctive relief, front or back pay, wages, benefits, sick pay, vacation pay, costs, interest, expenses, attorneys fees, or any other remedies. Nothing in this Release or this
Agreement shall constitute a release of any claim that Employee may hereafter have (i) arising out of the performance of this Agreement; (ii) relating to Employees rights under employee benefit plans of the Company; or
(iii) relating to Employees rights to indemnification under the Indemnification Agreement, the Articles and/or the Bylaws.
7.2
Employee further agrees not to file, pursue or participate, and shall cause each of its representatives not to file, pursue or participate, in any allegations, complaints, claims, charges, actions or proceedings of any kind in any forum against any
of the Company Releasees with respect to any matter arising out of or in connection with the employment of Employee, the Separation, or any other Released Claim, other than pursuing a claim for breach of any provision or covenant of this Agreement.
7.3 The Company hereby represents and warrants, that as of the date hereof, there exist no claims or causes of action against Employee,
nor does there exist any set of facts that could reasonably constitute the basis for any claim or cause of action against Employee, which, in each case, have been brought to the attention of the CEO, the CFO the Board of Directors, the Compensation
Committee or the Audit Committee.
3
8. RETURN OF PROPERTY. While employed by the Company, Employee has received certain
property, including, but not limited to, files, computer data, keys, laptop computer and accessories, cell phone with SIM card and access card, and Employee may receive additional property in connection with the performance of the Transition
Services. Employee will promptly return in good condition any and all property in his possession belonging to the Company on or before the Separation Date. Employee further agrees to promptly and permanently delete any non-public, confidential
information related or belonging to the Company from any email account(s), cloud-based storage, personal computer(s), personal electronic devices, and all storage media. Employee will provide the Company, on or prior to the date Employee executes
this Agreement with any passwords, source codes, administrative access or other information in his possession with respect to work performed for the Company. Employee agrees promptly to take all steps necessary to ensure the transfer to the Company
of any online social media accounts, including but not limited to Twitter accounts and blogs, maintained by Employee for, on behalf of, or as a representative of, the Company. Employee expressly understands that any email address and/or telephone
number assigned to him by the Company are and remain the property of the Company, and Employee has no interest therein.
9. NO
ADMISSIONS. Nothing in this Agreement, including the payment of any sums by the Company, constitutes an admission by the Company or Employee of any legal wrong in connection with the relationship of Employee or the Separation.
10. AGREEMENT UNDERSTOOD. Employee is relying on Employees own judgment and on the advice of Employees attorneys, and not
upon any recommendations by the Company or its directors, officers, employees, agents, attorneys, or other representatives. Employee agrees that this agreement shall not be construed against either party on the grounds of authorship.
11. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and the validity and performance hereof shall be
governed by, the laws of the State of Colorado, without giving effect to conflicts of laws principles. Unless waived by the Company in writing, any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of
or in connection with, this Agreement shall be brought in Boulder County, Colorado. Employee irrevocably consents to the exclusive jurisdiction of such courts (and the appropriate appellate courts) in any such suit, action or proceeding.
12. SEVERABILITY. In the event that any one or more of the provisions of this Agreement shall for any reason be held to be invalid or
unenforceable, the remaining provisions of this Agreement shall be unimpaired, and shall remain in effect and be binding upon the parties.
4
13. AMENDMENTS. No amendment, waiver, change or modification of any of the terms,
provisions or conditions of this Agreement shall be effective unless made in writing and signed or initialed by the parties or by their duly authorized agents. Waiver of any provision of this Agreement shall not be deemed a waiver of future
compliance therewith and such provision shall remain in full force and effect.
14. ASSIGNMENT. Employee hereby represents that
neither this Agreement nor any right or obligation hereunder has been assigned by Employee. Employee agrees that no such right or obligation may be assigned by Employee, without the prior written consent of the Company, and any purported transfer or
assignment in violation of this provision will be void. The Company may assign its rights and duties hereunder, and this Agreement shall be binding upon and inure to the benefit of the Companys successors and assigns (whether by operation of
law, merger, change of control or otherwise).
15. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument, and in making proof hereof, it shall not be necessary to produce or account for more than on such counterpart.
