As filed with the Securities and Exchange
Commission on April 15, 2019
Registration No. 333-__________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
REAL GOODS
SOLAR, INC
.
(Exact name of registrant as specified
in its charter)
Colorado
|
|
3620
|
|
26-1851813
|
(State or other jurisdiction of
incorporation or organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification Number)
|
110 16
th
Street, 3
rd
Floor
Denver, Colorado 80202
(303) 222-8300
(Address, including zip code, and telephone
number, including area code, of registrant’s principal executive offices)
Alan Fine
Real Goods Solar, Inc.
110 16
th
Street, 3
rd
Floor
Denver, Colorado 80202
(303) 222-8300
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
Copy to:
Rikard Lundberg, Esq.
Brownstein Hyatt Farber Schreck, LLP
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
(303) 223-1100
Approximate date of commencement of proposed sale to the
public:
As soon as practicable after the effective date of this Registration Statement.
If
any of the securities being registered on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box.
x
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration statement number of the earlier effective registration statement for
the same offering.
¨
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
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 the definitions of “large accelerated
filer,” “accelerated filer” “smaller reporting company” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
|
Accelerated filer
¨
|
Non-accelerated filer
x
|
Smaller reporting company
x
|
|
Emerging growth company
¨
|
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period with
any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
¨
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered
|
|
Amount to be
Registered (1)
|
|
|
Proposed
Maximum
Offering
Price
Per Share
|
|
|
Proposed
Maximum
Aggregate
Offering Price
|
|
|
Amount of
Registration
Fee
|
|
Class A common stock, par value $0.0001, under Series R Warrants
|
|
|
17,368,421
|
|
|
$
|
0.20
|
(2)
|
|
$
|
3,473,684.20
|
(3)
|
|
|
-
|
|
Class A common stock, par value $0.0001, under Series S Warrants
|
|
|
1,430,141
|
|
|
$
|
0.01
|
(2)
|
|
$
|
14,301.41
|
(3)
|
|
|
-
|
|
Class A common stock, par value $0.0001, under WP14 warrants issued July 9, 2014
|
|
|
84
|
|
|
$
|
0.16
|
(4)
|
|
$
|
13.66
|
(4)
|
|
|
-
|
|
Class A common stock, par value $0.0001, under WPA warrants issued February 27, 2015
|
|
|
49
|
|
|
$
|
0.16
|
(4)
|
|
$
|
7.97
|
(4)
|
|
|
-
|
|
Class A common stock, par value $0.0001, under WPA2 warrants issued June 30, 2015
|
|
|
186
|
|
|
$
|
0.16
|
(4)
|
|
$
|
30.24
|
(4)
|
|
|
-
|
|
Class A common stock, par value $0.0001, under Series G warrants issued April 1, 2016
|
|
|
3,322
|
|
|
$
|
0.16
|
(4)
|
|
$
|
540.16
|
(4)
|
|
|
-
|
|
Class A common stock, par value $0.0001, under WPA3 warrants issued April 1, 2016
|
|
|
1,411
|
|
|
$
|
0.16
|
(4)
|
|
$
|
229.43
|
(4)
|
|
|
-
|
|
Class A common stock, par value $0.0001, under WPA5 warrants issued December 13, 2016
|
|
|
30,834
|
|
|
$
|
0.16
|
(4)
|
|
$
|
5,013.61
|
(4)
|
|
|
-
|
|
Class A common stock, par value $0.0001, under WPA6 warrants issued February 6, 2017
|
|
|
185,500
|
|
|
$
|
0.16
|
(4)
|
|
$
|
30,162.30
|
(4)
|
|
|
-
|
|
Class A common stock, par value $0.0001, under WPA7 warrants issued February 9, 2017
|
|
|
120,000
|
|
|
$
|
0.16
|
(4)
|
|
$
|
19,512
|
(4)
|
|
|
-
|
|
Class A common stock, par value $0.0001, under Series O warrant issued January 4, 2018
|
|
|
1,600,000
|
|
|
$
|
0.16
|
(4)
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|
$
|
260,160
|
(4)
|
|
|
-
|
|
Class A common stock, par value $0.0001, under WPA8 warrants issued January 4, 2018
|
|
|
128,000
|
|
|
$
|
0.16
|
(4)
|
|
$
|
20,812.80
|
(4)
|
|
|
-
|
|
Class A common stock, par value $0.0001, under Series Q warrants issued April 9, 2018
|
|
|
317,678
|
(5)
|
|
$
|
0.16
|
(4)
|
|
$
|
51,654.43
|
(4)
|
|
|
-
|
|
Class A common stock, par value $0.0001, under WPA9 warrants issued April 9, 2018
|
|
|
730,160
|
|
|
$
|
0.16
|
(4)
|
|
$
|
118,724.02
|
(4)
|
|
|
-
|
|
Class A common stock, par value $0.0001, under WPA10 warrants issued April 2, 2019
|
|
|
1,389,474
|
|
|
$
|
0.16
|
(4)
|
|
$
|
225,928.47
|
(4)
|
|
|
-
|
|
Total Fee
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
$
|
511.56
|
|
Total Fee Due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.00
|
(6)
|
(1)
|
This Registration Statement also relates to an indeterminate number of shares of the registrant’s Class A common stock that may be offered or issued to prevent dilution resulting from stock splits, stock dividends or similar transactions in accordance with Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”).
|
(2)
|
The Series R Warrants and Series S Warrants are exercisable into shares of Class A common stock at a current exercise price per share as indicated in the table and may be exercised in a cashless exercise under certain circumstances. The exercise price of the warrants and the number of shares underlying the warrants are subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Class A common stock. Calculated pursuant to Rule 457(o), based on the Proposed Maximum Offering Price Per Share.
|
(3)
|
Calculated pursuant to Rule 457(o) based on an estimate of the Proposed Maximum Aggregate Offering Price.
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(4)
|
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(c) under the Securities Act using $0.16, the average of the high and low prices reported on the OTCQX on April 12, 2016, a date within five trading days prior to the date of the filing of this registration statement.
|
(5)
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Represents 135% of the shares of Class A common stock currently issuable under the Series Q Warrants due to a contractual obligation to register such amount.
|
(6)
|
Pursuant to Rule 457(p) under the Securities Act, the registrant is offsetting the registration fee due under this Registration Statement by $511.56 with $716.91 remaining to be applied to future filings, which represents the registration fee previously paid with respect to the Registration Statement on Form S-3 (File No. 333-210842), initially filed on April 20, 2016 and withdrawn from registration on May 13, 2016. Accordingly, the filing fee due in connection with this filing is $0.00.
|
The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment
which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act, or until the registration statement shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine.
Pursuant to Rule 429 promulgated under
the Securities Act of 1933, as amended, the prospectus forming a part of this Registration Statement on Form S-1 is a combined
prospectus relating to (i) the offer and sale by the Registrant of up to 18,798,562 shares of Class A common stock upon exercise
of outstanding Series R Warrants and Series S Warrants, which are currently registered for issuance on the Registrant’s Registration
Statement on Form S-3 (Registration No. 333-215985), effective on July 21, 2017 (the “First Prior S-3”), (ii) the resale
by selling shareholders of up to 3,330,590 shares of Class A common stock issuable upon exercise of outstanding warrants not previously
registered, (iii) the resale by selling shareholders of up to 84 shares of Class A common stock issuable upon exercise of outstanding
WP14 warrants issued on July 9, 2014, which are currently registered for resale on the Registrant’s Registration Statement
on Form S-3 (Registration No. 333-197766), effective on August 11, 2014 (the “Second Prior S-3”), (iv) the resale by
selling shareholders of up to 186 shares of Class A common stock issuable upon exercise of outstanding WPA2 warrants issued on
June 30, 2015, which are currently registered for resale on the Registrant’s Registration Statement on Form S-3 (Registration
No. 333-206271), effective on August 20, 2015 (the “Third Prior S-3”), (v) the resale by selling shareholders of up
to (A) 128,000 shares of Class A common stock issuable upon exercise of outstanding WPA8 warrants issued on January 4, 2018, (B)
317,678 shares of Class A common stock issuable upon exercise of outstanding Series Q warrants issued on April 9, 2018, and (C)
730,160 shares of Class A common stock issuable upon exercise of outstanding WPA9 warrants issued on April 9, 2018, all of which
are currently registered for resale on the Registrant’s Registration Statement on Form S-3 (Registration No. 333-227238),
effective on September 20, 2018 (the “Fourth Prior S-3”).
This Registration Statement constitutes
Post-Effective Amendment No. 1 to each of the First Prior S-3, the Second Prior S-3, the Third Prior S-3 and the Fourth Prior S-3.
A portion of the offering under the Fourth Prior S-3 related to the resale of shares of Class A common stock issuable upon conversion
of convertible notes due April 9, 2018 has terminated but the portion of the offering under the Fourth Prior S-3 described above
in clause (v) is being continued on this registration statement by way of post-effective amendment to the Fourth Prior S-3. The
unsold securities registered on the Fourth Prior S-3 related to the terminated portion of the offering are hereby removed from
registration.
The information in this
prospectus is not complete and may be changed without notice. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we
are not soliciting offers to buy these securities in any state where the offer or sale of these securities is not permitted.
Subject to completion, dated
April 15, 2019
PRELIMINARY PROSPECTUS
REAL GOODS SOLAR, INC.
18,798,562 shares of Class A common stock
by us
4,506,698 shares of Class A common stock
by selling shareholders
This prospectus relates to (i) the offering
by us of up to 18,798,562 shares of Class A common stock of Real Goods Solar, Inc. (“Common Stock”) upon exercise of
existing Series R Warrants and Series S Warrants (collectively, the “Shelf Warrants”), and (ii) the offering by selling
shareholders identified in this prospectus and any of their respective pledgees, donees, transferees, or other successors in interest
of up to 4,506,698 shares of Common Stock issuable upon exercise of other outstanding warrants described below, which includes
135% of the aggregate number of shares of Common Stock issuable upon the exercise of the Series Q Warrants (such other warrants,
collectively, the “Private Warrants” and, together with the Shelf Warrants, collectively, the “Warrants”).
The Shelf Warrants were originally issued
pursuant to an effective registration statement on Form S-3 File No. 333-215985 filed on February 9, 2017, as amended on July 11,
2017 (the “Shelf Registration Statement”), which was declared effective on July 21, 2017 and will no longer be available
after the next update under Section 10(a)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
This registration statement is being filed in part to replace the Shelf Registration Statement with respect to the Shelf Warrants
and trigger the grace period afforded by Rule 415(a)(5) so that the Shelf Warrants covered by the Shelf Registration Statement
may continue to be offered and sold during the grace period in accordance with Rule 415(a)(5) and (a)(6).
The Private Warrants were issued in various
private placement transactions and, with respect to some of them, the shares of Common Stock issuable upon exercise were registered
for resale pursuant to the registration statements described below. This registration statement is being filed in part to replace
such prior registration statements with respect to the Private Warrants.
We will receive proceeds from payments
in cash of the exercise price of the Shelf Warrants. If all of the Shelf Warrants are exercised for cash, we will receive total
proceeds, before expenses, of $3,487,986. If at any time after there is no effective registration statement on file with the SEC
registering, or no current prospectus available for, the issuance or resale of the shares of our Common Stock issuable upon exercise
of the Warrants, the Warrants may be exercised by means of a “cashless exercise” and we will not receive any proceeds
at such time. We will not receive any of the proceeds from the sale of the Common Stock by the selling shareholders.
The selling shareholders and their respective
pledgees, donees, transferees, or other successors in interest may offer the shares of Common Stock in one or more transactions
at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, at negotiated
prices, or in trading markets for our Common Stock. Additional information on the selling shareholders, and the times and manner
in which they may offer and sell shares of our Common Stock under this prospectus is provided under “Selling Shareholders”
and “Plan of Distribution” in this prospectus.
The table below indicates the current exercise
prices, number of shares of Common Stock issuable under, the issuance dates and expiration dates of the Warrants, as well as if
any existing registration statement relates to such Warrants.
Warrant
|
|
Current
Exercise Price
|
|
|
Number of
Shares
|
|
|
Issuance Date
|
|
Expiration Date
|
|
Prior Registration
Statement
|
WP14
|
|
$
|
38,280
|
|
|
|
84
|
|
|
July 9, 2014
|
|
January 9, 2020
|
|
333-197766
|
WPA
|
|
$
|
6,000
|
|
|
|
49
|
|
|
February 27, 2015
|
|
February 22, 2020
|
|
N/A
|
WPA2
|
|
$
|
744
|
|
|
|
186
|
|
|
June 30, 2015
|
|
June 26, 2020
|
|
333-206271
|
Series G
|
|
$
|
1.36
|
|
|
|
3,322
|
|
|
April 1, 2016
|
|
October 1, 2021
|
|
N/A
|
WPA3
|
|
$
|
496.80
|
|
|
|
1,411
|
|
|
April 1, 2016
|
|
March 1, 2021
|
|
N/A
|
WPA5
|
|
$
|
10.50
|
|
|
|
30,834
|
|
|
December 13, 2016
|
|
December 8, 2021
|
|
N/A
|
WPA6
|
|
$
|
3.88
|
|
|
|
185,500
|
|
|
February 6, 2017
|
|
February 1, 2022
|
|
N/A
|
WPA7
|
|
$
|
3.13
|
|
|
|
120,000
|
|
|
February 9, 2017
|
|
February 7, 2022
|
|
N/A
|
Series O
|
|
$
|
1.47
|
|
|
|
1,600,000
|
|
|
January 4, 2018
|
|
July 4, 2023
|
|
N/A
|
WPA8
|
|
$
|
1.47
|
|
|
|
128,000
|
|
|
January 4, 2018
|
|
July 4, 2023
|
|
333-227238
|
Series Q
|
|
$
|
0.19
|
|
|
|
235,317
(317,678 if 135%)
|
|
|
April 9, 2018
|
|
April 9, 2023
|
|
333-227238
|
WPA9
|
|
$
|
0.19
|
|
|
|
730,160
|
|
|
April 9, 2018
|
|
April 9, 2023
|
|
333-227238
|
Series R
|
|
$
|
0.20
|
|
|
|
17,368,421
|
|
|
April 2, 2019
|
|
April 2, 2024
|
|
333-215985
|
Series S
|
|
$
|
0.01
|
|
|
|
1,430,141
|
|
|
April 2, 2019
|
|
April 2, 2024
|
|
333-215985
|
WPA10
|
|
$
|
0.25
|
|
|
|
1,389,474
|
|
|
April 2, 2019
|
|
April 2, 2024
|
|
N/A
|
Our Common Stock is quoted on the OTCQX
under the symbol “RGSE.” On April 12, 2019, the last reported sale price of our Common Stock was $0.16 per share.
Investing in our securities involves
a high degree of risk. See “Risk Factors” beginning on page 5 of this prospectus and in the documents incorporated
by reference herein and therein. You should read this entire prospectus carefully before you make your investment decision.
NEITHER THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is ____ __,
2019.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
Except where the context requires otherwise,
in this prospectus the terms “Company,” “our company,” “Real Goods Solar,” “RGS Energy,”
“we,” “us,” and “our” refer to Real Goods Solar, Inc., a Colorado corporation, and where appropriate,
its direct and indirect subsidiaries.
You should rely only on the information
contained or incorporated by reference in this prospectus. We have not authorized any other person to provide you with different
information or to make any representations other than those contained in this prospectus. If anyone provides you with different
or inconsistent information, you should not rely on it. We take no responsibility for, and provide no assurance as to the reliability
of, any other information that others may give you. For further information, please see the section of this prospectus entitled
“Where You Can Find More Information.” We are not and the selling shareholders are not making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted.
You should not assume that the information
appearing in this prospectus is accurate as of any date other than the date on the front cover of this prospectus, regardless of
the time of delivery of this prospectus or any sale of a security. Our business, financial condition, results of operations, and
prospects may have changed since those dates.
This prospectus contains trademarks, tradenames,
service marks, and service names of the Company.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus and the documents incorporated
by reference herein may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995 that involve risks and uncertainties, including statements regarding our results of operations and financial positions,
and our business and financial strategies. 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,” “future,” “intend,” “strategy,” “likely,” “seek,”
“may,” “will” 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: our history of operating losses; our ability to implement our revenue growth strategy, achieve our target
level of sales, generate cash flow from operations, and achieve break-even and better results; our ability to achieve profitability;
our ability to generate breakeven cash flow to fund our operations; our success in implementing our plans to increase future sales,
and installations and revenue; rules, regulations and policies pertaining to electricity pricing and technical interconnection
of customer-owned electricity generation such as net energy metering; the continuation and level of government subsidies and incentives
for solar energy; existing and new regulations impacting solar installations including electric codes; future shortages in supplies
for solar energy systems; the adoption and general demand for solar energy; the impact of a drop in the price of conventional energy
on demand for solar energy systems; seasonality of customer demand and adverse weather conditions inhibiting our ability to install
solar energy systems; changing and updating technologies and the issues presented by these new technologies related to customer
demand and our product offering; geographic concentration of revenue from the sale of solar energy systems in east coast states;
non-compliance with or loss or suspension of licenses required for installation of solar energy systems; loss of key personnel
and ability to attract necessary personnel; our failure to accurately predict future warranty claims; adverse outcomes arising
from litigation and legal disputes to which we may be subject from time to time; our ability to continue to obtain services and
components from suppliers, installers and other vendors; disruption of our supply chain from equipment manufacturers and potential
shortages of components for solar energy systems; factors impacting the timely installation of solar energy systems; competition;
costs associated with safety and construction risks; continued access to competitive third party financiers to finance customer,
roofer and homebuilder solar or POWERHOUSE™ 3.0 installations; the ability to obtain requisite international product certification
of POWERHOUSE™ 3.0; our ability to successfully and timely commercialize POWERHOUSE™ 3.0 during 2019 and in future
years achieve market share; our ability to satisfy the conditions and our obligations under the POWERHOUSE™ 3.0 license agreement;
our ability to manage supply chain in order to have production levels and pricing of the POWERHOUSE™ 3.0 shingles to be competitive;
our ability to successfully expand our operations and employees and realize profitable revenue growth from the sale and installation
of POWERHOUSE™ 3.0, and to the extent, anticipated; our ability to realize revenue from sales of POWERHOUSE™ arising
from the California Energy Commissions’ mandate for solar systems with new home building commencing in 2020; our ability
to realize revenue from written reservations for initial POWERHOUSE™ 3.0 deliveries; our ability to obtain future written
reservations and purchase orders for POWERHOUSE™ 3.0 deliveries; competition in the built-in photovoltaic solar system business;
our ability to successfully and timely expand our POWERHOUSE™ 3.0 business outside of the United States; increases in the
cost of materials as a result of changes in the price of oil and foreign currency exchange risks; intellectual property infringement
claims related to the POWERHOUSE™ 3.0 business; the performance of the Solar Division; the adequacy of, and access to, capital
necessary to implement our revenue growth strategy; our ability to get shareholder approval to increase the authorized number of
shares of our Common Stock in connection with an equity financing; whether we will receive any proceeds from exercise of Common
Stock warrants; changes in general economic, business and political conditions, including tariffs or trade remedies regarding imported
solar panels, cells, inverters, batteries or other products related to our business and changes in the financial markets; the impact
on future hypothetical earnings per share of future employee incentive compensation by cash bonuses and stock option awards; our
ability to meet customer expectations; risks and liabilities associated with placing employees and technicians in our customers’
homes and businesses; product liability claims; the probability of the occurrence and potential magnitude of cybersecurity incidents;
the adequacy of preventative actions taken to reduce cybersecurity risks and the associated costs, including, if appropriate, discussing
the limits of our ability to prevent or mitigate certain cybersecurity risks; future data security breaches or our inability to
protect personally identifiable information or other information about our employees and customers; the volatile market price of
our Common Stock; the dilutive effect of future issuances of stock, options, warrants or other securities and the effect on the
market price of our Common Stock; the low likelihood that we will pay any cash dividends on our Common Stock for the foreseeable
future; anti-takeover provisions in our organizational documents; the terms of some of our outstanding securities and transaction
documents entered into in connection with past offerings restrict our ability to enter into certain transactions or obtain financing,
and could result in our paying premiums or penalties to the holders of some of our outstanding securities; our ability to identify
or complete a strategic alternative that yields value for our shareholders; and such other factors as discussed in this prospectus
and throughout Part I, Item 1A, Risk Factors and Part II, Item 7, Management’s Discussion and Analysis of Financial Conditions
and Results of Operations included in future Annual Reports on Form 10-K and Part I, Item 2, Management’s Discussion and
Analysis of Financial Conditions and Results of Operations and Part II, Item 1A, Risk Factors included in future Quarterly Reports
on Form 10-Q.
