Notes to Condensed Consolidated Financial Statements
1. Organization, Nature of Operations, and Principles of
Consolidation
Real Goods Solar, Inc. (the “Company”
or “RGS”) is in the solar energy systems business as (i) a manufacturer of POWERHOUSE™ 3.0 in-roof solar shingles
and (ii) a residential and small business commercial solar energy engineering, procurement, and construction (“EPC”)
firm.
The consolidated financial statements include the accounts of
RGS and its wholly-owned subsidiaries. RGS has prepared the accompanying consolidated financial statements in accordance with accounting
principles generally accepted in the United States, or “GAAP”, which include the Company’s accounts and those
of its subsidiaries. Intercompany transactions and balances have been eliminated. The Company has included the results of operations
of acquired companies from the effective date of acquisition.
Principles of Consolidation
The Company has prepared its unaudited interim condensed consolidated
financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP
have been condensed or omitted pursuant to these rules and regulations, although the Company believes that the disclosures made
are adequate to make the information not misleading. The unaudited interim financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly, in all material respects, our condensed consolidated balance
sheet as of June 30, 2019, the interim results of operations for the three months and six months ended June 30, 2019 and 2018,
changes in equity for the three and six months ended June 30, 2019 and 2018 and cash flows for the six months ended June 30, 2019
and 2018. These interim statements have not been audited. The balance sheet as of December 31, 2018 was derived from the Company’s
audited consolidated financial statements included in its 2018 10-K. The interim condensed consolidated financial statements contained
herein should be read in conjunction with the audited financial statements, including the notes thereto, for the year ended December
31, 2018.
POWERHOUSE™ License Agreement
On September 29, 2017 (the “Effective Date”), the
Company executed an exclusive domestic and international world-wide Technology License Agreement (the “License”) with
Dow Global Technologies LLC (“Dow”) for its POWERHOUSE™ in-roof solar shingle (“POWERHOUSE™”).
The License allows RGS to market the POWERHOUSE™ 3.0 product using the Dow name for a license fee of $3 million. The License
requires the Company to commercialize and sell a minimum of 50 megawatts of solar within 5-years of obtaining Underwriter Laboratories
(“UL”) Certification to retain exclusive world-wide rights.
The Company obtained UL certification for POWERHOUSE™
3.0 on November 2, 2018, immediately after which the Company commenced commercialization entailing the manufacturing, marketing
and sale of POWERHOUSE™ to roofing companies and homebuilders. In addition, the Company sells POWERHOUSE™ to solar
EPC companies, manufacturers and distributors.
Liquidity and Financial Resources Update
The Company’s historical operating results indicate substantial
doubt exists related to its ability to continue as a going concern. Management’s plans and actions, which are intended to
mitigate the substantial doubt raised by the Company’s historical operating results in order to satisfy its estimated liquidity
needs for a period of 12 months from the issuance of the consolidated financial statements, are discussed below. As the Company
cannot predict, with certainty, the outcome of its actions to generate liquidity, or whether such actions would generate the expected
liquidity as currently planned, management’s plans to mitigate the risk and extend cash resources through the evaluation
period, are not considered probable under current accounting standards for assessing an entity’s ability to continue as a
going concern.
On March 27, 2019, the Company’s Board of Directors determined
to exit its mainland residential solar business to focus on the POWERHOUSE™ in-roof shingle market and reduce overall cash
outflow, with the goal of maximizing future shareholder value. The Company believes this structure and realignment enables it to
effectively manage its operations and resources. This realignment resulted in the reduction of workforce payroll plus burden of
approximately $4.0 million annually.
As of June 30, 2019, the Company had cash of $1.7 million, working capital of $2.6 million and shareholders’
equity of $3.6 million.
The Company has experienced recurring operating losses and negative
cash flow from operations which have necessitated:
|
•
|
Exiting the mainland residential division and execution
of a reduction in workforce;
|
|
•
|
Focusing on growing POWERHOUSE™ revenue through a re-allocation of personnel to POWERHOUSE™ sales and initiating
sales to other solar installers and distribution companies; and
|
|
•
|
Raising additional capital. The Company completed a transaction
to raise $3.3 million in April 2019.
|
No assurances can be given that the Company will be successful
with its plans to grow revenue for profitable operations.