16. COSTS, EXPENSES, AND ATTORNEYS FEES. In the event any claim, default or violation is asserted by a party to this Agreement
regarding any of the terms or conditions or this Agreement, a party may enforce this instrument by appropriate action, and should any of the parties prevail in such litigation, that prevailing party shall recover all costs, expenses, and reasonable
attorneys fees incurred in such litigation.
17. FINAL AGREEMENT. This Agreement sets forth the entire understanding of the
parties and supersedes any and all prior written or oral agreements, and no written or oral representation, promise, inducement or statement of intention has been made by either party which is not embodied herein.
18. ACKNOWLEDGMENT UNDER THE ADEA. The parties acknowledge that this is an important legal document. Employee is advised to consult
with an attorney before signing this Agreement. Employee is also advised that Employee has twenty-one (21) days after receiving this Agreement to consider it. If Employee chooses to agree to the terms of this Agreement, Employee must sign and return
the Agreement to Crystine Hodges at the address below within twenty-one (21) days of Employees receipt of this Agreement. If Employee signs the Agreement, Employee will then have the right to revoke this Agreement by delivering written
revocation to Crystine Hodges, but such notice must be received by Crystine Hodges within seven (7) days after the date Employee signed the Agreement. The signed Agreement or any notice of revocation must be delivered by an overnight delivery
service or by certified mail, return receipt requested, to:
5
Crystine Hodges
833 W. South Boulder Road
Louisville, CO 80027
This Agreement is binding
upon and shall inure to the benefit of the Company and Employee. By signing this Agreement, the parties represent that they have read and understand it, that they have discussed or had an opportunity to discuss it voluntarily with their respective
attorneys, and that they enter into it knowingly and voluntarily.
Employee acknowledges that the first $500.00 of consideration paid of the severance
payments described above is consideration for release of any age-related claim.
6
|
|
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DATED as of August 18, 2014 |
|
Real Goods Solar, Inc. |
|
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By: |
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/s/ David Belluck |
|
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Name: David Belluck |
|
|
Title: Chairman of the Board & Chairman of the Compensation Committee |
|
/s/ Kamyar (Kam) Mofid |
Kamyar (Kam) Mofid |
7
Exhibit 10.4
On August 19, 2014, the Company issued two promissory notes to Riverside Fund III, L.P. in the attached Form of Third Amended and Restated Promissory
Note in the following principal amounts with the following maturity dates:
|
|
|
Principal Amount: |
|
Maturity Date: |
$3,000,000 |
|
March 31, 2015 |
$150,000 |
|
March 31, 2015 |
Additionally, the note in the principal amount of $150,000 contains the following additional clause inserted after the words
Shareholders Agreement in the third from last paragraph:
and the Third and Amended Restated Promissory Note, dated August 19,
2014, between Maker and Payee
This third amended and restated promissory note (this Note) has not been
registered under the Securities Act of 1933, as amended, or under the securities laws of any state. No transfer, sale or other disposition of this Note may be made unless a registration statement with respect to this Note has become effective under
said Act, and such registration or qualification as may be necessary under the securities laws of any state has become effective, or the Maker (as defined below) has been furnished with an opinion of counsel satisfactory to the Maker that such
registration is not required.
Payments of principal and interest in respect of this Note are subordinated to payments of certain other
indebtedness of the Maker, as set forth herein.
THIRD AMENDED AND RESTATED PROMISSORY NOTE
Louisville, Colorado
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|
|
$ |
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|
|
August 18, 2014 (the Issue Date) |
FOR VALUE RECEIVED, the undersigned, REAL GOODS SOLAR, INC., a Colorado corporation
(Maker), PROMISES TO PAY TO THE ORDER OF RIVERSIDE FUND III, L.P. or its registered assigns (the Payee), the sum of
($ ), in lawful money of the United States of America, together with interest on the unpaid principal amount, all in accordance with the provisions stipulated herein.
Interest shall accrue on the principal amount of this Note at the rate of ten percent (10.0%) per annum, compounded annually, calculated
based on a 360-day year, and accruing daily from the Original Issue Date until repaid.
All unpaid principal and all accrued but unpaid
interest shall mature and become due and payable in full on the earlier of March 31, 2015 and the occurrence of a Proceeding (the Maturity Date). For the purposes of this Note, a Proceeding shall mean either (a) an
involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of Maker or such persons debts, or of a substantial part of such persons assets, under
any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Maker or for a
substantial part of such persons assets, and, in any such case, such proceeding or petition shall continue undismissed for a period of 60 or more days or an order or decree approving or ordering any of the foregoing shall be entered, or
(b) Maker shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (a) above, (iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for Maker or for a substantial part of such persons assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding,
(v) make a general assignment for the benefit of creditors, or (vi) take any action for the purpose of effecting any of the foregoing.