Any forward-looking statement made by us
in this prospectus and the documents incorporated by reference herein and therein 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,
except as required by applicable law.
PROSPECTUS SUMMARY
This prospectus summary highlights important
features of this offering and the information included or incorporated by reference in this prospectus. Because it is a summary,
it may not contain all of the information that may be important to you. You should carefully read this entire prospectus, including
the section entitled “Risk Factors.”
Overview of our Company
RGS Energy has provided solar energy systems
to homeowners, and commercial building owners in the United States since 1978. We believe that solar energy adoption is still in
the early stages and will continue to increase as utility rates rise and customers become more knowledgeable about the savings
clean and sustainable solar energy can deliver. RGS and our predecessors have installed over 26,000 solar energy systems across
the continental United States and Hawaii.
We endeavor to make the move to solar energy
simple for our customers by managing and executing the process with our sales and installation teams. We design and offer a suitable
solar energy solution, then procure, permit, install, and interconnect the system to the utility grid. We provide a comprehensive
workmanship warranty on each fully operational system.
On September 29, 2017 we 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, an innovative and aesthetically pleasing solar shingle system
developed by Dow. The POWERHOUSE™ 1.0 and 2.0 versions used CIGS (copper indium gallium selenide solar cells) technology
which had a high manufacturing cost, resulting in the product not being consumer price friendly. Conversely, the POWERHOUSE™
3.0 has been developed with traditional silicon solar cells to increase solar production and to provide a competitive consumer
price point. On November 2, 2018 we received United Laboratories (“UL”) certification for POWERHOUSE™ 3.0 and
began to commercialize the product in North America. We have engaged third-party manufacturers for production and distribution
logistics and to provide services to the home building and roofing industries.
We were incorporated in Colorado in 2008
as a successor to Gaiam Energy Tech, Inc. founded in 1999.
A description about our operating segments
and the financial information about our segments may be found in Note 15. Segment Information, to our audited financial statements,
included in Item 8 of the Financial Statements included in this prospectus.
Our principal executive offices are located
at 110 16th Street, 3rd Floor, Denver, CO 80202. Our telephone number is (303) 222-8300. Our website is www.rgsenergy.com. The
information on our website is not intended to be a part of this prospectus, and you should not rely on any of the information provided
there in making your decision to invest in our securities. Our website address referenced above is intended to be an inactive textual
reference only and not an active hyperlink to our website.
Recent Developments
The Nasdaq Stock Market LLC suspended trading
of our Common Stock on February 15, 2019 and filed a Form 25-NSE with the Securities and Exchange Commission (the “SEC”)
on March 12, 2019, which delisted the Common Stock from Nasdaq at the opening of the trading session on March 22, 2019 and is expected
to deregister the Common Stock from Section 12(b) of the Act on June 10, 2019.
On March 7, 2019, we announced we had commenced
a process to explore strategic alternatives focusing on maximizing shareholder value. Strategic alternatives to consider may include,
among others, a sale of the Company, a business combination such as a merger with another party, or a strategic investment financing
which would allow the Company to continue its current business plan of commercializing POWERHOUSE™ solar shingles. We have
not set a timeline for this process and there can be no assurance that the strategic alternatives review process will result in
a transaction or other strategic change or outcome. We do not expect to discuss or disclose further developments regarding the
strategic alternatives review process unless and until our Board of Directors has approved a specific course of action or we have
otherwise determined that further disclosure is appropriate or required by law.
On March 27, 2019, our Board of Directors
determined to exit our 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. We believe this structure and realignment enables us
to effectively manage our operations and resources. This realignment is expected to result in the reduction of workforce payroll
plus burden of approximately $4.0 million annually. Revenues and net loss in 2018 for the mainland residential solar business
were approximately $8.9 million and $6.3 million, respectively. In order for us to convert our existing backlog to revenue, we
plan to use authorized integrators to complete installations throughout the remainder of 2019.
As previously reported on Form 8-K filed
April 4, 2019, on April 2, 2019, we closed a registered offering (the “April 2019 Offering”) in which we issued and
sold (i) 15,938,280 shares of Common Stock, (ii) Series S Warrants to purchase 1,430,141 shares of Common Stock and (iii) Series
R Warrants to purchase 17,368,421 shares of Common Stock pursuant to the terms of the Securities Purchase Agreement dated April
2, 2019 between us and three institutional and accredited investors. The investors paid $0.19 per share of Common Stock and $0.18
per share of Common Stock underlying the Series S Warrant for aggregate gross proceeds of $3.3 million at the closing and before
$0.35 million of expenses.
The Offering
Issuer
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Real Goods Solar, Inc.
|
|
|
Common Stock offered by us
|
We are offering shares of Common Stock pursuant to the Shelf Warrants described below.
|
|
|
|
Warrant
|
|
Current
Exercise Price
|
|
|
Issuance Date
|
|
Number of
Shares
|
|
|
Expiration
Date
|
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Series R
|
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$
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0.20
|
|
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April 2, 2019
|
|
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17,368,421
|
|
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April 2, 2024
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Series S
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$
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0.01
|
|
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April 2, 2019
|
|
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1,430,141
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|
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April 2, 2024
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The Shelf Warrants may be exercised in whole or in part, upon the election of the holder at any time at the current exercise price and until the expiration date set forth above.
|
|
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Common Stock
outstanding after the offering by us
|
127,701,316 shares (assuming full exercise of the Shelf Warrants, but no exercise of the Private Warrants). This figure does not take into account any shares of Common Stock issuable in the future upon the exercise of currently outstanding derivative securities other than the Shelf Warrants.
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Use of Proceeds from offering by us
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Any proceeds from the sale of shares of
Common Stock issuable upon exercise of the Shelf Warrants will be used for (i) the commercialization of the POWERHOUSE™ product,
and (ii) for general corporate purposes.
See the section entitled “
Use
of Proceeds
” beginning on page 24 of this prospectus.
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Plan of Distribution for the offering by us
|
From time to time after the date of this
prospectus, we will directly offer and issue the shares of Common Stock issuable under the Shelf Warrants to the holders upon exercise
in accordance with their terms.
See the section entitled “
Plan
of Distribution
” beginning on page 33 of this prospectus for a complete description of the manner in which the shares
registered hereby may be distributed.
|
Common Stock
offered by the selling shareholders
|
4,506,698 shares issuable upon exercise of the Private Warrants (including 135% of the shares of Class A common stock issuable under the Series Q Warrants).
|
Common Stock outstanding after the offering by the selling shareholders
|
113,409,452 shares (assuming full exercise of the Private Warrants, but no exercise of the Shelf Warrants and including 135% of the shares of Class A common stock issuable under the Series Q Warrants). This figure does not take into account any shares of Common Stock issuable in the future upon the exercise of currently outstanding derivative securities other than the Private Warrants.
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Use of Proceeds from offering by selling shareholders
|
We will not receive any proceeds from the
sale of shares of Common Stock issuable upon exercise of the Private Warrants, but we will receive the exercise price of such warrants
if they are exercised (unless exercised by means of a “cashless exercise,” in which case we will not receive any exercise
price).
See the section entitled “
Use
of Proceeds
” beginning on page 24 of this prospectus.
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|
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Plan of Distribution for the offering by the selling shareholders
|
The selling shareholders and their pledgees,
donees, transferees, or other successors in interest may offer the shares of Common Stock issuable under the Private Warrants in
one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the
time of sale, at negotiated prices, or in trading markets for our Common Stock.
See the section entitled “
Plan
of Distribution
” beginning on page 33 of this prospectus for a complete description of the manner in which the shares
registered hereby may be distributed.
|
|
|
Common Stock outstanding before the offerings described above
|
108,902,754 shares as of April 12, 2019
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|
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Market for our Common Stock and Symbol
|
The OTCQX, symbol “RGSE”
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|
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Risk Factors
|
Investing in our Common Stock involves a high degree of risk. See the section entitled “
Risk Factors
” beginning on page 5 of this prospectus and under similar headings in the other documents that are filed after the date hereof and incorporated by reference into this prospectus, together with the other information included in or incorporated by reference into this prospectus before deciding whether to invest in our Common Stock.
|
RISK FACTORS
An investment in our securities involves
a high degree of risk. Before making an investment decision you should carefully read and consider the risks described below, together
with all of the other information included or incorporated by reference in this prospectus, including, without limitation, the
risk factors in the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K, which are on file
with the SEC. If any of the risks listed in our most recent Annual Report on Form 10-K or any of the following risks actually occur,
our business, financial condition, and/or results of operations could suffer. In that case, the market price of our Common Stock
could decline, and you may lose all or part of your investment. You should read the section entitled “Special Note Regarding
Forward-Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as
the significance of such statements in the context of this prospectus. Additional risks and uncertainties that we do not presently
know or that we currently deem immaterial may also have a material adverse effect on our business.
Risks Related to the Offering
Management will have broad discretion
as to the use of the net proceeds from this offering, and Real Goods Solar may not use the proceeds effectively.
Management will have broad discretion as
to the application of the net proceeds from this offering. Our shareholders may not agree with the manner in which management chooses
to allocate and spend the net proceeds. Moreover, management may use the net proceeds for corporate purposes that may not increase
our profitability or market value.
Warrant holders who exercise the Warrants
may experience immediate and substantial dilution
The exercise price of the Warrants associated
with the shares of Common Stock offered pursuant to this prospectus may be substantially higher than the net tangible book value
per share of Common Stock. In that situation, if you exercise your Warrant, you will incur immediate and substantial dilution in
the net tangible book value per share of Common Stock from the exercise price you pay. Moreover, we have a substantial number of
stock options and warrants to purchase Common Stock outstanding. If the holders of outstanding options or warrants exercise those
options and warrants at prices below the exercise price you paid, you will incur further dilution.
The exercise prices are not indications
of our value.
The exercise prices of the Warrants may
not necessarily bear any relationship to the book value of our assets, past operations, cash flows, losses, financial condition
or any other established criteria for value. You should not consider the exercise price as an indication of the value of the Common
Stock underlying the Warrants. After the date of this prospectus, the Common Stock may trade at prices above or below such exercise
prices.
The public trading market for the Common
Stock may be limited in the future.
Effective February 15, 2019, the Common
Stock is quoted on the OTCQX under the symbol “RGSE.” Any over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. Prior to such date, the
Common Stock traded on the Nasdaq Capital Market under the same symbol. The trading volume for the Common Stock fluctuates and,
in the past, there have been time periods during which the Common Stock trading volume has been limited. Management can make no
assurances that trading volume will not be similarly limited in the future. Without an active trading market, there can be no assurance
of any liquidity or resale value of the Common Stock, and shareholders may be required to hold shares of the Common Stock for an
indefinite period of time.
Risk Factors Related to our Business
and Industry
We have a history of operating losses,
and it is uncertain when, or if, we may be able to achieve or sustain future profitability. If we do not become profitable on an
ongoing basis, we may be unable to continue our operations.
We have incurred net losses and have an
accumulated deficit of $243 million as of December 31, 2018. If we cannot improve our operating results and ultimately generate
net income, we may be unable to continue our operations in the future.
Our financial statements as
of December 31, 2018 were prepared under the assumption that we will continue as a going concern. The independent
registered public accounting firm that audited our 2018 financial statements, in their report, included an explanatory
paragraph referring to our recurring losses and expressed substantial doubt in our ability to continue as a going concern.
Management also concluded that substantial doubt exists in our ability to continue as a going concern, and our financial
statements do not include any adjustments that might result from the outcome of this uncertainty. Our ability to continue as
a going concern depends on our ability to obtain additional equity or debt financing, increase sales and installations,
attain further operating efficiencies, reduce expenditures, and ultimately, to generate revenue.
We need to successfully commercialize
POWERHOUSE™ or increase our sales, installations and revenue in order to achieve our goal of operating profitability.
Our current levels of sales, installations
and revenue are insufficient for profitable operations. We believe we must commercialize POWERHOUSE™ 3.0, the principle component
of our revenue growth strategy, to achieve our goal of operating profitably. Alternatively, we must increase our sales, installations
and revenue in our Solar Division to achieve our goal of operating profitably. If we are unsuccessful in executing these plans,
we will be unable to increase revenue and will not achieve our goal of operating profitability.
We have a history of negative cash flows
from operations, and it is uncertain when, or if, in the future we will be able to achieve or sustain positive cash flow from operations.
There can be no assurance in the future
that we will generate sufficient cash flow from operations or obtain funds from future financings or other sources to fund operations
or other liquidity needs which could have important adverse consequences to us, such as:
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limiting
our ability to obtain additional financing;
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making it
more difficult for us to satisfy our obligations with respect to future indebtedness;
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limiting
our ability to respond to changing business, industry and economic conditions and to withstand competitive pressures, which
may affect our financial condition;
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limiting our
ability to make investments, dispose of assets, pay cash dividends or repurchase stock;
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increasing
our vulnerability to downturns in our business, our industry or the general economy and restricting us from making improvements
or acquisitions or exploring business opportunities; and
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·
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placing us
at a competitive disadvantage to competitors with greater resources.
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Our future operating performance and our
ability to service indebtedness will be subject to future economic conditions and to financial, business and other factors, many
of which are beyond our control.
Existing rules, regulations and policies
pertaining to electricity pricing and technical interconnection of customer-owned electricity generation and changes to these regulations
and policies may deter the purchase and use of solar energy systems and negatively impact development of the solar energy industry.
The market for solar energy systems is
heavily influenced by foreign, federal, state and local government regulations and policies concerning the electric utility industry,
as well as policies adopted by electric utilities. These regulations and policies often relate to electricity pricing and technical
interconnection of customer-owned electricity generation. For example, the vast majority of states have a regulatory policy known
as net energy metering, or “net metering”, which allows our customers to interconnect their on-site solar energy systems
to the utility grid and offset their utility electricity purchases by receiving a bill credit at the utility’s retail rate
for energy generated by their solar energy system that is exported to the grid and not consumed on-site. In this way, the customer
pays for the net energy used or receives a credit at the retail rate if more electricity is produced than consumed. In some states,
net metering is being replaced with lower credits for the excess electricity sent onto the grid from solar energy systems, and
utilities are imposing minimum or fixed monthly charges on owners of solar energy systems. These regulations and policies have
been modified in the past and may be modified in the future in ways that can restrict the interconnection of solar energy systems
and deter purchases of solar energy systems by customers. In addition, electricity generated by solar energy systems competes most
favorably in markets with tiered rate structures or peak hour pricing that increase the price of electricity when more is consumed.
Modifications to these rate structures by utilities, such as reducing peak hour or tiered pricing or adopting flat rate pricing,
could require the price of solar energy systems to be reduced in order to compete with the price of utility generated electricity.
The reduction, elimination or expiration
of government subsidies and economic incentives for solar energy systems could reduce the demand for our products and services.
U.S. federal, state and local government
bodies and utilities provide incentives to end-users, distributors, system integrators and manufacturers of solar energy systems
to promote solar electricity in the form of rebates, tax credits and other financial incentives such as system performance payments
and payments for renewable energy credits associated with renewable energy generation. These incentives enable us to lower the
price we charge our customers for solar energy systems. However, these incentives may expire on a particular date, end when the
allocated funding is exhausted, or be reduced or terminated as solar energy adoption rates increase. These reductions or terminations
often occur without warning. In addition, applicable authorities may adjust or decrease incentives from time to time or include
provisions for minimum domestic content requirements or other requirements to qualify for these incentives. The reduction, elimination
or expiration of such incentives or delays or interruptions in the implementation of favorable federal or state laws could substantially
increase the cost of our systems to our customers, resulting in a significant reduction in demand for our solar energy systems,
which would negatively impact our business.
Existing regulations, and changes to
such regulations, may present technical, regulatory and economic barriers to the installation of solar energy systems, which may
significantly reduce demand for our solar energy systems.
The installation of solar energy systems
is subject to oversight and regulation under local ordinances; building, zoning and fire codes; environmental protection regulation;
utility interconnection requirements for metering; and other rules and regulations. We attempt to keep up-to-date on these requirements
on a national, state and local level and must design and install our solar energy systems to comply with varying standards. Certain
jurisdictions may have ordinances that prevent or increase the cost of installation of our solar energy systems. In addition, new
government regulations or utility policies pertaining to the installation of solar energy systems are unpredictable and may result
in significant additional expenses or delays, which could cause a significant reduction in demand for solar energy systems.
An increase in our cost of materials
could arise as a result of the United States imposing trade remedies on imported solar panels, cells, inverters, batteries or other
products related to our business.
During 2018, the United States and China
each imposed new tariffs on various products imported from the other country. The U.S. tariffs include an additional 25% tariff
on solar panels and cells that are manufactured in China and a tariff on inverters, certain batteries and other electrical equipment
currently set at 25% effective January 1, 2019. The United States also has, from time to time, imposed, or announced tariffs on
goods imported from other countries we use in our business. We cannot predict what actions may ultimately be taken with respect
to tariffs or trade relations between the United States and other countries, what products may be subject to such actions, or what
actions may be taken by the other countries in retaliation. The adoption and expansion of trade restrictions, the occurrence of
a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact
our supply chain, our costs, our suppliers, and the U.S. economy, which could in turn adversely affect our business, financial
condition and results of operation.
An increase in our cost of materials
could arise as a result of changes in the price of oil and the foreign currency exchange rate for Chinese yuan.
The baseplate of our POWERHOUSE™
in-roof solar shingle is plastic and, accordingly, changes in the price of oil will affect our cost of this material. Currently,
we purchase the solar laminate for our POWERHOUSE™ in-roof solar shingle from a Chinese manufacturer, and, accordingly, changes
in the Chinese yuan verses the US Dollar will affect our cost of this material.
Although currently there is no shortage
of supplies for solar energy systems, from time to time in the past, shortages have occurred and have impacted solar companies
such as us. Shortages in the supply of silicon and inverters or supply chain issues could adversely affect the availability and
cost of the solar photovoltaic modules used in our solar energy systems.
Shortages of silicon and inverters or supply
chain issues could adversely affect the availability and cost of our solar energy systems. Manufacturers of photovoltaic modules
depend upon the availability and pricing of silicon, one of the primary materials used in photovoltaic modules. The worldwide market
for silicon from time to time experiences a shortage of supply, which can cause the prices for photovoltaic modules to increase
and supplies to become difficult to obtain. While we have been able to obtain sufficient supplies of solar photovoltaic modules
to satisfy our needs to date, this may not be the case in the future. Future increases in the price of silicon or other materials
and components could result in an increase in costs to us, price increases to our customers or reduced margins.
Other international trade conditions such
as work slowdowns and labor strikes at port facilities or major weather events can also adversely impact the availability and price
of solar photovoltaic modules.
Our business prospects could be harmed
if solar energy is not widely adopted or sufficient demand for solar energy systems does not develop or takes longer to develop
than we anticipate.