The Company has historically incurred a cash outflow from its
operations as its revenue has not been at a level for profitable operations. As discussed above, a key component of the Company’s
revenue growth strategy is the sale of the POWERHOUSE™ 3.0 in-roof solar shingle. The Company obtained UL certification for
POWERHOUSE™ at the close of 2018 and therefore only recently began to market POWERHOUSE™ at the start of 2019. The
Company believes it will require several quarters to generate sales to meet its goals for profitable operations.
2. Significant Accounting Policies
The Company made no changes to its significant accounting policies
during the three and six months ended June 30, 2019, however it implemented Accounting Standards Codification (“ASC”)
842 as discussed in Note 3. Leases.
Recently Adopted Accounting Standards
ASU 2018-20, ASU 2018-11, ASU 2018-01 and ASU 2016-02
In February 2016, the FASB established Topic 842, Leases, by
issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose
key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient
for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements.
The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on
the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification
affecting the pattern and classification of expense recognition in the income statement. The new standard was effective for the
Company on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing
at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest
comparative period presented in the financial statements as its date of initial application. The accounting standards noted above
also requires lessors to classify leases as sales-type, direct financing or operating leases and the Company currently holds leases
of solar systems where it is the lessor. Please refer to Note 3. Leases for the impact of the Company’s adoption of Topic
842.
ASU 2018-07
On June 20, 2018, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update No. 2018-07 (“ASU 2018-07”),
Compensation—Stock Compensation (Topic 718)
Improvements to Nonemployee Share-Based Payment Accounting
. The amendments in this Update expand the scope of Topic 718 to
include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements
of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost
(that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period).
Nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments
that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions
necessary to earn the right to benefit from the instruments have been satisfied. ASU 2018-07 became effective for the Company on
January 1, 2019. Nonemployee share-based payments were made during the three months ended June 30, 2019 and the Company has accounted
for them in accordance with Topic 718. See Note 4. April 2019 Offering for further detail.
ASU 2017-11
On July 13, 2017, the FASB issued Accounting Standards Update
No. 2017-11 (“ASU 2017-11”),
Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II)
Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests with a Scope Exception
. The amendments in Part I of ASU 2017-11 change the
classification analysis of certain equity- linked financial instruments (or embedded features) with down round features. When
determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature
no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The
amendments also clarify existing disclosure requirements for equity-classified instruments. The amendments in Part II of ASU 2017-11
recharacterize the indefinite deferral of certain provisions of Topic 480 to a scope exception. The Company adopted ASU 2017-11
during the three months ended March 31, 2019 however, the amendments within ASU 2017-11 do not have any current accounting impact
on the Company.
Recently Issued Accounting Standards
ASU 2016-13
On June 16, 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13
(“ASU 2016-13”),
Financial Instruments—Credit Losses (Topic 326)
. ASU 2016-13 requires financial assets
measured at amortized cost basis to be presented at the net amount expected to be collected. Additionally, any credit losses relating
to available-for-sale debt securities will need to be recorded through an allowance for credit losses upon adoption. ASU 2016-13
is effective for the Company for fiscal years beginning after December 15, 2019. The Company expects adoption of ASU 2016-13 to
impact various assets on the Condensed Consolidated Balance Sheets, specifically trade receivables and net investments in leases,
and is in the process of estimating a lifetime expected credit loss as required by the new standard.
3. Leases
In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability
among organizations by requiring the recognition of rights-of-use (“ROU”) assets and lease liabilities on the balance
sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those
leases classified as operating leases. The Company adopted the new standard on January 1, 2019 and used the effective date as its
date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new
standard will not be provided for dates and periods before January 1, 2019. The cumulative effect of the change in accounting principal
upon adoption of ASC 842 has resulted in an adjustment to retained earnings of $0 million as of January 1, 2019. Additionally,
a right-of-use asset in the amount of $2.4 million was recognized in non-current assets with offsetting lease liabilities of $0.3
million and $2.0 million recorded in current and non-current liabilities respectively.
The Company has operating leases for corporate offices, warehouses,
fleet vehicles and certain office equipment. Its leases have remaining lease terms of 1 year to 5 years, some of which include
options to extend the leases for up to 3 years. Options to extend have been recognized as part of the Company’s ROU assets
and lease liabilities for our warehouse and corporate office leases in Bloomfield, CT and Kailua, HI. As of the date of adoption
of ASC 842, the Company had exercised the extension option for these two locations creating a remaining lease term of 1 year. As
for the remaining leases, the Company was not reasonably certain that it would exercise its option to extend the leases and they
have not been recognized as part of the Company’s right-of-use assets and lease liabilities. Additionally, the Company is
the lessor of leased solar systems with 20-year terms which have been classified as sales-type leases. These solar system leases
have the option to extend for one or more additional one-year renewal terms.