This Note is one of the promissory notes referred to in that certain Shareholders Agreement,
dated as of December 19, 2011 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the Shareholders Agreement), by and among Maker, Riverside Renewable Energy Investments, LLC and
Gaiam, Inc., and is subject to the provisions of the Shareholders Agreement. All rights and remedies available to Payee under this Note shall be cumulative of and in addition to all other rights and remedies granted to Payee at law or in equity.
Maker agrees, and Payee by accepting this Note agrees, that this Note, and the indebtedness evidenced hereby, including all principal and
interest (the Subordinated Obligations), shall be subordinate and junior in right of payment to the prior payment in full in cash of all indebtedness for borrowed money (the Senior Obligations) owed by Maker to
any lenders unaffiliated with Maker (the Senior Lenders), and that such subordination of the payment of the Subordinated Obligations to the payment in full of the Senior Obligations shall be subject to customary subordination
terms reasonably acceptable to such Senior Lenders, including the following:
(a) the subordination provisions shall be
effective and apply to the Subordinated Obligations until such time as (i) the Senior Obligations shall be repaid in full in cash, and (ii) all commitments of the Senior Lenders to make loans or other credit extensions to or on behalf of
Maker shall expire or terminate (the Senior Obligations Termination); and
(b) notwithstanding any
provision in this Note to the contrary, prior to the earlier of the Maturity Date and the Senior Obligations Termination, Payee shall not ask, demand, sue for, take or receive from Maker or any other person or entity, directly or indirectly, in cash
or other property or by set-off or in any other manner, and Maker shall not repay, or cause to be repaid, any or all of the Subordinated Obligations, except under customary terms reasonably acceptable to the Senior Lenders.
Subject to the foregoing provisions, Maker shall have the right to prepay this Note at any time without premium or penalty, provided that
payments will be applied first to accrued and unpaid interest on the principal amount and the balance, if any, to the reduction of principal.
No modification, amendment, termination, or cancellation of any provision of this Note shall be valid and binding, unless it be in writing and
signed by Maker and Payee. No failure or delay on the part of Payee in exercising any right, power or privilege hereunder and no course of dealing between Maker and Payee shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
This Note, together with the Shareholders Agreement, represents the final agreement between Maker and Payee and may not be contradicted by
evidence of prior, contemporaneous, or subsequent oral agreements between Maker and Payee. There are no unwritten oral agreements between Maker and Payee.
This Note is issued in replacement of and substitution for, but not in repayment or novation of,
the Second Amended and Restated Promissory Note, dated as of May 23, 2013, the Amended and Restated Promissory Note, dated as of March 27, 2013 and the original Promissory Note dated as of
, 2012 (the Original Issue Date), each in the original principal amount of $ .
This Note shall be governed by, and construed in accordance with the laws of the State of Colorado.
[SIGNATURES ON THE FOLLOWING PAGE]
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of the date first stated above.
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MAKER: |
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REAL GOODS SOLAR, INC. |
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By: |
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Name: |
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Anthony M. Dipaolo |
Title: |
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Chief Financial Officer |
Acknowledged and Agreed:
PAYEE:
RIVERSIDE FUND III, L.P.
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By: |
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Riverside Partners III, LP, its general partner |
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By: |
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Riverside Partners III, LLC, its general partner |
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By: |
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Name: |
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David Belluck |
Title: |
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Manager |
Exhibit 10.5
WAIVER AGREEMENT
This
Waiver Agreement (this Waiver Agreement) is entered into as of August 19, 2014, by and among (i) SILICON VALLEY BANK, a California corporation with a loan production office located at 555 Mission St., Suite
900, San Francisco, California 94105 (Bank), and (ii) REAL GOODS ENERGY TECH, INC., a Colorado corporation (Real Goods Energy), REAL GOODS TRADING CORPORATION, a California
corporation (Real Goods Trading), ALTERIS RENEWABLES, INC., a Delaware corporation (Alteris) and REAL GOODS SYNDICATED, INC., a Delaware corporation (Syndicated),
MERCURY ENERGY, INC., a Delaware corporation (Mercury), REAL GOODS SOLAR, INC. MERCURY SOLAR, a New York corporation (Mercury Solar), ELEMENTAL ENERGY, LLC, a Hawaii limited
liability company (Elemental), and SUNETRIC MANAGEMENT LLC, a Delaware limited liability company (Sunetric, and together with Real Goods Energy, Real Goods Trading, Alteris, Syndicated, Mercury, Mercury Solar
and Elemental, individually and collectively, jointly and severally, the Borrower).