The solar energy market is at a relatively
early stage of development. The extent to which solar energy will be widely adopted and the extent to which demand for solar energy
systems will increase are uncertain. If solar energy does not achieve widespread adoption or demand for solar energy systems fails
to develop sufficiently, we may be unable to achieve our revenue and profit targets. In addition, demand for solar energy systems
in our targeted markets may not develop or may develop to a lesser extent or more slowly than we anticipate. Many factors may affect
the demand for solar energy systems, including the following:
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availability of government and utility company subsidies and incentives
to support the development of the solar energy industry;
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government and utility policies regarding the interconnection of solar
energy systems to the utility grid;
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fluctuations in economic and market conditions that affect the viability
of conventional and non-solar renewable energy sources, such as changes in the price of natural gas and other fossil fuels;
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cost-effectiveness (including the cost of solar panels), performance
and reliability of solar energy systems compared with conventional and other non-solar renewable energy sources and products;
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success of other renewable energy generation technologies, such as
hydroelectric, wind, geothermal, solar thermal, concentrated solar and biomass;
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availability of customer financing with economically attractive terms;
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fluctuations in expenditures by purchasers of solar energy systems,
which tend to decrease in slower economic environments and periods of rising interest rates and tighter credit; and
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deregulation of the electric power industry and the broader energy
industry.
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A drop in the retail price of conventional
electricity or non-solar renewable energy sources may negatively impact our business.
The demand for our solar energy systems
depends in part on the price of conventional electricity, which affects return on investment resulting from the purchase of solar
energy systems. Fluctuations in economic and market conditions that impact the prices of conventional and non-solar renewable energy
sources could cause the demand for solar energy systems to decline, which would have a negative impact on our business
.
Our sales and installations are subject
to seasonality of customer demand and weather conditions which are outside of our control.
Our sales are subject to the seasonality
of when customers buy solar energy systems. We historically have experienced spikes in orders during the spring and summer months
which, due to lead time, result in installations and revenue increasing during the summer and fall. Tax incentives can generate
additional backlog prior to the end of the year, depending upon the incentives available and whether customers are looking to take
advantage of such incentives before the end of the year.
Our ability to construct systems outdoors
may be impacted by inclement weather, which can be most prominent in our geographic installation regions during the first and fourth
quarters of the year. As a result of these factors, our first quarter is generally our slowest quarter of the year. If unexpected
natural events occur and we are unable to manage our cash flow through these seasonal factors, there could be a negative impact
on our financial position, liquidity, results of operations and cash flow.
Our inability to respond to changing
technologies and issues presented by new technologies could harm our business.
The solar energy industry is subject to
technological change. If we rely on products and technologies that cease to be attractive to customers, or if we are unable to
respond appropriately to changing technologies and changes in product function or quality, we may not be successful in capturing
or retaining significant market share. In addition, any new technologies utilized in our solar energy systems may not perform as
expected or as desired, in which event our adoption of such products or technologies may harm our business.
We may be unable to successfully commercialize
POWERHOUSE™ 3.0, which may negatively impact our business and results of operation.
There are risks we must address to successfully
commercialize POWERHOUSE™ 3.0:
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The adequacy of, and access to, capital necessary to commercialize
POWERHOUSE™ 3.0;
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Our ability to satisfy the conditions and our obligations under the
License;
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Our ability to grow a nationwide network of local roofers and solar
installers to purchase POWERHOUSE™ solar shingles;
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Our ability to contract with homebuilders to purchase POWERHOUSE™
solar shingles for their communities;
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Our ability to manage a supply chain, including the cost and availability
of raw materials, in order to achieve production levels and competitive pricing of the POWERHOUSE™ 3.0 shingles;
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Our ability to successfully expand operations and realize profitable
revenue growth from the sale and installation of POWERHOUSE™ 3.0;
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Our ability to successfully and timely expand our POWERHOUSE™
3.0 business outside of the United States and manage foreign exchange risks associated with the POWERHOUSE™ 3.0 business;
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Intellectual property infringement claims, and warranty claims related
to the POWERHOUSE™ 3.0 business; and
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Competition in the built-in photovoltaic solar system business.
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Our License with Dow for the exclusive
use of the POWERHOUSE™ trademark name is subject to our selling of 50 megawatts of POWERHOUSE™ 3.0 in-roof shingle
within the first 5 years and failure to do so could adversely affect our business, financial condition and results of operation.
If we do not sell 50 megawatts of POWERHOUSE™
3.0 in-roof shingles during the first 5 years after obtaining UL certification, Dow has the right to amend the License to be non-exclusive.
If that were to happen, Dow would be allowed to grant rights to others to sell POWERHOUSE™ 3.0 in-roof solar shingles and
use associated intellectual property, thereby increasing competition, which could adversely affect our business, financial condition
and results of operation.
Our Solar Division operates in a highly
competitive market with low barriers to entry and, accordingly, we may face the loss of business or reduced margins.
The solar energy system installation market
is highly competitive with low barriers to entry. We currently compete with significantly larger companies as well as a large number
of relatively small installers and developers. Larger companies may have greater financial, technical and marketing resources and
greater name recognition than we do. Smaller companies may lack adequate systems and capital but can benefit from operating efficiencies
or from having lower overhead, which enables them to offer lower prices.
We believe that our Solar Division’s
ability to compete depends in part on a number of factors outside of our control, including the following:
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the
availability of solar financing solutions;
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the price
at which competitors offer comparable products;
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marketing
efforts undertaken by our competitors;
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the extent
of our competitors’ responsiveness to customer needs; and
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access to
materials, labor and installation services.
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Competition in the solar energy system
installation market may increase in the future as a result of low barriers to entry. Increased industry competition could result
in reductions in price, margins, and market share and in greater competition for qualified personnel. Our business and operating
results would be adversely affected if we are unable to compete effectively.
We derive the majority of the revenue
from the sale of solar energy systems in east coast states.
We currently derive the vast majority of
our Solar Division revenue from the sale of solar energy systems in east coast states. This geographic concentration exposes us
to increased risks associated with the growth rates, government regulations, economic conditions, weather and other factors that
may be specific to those states to which we would be less subject if we were more geographically diversified. We intend to expand
our Solar Division into new states of operation. Any geographic expansion efforts that we may make may not be successful, which
would limit our growth opportunities.
Our Board of Directors has concluded that we will exit our
mainland residential business and we may not generate the cost savings we expect.
On March 27, 2019, our Board of Directors determined to exit
our mainland residential solar business to focus on the POWERHOUSE™ in-roof shingle market and reduce overall cash outflow. This
realignment is expected to result in the reduction of workforce payroll plus burden of approximately $4.0 million annually.
Revenues and net loss in 2018 for the mainland residential solar business were approximately $8.9 million and $6.3 million, respectively.
In order for us to convert our existing backlog to revenue, we plan to use authorized integrators to complete installations throughout
the remainder of 2019. These projected cost savings may not be attained, and we may not be successful at converting our existing
backlog into revenue utilizing authorized integrators.
Our Solar Division installs solar energy
systems, and many factors can prevent us from completing installations on time or on budget.
Factors that may prevent us from completing
installations on time or on budget include:
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shortages
of materials;
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shortages of
skilled labor;
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·
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unforeseen
installation scheduling, engineering, excavation, environmental or geological problems;
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·
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job site issues
that were not apparent during site inspection;
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·
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natural disasters,
hurricanes, weather interference, fires, earthquakes or other casualty losses or delays;
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delays in obtaining
or inability to obtain or maintain necessary licenses or permits;
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·
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changes to
plans or specifications;
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performance
by subcontractors;
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·
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disputes with
subcontractors; and
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·
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unanticipated
cost increases in materials, labor or other elements of our projects beyond budgets and allowances for contingencies.
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Our installation projects expose us to
risks of cost overruns due to typical uncertainties associated with any project or changes in the designs, plans or concepts of
such projects. For these and other reasons, installation costs may exceed the estimated cost of completions.
Availability and cost of financing for
solar energy systems could reduce demand for our services and products.
Many of our Solar Division customers, and
prospective customers of our POWERHOUSE™ roofers and homebuilders, depend on loan financing to fund the purchase price of
our solar energy systems. The interest rate for this financing varies with market conditions. Third-party financing sources may
also charge significant fees for their financing products. If financing sources increase their fees or interest rates, the cost
of purchasing our solar energy systems will increase and we may experience decreased demand for our products and services, resulting
in reduced revenue. In the alternative, if we elect to absorb any financing price increase by lowering the price of our products
and services to keep the total cost to our customers constant, our revenue will decrease, and we will experience lower profit margins.
However, we continue to rely on third parties to finance most of our sales of solar energy systems in our Solar Division and we
expect that prospective customers of our POWERHOUSE™ roofers similarly will rely on third parties to finance their purchases.
An increase in interest rates or tight
credit markets could make it difficult for customers to finance the cost of solar energy systems and could reduce demand for our
services and products.
Some of our prospective customers may depend
on debt financing, such as home equity loans or leasing, to fund the purchase of a solar energy system. Third-party financing sources,
specifically for solar energy systems, are currently limited. The lack of financing sources, limitations on available credit, or
an increase in interest rates could make it difficult or too costly for our potential customers to secure the financing necessary
to purchase a solar energy system on favorable terms, or at all, thus lowering demand for our services and products and negatively
impacting our business.
We may incur fines and other penalties
if we do not conduct our business in accordance with licenses required for our operations and if any such license is suspended
or lost, we may be unable to sell or install solar energy systems in the jurisdiction in question and our sales and revenue from
that jurisdiction would be adversely affected.
As a construction company, we are required
to hold general or specialty contractors’ licenses in some of the jurisdictions in which we operate, although in other jurisdictions
we are permitted to utilize the licenses of subcontractors. Some jurisdictions also require licenses to sell home improvement products
or services, or to issue consumer credit. If we violate the rules of these licensing authorities, we may incur fines or other penalties
or have our licenses suspended or cancelled. Some licenses require us to employ personnel with specific qualifications. If we lose
those personnel, we may lose our ability to conduct business in that jurisdiction until we can hire a qualified replacement.
We may be subject to unexpected warranty
expenses or service claims that could reduce our profits.
Our currently standard manufacturing warranty
for our POWERHOUSE™ 3.0 solar shingles comes with an 11-year product warranty, which is the standard product warranty of
most traditional solar panels today, and a 24-year power production warranty.
Our Solar Division provides warranties
for workmanship and, in certain cases, in energy production and, accordingly we bear the risk of warranty claims long after we
have completed the installation of a solar energy system. Our current standard warranty for our installation services includes
a warranty period of up to 10 years for defective workmanship. In addition, most manufacturers of solar photovoltaic modules offer
a 25-year warranty period for declines in power performance.
Although we maintain an estimated liability
for potential warranty or service claims, claims in excess of our recorded liability could adversely affect our operating results.
Our failure to predict accurately future warranty claims could result in unexpected volatility in our financial results.
We rely heavily on a limited number
of suppliers, installers and other vendors, and if these companies were unable to deliver critical components and services, it
would adversely affect our ability to operate and our financial results.
We rely on a limited number of third-party
suppliers to provide the components used in our POWERHOUSE™ in-roof solar shingles and our solar energy systems. We also
rely on key vendors to provide internal and external services which are critical to our operations, including installation of solar
energy systems, accounting and customer relationship management software, facilities and communications. The failure of our suppliers
and vendors to supply us with products and services in a timely manner or on commercially reasonable terms could result in lost
orders, delay our project schedules, limit our ability to operate and harm our financial results. If any of our suppliers or vendors
were to fail to supply our needs on a timely basis or to cease providing us key components or services we use, we would be required
to secure alternative sources of supply. We may have difficulty securing alternative sources of supply. If this were to occur,
our business would be harmed.
The installation and ongoing operation
of solar energy systems involves significant safety risks.
Solar energy systems generate electricity,
which is inherently dangerous. Installation of these systems also involves the risk of falling from rooftops, personal injuries
occurring at the job site and other risks typical of construction projects. Although we take many steps to assure the safe installation
and operation of our solar energy systems, and maintain insurance against such liabilities, we may nevertheless be exposed to significant
losses arising from personal injuries or property damage arising from our projects.
Our failure to meet customer expectations
in the performance of our services, and the risks and liabilities associated with placing our employees and technicians in our
customers’ homes and businesses, could give rise to claims against us.
Our failure or inability to meet customer
expectations in the performance of our services could damage our reputation or result in claims against us. In addition, we are
subject to various risks and liabilities associated with our employees and technicians providing installation services in the homes
and businesses of our customers, including possible claims of errors and omissions, harassment, theft of customer property, criminal
activity and other claims.
Product liability claims against us
could result in adverse publicity and potentially significant monetary damages.
As a seller of consumer products, we may
face product liability claims in the event that use of our solar energy systems results in injuries. Because solar energy systems
produce electricity, it is possible that our products could result in injury, whether by product malfunctions, defects, improper
installation or other causes. If such injuries or claims of injuries were to occur, we could incur monetary damages and our business
could be adversely affected by any resulting negative publicity. The successful assertion of product liability claims against us
also could result in potentially significant monetary damages and, if our insurance protection is inadequate to cover these claims,
could require us to make significant payments from our own resources.
Our operations are largely dependent
on the skill and experience of our management and key personnel. The loss of management and other key personnel or our inability
to hire additional personnel could significantly harm our business and our ability to expand, and we may not be able to effectively
replace members of management who have left the company.
Our continued success and our ability to
maintain our competitive position is largely dependent upon, among other things, the efforts and skills of our senior executives
and management team. We cannot guarantee that these individuals will remain with us. Further, we do not carry key man life insurance
on our executives. If we lose the services of any members of our management team or other key personnel, our business may be significantly
impaired. In addition, we cannot assure you that we will be able to attract additional qualified senior executive, management and
key personnel.
The loss of personnel or failure to
hire additional personnel could materially and adversely affect our business, operating results and our ability to expand.
The expansion of our business could significantly
strain our managerial, financial and personnel resources. To reach our goals, we must successfully recruit, train, motivate and
retain additional employees, including management and technical personnel, integrate new employees into our overall operations
and enhance our financial and accounting systems, controls and reporting systems. While we believe we have personnel sufficient
for the current requirements of our business, expansion of our business could require us to employ additional personnel. The loss
of personnel or our failure to hire additional personnel could materially and adversely affect our business, operating results
and our ability to expand.
From time to time, we are subject to
litigation which, if adversely determined, could cause us to incur substantial losses.
From time to time during the normal course
of operating our businesses, we are subject to various litigation claims and legal disputes. As a result, we might also be required
to incur significant legal fees, which may have a material adverse effect on our financial position. In addition, because we cannot
accurately predict the outcome of any action, it is possible that, as a result of current and/or future litigation, we will be
subject to adverse judgments or settlements that could significantly reduce our earnings or result in losses.
Increased information technology security
threats and more sophisticated computer crime pose a risk to our systems, networks, products and services.
We rely on technology, computer systems,
third-party service providers, and our website for obtaining and storing certain information. Our business requires us to receive,
retain and transmit personally identifiable information and other information about our customers, suppliers and employees, some
of which is entrusted to third-party service providers and other businesses we interact with. Information technology security threats
are increasing in frequency and sophistication. Our security measures have been breached in an immaterial manner in the past and
may be breached in the future due to a cyber-attack, computer malware or viruses, employee error, malfeasance, fraudulent inducement
(including so-called “social engineering” attacks and “phishing” scams) or other acts. Costs associated
with our past security breach have not been significant. Unauthorized parties have previously obtained and may in the future obtain
access to our data or the data of our customers, suppliers or employees or may otherwise cause damage or interfere with our technology,
computer systems or website. We develop and update processes and maintain systems in an effort to try to prevent this from occurring
and seek assurances from businesses we interact with that they will do the same, but the development and maintenance of these processes
and systems are costly and require ongoing monitoring and updating as technologies change, privacy and information security regulations
change, and efforts to overcome security measures become more sophisticated. We have taken, and continue to undertake significant
steps to protect such information and seek assurances from businesses we interact with that they will do the same, but there can
be no assurance that our data security systems or those of businesses we interact with will not be compromised, and such compromise
could result in such information being obtained by unauthorized persons, adverse operational effects or interruptions, substantial
additional costs or being subject to legal or regulatory proceedings, any of which could damage our reputation in the marketplace
or materially and adversely affect our business, financial condition, operating results and cash flows.
While we are exploring and evaluating
strategic alternatives, we may not be successful in identifying or completing any strategic alternative and any such strategic
alternative may not yield additional value for shareholders.
On March 7, 2019, we announced that we
had commenced a review of strategic alternatives which could result in, among other things, the possible sale of the Company. Our
exploration of strategic alternatives may not result in the identification or consummation of any transaction. In addition, we
may incur substantial expenses associated with identifying and evaluating potential strategic alternatives. The process of exploring
strategic alternatives may be time consuming and disruptive to our business operations, and if we are unable to effectively manage
the process, our business, financial condition and results of operations could be adversely affected. Any potential transaction
and the related valuation would be dependent upon a number of factors that may be beyond our control, including, among other factors,
market conditions, industry trends, the interest of third parties in our business and the availability of financing to potential
buyers on reasonable terms.
Risk Factors Related to Our Securities
The market price of our Common Stock
has been volatile, and future volatility could result in substantial losses for investors.
The market price of our Common Stock has
been volatile in the past and could fluctuate widely in response to various factors, many of which are beyond our control, including
the following:
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actual or anticipated changes in our operating results;
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regulatory, legislative or other developments affecting us or the
solar energy industry generally;
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changes in expectations relating to our services and products, plans
and strategic position or those of our competitors or customers;
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market conditions and trends within the solar energy industry;
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acquisitions or strategic alliances by us or by our competitors;
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litigation involving us, our industry or both;
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introductions of new technological innovations, services, products
or pricing policies by us or by our competitors;
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recruitment or departure of key personnel;
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our ability to execute our business plan;
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volume and timing of customer orders;
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price and volume fluctuations in the overall stock market from time
to time;
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changes in investor perception;
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the level and quality of any research analyst coverage of our Common
Stock;
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changes in earnings estimates or investment recommendations by analysts;
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·
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the financial guidance we may provide to the public, any changes in
such guidance or its failure to meet such guidance;
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the trading volume of our Common Stock;
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·
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short-term investment in our Common Stock by investors;
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our issuance of additional Common Stock or securities convertible
into or exercisable for Common Stock; and
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economic and other external factors that impact purchasing decisions
of our potential customers.
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Future volatility of the market price of
our Common Stock could result in substantial losses for investors.
Future issuances of stock, options,
warrants or other securities will cause substantial dilution and may negatively affect the market price of our Common Stock.
Ownership of our securities may be diluted
by future issuances of securities or the conversion or exercise of outstanding or to be issued options, warrants, convertible notes,
convertible stock or other securities.
As of April 12, 2019, there were an aggregate
of approximately 29 million shares of our Common Stock issuable upon exercise of outstanding warrants. The exercise price under
certain of our outstanding warrants is subject to adjustment in the future.
Derivative securities, such as convertible
debt, options and warrants, currently outstanding or issued in the future may contain anti-dilution protection provisions, which,
if triggered, could require us to issue a larger number of the security underlying such derivative security than the face amount.
We cannot predict the effect, if any, that
future sales or issuance of shares of our Common Stock into the market, or the availability of shares of our Common Stock for future
sale, will have on the market price of our Common Stock. Sales of substantial amounts of our Common Stock (including shares issued
upon exercise of options and warrants or conversion of convertible related party debt), or the perception that such sales could
occur, may materially affect prevailing market prices for our Common Stock.
Our common stock could become subject
to the Securities and Exchange Commission’s “penny stock” regulations, which may limit the liquidity of Common
Stock held by our shareholders.
The SEC has adopted regulations which generally
define a “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific
exemptions. Based on our Common Stock’s trading price below $5.00 per share, if we are unable in the future to continue to
satisfy an available exemption from the definition of “penny stock”, then our Common Stock would be considered a penny
stock for purposes of federal securities laws. Penny stock is subject to regulations, which affect the ability of broker-dealers
to sell such securities. Broker-dealers who recommend a penny stock to persons (other than established customers and accredited
investors) must make a special written suitability determination and receive the purchaser’s written agreement to a transaction
prior to sale.