The Company has elected the “package of practical expedients”
and has not reassessed whether the lease contracts contain a lease, their lease classifications or initial direct costs. Additionally,
the Company has made an accounting policy election to exclude immaterial leases from lease accounting and will continue to expense
them as incurred similar to its capitalization policy. The new standard also provides practical expedients for an entity’s
ongoing accounting. The Company has elected the short-term lease recognition exemption for all leases that qualify. This means,
for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing
ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company has also elected the
practical expedient to not separate lease and non-lease components for all of its leases where the Company is the lessee. Significant
judgements have been made in the determination of the discount rate for the leases. The rate implicit in the leases was not readily
determinable so the Company has used the incremental borrowing rate for measuring the leases liabilities and right-of-use asset.
The Company used yields of syndicated loans from comparable companies to estimate an incremental borrowing rate. These loans were
collateralized as required by ASC 842 and had similar credit ratings as the Company.
Operating lease costs for the three and six months ended June
30, 2019 were $0.3 million and $0.6 million respectively. Cash paid for amounts included in the measurement of lease liabilities
amounted to $0.3 million and $0.6 million for the three months and six months ended June 30, 2019 and have been included within
the operating section of the Condensed Consolidated Statements of Cash Flows. Non-cash activities related to the adoption of ASC
842 include additions to right-of-use assets of $2.4 million arising from operating lease liabilities. The weighted average remaining
lease term and weighted average discount rate are as follows:
|
|
June 30,
|
|
|
|
2019
|
|
Weighted Average Remaining Lease Term
|
|
|
|
|
Operating Leases
|
|
|
2.41 years
|
|
Weighted Average Discount Rate
|
|
|
|
|
Operating Leases
|
|
|
15
|
%
|
Maturities of lease liabilities are as follows:
|
|
June 30,
|
|
|
|
2019
|
|
Maturities of lease liabilities
|
|
|
|
|
2019
|
|
$
|
784,706
|
|
2020
|
|
|
614,269
|
|
2021
|
|
|
385,908
|
|
2022
|
|
|
-
|
|
2023
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
Total lease payments
|
|
|
1,784,883
|
|
Less imputed interest
|
|
|
(273,985
|
)
|
Total
|
|
$
|
1,510,898
|
|
In determining the amount the Company expects to derive from
the leased solar systems following the end of the lease term, it used significant assumptions. At lease inception, the Company
engaged the services of a third-party to perform a study of the future fair market value through the end of the assumed lease term
of 20 years using a cost approach and income approach. Inflation was projected based on historical trends to determine the residual
value in real dollars. The Company has managed the risk associated with the residual value of its leased panels by incorporating
system, home and property maintenance requirements within each lease. The Company expects to derive approximately $0.3 million
from the underlying solar panels following the end of the lease term.
Maturities of lease receivables are as follows:
|
|
June 30,
|
|
|
|
2019
|
|
Maturities of lease receivables
|
|
|
|
|
2019
|
|
$
|
41,588
|
|
2020
|
|
|
84,441
|
|
2021
|
|
|
85,912
|
|
2022
|
|
|
87,426
|
|
2023
|
|
|
88,983
|
|
Thereafter
|
|
|
1,062,602
|
|
Total lease receivables
|
|
|
1,450,952
|
|
Less imputed interest
|
|
|
(610,939
|
)
|
Present value of lease receivables
|
|
|
840,013
|
|
Plus Unguaranteed residual
|
|
|
251,669
|
|
Plus Deferred operations and maintenance expenses
|
|
|
59,412
|
|
Less Initial direct costs
|
|
|
(80,574
|
)
|
Total
|
|
$
|
1,070,520
|
|
The components of the Company’s aggregate net investment
in sales-type leases as of June 30, 2019 include lease receivables of $1.5 million, unguaranteed residual assets of $0.3 million,
initial direct cost of ($0.08) million, deferred operations and maintenance expense of $0.06 million and unearned revenue of $0.6
million.