1. DESCRIPTION OF EXISTING INDEBTEDNESS AND
OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of December 19, 2011, evidenced by, among other documents, a certain Loan and
Security Agreement, dated as of December 19, 2011, as amended by a certain First Loan Modification Agreement, dated as of August 28, 2012, as further amended by a certain Second Loan Modification and Reinstatement Agreement, dated as of
November 13, 2012, as further amended by a certain Third Loan Modification Agreement, dated as of March 27, 2013, as further amended by a certain Joinder and Fourth Loan Modification Agreement, dated as of September 26, 2013, as
further amended by a certain Fifth Loan Modification Agreement, dated as of November 5, 2013, and as further amended by a certain Joinder and Sixth Loan Modification Agreement, dated as of June 6, 2014 (as amended, the Loan
Agreement). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.
2. DESCRIPTION OF
COLLATERAL Repayment of the Obligations is secured by (i) the Collateral as described in the Loan Agreement, (ii) that certain Security Agreement, dated as of December 19, 2011, between the Secured Guarantor and Bank (as amended,
the Security Agreement), (ii) the Intellectual Property Collateral, as such term is defined in that certain Intellectual Property Security Agreement, dated as of September 26, 2013, by and between Bank and
Borrower, and (iii) the Intellectual Property Collateral, as such term is defined in that certain Intellectual Property Security Agreement, dated as of June 6, 2014, by and between Bank and Borrower (together with any other
collateral security granted to Bank, the Security Documents). Hereinafter, the Loan Agreement, together with all other documents executed in connection therewith evidencing, securing or otherwise relating to the Obligations shall
be referred to as the Existing Loan Documents.
3. ACKNOWLEDGMENT OF DEFAULTS; WAIVER. Borrower acknowledges that it is
currently in default under the Loan Agreement by its failure to comply with (i) the Liquidity financial covenant contained in Section 6.9(a) of the Loan Agreement for the compliance period ended June 30, 2014 and (ii) the minimum
EBITDA financial covenant contained in Section 6.9(b) of the Loan Agreement for the compliance period ended June 30, 2014 (each and together, the Existing Default). Bank hereby waives Borrowers Existing Default for
the compliance period indicated above. Banks waiver of Borrowers compliance with said Existing Default shall apply only to the foregoing specific compliance period. The Borrower hereby acknowledges and agrees that except as specifically
provided in this Section, nothing in this Section or anywhere in this Waiver Agreement shall be deemed or otherwise construed as a waiver by the Bank of any of its rights and remedies pursuant to the Existing Loan Documents, applicable law or
otherwise.
4. FEES. Borrower shall pay to Bank a waiver fee equal to Ten Thousand Dollars ($10,000), which fee shall be due and payable on the
date hereof and shall be non-refundable and deemed fully earned as of the date hereof. Borrower shall also reimburse Bank for all legal fees and expenses incurred in connection with the Existing Loan Documents and this Waiver Agreement.
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.
6. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of the Loan Agreement and each other Loan
Document, and of all security or other collateral granted to the Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.
1
7. NO DEFENSES OF BORROWER. Borrower hereby acknowledges and agrees that Borrower has no offsets,
defenses, claims, or counterclaims against Bank with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Bank, whether known or unknown, at law or in
equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Bank from any liability thereunder.
8. CONTINUING VALIDITY. Borrower
understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrowers representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Waiver
Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Banks agreement to modify the Existing Loan Documents pursuant to this Waiver Agreement in no way shall obligate Bank to make any future
modifications to the Obligations. Nothing in this Waiver Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker will be released by virtue of this Waiver Agreement.
9. JURISDICTION/VENUE. Section 11 of the
Loan Agreement is hereby incorporated by reference.
10. COUNTERSIGNATURE. This Waiver Agreement shall become effective only when it shall have
been executed by Borrower and Bank.