If penny stock regulations apply to our
Common Stock, it may be difficult to trade the stock because compliance with the regulations can delay and/or preclude certain
trading transactions. Broker-dealers could be discouraged from effecting transactions in our Common Stock if penny stock regulations
apply because of the sales practice and disclosure requirements. This could adversely affect the liquidity or price of our Common
Stock and impede the sale of the Common Stock in the secondary market.
We do not expect to pay any cash dividends
on our Common Stock for the foreseeable future.
We do not anticipate paying any cash dividends
on our Common Stock for the foreseeable future.
Our business is subject to reporting
requirements that continue to evolve and change, which could continue to require significant compliance effort and resources.
Because our Common Stock is publicly traded,
we are subject to certain rules and regulations of federal, state and financial market exchange entities charged with the protection
of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company
Accounting Oversight Board and the SEC, periodically issue new requirements and regulations and legislative bodies also review
and revise applicable laws such as the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010. As interpretation and implementation of these laws and rules and promulgation of new regulations continues, we will
continue to be required to commit significant financial and managerial resources and incur additional expenses.
Provisions in our articles of incorporation
and bylaws might discourage, delay or prevent a change of control of our company or change in our management and, therefore, depress
the trading price of our Common Stock.
Our articles of incorporation and bylaws
contain provisions that could depress the trading price of our Common Stock by discouraging, delaying or preventing a change of
control of our company or changes in our management that our shareholders may believe advantageous. These provisions include:
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Our Board of Directors may consist of any number of directors, which
may be fixed from time to time by our Board of Directors. Newly created directorships resulting from any increase in our authorized
number of directors may be filled by the affirmative vote of a majority of the directors then in office or by an election at an
annual meeting or special meeting of shareholders called for that purpose, and any vacancies on its Board of Directors resulting
from death, resignation, retirement, disqualification, removal from office or other cause may be filled by the affirmative vote
of a majority of the remaining Board of Directors, even if less than a quorum is remaining in office.
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A shareholder must provide advance notice of any proposal to be brought
before an annual meeting of shareholders by a shareholder, including any nomination for election of directors by any shareholder
entitled to vote for the election of directors at the meeting.
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No shareholder proposal may be considered at a meeting of our shareholders
unless the proposal relates to a matter on which a shareholder vote is required by our articles of incorporation, bylaws or by
applicable law.
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Our Board of Directors has the power to issue preferred stock with
designations, preferences, limitations and relative rights determined by our Board of Directors without any vote or action by shareholders.
The issuance of preferred stock or of rights to purchase preferred stock could have the effect of making it more difficult for
a third party to acquire our company, or of discouraging a third party from attempting to acquire our company.
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Our Board of Directors may amend, supplement or repeal our bylaws
or adopt new bylaws, subject to repeal or change by action of our shareholders.
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DESCRIPTION OF THE TRANSACTION
Registered Offering (Shelf Warrants)
April 2019 Offering (Series R Warrants
and Series S Warrants)
In connection with the April 2019 Offering,
the Company issued the Series R Warrants and Series S Warrants, as described above.
Private Placements (Private Warrants)
July 2014 Offering (July 2014 Warrants)
On July 9, 2014, the Company closed a private
placement of units consisting of an aggregate of 244 shares of Common Stock and WP14 warrants to purchase an aggregate of up to
110 shares of Common Stock (the “July 2014 Warrants”) pursuant to the terms of the Securities Purchase Agreement dated
July 2, 2014. The current holders of the July 2014 Warrants are listed in the selling shareholder table included in the section
entitled “SELLING SHAREHOLDERS.”
February 2015 Offering (February 2015
PA Warrants)
On February 26 and February 27, 2015, the
Company closed a registered offering of units (the “February 2015 Offering”). In connection with the February 2015
Offering, on February 27, 2015, in a private placement, the Company sold and issued to the placement agent, WestPark Capital, Inc.
(“WestPark”), for an aggregate purchase price of $100, the WPA warrant to purchase 49 shares of Common Stock (the “February
2015 PA Warrants”) pursuant to the terms of the Placement Agent Agreement between the Company and WestPark. The current holders
of the February 2015 PA Warrants are listed in the selling shareholder table included in the section entitled “SELLING SHAREHOLDERS.”
June 2015 Offering (June 2015 PA Warrants)
On June 30, and July 1, 2015, the Company
closed a registered offering of units (the “June 2015 Offering”). In connection with the June 2015 Offering, on July
1, 2015, in a private placement, the Company sold and issued to the placement agent, WestPark, for an aggregate purchase price
of $100, the WPA2 warrants to purchase 186 shares of Common Stock (the “June 2015 PA Warrants”) pursuant to the terms
of the Placement Agency Agreement between the Company and WestPark. The current holders of such warrants are listed in the selling
shareholder table included in the section entitled “SELLING SHAREHOLDERS.”
April 2016 Offering (Series G Warrants
and April 2016 PA Warrants)
On April 1, 2016, the Company closed a
private placement of $10.0 million Senior Secured Convertible Notes due on April 1, 2019 (the “2016 Notes”) and Series
G Warrants to purchase 8,300 shares of Common Stock (the “April 2016 Offering”). In connection with the April 2016
Offering, on April 1, 2016, the Company sold and issued to the placement agent, Roth Capital Partners, LLC (“Roth”),
for an aggregate purchase price of $100, the WPA3 warrants to purchase 1,411 shares of Common Stock (the “April 2016 PA Warrants”)
pursuant to the terms of the engagement letter between the Company and Roth. The current holders of the Series G Warrants and April
2016 PA Warrants are listed in the selling shareholder table included in the section entitled “SELLING SHAREHOLDERS.”
December 2016 Offering (December 2016
PA Warrants)
On December 13, 2016, the Company closed
a registered offering of units (the “December 2016 Offering”). In connection with the closing, the Company issued to
the placement agent, Roth, the WPA5 warrants to purchase 30,834 shares of Common Stock (the “December 2016 PA Warrants”)
pursuant to the terms of the Placement Agency Agreement between the Company and Roth. The current holders of the December 2016
PA Warrants are listed in the selling shareholder table included in the section entitled “SELLING SHAREHOLDERS.”
February 2017 Offerings (February 6,
2017 and February 9, 2017 PA Warrants)
On February 6, 2017, the Company closed
a registered offering of units. In connection with the closing, the Company issued to the placement agent, Roth, WPA6 warrants
to purchase 185,000 shares of Common Stock (the “February 6, 2017 PA Warrants”), pursuant to the terms of the Placement
Agency Agreement between the Company and the placement agent. The current holders of the February 6, 2017 PA Warrants are listed
in the selling shareholder table included in the section entitled “SELLING SHAREHOLDERS.”
On February 9, 2017, the Company closed
a registered offering of units. In connection with the closing, the Company issued to the placement agent, Roth, WPA7 warrants
to purchase 120,000 shares of Common Stock (the “February 9, 2017 PA Warrants”), pursuant to the terms of the Placement
Agency Agreement between the Company and the placement agent. The current holders of the February 9, 2017 PA Warrants are listed
in the selling shareholder table included in the section entitled “SELLING SHAREHOLDERS.”
January 2018 Offering (Series O Warrant
and January 2018 PA Warrants)
On January 4, 2018, the Company issued
and sold a Series O Warrant to purchase 1,600,000 shares of Common Stock to one institutional and accredited investor pursuant
to the terms of the Securities Purchase Agreement, dated as of January 2, 2018, between the Company and the investor in a private
placement in connection with a concurrent registered sales of shares of Common Stock and Series P Warrants to the investor (collectively,
the “January 2018 Offering”). The current holder of the Series O Warrant is listed in the selling shareholder table
included in the section entitled “SELLING SHAREHOLDERS.”
On January 4, 2018, in connection with
the January 2018 Offering the Company sold and issued to the placement agent, WestPark, for an aggregate purchase price of $100,
WPA8 warrants to purchase 128,000 shares of Common Stock (the “January 2018 PA Warrants”) pursuant to the terms of
the engagement letter between the Company and WestPark. The current holders of the January 2018 PA Warrants are listed in the selling
shareholder table included in the section entitled “SELLING SHAREHOLDERS.”
April 2018 Offering (Series Q Warrants
and April 2018 PA Warrants)
On April 9, 2018, the Company issued and
sold (the “April 2018 Offering”) convertible notes and warrants to two institutional and accredited investors: (i)
$10.75 million in principal amount and $10 million funding amount (reflecting an original issue discount of $750,000) of convertible
notes due April 9, 2019, consisting of (a) two Series A Senior Convertible Notes in the aggregate principal amount of $5,750,000
(the “Series A Notes”) in consideration for aggregate cash payments of $5,000,000, (b) two Series B Senior Secured
Convertible Notes in the aggregate principal amount of $5,000,000 (the “Series B Notes,” and collectively with the
Series A Notes, the “2018 Notes”) for consideration consisting of two secured promissory notes, each issued and payable
by an investor, in the aggregate principal amount of $5,000,000, and (ii) Series Q Warrants to purchase up to 9,126,984 shares
of the Company’s Common Stock under the terms of the Securities Purchase Agreement, dated March 30, 2018, as amended, among
the Company and the investors. The Company received net proceeds of approximately $4.4 million at the closing, after deducting
commissions to the placement agent, WestPark, and estimated offering expenses payable by the Company associated with the private
placement. The current holders of the Series Q Warrants are listed in the selling shareholder table included in the section entitled
“SELLING SHAREHOLDERS.”
On April 9, 2018, in connection with the
April 2018 Offering, the Company sold and issued to the placement agent, WestPark, for an aggregate purchase price of $100, WPA9
warrants to purchase 730,159 shares of Common Stock (the “April 2018 PA Warrants”) pursuant to the terms of the engagement
letter between the Company and the placement agent. The current holders of the April 2018 PA Warrants are listed in the selling
shareholder table included in the section entitled “SELLING SHAREHOLDERS.”
April 2019 Offering (April 2019 PA Warrants)
On April 2, 2019, in connection with the
April 2019 Offering, the Company sold and issued to the placement agent, Dawson James Securities, Inc. (“Dawson James”),
for an aggregate purchase price of $100, WPA10 warrants to purchase 1,389,474 shares of Common Stock (the “April 2019 PA
Warrants”) pursuant to the terms of the engagement letter between the Company and Dawson James. The current holders of the
April 2019 PA Warrants are listed in the selling shareholder table included in the section entitled “SELLING SHAREHOLDERS.”
Description of the Warrants
Subject to applicable laws, the Warrants
may be offered for sale, sold, transferred or assigned without our consent. However, there is no established public trading market
for the Warrants and Real Goods Solar does not expect one to develop.
The below descriptions of the terms of
the Warrants are qualified in their entirety by the forms of Warrants included as Exhibits 4.6, 4.10, 4.13, 4.15, 4.16, 4.23, 4.26,
4.29, 4.30, 4.32, 4.35, 4.37, 4.38, 4.39 and 4.40 to this prospectus.
The table below indicates the current exercise
price, the number of shares of Common Stock under, the issuance date and the expiration date of each Warrant.
Warrant
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Current
Exercise
Price
|
|
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Number
of Shares
|
|
|
Issuance Date
|
|
Expiration Date
|
July 2014 Warrants
|
|
$
|
38,280
|
|
|
|
84
|
|
|
July 9, 2014
|
|
January 9, 2020
|
February 2015 PA Warrants
|
|
$
|
6,000
|
|
|
|
49
|
|
|
February 27, 2015
|
|
February 22, 2020
|
June 2015 PA Warrants
|
|
$
|
744
|
|
|
|
186
|
|
|
June 30, 2015
|
|
June 26, 2020
|
Series G Warrants
|
|
$
|
1.36
|
|
|
|
3,322
|
|
|
April 1, 2016
|
|
October 1, 2021
|
April 2016 PA Warrants
|
|
$
|
496.80
|
|
|
|
1,411
|
|
|
April 1, 2016
|
|
March 1, 2021
|
December 2016 PA Warrants
|
|
$
|
10.50
|
|
|
|
30,834
|
|
|
December 13, 2016
|
|
December 8, 2021
|
February 6, 2017 PA Warrants
|
|
$
|
3.88
|
|
|
|
185,500
|
|
|
February 6, 2017
|
|
February 1, 2022
|
February 9, 2017 PA Warrants
|
|
$
|
3.13
|
|
|
|
120,000
|
|
|
February 9, 2017
|
|
February 7, 2022
|
Series O Warrant
|
|
$
|
1.47
|
|
|
|
1,600,000
|
|
|
January 4, 2018
|
|
July 4, 2023
|
January 2018 PA Warrants
|
|
$
|
1.47
|
|
|
|
128,000
|
|
|
January 4, 2018
|
|
July 4, 2023
|
Series Q Warrants
|
|
$
|
0.19
|
|
|
|
317,678
|
|
|
April 9, 2018
|
|
April 9, 2023
|
April 2018 PA Warrants
|
|
$
|
0.19
|
|
|
|
730,160
|
|
|
April 9, 2018
|
|
April 9, 2023
|
Series R Warrants
|
|
$
|
0.20
|
|
|
|
17,368,421
|
|
|
April 2, 2019
|
|
April 2, 2024
|
Series S Warrants
|
|
$
|
0.01
|
|
|
|
1,430,141
|
|
|
April 2, 2019
|
|
April 2, 2024
|
April 2019 PA Warrants
|
|
$
|
0.25
|
|
|
|
1,389,474
|
|
|
April 2, 2019
|
|
April 2, 2024
|
Provisions for changes to or adjustments
in the exercise price and other material terms of the Warrants are described below.
Series R Warrants and Series S Warrants
The exercise price of the Series R Warrants
is subject to adjustments for stock splits or similar events, and if the Company in the future issue shares of Common Stock or
securities exercisable for or convertible into shares of Common Stock at an effective price per share less than the exercise price
then in effect, then the exercise price will be reduces to such lower effective price per share. In addition, the Company may,
with the consent of the “required holders” (as defined in the Series R Warrants), reduce the then current exercise
price to any amount and for any period of time deemed appropriate by the Company’s Board of Directors.
Under certain circumstances, the holders
of the Series R Warrants may elect to exercise them through a cashless exercise, in which case the holders will receive upon such
exercise the “net number” of shares of Common Stock determined according to the formula set forth in the Series R Warrants
and the Company will not receive the exercise price. Further, on or after the 60th day following issuance, if the volume weighted
price of the Common Stock for five consecutive trading days is less than the exercise price, the holder may thereafter, in its
sole discretion and regardless of whether the shares of Common Stock issuable upon exercise of a Series R Warrant is not covered
by a registration statement under the Securities Act, elect to exercise a Series R Warrant without payment of any exercise price
and receive a number of shares of Common Stock equal to the product of (x) the aggregate number of shares that would be issuable
upon exercise of a Series R Warrant if such exercise were by means of a cash exercise rather than a cashless exercise and (y) 0.50.
The holder may not exercise a Series R
Warrant and the Company may not issue shares of Common Stock under a Series R Warrant if, after giving effect to the exercise or
issuance, the holder together with its affiliates would beneficially own in excess of a set percentage of the outstanding shares
of the Common Stock. The cap was initially set on the date of issuance at a percentage not in excess of 9.99%, at each holder’s
election. At each holder’s option, the cap may be increased or decreased to any other percentage not in excess of 9.99%,
except that any increase will not be effective until the 61st day after notice to us.
The holders of the Series R Warrants are
entitled to acquire options, convertible securities or rights to purchase the Company’s securities or property granted, issued
or sold pro rata to the holders of its Common Stock on an “as if exercised for Common Stock” basis. The holders of
the Series R Warrants are entitled to receive any dividend or other distribution of the Company’s assets (or rights to acquire
its assets), at any time after the issuance of the Series R Warrants, on an “as if exercised for Common Stock” basis.
The Series R Warrants prohibit the Company
from entering into transactions constituting a “fundamental transaction” (as defined in the Series R Warrants) unless
the successor entity assumes all of the Company’s obligations under the Series R Warrants and the other transaction documents
in a written agreement approved by the “required holders” of the Series R Warrants. Further, after a fundamental transaction,
upon the request of a holder, the Company is required to purchase such holder’s Series R Warrants for an amount equal to
the “Black Scholes value” (as defined in the Series R Warrants) of the remaining unexercised portion of such Series
R Warrants. The definition of “fundamental transactions” includes, but is not limited to, mergers, a sale of all or
substantially all of the Company’s assets, certain tender offers and other transactions that result in a change of control.
The terms of the Series S Warrants are
substantially the same as the Series R Warrants, other than the exercise price is not subject to adjustment upon subsequent issuances
of shares of Common Stock or securities exercisable for or convertible into shares of Common Stock, and holders may not require
the Company to purchase the Series R Warrants for the “Black Scholes value.”
July 2014 Warrants
The exercise price and number of shares
of Common Stock issuable under the July 2014 Warrants are subject to anti-dilutive adjustments upon the occurrence of certain events,
such as stock splits. The July 2014 Warrants contain provisions concerning the assumption of the July 2014 Warrants in connection
with a Fundamental Transaction (as defined in the July 2014 Warrants), and mandatory and voluntary redemption of the July 2014
Warrants under certain circumstances. If at any time after the July 2014 Warrants are exercisable there is no effective registration
statement on file with the SEC registering, or no current prospectus available for, the resale of the shares of our Common Stock
issuable upon exercise of the July 2014 Warrants, the July 2014 Warrants may be exercised by means of a “cashless exercise.”
Under the terms of the July 2014 Warrants,
no selling shareholder may exercise its July 2014 Warrants if, after giving effect to such exercise and the issuance of the shares
of Common Stock issued pursuant thereto, such selling shareholder, together with any of its affiliates, would beneficially own
a number of shares of our Common Stock which would exceed 4.99% of the issued and outstanding Common Stock. However, a selling
shareholder may increase or decrease this percentage to any other percentage not in excess of 9.99% effective no earlier than the
61st day after delivering written notice to us.
February 2015 PA Warrants
The
exercise price of the February 2015 PA Warrants is subject to adjustments for stock splits and similar events. In addition, the
Company may, with the consent of the “required holders” (as defined in the February 2015 PA Warrants), reduce the then
current exercise price to any amount and for any period of time deemed appropriate by the Company’s Board of Directors. A
holder of a February 2015 PA Warrant may elect to exercise it through a cashless exercise at any time, regardless of whether the
shares of Common Stock issuable upon exercise of the February 2015 PA Warrants are covered by a registration statement under the
Securities Act, in which case the holder will receive upon such exercise the “net number” of shares of Common Stock
determined according to the formula set forth in the February 2015 PA Warrants and the Company will not receive the exercise price.
A
holder may not exercise a February 2015 PA Warrant and the Company may not issue shares of Common Stock under the February 2015
PA Warrant if, after giving effect to the exercise or issuance, the holder together with its affiliates would beneficially own
in excess of 4.99% of the outstanding shares of Common Stock. At the holder’s option, the cap may be increased or decreased
to any other percentage not in excess of 9.99%, except that any increase will not be effective until the 61st day after notice
to the Company.
The
holders of the February 2015 PA Warrants are entitled to acquire options, convertible securities or rights to purchase the Company’s
securities or property granted, issued or sold pro rata to the holders of its Common Stock on an “as if exercised for Common
Stock” basis. The holders of the February 2015 PA Warrants are entitled to receive any non-cash dividend or other distribution
of the Company’s assets (or rights to acquire its assets), at any time after the issuance of the February 2015 PA Warrants,
on an “as if exercised for Common Stock” basis.
The
February 2015 PA Warrants prohibit the Company from entering into transactions constituting a “fundamental transaction”
(as defined in the February 2015 PA Warrants) unless the successor entity assumes all of the Company’s obligations under
the February 2015 PA Warrants in a written agreement approved by the “required holders” of the February 2015 PA Warrants.
The definition of “fundamental transactions” includes, but is not limited to, mergers, a sale of all or substantially
all of the Company’s assets, certain tender offers and other transactions that result in a change of control.