4. April 2019 Offering
On April 2, 2019, Company closed an offering and sale of (a) “Primary Units,” each consisting
of one share of the Company’s Class A common stock and a Series R Warrant to purchase one share of Class A common stock (the
“Series R Warrant”), and (b) “Alternative Units,” each consisting of a Prepaid Series S Warrant to purchase
one share of Class A common stock (the “Series S Warrants”) and a Series R Warrant to purchase one share of Class A
common stock, pursuant to the Securities Purchase Agreement, dated as of April 2, 2019, by and among the Company and three institutional
and accredited investors (the “Investors”) referred to herein as the “April 2019 Offering”. As a result,
the Company issued 15,938,280 shares of Class A common stock, Series R Warrants to purchase 17,368,421 shares of Class A common
stock, and Series S Warrants to purchase 1,430,141 shares of Class A common stock. The purchase price for a Primary Unit was $0.19
and the purchase price for an Alternative Unit was $0.18.
The Series R Warrant is exercisable at any time after issuance
and will remain exercisable for a period of five years thereafter at an exercise price of $.0.20 per share, subject to adjustments
for stock splits and similar events. The Series S Warrant is exercisable immediately after issuance and for a period of five years
thereafter at an exercise price of $0.19 per share, of which $0.18 was paid at the closing with $0.01 per share payable upon exercise.
The Company received net proceeds
of approximately $2.9 million at the closing, after deducting commissions to the placement agents and estimated offering expenses
payable by the Company associated with the offering.
In connection with the closing of the
offering, the Company paid a cash fee of $231,000 to the placement agent for the offering. The Company also reimbursed $5,000 of
the placement agent’s expenses and $35,000 of legal expenses of the placement agent. In addition, the Company issued a warrant
to purchase 1,389,474 shares of Class A common stock to the placement agent.
The Series R Warrants have been accounted
for in accordance with ASC 480. The Series R Warrants are accounted for as liabilities due to provisions allowing the Investors
to request redemption in cash, upon a change of control or failure to timely deliver shares of Class A common stock upon exercise.
The Company classifies these common stock warrant liabilities on the Condensed Consolidated Balance Sheet as long-term liabilities
due to their maturity in 5 years. The Series R Warrants are revalued at each balance sheet date subsequent to their initial issuance.
The Company used a Monte Carlo pricing model to value these warrant 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.
See Note 10. Fair Value Measurements for information about the techniques we use to measure the fair value of our Series R Warrants.
The Series S Warrants are derivatives
and have been accounted for in accordance with ASC 815. The derivatives do not meet the criteria for equity classification and
have been recorded at their fair value on the Condensed Consolidated Balance Sheets as a long-term liability due to their maturity
in 5 years. Any changes in the fair value of the conversion options have been recorded as a gain or loss directly on the Condensed
Consolidated Statement of Operations. See Note 10. Fair Value Measurements for information about the techniques we use to measure
the fair value of our derivative instruments.
The placement agent warrants have been accounted for as non-employee
compensation in accordance with ASC 718 upon adoption of ASU 2018-07 which became effective for the Company on January 1, 2019.
The warrants were issued to the placement agents for their assistance with the April 2019 Offering and do not meet the requirements
for liability classification. Additionally, the placement agent warrants contain a redemption feature which is not solely within
the control of the Company resulting in temporary equity presentation on the Condensed Consolidated Balance Sheet as of June 30,
2019. They have been reflected at their grant date fair value and will be reassessed if it becomes probable that the warrants
will be redeemable.
5. Inventory
Inventory for our Solar Division consists primarily of solar
energy system components (such as solar panels and inverters) and its cost is determined by the first-in, first-out ("FIFO")
method. The inventory is stated at the lower of cost or net realizable value with an allowance for slow moving and obsolete inventory
items based on an estimate of the markdown to the retail price required to sell or dispose of such items. The Company has an allowance
for obsolete or slow-moving inventory of $0.5 million and $0.7 million at June 30, 2019 and December 31, 2018, respectively.
POWERHOUSE™ inventories are recorded at lower of cost (FIFO) or net realizable value. As of June
30, 2019, and December 31, 2018, there was no excess and obsolete inventory reserve for POWERHOUSE™ inventories.