[Signature page follows.]
2
This Waiver Agreement is executed as of the date first written above.
BORROWER:
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REAL GOODS ENERGY TECH, INC. |
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REAL GOODS SYNDICATED, INC. |
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By: |
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/s/ Anthony Dipaolo |
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By: |
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/s/ Anthony Dipaolo |
Name: |
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Anthony M. Dipaolo |
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Name: |
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Anthony M. Dipaolo |
Title: |
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Chief Financial Officer |
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Title: |
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Chief Financial Officer |
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REAL GOODS ENERGY TRADING CORPORATION |
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ALTERIS RENEWABLES, INC. |
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By: |
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/s/ Anthony Dipaolo |
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By: |
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/s/ Anthony Dipaolo |
Name: |
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Anthony M. Dipaolo |
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Name: |
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Anthony M. Dipaolo |
Title: |
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Chief Financial Officer |
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Title: |
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Chief Financial Officer |
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MERCURY ENERGY, INC. |
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ELEMENTAL ENERGY, LLC |
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By: |
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/s/ Anthony Dipaolo |
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By: |
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/s/ Anthony Dipaolo |
Name: |
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Anthony M. Dipaolo |
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Name: |
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Anthony M. Dipaolo |
Title: |
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Chief Financial Officer |
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Title: |
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Chief Financial Officer |
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REAL GOODS SOLAR, INC. MERCURY SOLAR |
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SUNETRIC MANAGEMENT LLC |
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By: |
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/s/ Anthony Dipaolo |
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By: |
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/s/ Anthony Dipaolo |
Name: |
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Anthony M. Dipaolo |
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Name: |
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Anthony M. Dipaolo |
Title: |
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Chief Financial Officer |
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Title: |
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Chief Financial Officer |
BANK:
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SILICON VALLEY BANK |
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By: |
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/s/ Elisa Sun |
Name: |
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Elisa Sun |
Title: |
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Vice President |
Acknowledgment and Agreement:
The undersigned ratifies, confirms and reaffirms, all and singular, the terms and conditions of a certain Second Amended and Restated Unconditional Guaranty
and a certain Second Amended and Restated Security Agreement, each dated as of June 6, 2013, and each document executed in connection therewith, and acknowledges, confirms and agrees that the Second Amended and Restated Unconditional Guaranty,
Second Amended and Restated Security Agreement and each document executed in connection therewith shall remain in full force and effect and shall in no way be limited by the execution of this Waiver Agreement, or any other documents, instruments
and/or agreements executed and/or delivered in connection herewith.
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REAL GOODS SOLAR, INC. |
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By: |
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/s/ Anthony Dipaolo |
Name: |
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Anthony M. Dipaolo |
Title: |
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Chief Financial Officer |
3
Exhibit 31.1
CERTIFICATION
I, Dennis Lacey, certify
that:
1. |
I have reviewed this quarterly report on Form 10-Q of Real Goods Solar, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and |
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(d) |
disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent functions): |
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(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
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(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: November 19, 2014
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/s/ Dennis Lacey |
Dennis Lacey |
Chief Executive Officer (principal executive
officer and acting principal financial officer) |
Exhibit 31.2
CERTIFICATION
I, Alan Fine, certify
that:
1. |
I have reviewed this quarterly report on Form 10-Q of Real Goods Solar, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and |
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(d) |
disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent functions): |
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(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
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(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: November 19, 2014
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/s/ Alan Fine |
Alan Fine |
Treasurer and Principal Accounting Officer |
Exhibit 32.1
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Real Goods Solar, Inc. (the Company) on Form 10-Q for the period ended
September 30, 2014, as filed with the U.S. Securities and Exchange Commission on the date hereof (the Report), I, Dennis Lacey, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
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(1) |
The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 19, 2014
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/s/ Dennis Lacey |
Dennis Lacey |
Chief Executive Officer (principal executive
officer and acting principal financial officer) |
A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Real Goods Solar, Inc. (the Company) on Form 10-Q for the period ended
September 30, 2014, as filed with the U.S. Securities and Exchange Commission on the date hereof (the Report), I, Anthony DiPaolo, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
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(1) |
The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 19, 2014
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/s/ Alan Fine |
Alan Fine |
Treasurer and Principal Accounting Officer |
A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.