Pursuant
to FINRA rules, the February 2015 PA Warrants and the underlying securities are subject to certain restrictions on transfer.
June 2015 PA Warrants
The exercise price of the June 2015 PA
Warrants is subject to adjustments for stock splits and similar events. In addition, the Company may, with the consent of the “required
holders” (as defined in the February 2015 PA Warrants), reduce the then current exercise price to any amount and for any
period of time deemed appropriate by the Company’s Board of Directors. A holder of a June 2015 PA Warrant may elect to exercise
it through a cashless exercise at any time, regardless of whether the shares of Common Stock issuable upon exercise of the June
2015 PA Warrant are covered by a registration statement under the Securities Act, in which case the holder will receive upon such
exercise the “net number” of shares of Common Stock determined according to the formula set forth in the June 2015
PA Warrants and the Company will not receive the exercise price.
A holder may not exercise a June 2015 PA
Warrant and the Company may not issue shares of Common Stock under the June 2015 PA Warrant if, after giving effect to the exercise
or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the outstanding shares of Common
Stock. At the holder’s option, the cap may be increased or decreased to any other percentage not in excess of 9.99%, except
that any increase will not be effective until the 61st day after notice to the Company.
The holders of the June 2015 PA Warrants
are entitled to acquire options, convertible securities or rights to purchase the Company’s securities or property granted,
issued or sold pro rata to the holders of its Common Stock on an “as if exercised for Common Stock” basis. The holders
of the June 2015 PA Warrants are entitled to receive any non-cash dividend or other distribution of the Company’s assets
(or rights to acquire its assets), at any time after the issuance of the June 2015 PA Warrants, on an “as if exercised for
Common Stock” basis.
The June 2015 PA Warrants prohibit the
Company from entering into transactions constituting a “fundamental transaction” (as defined in the June 2015 PA Warrants)
unless the successor entity assumes all of the Company’s obligations under the June 2015 PA Warrants in a written agreement
approved by the “required holders” of the June 2015 PA Warrants. The definition of “fundamental transactions”
includes, but is not limited to, mergers, a sale of all or substantially all of the Company’s assets, certain tender offers
and other transactions that result in a change of control.
Pursuant to FINRA rules, the February 2015
PA Warrants and the underlying securities are subject to certain restrictions on transfer.
Series G Warrants and April 2016 PA
Warrants
The exercise price of the Series G Warrants
is subject to adjustments for stock splits and similar events. Under certain circumstances, the holders of the Series G Warrants
may elect to exercise them through a cashless exercise, in which case the holders will receive upon such exercise the “net
number” of shares of Common Stock determined according to the formula set forth in the Series G Warrants and the Company
will not receive the exercise price.
A holder may not exercise any of the Series
G Warrants, and the Company may not issue shares of Common Stock upon exercise of any of the Series G Warrants if, after giving
effect to the exercise or issuance, the holder together with is “attribution parties,” would beneficially own in excess
of 9.99% of the outstanding shares of Common Stock. At each holder’s option, the cap may be increased or decrease to any
other percentage not in excess of 9.99%, except that any increase will not be effective until the 61st day after notice to the
Company.
The holders of the Series G Warrants are
entitled to receive any dividend or other distribution of the Company’s assets (or rights to acquire its assets), at any
time after the issuance of the Series G Warrants, on an “as if exercised for Common Stock” basis. The holders of the
Series G Warrants are entitled to acquire options, convertible securities or rights to purchase the Company’s securities
or property granted, issued or sold pro rata to the holders of its Common Stock on an “as if exercised for Common Stock”
basis. The Series G Warrants prohibit the Company from entering into transactions constituting a “fundamental transaction”
(as defined in the Series G Warrants) unless the successor entity assumes all of the Company’s obligations under the Series
G Warrants and the other transaction documents in a written agreement approved by the “required holders” (as defined
in the Series G Warrants) of the Series G Warrants. The definition of “fundamental transactions” includes, but is not
limited to, mergers, a sale of all or substantially all our assets, certain tender offers and other transactions that result in
a change of control.
The April 2016 PA Warrants have substantially
the same terms as the Series G Warrants other than they (i) expire five years after the effective date of the private placement,
and (ii) have cashless exercise rights regardless of whether an effective registration statement registering, or a current prospectus
being available for, the resale of the shares of Common Stock underlying the April 2016 PA Warrants.
December 2016 PA Warrants
The exercise price of the December 2016
PA Warrant is subject to adjustments for stock splits and similar events. In addition, the Company may, with the consent of the
“required holders” (as defined in the December 2016 PA Warrant), reduce the then current exercise price to any amount
and for any period of time deemed appropriate by the Company’s Board of Directors. The holder of the December 2016 PA Warrant
may elect to exercise it through a cashless exercise at any time, regardless of whether the shares of Common Stock issuable upon
exercise of the December 2016 PA Warrant are covered by a registration statement under the Securities Act (as defined below), in
which case the holder will receive upon such exercise the “net number” of shares of Common Stock determined according
to the formula set forth in the December 2016 PA Warrant and the Company will not receive the exercise price.
The holder may not exercise the December
2016 PA Warrant and the Company may not issue shares of Common Stock under the December 2016 PA Warrant if, after giving effect
to the exercise or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the outstanding
shares of Common Stock. At the holder’s option, the cap may be increased or decreased to any other percentage not in excess
of 9.99%, except that any increase will not be effective until the 61st day after notice to the Company.
The holder of the December 2016 PA Warrant
is entitled to acquire options, convertible securities or rights to purchase the Company’s securities or property granted,
issued or sold pro rata to the holders of its Common Stock on an “as if exercised for Common Stock” basis. The holder
of the December 2016 PA Warrant is entitled to receive any non-cash dividend or other distribution of the Company’s assets
(or rights to acquire its assets), at any time after the issuance of the December 2016 PA Warrant, on an “as if exercised
for Common Stock” basis.
The December 2016 PA Warrant prohibits
the Company from entering into transactions constituting a “fundamental transaction” (as defined in the December 2016
PA Warrant) unless the successor entity assumes all of the Company’s obligations under the December 2016 PA Warrant in a
written agreement approved by the “required holders” of the December 2016 PA Warrant. The definition of “fundamental
transactions” includes, but is not limited to, mergers, a sale of all or substantially all of the Company’s assets,
certain tender offers and other transactions that result in a change of control.
Pursuant to FINRA rules, the December 2016
PA Warrant and the underlying securities are subject to certain restrictions on transfer.
February 2017 PA Warrants
The terms of the February 2017 PA Warrants
are substantially the same as the December 2016 PA Warrant.
Series O Warrant and January 2018 PA
Warrants
The exercise price of the Series O Warrant
is subject to adjustments for stock splits and similar events. Subject to applicable laws, the Series O Warrant may be offered
for sale, sold, transferred or assigned without the Company’s consent. If the resale of the shares of Common Stock issuable
upon exercise of the Series O Warrant is not registered on an effective registration statement, the holder of the Series O Warrant
may elect to exercise the Series O Warrant through a cashless exercise. Upon a cashless exercise, a holder will receive the “net
number” of shares of Common Stock determined according to the formula set forth in the Series O Warrant and the Company will
not receive the cash exercise price.
A holder may not exercise the Series O
Warrant and the Company may not issue shares of Common Stock under the Series O Warrant if, after giving effect to the exercise
or issuance, each holder together with its affiliates would beneficially own in excess of 9.95% of the outstanding shares of the
Common Stock. At a holder’s option, the cap may be increased or decreased to any other percentage not in excess of 9.99%,
except that any increase will not be effective until the 61st day after notice to the Company.
The holder of the Series O Warrant is entitled
to acquire options, convertible securities or rights to purchase the Company’s securities or property granted, issued or
sold pro rata to the holders of its Common Stock on an “as if exercised for Common Stock” basis. The holder of the
Series O Warrant is entitled to receive any dividend or other distribution of the Company’s assets (or rights to acquire
its assets), at any time after the issuance of the Series O Warrant, on an “as if exercised for Common Stock” basis.
The Series O Warrant prohibits the Company from entering into transactions constituting a “fundamental transaction”
(as defined in the Series O Warrant) unless the successor entity assumes all of the Company’s obligations under the Series
O Warrant and the other transaction documents in a written agreement approved by the “required holders” of the Series
O Warrant. The definition of “fundamental transactions” includes, but is not limited to, mergers, a sale of all or
substantially all of the Company’s assets, certain tender offers and other transactions that result in a change of control.
The terms of the January 2018 PA Warrants
are substantially the same as the Series O Warrant other than that they (i) expire five years after the effective date of the offering;
(b) are exercisable through a cashless exercise regardless of whether the shares of Common Stock issuable upon exercise of the
January 2018 PA Warrant are covered by a registration statement under the Securities Act; and (iii) pursuant to FINRA rules, the
January 2018 PA Warrants and the underlying securities are subject to certain restrictions on transfer.
Series Q Warrant and April 2018 PA Warrant
Holders of Series Q Warrants are entitled
to use cashless exercise if after six months from issuance, at any time, there is no registration statement covering the resale
of the shares of Common Stock issuable upon exercise of the Series Q Warrants.
The exercise price is subject to adjustments
for stock splits, stock dividends, and similar events. In addition, the exercise price will be subject to reduction in the event
of (i) a sale or deemed issuance or sale of shares of Common Stock or other securities convertible, exercisable or exchangeable
for shares of Common Stock (other than Excluded Securities (as defined in the Series Q Warrants)) for consideration per share less
than the exercise price of the Series Q Warrants will be reduced in accordance with formulas provided in the Series Q Warrants,
(ii) a sale of Variable Price Securities (as defined in the Series Q Warrants), in which case the holder will have the right to
substitute the exercise price for the Variable Price, (iii) if a stock split, stock dividend, stock combination recapitalization
or other similar transaction involving the Common Stock and the Event Market Price (as defined in the Series Q Warrants) is less
than the exercise price, in which case the exercise price shall be reduced to the Event Market Price, or (iv) at any time, with
the prior written consent of the Required Holders (as defined in the Series Q Warrants), to reduce the exercise price.
A holder may not exercise any of the Series
Q Warrants, and we may not issue shares of Common Stock upon exercise of any of the Series Q Warrants if, after giving effect to
the exercise, a holder together with its “attribution parties,” would beneficially own in excess of a set percentage
not in excess of 9.99%, as elected by each investor at closing, of the outstanding shares of our Common Stock. At each holder’s
option, the cap may be increased or decrease to any other percentage not in excess of 9.99%, except that any increase will not
be effective until the 61st day after notice to us.
The holders of the Series Q Warrants are
entitled to receive any dividend or other distribution of our assets (or rights to acquire its assets) at any time after the issuance
of the Series Q Warrants, on an “as if exercised for Common Stock” basis. The holders of the Series Q Warrants are
entitled to acquire options, convertible securities or rights to purchase our securities or property granted, issued or sold pro
rata to the holders of our Common Stock on an “as if exercised for Common Stock” basis.
The Series Q Warrants prohibit us from
entering into transactions constituting a Fundamental Transaction (as defined in the Series Q Warrants) unless the successor entity
assumes all of our obligations under the Series Q Warrants and the other transaction documents in a written agreement approved
by the Required Holders (as defined in the Series Q Warrants). The definition of Fundamental Transactions includes, but is not
limited to, mergers, a sale of all or substantially all of our assets, certain tender offers and other transactions that result
in a change of control. Further, in connection with a Change of Control (as defined in the Series Q Warrants), upon request of
a holder of a Series Q Warrant, we or the Successor Entity (as defined in the Series Q Warrants), as the case may be, shall exchange
a Series Q Warrant for consideration equal to the Black Scholes Value (as defined in the Series Q Warrants) of such portion of
such Series Q Warrant subject to exchange in the form of, at our election, either (i) rights convertible into the Corporate Event
Consideration (as defined in the Series Q Warrants) applicable to the Change of Control (as defined in the Series Q Warrants) event,
or (ii) cash. The definition of Change of Control is generally the same as the definition of Fundamental Transaction but excludes
certain types of Fundamental Transactions.
Further, after the occurrence of an Event
of Default (as defined in the 2018 Notes), at the request of a holder of a Series Q Warrant, we or the Successor Entity (as defined
in the Series Q Warrants), as the case may be, shall purchase such holders Series Q Warrant for cash in an amount equal to the
Event of Default Black Scholes Value (as defined in the Series Q Warrants.
The April 2018 PA Warrants have substantially
the same terms as the Series Q Warrants other than that they (i) have a cashless exercise right regardless of whether an effective
registration statement registering, or a current prospectus being available for, the resale of the shares of Common Stock issuable
upon exercise of the April 2018 PA Warrants, and (ii) pursuant to FINRA rules, the April 2018 PA Warrants and the underlying securities
are subject to certain restrictions on transfer.
April 2019 PA Warrants
The April 2019 PA Warrants have similar
terms to the Series R Warrants other than that they (i) are exercisable through a cashless exercise regardless of whether the shares
of Common Stock issuable upon exercise of the April 2019 PA Warrants are covered by a registration statement under the Securities
Act but only based on the net number of shares; (ii) certain covenants appearing in the Series R Warrants were removed in the April
2019 PA Warrants; (iii) the initial beneficial ownership limitation was set at 4.99%; (iv) the April 2019 PA Warrants have certain
demand and piggyback registration rights with respect to the shares issuable upon exercise of the April 2019 PA Warrants; and (v)
pursuant to FINRA rules, the April 2019 PA Warrants and the underlying securities are subject to certain restrictions on transfer.
USE OF PROCEEDS
If all of the Series R Warrants and Series
S Warrants are exercised for cash (assuming no exercise price adjustments), we estimate that the total net proceeds of such exercises,
after deducting estimated expenses of this offering of approximately $70,000, would be approximately $3.4 million, which we will
use (i) in connection with the commercialization of the POWERHOUSE™ product, and (ii) for general corporate purposes, including,
without limitation, for working capital purposes, to increase sales and operational capabilities, but not for (i) the satisfaction
of any portion of our debt (other than pursuant to trade payables in the ordinary course of our business and prior practices),
(ii) the redemption of any Common Stock or security exercisable or convertible into Common Stock, (iii) for the settlement of any
outstanding litigation, or (iv) in violation of regulation under the Foreign Corrupt Practices Act of 1977, as amended, or regulations
by the Office of Foreign Assets Control of the U.S. Treasury Department.
This prospectus also relates to shares of Common Stock that may be offered and sold from time to time by
certain selling shareholders. We will not receive any proceeds from the sale of the shares of Common Stock by the selling shareholders.
If all of the Private Warrants are exercised
for cash (assuming no exercise price adjustments), we estimate that the total net proceeds of such exercises, after deducting estimated
expenses of filing the registration statement of which this prospectus is a part of approximately $70,000, would be approximately
$8.8 million, which we will use for general corporate purposes.
As of the date of this prospectus, we cannot
specify with certainty all of the particular uses for the net proceeds we will have upon completion of the offering or the order
of priority in which we may use such proceeds. Accordingly, we will retain broad discretion over the use of these proceeds.
If at any time after the Warrants are exercisable
there is no effective registration statement on file with the SEC registering, or no current prospectus available for, the issuance
or resale of the shares of our Common Stock issuable upon exercise of the Warrants, or under certain other circumstances, see the
section entitled “
Description of Warrants
” beginning on page 36, the Warrants may be exercised by means of a
“cashless exercise” and we will not receive any proceeds at such time.
The selling shareholders will pay all underwriting
discounts, selling commissions and expenses incurred by them for brokerage, accounting, tax or legal services or any other expenses
incurred by the selling shareholders in connection with the sale of the shares, if any. We will bear all other costs, fees and
expenses incurred in effecting the registration of the shares covered by this prospectus, including, without limitation, all registration
and filing fees, OTCQX fees and fees and expenses of our counsel and our accountants.
DILUTION
Dilution is the amount by which the exercise
price paid by the holders of the Series R Warrants and the Series S Warrants to purchase the underlying shares of Common Stock
offered under this prospectus will exceed the as-adjusted net tangible book value per share of Common Stock after such exercise.
Net tangible book value (deficit) per share
of our Common Stock as of a particular date represents the amount of our total tangible assets less our total liabilities, divided
by the number of shares of Common Stock outstanding as of such date. As of December 31, 2018, our net tangible book value (deficit)
was approximately $7.6 million, or $0.08 per share of Common Stock based on there being 91,859,635 shares of our Common Stock
outstanding as of December 31, 2018. Purchasers of our Common Stock upon exercise of the Series R Warrants will experience substantial
and immediate dilution in net tangible book value per share of Common Stock for financial accounting purposes, as illustrated in
the following tables. The tables below assume that all of the Series R Warrants and the Series S Warrants are exercised for cash
and are based on there being 108,902,754 shares of Common Stock outstanding as of April 12, 2019.
Series R Warrants
|
|
|
|
Exercise price per share
|
|
$
|
0.20
|
|
Net tangible book value per share as of December 31, 2018
|
|
$
|
0.08
|
|
Increase in pro forma net tangible book value from conversion of convertible notes into Common Stock between December 31, 2018 and April 9, 2019 and related to the April 9, 2019 offering
|
|
|
0.02
|
|
Increase in pro forma net tangible book value per share attributable to purchasers of Common Stock under Series S Warrants
|
|
$
|
0.02
|
|
Adjusted net tangible book value per share after giving effect to the purchase of Common Stock under the Series S Warrants
|
|
$
|
0.12
|
|
Dilution in net tangible book value per share to purchasers of Common Stock under Series S Warrants
|
|
$
|
0.08
|
|
Series S Warrants
|
|
|
|
Exercise price per share
|
|
$
|
0.01
|
|
Net tangible book value per share as of December 31, 2018
|
|
$
|
0.08
|
|
Increase in pro forma net tangible book value from conversion of convertible notes into Common Stock between December 31, 2018 and April 9, 2019 and related to the April 9, 2019 offering
|
|
|
0.02
|
|
Increase in pro forma net tangible book value per share attributable to purchasers of Common Stock under Series S Warrants
|
|
$
|
0.00
|
|
Adjusted net tangible book value per share after giving effect to the purchase of Common Stock under the Series S Warrants
|
|
$
|
0.10
|
|
(Increase) in net tangible book value per share to purchasers of Common Stock under Series S Warrants
|
|
$
|
(0.09
|
)
|
The tables above do not take into account
any shares of Common Stock issuable in the future upon the exercise or conversion of currently outstanding derivative securities
other than, in each case, the Warrant series covered by each table. We may in the future sell substantial additional amounts of
Common Stock or securities convertible into or exercisable for Common Stock. We may also choose to raise additional capital due
to market conditions or other strategic considerations even if we believe we have sufficient funds for our current or future operating
plans. The issuance of these securities could result in further dilution to our shareholders.
SELLING SHAREHOLDERS
The shares of Common Stock being offered
by the selling shareholders consist of shares of Common Stock issuable upon exercise of outstanding Private Warrants. Pursuant
to agreements entered into with some of the selling shareholders, we are required to register for resale 135% of the number of
shares of Common Stock issuable upon exercise of Series Q Warrants.
For additional information regarding the
issuance of the Private Warrants, see “DESCRIPTION OF THE TRANSACTION” above. We are registering the shares of Common
Stock in order to permit the selling shareholders to offer the shares for resale from time to time. Except for the ownership of
the Private Warrants and other warrants or as described in the table below, the selling shareholders have not had any material
relationship with us within the past three years.
The table below lists the selling shareholders
and other information regarding the beneficial ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), and the rules and regulations thereunder) of the shares of Common Stock held by each
of the selling shareholders. The second column lists the number of shares of Common Stock beneficially owned by the selling shareholders,
based on their respective ownership of shares of Common Stock and warrants, as of April 12, 2019, assuming exercise of the warrants
held by each such selling shareholder on that date but taking account of any limitations on exercise set forth therein. The second
column assumes that a selling shareholder first exercises warrants with a limitation on exercise of 4.99% or less before exercising
any warrants with a limitation on exercise in excess of 4.99%.