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Productive material, work in process and supplies
|
|
$
|
1,309
|
|
|
$
|
92
|
|
Finished product, including service parts, etc.
|
|
|
3,820
|
|
|
|
2,174
|
|
Total inventories
|
|
|
5,129
|
|
|
|
2,266
|
|
Reserve for obsolescence
|
|
|
(491
|
)
|
|
|
(671
|
)
|
Total inventories, net
|
|
$
|
4,638
|
|
|
$
|
1,595
|
|
|
|
|
|
|
|
|
|
|
6. Accrued Liabilities
Accrued liabilities consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
Accrued Expenses
|
|
$
|
711
|
|
|
$
|
924
|
|
Received not billed
|
|
|
870
|
|
|
|
240
|
|
Accrued Compensation
|
|
|
380
|
|
|
|
476
|
|
Other
|
|
|
59
|
|
|
|
69
|
|
Accrued Project Costs
|
|
|
85
|
|
|
|
102
|
|
Total
|
|
$
|
2,105
|
|
|
$
|
1,811
|
|
7. Related Parties
On May 23, 2017, the Company entered into an agreement
with Mobomo, LLC (“Mobomo”) for the design and development of intellectual property at a cost of $0.5 million. The
intellectual property consisted of an integrated mobile phone application and the new RGS 365™ customer portal. As of June
30, 2019, and December 31, 2018, Mobomo provided data hosting services which totaled approximately $5,000 and $20,000, respectively.
Mobomo’s Chief Executive Officer is the son
of the Company’s CEO. The Company approved the agreement in accordance with its related-party transaction policy.
8. Contingencies
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 a liability
for probable and estimable costs incurred with respect to identified risks and uncertainties based upon the facts and circumstances
currently available.
9. Shareholders’ Equity
During the three and six months ended June 30, 2018, the Company
issued stock options under the 2018 Long-Term Incentive Plan, however, none of these options were exercised during the three and
six months ended June 30, 2019. During the three months ended June 30, 2019, 215,500 stock options were granted.
Related specifically to the Company’s issuance of convertible
notes and warrants on April 9, 2018, the Company issued 894,836 shares of its Class A common stock upon the conversion of the 2018
convertible notes and 210,000 shares of its Class A common stock upon exercise of the Series Q warrants during the six months ended
June 30, 2019. No such conversions or exercises took place during the three months ended June 30, 2019.
As discussed in Note 4. April 2019 Offering, the Company issued
the Series R Warrants, Series S Warrants and placement agent warrants. Of the warrants issued, 1,430,141 shares of Class A common
stock were issued upon exercise of the Series S warrants and 3,688,935 shares of Class A common stock were issued upon exercise
of the Series R warrants during the three months ended June 30, 2019.
At June 30, 2019, the Company had the following shares of Class A
common stock reserved for future issuance:
Stock options and grants outstanding under incentive plans
|
|
|
1,121,228
|
|
Common stock warrants outstanding
|
|
|
23,573,833
|
|
Total shares reserved for future issuance
|
|
|
24,695,061
|
|
10. 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 820-10-35-3 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. Assumptions include the
risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in 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 Inputs – 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 for the item to be fair valued with sufficient frequency and volume to provide pricing information
on an ongoing basis.
Level 2 Inputs – 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 Inputs – 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.
The Company accounts for Series R Warrants in accordance with ASC 480. The Series R Warrants are accounted
for as liabilities due to provisions in the warrants allowing the Investors to request redemption in cash upon a change of control
or failure to timely deliver shares of Class A common stock upon exercise. The Company classifies these warrant liabilities on
the Consolidated Balance Sheet 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 initially value the Series R Warrants however, due to the immaterial
difference in valuations between the two models, the Company utilized Black Scholes as of June 30, 2019 to value these common stock
warrant liabilities which is based, in part, upon unobservable inputs some of which have little or no market data, requiring the