The third column lists the shares of Common
Stock being offered by this prospectus by the selling shareholders and does not take in account any limitations on exercise of
the warrants set forth therein.
The fourth and fifth columns assume the
sale of all of the shares offered by the selling shareholders pursuant to this prospectus.
Under the terms of the Private Warrants,
a selling shareholder may not exercise the Private Warrants to the extent (but only to the extent) such selling shareholder or
any of its affiliates would beneficially own a number of shares of our Common Stock which would exceed a specified percentage,
not exceeding 9.99%, as elected by each selling shareholder, of our outstanding Common Stock. The number of shares in the second,
fourth and fifth columns reflects these limitations.
The selling shareholders may sell all,
some or none of their shares in this offering. See “
Plan of Distribution
.”
All of the Private Warrants are currently exercisable.
Name of Selling Shareholder
|
|
Number of Shares
of Common Stock
Owned Prior to
Offering
|
|
|
Maximum Number
of Shares of
Common Stock to
be Sold Pursuant to
this Prospectus
|
|
|
Number of
Shares of
Common Stock
Owned After
Offering
|
|
|
Percentage of
Shares of
Common Stock
Owned After
Offering (to the
extent greater
than 1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson Bay Master Fund Ltd.
(1)
|
|
|
8,961,318
|
(2)
|
|
|
1,738,100
|
(3)
|
|
|
10,530,011
|
(2)
|
|
|
8.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intracoastal Capital, LLC
(4)
|
|
|
8,942,342
|
(5)
|
|
|
8
|
(6)
|
|
|
8,924,334
|
(5)
|
|
|
8.21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alto Opportunity Fund, SPC – Segregated Master Portfolio B
(7)
|
|
|
5,436,322
|
(8)
|
|
|
99,297
|
(9)
|
|
|
5,439,462
|
(8)
|
|
|
4.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dawson James Securities Inc.
(10)
|
|
|
764,210
|
(11)
|
|
|
764,210
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan Blum
(12)
|
|
|
539,125
|
(13)
|
|
|
539,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brandon Ross
(14)
|
|
|
539,014
|
(15)
|
|
|
539,014
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iroquois Master Fund Ltd.
(16)
|
|
|
533,110
|
(17)
|
|
|
5
|
(6)
|
|
|
533,105
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WestPark Capital, Inc.
(18)
|
|
|
370,490
|
(19)
|
|
|
370,490
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roth Capital Partners, LLC
(20)
|
|
|
337,745
|
(21)
|
|
|
337,745
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Empery Asset Master Ltd
(22)
|
|
|
299,786
|
(17)
|
|
|
591
|
(23)
|
|
|
264,418
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Empery Tax Efficient II, LP
(24)
|
|
|
229,232
|
(17)
|
|
|
215
|
(23)
|
|
|
205,694
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Empery Tax Efficient, LP
(25)
|
|
|
147,987
|
(17)
|
|
|
439
|
(23)
|
|
|
129,889
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doug Kaiser
(26)
|
|
|
17,510
|
(27)
|
|
|
17,510
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank Salvatore
(28)
|
|
|
17,510
|
(29)
|
|
|
17,510
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
683 Capital Partners, LP
(30)
|
|
|
16
|
(6)
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alder Capital Partners, LP
(31)
|
|
|
10
|
(6)
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ventures International
(32)
|
|
|
9
|
(6)
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTA, LLC
(33)
|
|
|
9
|
(6)
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Julie Kamps
(34)
|
|
|
9
|
(35)
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anson Investments Master Fund LP
(36)
|
|
|
5
|
(6)
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BTG Investments, LLC
(37)
|
|
|
5
|
(6)
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Palisade Long Short Alpha Master Fund (Cayman) Limited
(38)
|
|
|
5
|
(6)
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason Stern
(39)
|
|
|
1
|
(40)
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gordon Roth
(41)
|
|
|
1
|
(6)
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jesse Pichel
(42)
|
|
|
1
|
(6)
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Chambers
(43)
|
|
|
1
|
(6)
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Weber
(44)
|
|
|
1
|
(6)
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Aaron Margolis
(45)
|
|
|
1
|
(6)
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Chill
(46)
|
|
|
1
|
(6)
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theodore Roth
(47)
|
|
|
1
|
(6)
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
* Denotes less than 1%.
(1) Hudson Bay Master Fund Ltd. - Hudson
Bay Capital Management LP, the investment manager of Hudson Bay Master Fund Ltd., has voting and investment power over these securities.
Sander Gerber is the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management
LP. Hudson Bay Capital Management LP may be deemed to be the beneficial owner of all shares of Class A common stock underlying
the securities held by Hudson Bay Master Fund Ltd. Mr. Gerber disclaims beneficial ownership of these securities.
(2) Column 2 consists of (i) 3,055,657
shares of Common Stock and (ii) 5,905,661 shares of Common Stock issuable upon exercise of warrants (subject to 4.99% and 9.99%
beneficial ownership limitations). Does not include 3,306,793 additional shares of Common Stock issuable under warrants because
the selling shareholder does not have the right to receive such shares if the selling shareholder, together with certain attribution
parties, would beneficially own in excess of 4.99% of the outstanding shares of our Common Stock. Column 4 consists of (i) 3,055,657
shares of Common Stock and (ii) 7,474,354 shares of Common Stock issuable upon exercise of warrants.
(3) Consists of (i) 8 shares of Common
Stock issuable upon exercise of July 2014 Warrants, (ii) 1,600,000 shares of Common Stock issuable upon exercise of Series O Warrants,
and (ii) 138,095 shares of Common Stock issuable upon exercise of Series Q Warrants.
(4) Intracoastal Capital, LLC - Intracoastal
Capital LLC, Mitchell P. Kopin and Daniel B. Asher share voting and dispositive power over the shares. Mr. Kopin and Mr. Asher,
each of whom are managers of Intracoastal Capital LLC, share voting control and investment discretion over the securities held
by Intracoastal. As a result, each of Mr. Kopin and Mr. Asher may be deemed to have beneficial ownership (as determined under Section
13(d) of the Exchange Act) of the securities held by Intracoastal Capital LLC.
(5) Column 2 consists of (i) 3,255,658
shares of Common Stock and (ii) 5,686,684 shares of Common Stock issuable upon exercise of warrants. Column 4 consists of (i) 3,255,658
shares of Common Stock and (ii) 5,686,676 shares of Common Stock issuable upon exercise of warrants.
(6) Consists of shares of Common Stock
issuable upon exercise of July 2014 Warrants.
(7) Alto Opportunity Master Fund, SPC –
Segregated Master Portfolio B - Ayrton Capital LLC, the investment manager to Alto Opportunity Master Fund, SPC – Segregated
Master Portfolio B, has discretionary authority to vote and dispose of the shares held by Alto Opportunity Master Fund, SPC –
Segregated Master Portfolio B. Waqas Khatri is the managing member of Ayrton Capital LLC and in his capacity as director of Alto
Opportunity Master Fund, SPC – Segregated Master Portfolio B, may also be deemed to have investment discretion and voting
power over the shares held by Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B. Mr. Khatri disclaims any
beneficial ownership of these shares.
(8) Column 2 consists of (i) 5,434,247
shares of Common Stock and (ii) 2,075 shares of Common Stock issuable upon exercise of warrants (subject to a 9.99% beneficial
ownership limitation) and does not include 8,047,317 additional shares of Common Stock issuable under warrants because the selling
shareholder does not have the right to receive such shares if the selling shareholder, together with certain attribution parties,
would beneficially own in excess of 4.99% of the outstanding shares of our Common Stock. Column 4 consists of 5,434,247 shares
of Common Stock and does not include 7,944,880 additional shares of Common Stock issuable under warrants because the selling shareholder
does not have the right to receive such shares if the selling shareholder, together with certain attribution parties, would beneficially
own in excess of 4.99% of the outstanding shares of our Common Stock.
(9) Consists of (i) 2,075 shares of Common
Stock issuable upon exercise of Series G Warrants, and (ii) 97,222 shares of Common Stock issuable upon exercise of Series Q Warrants.
(10) Dawson James Securities Inc. - We
do not have any information about the beneficial ownership of these securities. Dawson James Securities Inc. acted as our placement
agent in our April 2, 2019 offering of Common Stock and warrants and purchased the April 2019 PA Warrants in connection therewith.
It is our understanding that Dawson James Securities Inc. purchased the April 2019 PA Warrants in the ordinary course of business,
and at the time of purchase, Dawson James Securities Inc. had no agreements or understanding, directly or indirectly, with any
person to distribute the April 2019 PA Warrants or the underlying Common Stock.
(11) Consists of shares of Common Stock
issuable upon exercise of April 2019 PA Warrants.
(12) Jonathan Blum - Mr. Blum is an employee
of Dawson James Securities Inc. and a former employee of WestPark, each of which has acted as our placement agent in past securities
offerings in which he acquired his warrants. It is our understanding that Mr. Blum acquired his warrants in the ordinary course
of business, and at the time of purchase, he had no agreements or understanding, directly or indirectly, with any person to distribute
such warrants or the underlying Common Stock.
(13) Consists of (i) 13 shares of Common
Stock issuable upon exercise of a February 2015 PA Warrant, (ii) 1 share of Common Stock issuable upon exercise of a June 2015
PA Warrant, (iii) 32,450 shares of Common Stock issuable upon exercise of a January 2018 PA Warrant, (iv) 193,919 shares of Common
Stock issuable under an April 2018 PA Warrants, and (v) 312,632 shares of Common Stock issuable under a April 2019 PA Warrant.
(14) Dan Ross - Mr. Ross is an employee
of Dawson James Securities Inc. and a former employee of WestPark, each of which has acted as our placement agent in past securities
offerings in which he acquired his warrants. It is our understanding that Mr. Ross acquired his warrants in the ordinary course
of business, and at the time of purchase, he had no agreements or understanding, directly or indirectly, with any person to distribute
such warrants or the underlying Common Stock.
(15) Consists of (i) 13 shares of Common
Stock issuable upon exercise of a February 2015 PA Warrant, (ii) 32,450 shares of Common Stock issuable upon exercise of a January
2018 PA Warrant, (iii) 193,919 shares of Common Stock issuable under an April 2018 PA Warrants, and (iv) 312,632 shares of Common
Stock issuable under a April 2019 PA Warrant.
(16) Iroquois Master Fund Ltd. - Richard
Abbe, who serves as the President of Iroquois Capital Management, LLC and managing member of Iroquois Capital Investment Group
LLC, and Kimberly Page, who serves as a Director of Iroquois Master Fund Ltd., have shared voting and investment power over the
securities held by Iroquois Master Fund Ltd. As a result, Iroquois Master Fund Ltd., Iroquois Capital Management, LLC, Mr. Abbe
and Ms. Page each may be deemed beneficial owners of, and share voting and investment power over these securities.
(17) Consists of shares of Common Stock
issuable upon exercise of warrants.
(18) WestPark Capital, Inc. – Richard
Rappaport, in his capacity as Chief Executive Officer of WestPark has voting and investment power over the securities held by WestPark.
Mr. Rappaport disclaims beneficial ownership of the shares of Common Stock not owned by him. WestPark has acted as our placement
agent in past securities offerings. It is our understanding that WestPark purchased the warrants in the ordinary course of business,
and at the time of purchase, WestPark had no agreements or understanding, directly or indirectly, with any person to distribute
the warrants or the underlying Common Stock.
(19) Consists of (i) 20 shares of Common
Stock issuable upon exercise of February 2015 PA Warrants, (ii) 48 shares of Common Stock issuable upon exercise of June 2015 PA
Warrants, (iii) 53,100 shares of Common Stock issuable upon exercise of January 2018 PA Warrants, and (iv) 317,322 shares of Common
Stock issuable under April 2018 PA Warrants.
(20) Roth Capital Partners, LLC - We do
not have any information about the beneficial ownership of these securities. Roth has acted as our placement agent in past securities
offerings. It is our understanding that Roth acquired the warrants in the ordinary course of business, and at the time of purchase,
Roth had no agreements or understanding, directly or indirectly, with any person to distribute the warrants or the underlying Common
Stock
(21) Consists of (i) 1,411 shares of Common
Stock issuable upon exercise of an April 2016 PA Warrant, (ii) 30,834 shares of Common Stock issuable upon exercise of a December
2016 PA Warrant, (iii) 185,500 shares of Common Stock issuable upon exercise of a February 6, 2017 PA Warrant, and (iv) 120,000
shares of Common Stock issuable upon exercise of a February 9, 2017 PA Warrant.
(22) Empery Asset Master Ltd - Empery Asset
Management LP, the authorized agent of Empery Asset Master Ltd ("EAM"), has discretionary authority to vote and dispose
of the shares held by EAM and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity
as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the
shares held by EAM. EAM, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares.
(23) Consists of shares of Common Stock
issuable upon exercise of Series G Warrants.
(24) Empery Tax Efficient II, LP - Empery
Asset Management LP, the authorized agent of Empery Tax Efficient II, LP ("ETE II"), has discretionary authority to vote
and dispose of the shares held by ETE II and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane,
in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting
power over the shares held by ETE II. ETE II, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares.
(25) Empery Tax Efficient, LP - Empery
Asset Management LP, the authorized agent of Empery Tax Efficient, LP ("ETE"), has discretionary authority to vote and
dispose of the shares held by ETE and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their
capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power
over the shares held by ETE. ETE, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares.
(26) Doug Kaiser - Mr. Kaiser was (and
still may be) an employee of WestPark when he acquired his warrants. WestPark acted as our placement agent in past securities offerings
in which he acquired his warrants. It is our understanding that Mr. Kaiser acquired his warrants in the ordinary course of business,
and at the time of purchase, he had no agreements or understanding, directly or indirectly, with any person to distribute such
warrants or the underlying Common Stock.
(27) Consists of (i) 1 share of Common
Stock issuable upon exercise of a February 2015 PA Warrant, (ii) 9 share of Common Stock issuable upon exercise of June 2015 PA
Warrants, (iii) 5,000 shares of Common Stock issuable upon exercise of January 2018 PA Warrants, and (iv) 12,500 shares of Common
Stock issuable under April 2018 PA Warrants.
(28) Frank Salvatore - Mr. Salvatore was
(and still may be) an employee of WestPark when he acquired his warrants. WestPark acted as our placement agent in past securities
offerings in which he acquired his warrants. It is our understanding that Mr. Kaiser acquired his warrants in the ordinary course
of business, and at the time of purchase, he had no agreements or understanding, directly or indirectly, with any person to distribute
such warrants or the underlying Common Stock.
(29) Consists of (i) 1 share of Common
Stock issuable upon exercise of February 2015 PA Warrants, (ii) 9 share of Common Stock issuable upon exercise of June 2015 PA
Warrants, (iii) 5,000 shares of Common Stock issuable upon exercise of January 2018 PA Warrants, and (iv) 12,500 shares of Common
Stock issuable under April 2018 PA Warrants.
(30) 683 Capital Partners, LP – We do not have any information
about the beneficial ownership of these securities.
(31) Alder Capital Partners, LP - We do not have any information
about the beneficial ownership of these securities.
(32) Capital Ventures International - We do not have any information
about the beneficial ownership of these securities.
(33) OTA, LLC - We do not have any information about the beneficial
ownership of these securities.
(34) Julie Kamps - Ms. Kamps was (and still may be) an employee
of WestPark when she acquired her warrants. WestPark acted as placement agent for several of our past securities offerings in which
she acquired her warrants. It is our understanding that Ms. Kamps acquired her warrants in the ordinary course of business, and
at the time of purchase, she had no agreements or understanding, directly or indirectly, with any person to distribute such warrants
or the underlying Common Stock.
(35) Consists of shares of Common Stock issuable upon exercise
of June 2015 PA Warrants.
(36) Anson Investments Master Fund LP - Moez Kassem has authority
to vote and dispose of the shares held by Anson Investments Master Fund LP and may be deemed the beneficial owner of the shares.
(37) BTG Investments, LLC - We do not have any information about
the beneficial ownership of these securities.
(38) Palisade Long Short Alpha Master Fund (Cayman) Limited
- We do not have any information about the beneficial ownership of these securities.
(39) Jason Stern - Mr. Stern was (and still may be) an employee
of WestPark when he acquired his warrants. WestPark acted as placement agent for several of our past securities offerings in which
he acquired his warrants. It is our understanding that Mr. Stern acquired his warrants in the ordinary course of business, and
at the time of purchase, he had no agreements or understanding, directly or indirectly, with any person to distribute such warrants
or the underlying Common Stock.
(40) Consists of shares of Common Stock issuable upon exercise
of February 2015 PA Warrants.
(41) Gordon Roth - Mr. Roth was (and still may be) affiliated
with Roth, who acted as placement agent for our July 9, 2014 private placement in which he acquired the securities. It is our understanding
that Mr. Roth acquired the registrable securities in the ordinary course of business, and at the time of the purchase of the purchase
of the registrable securities to be resold, Mr. Roth had no agreements or understanding, directly or indirectly, with any person
to distribute the registrable securities.
(42) Jesse Pichel - Mr. Pichel was (and still may be) affiliated
with Roth, who acted as placement agent for our July 9, 2014 private placement in which he acquired the securities. It is our understanding
that Mr. Pichel acquired the registrable securities in the ordinary course of business, and at the time of the purchase of the
purchase of the registrable securities to be resold, Mr. Pichel had no agreements or understanding, directly or indirectly, with
any person to distribute the registrable securities.
(43) John Chambers - Mr. Chambers was (and still may be) affiliated
with Roth, who acted as placement agent for our July 9, 2014 private placement in which he acquired the securities. It is our understanding
that Mr. Chambers acquired the registrable securities in the ordinary course of business, and at the time of the purchase of the
purchase of the registrable securities to be resold, Mr. Chambers had no agreements or understanding, directly or indirectly, with
any person to distribute the registrable securities.
(44) John Weber - Mr. Weber was (and still may be) affiliated
with Roth, who acted as placement agent for our July 9, 2014 private placement in which he acquired the securities. It is our understanding
that Mr. Weber acquired the registrable securities in the ordinary course of business, and at the time of the purchase of the purchase
of the registrable securities to be resold, had no agreements or understanding, directly or indirectly, with any person to distribute
the registrable securities.
(45) Michael Aaron Margolis - Mr. Margolis is was (and still
may be) affiliated with Roth, who acted as placement agent for our July 9, 2014 private placement in which he acquired the securities.
It is our understanding that Mr. Margolis acquired the registrable securities in the ordinary course of business, and at the time
of the purchase of the purchase of the registrable securities to be resold, Mr. Margolis had no agreements or understanding, directly
or indirectly, with any person to distribute the registrable securities.
(46) Michael Chill - Mr. Chill was (and still may be) affiliated
with Roth, who acted as placement agent for our July 9, 2014 private placement in which he acquired the securities. It is our understanding
that Mr. Chill acquired the registrable securities in the ordinary course of business, and at the time of the purchase of the purchase
of the registrable securities to be resold, Mr. Chill had no agreements or understanding, directly or indirectly, with any person
to distribute the registrable securities.
(47) Theodore Roth - Mr. Roth was (and still may be) affiliated
with Roth, who acted as placement agent for our July 9, 2014 private placement in which he acquired the securities. It is our understanding
that Mr. Roth acquired the registrable securities in the ordinary course of business, and at the time of the purchase of the purchase
of the registrable securities to be resold, Mr. Roth had no agreements or understanding, directly or indirectly, with any person
to distribute the registrable securities.
PLAN OF DISTRIBUTION
From time to time after the date of this
prospectus, we will directly offer and issue the shares of Common Stock issuable under the Shelf Warrants to the holders upon the
exercise of the Shelf Warrants in accordance with their terms. For the holders to exercise the Shelf Warrants, there must be an
effective registration statement and a current prospectus under the Securities Act covering the offering and sale of Common Stock
issuable upon the exercise of the Shelf Warrants or an available exemption from registration under the Securities Act.