Company to develop its own assumptions. The following tables summarize the basis used to measure certain financial assets and liabilities
at fair value on a recurring basis in the consolidated balance sheets:
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Items
|
|
|
Inputs
|
|
|
Inputs
|
|
Balance at June 30, 2019 (in thousands)
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Common stock warrant liability
|
|
$
|
3,766
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
3,766
|
|
|
|
$
|
3,766
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
3,766
|
|
The following table shows the reconciliation from
the beginning to the ending balance for the Company’s common stock warrant liability measured at fair value on a recurring
basis using significant unobservable inputs (i.e. Level 3) for the period ended June 30, 2019:
(in thousands)
|
|
Series Q
common stock
warrant liability
|
|
|
Series R
common stock
warrant liability
|
|
|
Series S
common
stock warrant
liability
|
|
|
Total
|
|
Fair value of financial liabilities at December 31, 2018
|
|
$
|
511
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
511
|
|
April 2019 Offering
|
|
|
-
|
|
|
|
2,605
|
|
|
|
250
|
|
|
|
2,855
|
|
Change in the fair value of common stock warrant liabilities, net
|
|
|
(30
|
)
|
|
|
1,518
|
|
|
|
-
|
|
|
|
1,488
|
|
Adjustment for exercise of common stock warrant liabilities
|
|
|
(241
|
)
|
|
|
(597
|
)
|
|
|
(250
|
)
|
|
|
(1,088
|
)
|
Fair value of financial liabilities at June 30, 2019
|
|
$
|
240
|
|
|
$
|
3,526
|
|
|
$
|
-
|
|
|
$
|
3,766
|
|
The assumptions used in the Black Scholes model were
as follows:
|
|
Exercise
Price
|
|
|
Strike Floor
|
|
Closing
Market Price
(average)
|
|
|
Risk-free
Rate
|
|
|
Dividend
Yield
|
|
|
Market
Price
Volatility
|
|
|
Remaining
Term (years)
|
|
Series Q Common Stock Warrant Liability June 30, 2019
|
|
$
|
0.19
|
|
|
N/a
|
|
$
|
0.28
|
|
|
|
1.76
|
%
|
|
|
0.00
|
%
|
|
|
151
|
%
|
|
|
3.78
|
|
Series R Common Stock Warrant Liability June 30, 2019
|
|
$
|
0.20
|
|
|
N/a
|
|
$
|
0.28
|
|
|
|
1.76
|
%
|
|
|
0.00
|
%
|
|
|
151
|
%
|
|
|
4.76
|
|
Other Financial Instruments
The Company's financial instruments consist primarily of cash
and cash equivalents, accounts receivable, accounts payable, deferred revenue and convertible debt. The carrying values of these
financial instruments approximate their fair values, due to their short-term nature.
11. Segment Information
Financial information for the Company’s segments
and a reconciliation of the total of the reportable segments’ income (loss) from operations (measures of profit or loss)
to the Company’s consolidated net loss are as follows:
|
|
Three Months ended June 30,
|
|
|
Six Months ended June 30,
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Contract revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar Division
|
|
$
|
2,188
|
|
|
$
|
3,568
|
|
|
$
|
4,248
|
|
|
$
|
6,381
|
|
POWERHOUSE™
|
|
|
106
|
|
|
|
-
|
|
|
|
171
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
37
|
|
|
|
11
|
|
Consolidated contract revenue
|
|
|
2,294
|
|
|
|
3,568
|
|
|
|
4,456
|
|
|
|
6,392
|
|
Operating loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar Division
|
|
|
(532
|
)
|
|
|
(571
|
)
|
|
|
(2,150
|
)
|
|
|
(1,996
|
)
|
POWERHOUSE™
|
|
|
(1,004
|
)
|
|
|
(57
|
)
|
|
|
(1,465
|
)
|
|
|
(108
|
)
|
Other
|
|
|
(1,816
|
)
|
|
|
(3,581
|
)
|
|
|
(4,239
|
)
|
|
|
(6,496
|
)
|
Operating loss
|
|
|
(3,352
|
)
|
|
|
(4,209
|
)
|
|
|
(7,854
|
)
|
|
|
(8,600
|
)
|
Reconciliation of consolidated loss from operations to consolidated net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liabilities and loss on debt extinguishment
|
|
|
(1,502
|
)
|
|
|
(3,073
|
)
|
|
|
(1,445
|
)
|
|
|
(3,046
|
)
|
Amortization of debt discount and deferred loan costs
|
|
|
(234
|
)
|
|
|
(1,435
|
)
|
|
|
(287
|
)
|
|
|
(1,435
|
)
|
Other income
|
|
|
12
|
|
|
|
955
|
|
|
|
20
|
|
|
|
985
|
|
Net loss
|
|
$
|
(5,076
|
)
|
|
$
|
(7,762
|
)
|
|
$
|
(9,566
|
)
|
|
$
|
(12,096
|
)
|
The following is a reconciliation of reportable segments’
assets to the Company’s consolidated total assets. The Other segment includes certain unallocated corporate amounts.
|
|
June 30,
|
|
|
December 31,
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
Total assets:
|
|
|
|
|
|
|
|
|
Solar Division
|
|
$
|
6,224
|
|
|
$
|
7,136
|
|
POWERHOUSE™
|
|
|
7,592
|
|
|
|
4,298
|
|
Other
|
|
|
1,669
|
|
|
|
4,826
|
|
|
|
$
|
15,485
|
|
|
$
|
16,260
|
|