If at any time there is no effective registration
statement on file with the SEC registering, or no current prospectus available for, the issuance or resale of the shares of our
Common Stock issuable upon exercise of the Shelf Warrants, the Shelf Warrants may be exercised by means of a “cashless exercise”
and we will not receive any proceeds at such time.
We are also registering the shares of Common
Stock issuable upon exercise of the Private Warrants to permit the resale of these shares of Common Stock by the selling shareholders
from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling shareholders
of the shares of Common Stock issuable upon exercise of the Private Warrants, although we will receive the exercise price of any
Private Warrants not exercised by the selling shareholders on a cashless exercise basis.
The selling shareholders may sell all or
a portion of the shares of Common Stock issuable upon exercise of the Private Warrants held by them and offered hereby from time
to time directly or through one or more underwriters, broker-dealers or agents. If the shares of Common Stock issuable upon exercise
of the Private Warrants are sold through underwriters or broker-dealers, the selling shareholders will be responsible for underwriting
discounts or commissions or agent’s commissions. The shares of Common Stock issuable upon exercise of the Private Warrants
may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices
determined at the time of sale or at negotiated prices. These sales may be effected in transactions, which may involve crosses
or block transactions, pursuant to one or more of the following methods:
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on any national securities exchange or quotation service on which
the securities may be listed or quoted at the time of sale;
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in the over-the-counter market;
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in transactions otherwise than on these exchanges or systems or in
the over-the-counter market;
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through the writing or settlement of options, whether such options
are listed on an options exchange or otherwise;
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ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as principal to facilitate the transaction;
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purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
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an exchange distribution in accordance with the rules of the applicable
exchange;
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privately negotiated transactions;
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short sales made after the date the registration statement is declared
effective by the SEC;
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broker-dealers may agree with a selling shareholder to sell a specified
number of such shares at a stipulated price per share;
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a combination of any such methods of sale; and
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any other method permitted pursuant to applicable law.
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The selling shareholders may also sell
shares of Common Stock issuable upon exercise of the Private Warrants under Rule 144, if available, rather than under this prospectus.
In addition, the selling shareholders may transfer the shares of Common Stock issuable upon exercise of the Private Warrants by
other means not described in this prospectus. If the selling shareholders effect such transactions by selling shares of Common
Stock issuable upon exercise of the Private Warrants to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers
or agents may receive commissions in the form of discounts, concessions or commissions from the selling shareholders or commissions
from purchasers of the shares of Common Stock issuable upon exercise of the Private Warrants for whom they may act as agent or
to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or
agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of Common
Stock issuable upon exercise of the Private Warrants or otherwise, the selling shareholders may enter into hedging transactions
with broker-dealers, which may in turn engage in short sales of the shares of Common Stock issuable upon exercise of the Private
Warrants in the course of hedging in positions they assume. The selling shareholders may also sell shares of Common Stock issuable
upon exercise of the Private Warrants short and deliver shares of Common Stock issuable upon exercise of the Private Warrants covered
by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling
shareholders may also loan or pledge shares of Common Stock issuable upon exercise of the Private Warrants to broker-dealers that
in turn may sell such shares.
The selling shareholders may pledge or
grant a security interest in some or all of the Private Warrants or shares of Common Stock issuable upon exercise of the Private
Warrants by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer
and sell the shares of Common Stock issuable upon exercise of the Private Warrants from time to time pursuant to this prospectus
or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending, if necessary,
the list of selling shareholders to include the pledgee, transferee or other successors in interest as selling shareholders under
this prospectus. The selling shareholders also may transfer and donate the shares of Common Stock issuable upon exercise of the
Private Warrants in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be
the selling beneficial owners for purposes of this prospectus.
To the extent required by the Securities
Act and the rules and regulations thereunder, the selling shareholders and any broker-dealer participating in the distribution
of the shares of Common Stock issuable upon exercise of the Private Warrants may be deemed to be “underwriters” within
the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer
may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares
of Common Stock issuable upon exercise of the Private Warrants is made, a prospectus supplement, if required, will be distributed,
which will set forth the aggregate amount of shares of Common Stock issuable upon exercise of the Private Warrants being offered
and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other
terms constituting compensation from the selling shareholders and any discounts, commissions or concessions allowed or re-allowed
or paid to broker-dealers.
Under the securities laws of some states,
the shares of Common Stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some
states the shares of Common Stock may not be sold unless such shares have been registered or qualified for sale in such state or
an exemption from registration or qualification is available and is complied with.
There can be no assurance that any selling
shareholder will sell any or all of the shares of Common Stock issuable upon exercise of the Private Warrants registered pursuant
to this registration statement, of which this prospectus forms a part.
The selling shareholders and any other
person participating in such distribution will be subject to applicable provisions of the Exchange Act, and the rules and regulations
thereunder, including, without limitation, to the extent applicable, Regulation M of the Exchange Act, which may limit the timing
of purchases and sales of any of the shares of Common Stock issuable upon exercise of the Private Warrants by the selling shareholders
and any other participating person. To the extent applicable, Regulation M may also restrict the ability of any person engaged
in the distribution of the shares of Common Stock issuable upon exercise of the Private Warrants to engage in market-making activities
with respect to the shares of Common Stock issuable upon exercise of the Private Warrants. All of the foregoing may affect the
marketability of the shares of Common Stock issuable upon exercise of the Private Warrants and the ability of any person or entity
to engage in market-making activities with respect to the shares of Common Stock issuable upon exercise of the Private Warrants.
We will pay all expenses of the registration
of the shares of Common Stock issuable upon exercise of the Warrants, estimated to be $70,000 in total, including, without limitation,
SEC filing fees and expenses of compliance with state securities or “blue sky” laws. A selling shareholder will pay
all underwriting discounts and selling commissions, if any. Under the terms of agreements entered into with some of the selling
shareholders, we will indemnify the selling shareholders against liabilities, including some liabilities under the Securities Act
or the selling shareholders will be entitled to contribution. Under the terms of such agreements, we may be indemnified by the
selling shareholders against civil liabilities, including liabilities under the Securities Act that may arise from any written
information furnished to us by the selling shareholder specifically for use in this prospectus or we may be entitled to contribution.
Once issued under the registration statement
of which this prospectus forms a part, the shares of Common Stock issuable upon exercise of the Shelf Warrants will be freely tradable
in the hands of persons other than our affiliates. Once resold under the registration statement of which this prospectus forms
a part, the shares of Common Stock issuable upon exercise of the Private Warrants will be freely tradable in the hands of persons
other than our affiliates.
DESCRIPTION OF SECURITIES TO BE OFFERED
Description of Common Stock
Our authorized Common Stock consists of
150,000,000 shares of Common Stock. As of April 12, 2019, there were 108,902,754 shares of our Common Stock outstanding. Although
we believe the following summary description of our Common Stock set forth below is accurate, our articles of incorporation and
our bylaws cover all material provisions affecting the rights of holders of our Common Stock. This summary is not intended to be
complete and is qualified by reference to the provisions of applicable law and to our articles of incorporation and bylaws.
Voting Rights
Each holder of shares of Common Stock is
entitled to one vote for each share held on all matters submitted to a vote of shareholders. There are no cumulative voting rights.
All holders of shares of Common Stock vote as a single group on all matters that are submitted to the shareholders for a vote.
Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of
the directors who stand for election. Our entire Board of Directors stands for election each year. A required number of shareholders
having the minimum number of votes that would be necessary to authorize or take action at a meeting at which all of the shares
entitled to vote thereon were present and voted may consent to an action in writing and without a meeting under certain circumstances.
Dividends and Liquidation
Subject to any preferential rights of any
outstanding shares of preferred stock, if any, shares of Common Stock are entitled to receive dividends, if any, as may be declared
by our Board of Directors out of legally available funds. In the event of a liquidation, dissolution or winding up of our company,
the shares of Common Stock are entitled to our assets remaining after the payment of all of our debts and other liabilities, including
preferential payments made to holders of any outstanding shares of preferred stock. Holders of shares of Common Stock have no preemptive,
subscription or redemption rights, and there are no redemption or sinking fund provisions applicable to the shares of Common Stock.
Anti-Takeover Effects of Our Articles
of Incorporation and Bylaws
The following provisions, which are contained
in our articles of incorporation or bylaws, could have the effect of delaying, deferring or preventing a change in control of our
company.
Our articles of incorporation and bylaws
provide that our board may consist of any number of directors, which may be fixed from time to time by our board. Newly created
directorships resulting from any increase in our authorized number of directors may be filled by the affirmative vote of a majority
of the directors then in office or by an election at an annual meeting or special meeting of shareholders called for that purpose.
Any vacancies on our board resulting from death, resignation, retirement, disqualification, removal from office or other cause
may be filled a majority of our board then in office, even if less than a quorum is remaining in office.
Our bylaws require advance notice by a
shareholder of any proposal to be brought before an annual meeting of shareholders by a shareholder, including any nomination for
election of directors by any shareholder entitled to vote for the election of directors at the meeting. Our bylaws also provide
that no shareholder proposal may be considered at a meeting of our shareholders unless the proposal relates to a matter on which
a shareholder vote is required by our charter, bylaws or by applicable law.
Our Board of Directors has the power to
issue preferred stock with designations, preferences, limitations and relative rights determined by the Board of Directors without
any vote or action by shareholders. The issuance of preferred stock or of rights to purchase preferred stock could have the effect
of making it more difficult for a third party to acquire Real Goods Solar, or of discouraging a third party from attempting to
acquire Real Goods Solar.
Subject to repeal or change by action of
our shareholders, our board may amend, supplement or repeal our bylaws or adopt new bylaws.
Registration Rights
We have entered into registration rights
agreements or otherwise agreed to register the issuance or resale of the shares of Common Stock issuable upon exercise of certain
Warrants. Where applicable, we may be subject to monetary penalties if a registration statement is not available for the issuance
or resale of the shares of Common Stock issuable upon exercise of some of the Warrants. We believe we have satisfied all current
registration obligations owed to holders of Warrants to date and are filing the registration statement of which this prospectus
is a part voluntarily.
Description of Warrants
The descriptions of the Warrants under
the section entitled “
Description of the Transaction – Description of the Warrants
” is incorporated herein
by this reference.
DESCRIPTION OF BUSINESS
Overview
RGS Energy and its subsidiaries have provided
solar energy systems to homeowners, and commercial building owners in the United States since 1978. We believe that solar energy
adoption is still in the early stages and will continue to increase as utility rates rise and customers become more knowledgeable
about the savings clean and sustainable solar energy can deliver. RGS and our predecessors have installed over 26,000 solar energy
systems across the continental United States and Hawaii.
We endeavor to make the move to solar energy
simple for our customers by managing and executing the process with our sales and installation teams. We design and offer a suitable
solar energy solution, then procure, permit, install, and interconnect the system to the utility grid. We provide a comprehensive
workmanship warranty on each fully operational system.
On September 29, 2017 we executed the License
with Dow for its POWERHOUSE™ in-roof solar shingle, an innovative and aesthetically pleasing solar shingle system developed
by Dow. The POWERHOUSE™ 1.0 and 2.0 versions used CIGS (copper indium gallium selenide solar cells) technology which had
a high manufacturing cost, resulting in the product not being consumer price friendly. Conversely, the POWERHOUSE™ 3.0 has
been developed with traditional silicon solar cells to increase solar production and to provide a competitive consumer price point.
On November 2, 2018 we received UL certification for POWERHOUSE™ 3.0 and began to commercialize the product in North America.
We have engaged third-party manufacturers for production and distribution logistics and to provide services to the home building
and roofing industries.
We were incorporated in Colorado in 2008
as a successor to Gaiam Energy Tech, Inc. founded in 1999.
A description about our operating segments
and the financial information about our segments may be found in Note 15. Segment Information, to our audited financial statements,
included in Item 8 of the Financial Statements included in this prospectus.
Business Strategy
Our goals are to (i) provide solar
solutions that save residential and commercial customers’ money and (ii) operate our Company at a profit. Our strategies
to achieve these goals are:
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Commercialize the POWERHOUSE™
3.0 in-roof solar shingle.
We have executed an exclusive domestic and international world-wide License with Dow for its POWERHOUSE™
3.0 in-roof solar shingle to provide customers with a more aesthetically pleasing solar shingle system. We plan to sell the product
directly to homebuilders and develop a network of authorized roofers. We have started to market POWERHOUSE™ 3.0 in the United
States and hope to expand internationally in the future.
We believe that as we have just started
manufacturing and marketing POWERHOUSE™, it will take us several quarters to commercialize this new product and achieve a
balance between customer demand and the manufacturing production by our contract supply chain. We believe that we will require
time to build brand awareness for this new product and, accordingly, we expect our sales to begin slowly and grow in future periods.
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Utilize our call center.
In past years, we have built a call center in our headquarters in Colorado to conduct sales via the phone and internet. This provides a cost-effective mechanism to reach potential customers and enter new markets. We plan to expand into new states of operation in 2019. Call center personnel have access to engineering, operations, customer support and other services personnel at our headquarters location allowing them to quickly address any questions that might arise during the sales process.
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Continue to drive growth through referrals networks.
We pay customers and others for referring additional customers. We will continue to expand these programs through the call center, post-install in-home parties, user-friendly software, and digital marketing.
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Identify attractive financing options for customers.
We refer our customers to a variety of options for financing their solar energy systems including home improvement loans, equipment leases and power purchase agreements.
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Utilize technology to enhance and streamline our operations.
We launched RGS 365™, a mobile software and online dashboard suite, creating what we believe is a better and more engaging customer experience
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Our Competitive Strengths
We believe being awarded the exclusive
worldwide POWERHOUSE™ License will give us a competitive advantage because we expect to become a technology company insulated
by patents creating a barrier to competition, as well as a company selling a product with brand recognition.
Historically, we believe our customers
select us because:
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We have been in the solar industry for over 40 years.
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Flexible menu of product financing options.
Our customers can utilize cash, loans, and third-party ownership agreements, such as leasing and power purchase agreements, to acquire our products.
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Location.
We are located in states where utility costs are high and/or incentives for solar energy systems are available
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therefore offering an attractive alternative to conventional power sources.
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Description of our Product and Services
We had two operating divisions as of the
end of 2018: (i) POWERHOUSE™ and (ii) Solar Division.
POWERHOUSE™:
On September 29, 2017, we executed the License with Dow, to commercialize POWERHOUSE™ 3.0. Under the terms of the License,
we have exclusive world-wide rights through 2034, the expiration of Dow’s applicable patents. The License requires that we
obtain UL certification to commercialize and sell a minimum of 50 megawatts of solar within 5-years after obtaining UL certification
to retain exclusive world-wide rights, a requirement we believe is achievable. We obtained UL certification on November 2, 2018.
We have entered into third-party manufacturing agreements with suppliers and have begun to market POWERHOUSE™ solar shingles
to a network of new home builders and roofers.
Solar Division:
The Solar
Division performs installations of residential and commercial solar systems in the continental United States (also referred to
as “Mainland”) and in Hawaii, doing business as Sunetric. On March 27, 2019, our Board of Directors determined to exit
our 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. We offer our turnkey solar energy systems providing design, engineering,
financing, procurement, permitting, installing, grid interconnection, monitoring, and maintenance services. We install residential
systems generally between 3 kilowatts (“kW”) and 10 kW, and commercial systems up to 500 kW in size, depending on the
amount of electricity used by the customer and the size of their building. The size of the average solar energy system we installed
during 2018 was approximately 8.7 kW. We maintain a service department to manage and assist with service and repairs, and to provide
operations and maintenance service contracts for larger projects. We design and build solar energy systems to meet each customer’s
individual needs and circumstances. We assess a customer’s annual power requirements and average electricity rates to size
the solar system and engineer its interconnection to the grid. We assess the customer’s roof size, configuration, and composition
to determine the optimum location for the solar photovoltaic modules. We factor in information about the customer’s electrical
service territory, rate structures, budget, preferred financing method and aesthetic preferences. We also identify the relevant
federal, state and local regulations, including building codes, which are important to the cost, operation and return on investment
of the customer’s solar energy system, as well as relevant tax rates, benefits of net metering, and various other factors.
We assess this data using solar production tools and analytical models to size and configure a cost-effective solar system for
the customer and one that offers a return on investment to the customer that meets their requirements.
We prepare construction plans
to obtain a building permit, which is necessary for grid interconnection and state incentive rebate processing. We also provide
customers with a return-on-investment analysis which reflects the rebates and performance-based incentives that are available to
each customer. Once all necessary approvals from financing partners and utilities, and incentive, rebate and jurisdictional authorities
have been received, our in-house construction teams or authorized integrators begin the installation of the customer’s solar
energy system. Once the solar energy system has been installed, we arrange for a final inspection by the local building department
or other relevant regulatory agency and complete final as-built drawings of the system to submit applicable applications for the
jurisdictional rebate(s). At the same time, we apply to the local utility company to finalize interconnection of the customer’s
solar energy system to the utility grid.
Solar Energy Systems
The most visible component of
solar energy systems are the solar shingles or photovoltaic modules with metal racking which transforms the sunlight into direct
electrical current (“DC”), which then travels to the inverter. The inverter converts the DC electricity into useable
alternating current that matches the current of the household electrical service and the utility grid. Other major components include
the monitoring system which tracks the solar production of the system, and balance of system which includes mechanical and electrical
parts. The electricity created can go onto the grid or be used by the customer to power household items such as lights and appliances.
For customers who would like to have electrical black out protection or who want to strategically manage their electrical usage,
we provide battery solutions that integrate with our solar energy systems.
POWERHOUSE™:
Our
product is a built-in photovoltaic array (“BIPV”), also known as a solar shingle. The solar shingle is a building
material that once installed becomes the roof structure. The BIPV is the equivalent of the photovoltaic module and racking of
a traditional solar energy installation. We do not install these systems. Instead, we manufacture the solar shingle for distribution
to our targeted customers.
Solar Division:
The Solar
Division sells and installs traditional modules and racking photovoltaic solar energy systems. We do not manufacture any of these
components. We purchase all components from the manufacturer or their distributors.
Warranty Terms
POWERHOUSE™:
We
issue a manufacturer’s warranty on POWERHOUSE™ solar shingles, equal to the third-party manufacturer terms we secure.
Workmanship warranty will be provided by the installer. Our new home builder and roofer network, when applicable, will submit to
us a return merchandise authorization (“RMA”) for defective components. We will authorize the RMA and transfer substitute
POWERHOUSE™ component(s) to the customer who will return a like number of defective components. We will similarly execute
a RMA with the appropriate manufacturer.
Solar Division:
We and
our suppliers offer warranties of up to 10 years for parts and labor, including property damage arising from workmanship, excluding
roof penetrations which are generally warrantied for a period of 5 years. All major components installed in a photovoltaic system
array are covered under transferable manufacturers’ warranties, which generally range from 10 to 25 years. Customer claims
are processed through our customer service department. We will provide reasonable assistance to our customers in contacting the
manufacturer concerning warranty service and undertake reasonable effort to recoup our labor costs from the manufacturer.
Financing
We make available to our POWERHOUSE™
local roofing company customers a business-to-business lender to finance their purchases from us.
We offer our Solar Division customers a
choice to finance their solar systems with their cash, third-party loans, or third-party leases or power purchase agreements. We
are constantly vetting new financing products and only refer the ones that fit the customer’s needs and desires. Our menu
of finance offerings allows us to provide solar energy systems to our customers with financing terms that we believe are economically
attractive for their individual situation.
Sales and Marketing
Our targeted customers for our POWERHOUSE™
in-roof solar shingle include (i) homeowners, (ii) local roofing companies, (iii) solar installation companies, (iv) custom homebuilders
and (v) mass market homebuilders. We utilize our call center to contact customers in our geographic markets. We offer additional
services, such as marketing support, referrals and on-site training to roofing companies that complete our requirements for becoming
a POWERHOUSE™ Professional.
We have and plan to continue to make marketing
expenditures to develop brand name recognition for POWERHOUSE™. Our marketing has to-date included digital marketing, attendance
at trade shows and expos, and we have arranged for television presentations.
In the Solar Division, we
have trained our residential and commercial sales organization to effectively engage prospective customers from initial
interest to customized proposals to signed contracts. As previously disclosed, we are exiting our Mainland residential solar
business. We intend to continue to educate consumers about the benefits of our solar products in order to lower our customer
acquisition costs and further expand the market opportunity.
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Inside sales
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Our inside sales groups initially engage with potential customers prior to our outside sales or e-sales teams’ customer engagement. Inside sales groups identify each potential customer’s initial interest in solar energy and compile data necessary to assess potential cost savings for subsequent discussion with the potential customer by the sales teams.
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Direct outside sales
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We employ an outside commercial sales force in the east coast markets and Hawaii to generate new business and complete sales orders. Effective March 1, 2018, we completed a realignment of our sales teams resulting in the elimination of our east coast residential sales force.
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Customer referrals
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Our customer referral program is designed to be an effective and efficient method of reaching new customers. Our program provides cash incentives to current customers to refer friends, relatives and co-workers.
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Online Digital Marketing
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Consumers seek online education, purchase options, and business reviews before determining the best provider to meet their needs. To align our business with marketplace, and our sales teams with the consumer, we continue to expand our online market presence.
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Customers
POWERHOUSE™:
Our
customers will include homeowners, new homebuilders, engineering, procurement and construction (“EPC”) solar companies
and roofers in the re-roof market. We estimate there are approximately 7 million re-roofs and new home construction annually in
the United States.
Solar Division:
Our residential
customers are homeowners interested in reducing electrical utility costs and switching to clean, renewable energy. Our residential
solar energy systems are generally rooftop installations up to 24kW in size.
Our commercial customers come
from a variety of industries including retail, manufacturing, service, not-for-profit and municipal services. Oftentimes, our small
commercial clients arise from the relationship developed when we install a residential solar system to the owner of the small business.
Our commercial solar energy systems may be roof mounted or ground mounted and are generally up to 500kW in size. Occasionally,
through the course of our normal operations, we are presented with opportunities for larger (greater than 500kW) commercial solar
energy systems. We evaluate each of these large opportunities on a case by case basis while minimizing onerous contract terms.
Suppliers
POWERHOUSE™:
We
engage third-party manufacturers to manufacture components of the in-roof POWERHOUSE™ solar shingle. The major components
of the POWERHOUSE™ solar shingle consist of the solar laminate, connectors, wire harnesses, base assembly and integrated
flashing system. The solar laminate, connectors and wire harnesses are produced by a manufacturer located in China and shipped
to our U.S. based manufacturer of the baseplate for assembly into a solar shingle. The solar shingle is then shipped to our third-party
logistics provider to warehouse and distribute kitted systems to our customers.
Solar Division:
Our solar
energy systems utilize photovoltaic modules and inverters purchased from several manufacturers and distributors. The majority
of these materials are “Buy American” under the American Recovery and Reinvestment Act of 2009. We negotiate pricing
based on quantity purchased and payment terms. Generally, we purchase major components as needed and do not have long-term or
volume commitments with suppliers.
Competition
POWERHOUSE™:
Dow
developed the POWERHOUSE™ solar shingle and holds various related worldwide patents. Since we obtained the exclusive License
to commercialize the product worldwide from Dow, the patents and licenses provide a barrier to entry, thereby limiting the number
of competitors. Existing sources of competition include Tesla, Inc., Suntegra and CertainTeed, whom we compete with on market penetration,
price and aesthetics. We believe we compete favorably with these companies.
Solar Division:
We believe
our primary competitors are the traditional local utilities that supply energy to our potential customers. We compete with these
traditional utilities primarily based on price, predictability of price and the ease by which customers can switch to electricity
generated by our solar energy systems rather than fossil-based alternatives. We believe that our pricing and focus on customer
relationships allow us to compete favorably with traditional utilities in the regions we service.
Other sources of competition
are other solar energy system providers such as Tesla, Inc., Vivint Solar Inc., Sunrun Inc., Sungevity, Inc., and many others.
These companies may offer products that are similar to our solar energy systems, and we primarily compete with these companies
based on price. We believe that we compete favorably with these companies.
Regulations
POWERHOUSE™:
We
will have to maintain compliance with UL standards on POWERHOUSE™ 3.0 solar shingles and on any future new product development.
Solar Division:
An interconnection
agreement is generally required from the applicable local electricity utility to interconnect a solar energy system with the utility
grid. In almost all cases, interconnection agreements are standard form agreements that have been pre-approved by the local public
utility commission or other regulatory body with jurisdiction over interconnection. As such, no additional regulatory approvals
are required once interconnection agreements are signed. We prepare and submit these agreements on behalf of our customers to ensure
compliance with interconnection rules.
Our operations are subject to
stringent and complex federal, state and local laws and regulations governing the occupational health and safety of our employees
and wage regulations. For example, we are subject to the requirements of the federal Occupational Safety and Health Act, as amended,
or “OSHA”, and comparable state laws that protect and regulate employee health and safety. We expend resources to comply
with OSHA requirements and industry best practices. Federal and/or state prevailing wage requirements, which generally apply to
any “public works” construction project that receives public funds, may apply to installations of our solar energy
systems on government facilities. The prevailing wage is the basic hourly rate paid on public works projects to a majority of workers
engaged in a particular craft, classification or type of work within a particular area. Prevailing wage requirements are established
and enforced by regulatory agencies. Our in-house personnel monitor and coordinate our continuing compliance with these regulations
when required.
Some jurisdictions place limits
on the size or number of solar energy systems that can be interconnected to the utility grid. This can limit our ability to sell
and install solar energy systems in some markets. The regulatory environment is constantly changing.
Government Incentives and Policies
U.S. federal, state and local governments
have established various policies, incentives and financial mechanisms to reduce the cost of solar energy and to accelerate the
adoption of solar energy. These incentives include tax credits, cash grants, production-based incentives, tax abatements and rebates.
These incentives help catalyze private sector investments in solar energy, energy efficiency and energy storage measures, including
the installation and operation of residential and commercial solar energy systems.
Following the extension of the Solar Investment
Tax Credit in December 2015, the Internal Revenue Code allows a United States taxpayer to claim a tax credit of 30% of qualified
expenditures for a solar energy system that is placed in service on or before December 31, 2019. This credit is scheduled
to decline to 26% effective January 1, 2020, 22% in 2021, and then to 10% for commercial projects and 0% for residential projects
in 2022.
Many U.S. states and local jurisdictions
have established property tax incentives for renewable energy systems, which include exemptions, exclusions, abatements and credits.
Many state governments, investor-owned utilities, municipal utilities and co-operative utilities offer rebates or other cash incentives
for the installation and operation of a solar energy system or energy-related products.
Many states have a regulatory policy known
as net energy metering, or net metering. Net metering typically allows our customers to interconnect their on-site solar energy
systems to the utility grid and offset their utility electricity purchases by receiving a bill credit at the utility’s retail
rate for energy generated by their solar energy system that is exported to the grid in excess of electric load used by customers.
Some states have established limits on
net metering, fees on solar energy systems, or reduced the credit available for electricity generated by solar energy systems that
are connected to the utility grid. For example, Hawaii, Nevada and Mississippi have announced net metering policies that establish
wholesale rates, not retail rates, for crediting electricity produced by solar energy systems. This has adversely impacted the
attractiveness of solar energy to residential customers in these markets. The California Public Utilities Commission issued a ruling
that maintains the net energy metering credit at full retail value but adds new charges and requirements for customers installing
a solar energy system. On the other hand, other states continue to expand their net metering programs. New York, for example, has
suspended its cap on solar photovoltaic systems covered by the state’s net metering program.
Some states like Massachusetts have offered
Solar Renewable Energy Credits (“SRECs”) that provide cash payments based on the electricity produced by solar energy
systems as an incentive for customers to invest in these systems. These programs are generally capped and must be reauthorized
or extended when the cap is reached in order for the incentives to be continued. The Massachusetts Department of Energy Resources
announced that the total capacity available under its most recent SREC program (SREC-II) for projects over 25 kW had been exceeded
in early 2016, however it was announced on January 31, 2017 by the Massachusetts Department of Energy Resources that their new
program, called Solar Massachusetts Renewable Target (“SMART”), is targeted to start in April 2018 and that the SREC
II program would be extended in order to bridge between the two programs. The SREC II program was ultimately extended until November
26, 2018, at which point the first applications for SMART were accepted. The first SMART incentive allocations began January 15,
2019.
On January 22, 2018, the Office of the
President of the United States approved in substantial form, recommendations by the U.S. International Trade Commission to impose
a tariff of 30% on imports of solar cells and photovoltaic modules under Section 201 of the Trade Act of 1974, unless specifically
excluded. The 30% tariff declines 5% per year over the four-year term of the tariff. Further, the provisions of the 201 Tariff
are applicable to imported solar cells and modules from Canada, despite its being a member of the North American Free Trade Act.
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 lowest installation quarter of the year, primarily due to adverse weather. We have historically experienced seasonality
in our sales of solar systems, with the fourth and first quarters of the year seeing less sales orders than the second and third
quarters. As previously disclosed, we are exiting our Mainland residential solar
business.
As we have just begun to market POWERHOUSE™
in-roof shingles, we do not have historical experience to assess seasonality for this line of business.
Employees
As of April 10, 2019, we had approximately
70 total and full-time employees. None of our employees are represented by a labor union or subject to a collective bargaining
agreement.
Offerings
On January 4,
2018, we closed the January 2018 Offering. On April 9, 2018, we closed the April 2018 Offering. On April 2, 2019, we closed the
April 2019 Offering.
DESCRIPTION OF PROPERTY
Our principal executive offices are located in Denver, Colorado.
The following table sets forth certain information relating to our primary facilities:
Primary Locations
|
|
Size (sq. ft.)
|
|
|
Use
|
|
Lease Expiration
|
|
Business Segment
|
Denver, CO
|
|
|
12,477
|
|
|
Corporate Headquarters
|
|
May-22
|
|
All
|
Bloomfield, CT
|
|
|
10,000
|
|
|
Office and warehouse
|
|
Nov-19
|
|
Solar Division
|
Kailua, HI
|
|
|
10,000
|
|
|
Office and warehouse
|
|
Dec-19
|
|
Solar Division
|
Existing facilities have lease renewal options ranging from
1 month to 5 years.
LEGAL PROCEEDINGS
From time to time, we are involved in legal proceedings that
we consider to be in the normal course of business.
MARKET PRICE OF AND DIVIDENDS ON COMMON
EQUITY AND RELATED SHAREHOLDER MATTERS
Market Information and Holders
Effective February 15, 2019, our Common Stock was quoted on
the OTCQX under the symbol “RGSE.” Any over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not necessarily represent actual transactions. Prior to such date, our Common Stock traded
on the Nasdaq Capital Market under the same symbol.
On April 12, 2019, we had 89 shareholders of record and 108,902,754
shares of $.0001 par value Common Stock and zero shares of $.0001 par value Class B common stock outstanding.
Dividend Policy
We have not declared or paid any cash dividends on our Common
Stock, and we do not anticipate doing so in the foreseeable future. We currently intend to retain future earnings, if any, to operate
our business and support our future growth strategies. Any future determination to pay dividends on our Common Stock will be at
the discretion of our Board of Directors and will depend on our financial condition, results of operations, contractual restrictions,
restrictions imposed by applicable law, capital requirements and other factors that our Board of Directors deems relevant.
Equity Compensation Plan Information
The following table summarizes equity compensation plan information
for our Common Stock as of December 31, 2018:
|
|
Number of securities
to be issued upon
exercise of
outstanding options
|
|
|
Weighted average
exercise price of
outstanding options
|
|
|
Number of securities
remaining available
for future issuance
under equity
compensation plans
|
|
Equity compensation plans approved by security holders
|
|
|
1,206,645
|
|
|
$
|
3.22
|
|
|
|
93,500
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis
provides information that we believe is relevant to an assessment and understanding of our results of operation and financial condition.
You should read this analysis in conjunction with our audited consolidated financial statements and related footnotes. This discussion
and analysis contain statements of a forward-looking nature relating to future events or our future financial performance. These
statements involve known and unknown risks, uncertainties and other factors that may cause actual results, level of activity, performance
or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements, including those set forth in this prospectus.
Overview
For the last 40 years, we have been a residential
and small business commercial solar EPC company. 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 reliance upon fossil fuel energy sources.
As a of September 29, 2017, we are
the exclusive domestic and international licensee of the POWERHOUSE™ in-roof solar shingle, an innovative and
aesthetically pleasing solar shingle system developed by Dow. During 2018, we received UL certification for POWERHOUSE™
3.0 and manufactured our initial solar shingles during December 2018. We anticipate that in the future, the majority of our
revenue will arise from sales of POWERHOUSE™ in-roof solar shingles to local roofing companies, solar installers and
homebuilders.
We, including our predecessors, have more
than 40 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 over 26,000 residential and commercial solar
energy systems since our founding.
We operate as three reportable segments:
(1) Solar Division – the installation of solar energy systems for homeowners, including lease financing thereof, and
small business commercial in the United States; (2) POWERHOUSE™ - the manufacturing and sales of solar shingles; and (3) Other
– corporate operations. On March 27, 2019, our 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. We believe this structure and realignment enables us to effectively manage our operations and resources.
As an EPC, we generally recognize revenue
from solar energy systems sold to our customers when we install the solar energy system. Our business requires that we incur costs
of acquiring solar panels and labor to install solar energy systems on our customer rooftops up-front and receive cash from customers
thereafter. As a result, during periods when we are increasing sales, we expect to have negative cash flow from operations.
As a manufacturer of
POWERHOUSE™, we will recognize revenue upon shipment of materials related to customer purchase order fulfillment.
During 2018, we established a supply chain to manufacture POWERHOUSE™. We also began building a nationwide network of
local roofers and solar installers. We received our first purchase order from a customer on December 27, 2018 and shipped to
the customer in January 2019.
POWERHOUSE™ License
A material significant event occurred on
September 29, 2017, when we executed the License with Dow, providing us an exclusive domestic and international right to commercialize
the POWERHOUSE™ in-roof solar shingle, an innovative and aesthetically pleasing solar shingle system developed by Dow. The
POWERHOUSE™ 1.0 and 2.0 versions used CIGS (copper indium gallium selenide solar cells) technology which had a high manufacturing
cost, resulting in the product not being consumer price friendly. Conversely, the POWERHOUSE™ 3.0 version was developed with
traditional silicon solar cells to increase solar production and to provide a competitive consumer price point.
In addition to the License, we executed
a Trademark License Agreement (the “TLA”), a Technology Service Agreement and a Sales Agreement-Surplus Property (the
“Sales Agreement”) with Dow. The execution of the TLA allows us to market the POWERHOUSE™ 3.0 product using the
Dow name.
Under the terms of the License, we will
produce, market and sell POWERHOUSE™ 3.0, for which we paid a license fee of $3 million along with a royalty fee equal to
2.5% against net sales of the POWERHOUSE™ product and services, payable quarterly in arrears. Further, we were responsible
for all costs to obtain UL certification and we are responsible for the prosecution of all related patents world-wide, which may
be offset against the payment of the royalty fee. During December 2018, we began commercialization of POWERHOUSE™ 3.0 entailing
the manufacturing, marketing and sale of POWERHOUSE™ 3.0 to roofing companies.
As of December 31, 2018, we have invested
approximately $3.2 million that has been capitalized to the POWERHOUSE™ License, an intangible asset on the Consolidated
Balance Sheet.
Other Key Metrics
Backlog
Backlog is discussed below and an important
metric as we implement our revenue growth strategy.
Key Operational Metric, Gross Margin
on Mainland Residential Operations, Currently Our Largest EPC Operating Unit
We utilize a job costing system whereby
employees record their time to projects. We accumulate the cost of idle time reflecting the cost we incur to maintain a construction
organization until our revenue grows, allowing for greater utilization of our construction organization. Cost of goods sold (“COGS”)
include direct project installation costs (materials, labor, travel, financing fees, and estimated warranty costs) and indirect
costs for project installation support (including un-utilized labor of idle time of construction crews, supplies, and insurance).
We employ an internal time reporting system to determine COGS and resulting gross margin percentage which is used by the Company
to measure its performance in achieving gross margin percentage targets. Further, we measure COGS per watt based upon COGS, excluding
idle time, divided by the aggregate watts of systems installed during the period. For financial reporting purposes, COGS include
the idle time of construction crews currently maintained by the Company in anticipation of future growth of backlog. Gross margin
percentage on actual installation time is not a measure defined by generally accepted accounting principles.
Our gross margin percentage on actual installations
and with idle time decreased year over year in part due to a greater mix of small commercial projects in 2018 as compared to 2017,
as these projects typically have lower margins than our residential installations. Additionally, a majority of indirect labor costs
are fixed, which lowers the gross margin % with idle time when there is a decline in revenue as we experienced in 2018 vs. 2017.
|
|
Twelve Months Ended
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Gross margin percentage on actual installation time
|
|
|
21
|
%
|
|
|
24
|
%
|
Gross margin percentage including idle time
|
|
|
6
|
%
|
|
|
13
|
%
|
Backlog
Backlog represents the dollar amount of
revenue that may be recognized in the future from signed contracts to install solar energy systems that have not yet been installed
without taking into account possible future cancellations. Backlog is not a measure defined by generally accepted accounting principles
and is not a measure of contract profitability. Our methodology for determining backlog may not be comparable to methodologies
used by other companies in determining their backlog amounts. The backlog amounts we disclose are net of cancellations received
and include anticipated revenues associated with (i) the original contract amounts, and (ii) change orders for which we have received
written confirmations from customers. Backlog may not be indicative of future operating results, and projects in our backlog may
be cancelled, modified or otherwise altered by customers.
The following table summarizes changes
to our backlog for our Solar Division for the years ended December 31, 2018 and December 31, 2017:
(in thousands)
|
|
Solar Division
|
|
Backlog at January 1, 2017
|
|
$
|
9,375
|
|
Bookings from new awards (“Sales”)
|
|
|
26,596
|
|
Cancellations and reductions on existing contracts
|
|
|
(9,206
|
)
|
Amounts recognized in revenue upon installation
|
|
|
(14,000
|
)
|
Backlog at December 31, 2017
|
|
|
12,765
|
|
Bookings from new awards (“Sales”)
|
|
|
26,744
|
|
Cancellations and reductions on existing contracts
|
|
|
(12,835
|
)
|
Amounts recognized in revenue upon installation
|
|
|
(11,017
|
)
|
Backlog at December 31, 2018
|
|
$
|
15,657
|
|
We have experienced a high level of contract
cancellations, which we attribute to (i) the competitive nature of the solar industry wherein customers shop price after signing
a contract and exercise their right to cancel during a three day rescission period after we countersign their contract, (ii) customer
home’s physical condition requires upgrades that they may not be able to afford or reduces their return on investment, and
(iii) delays to installing their system within their desired timeframe which are often a result of prolonged periods of time to
receive local utility approval for installations. We determined that for optimum internal operations, and customer satisfaction,
that a backlog equivalent to a few months of sales is optimal.
Revenue Growth Strategy
Our plans to increase revenue include:
|
·
|
Manufacture, market and sell the POWERHOUSE™
3.0 to roofing companies, solar installers and home builders;
|
|
·
|
Leverage the POWERHOUSE™ brand to
generate leads and revenue for the Solar Division;
|
|
·
|
Leverage our investment in RGS 365™
customer-centric software for the POWERHOUSE™ and Solar Divisions;
|
|
·
|
Expand our digital marketing program to
generate customer leads while achieving our desired cost of acquisition;
|
|
·
|
Make available to our customers, additional
third-party providers to finance customer acquisitions of our solar energy systems;
|
|
·
|
Expand our EPC operations to new states;
and
|
|
·
|
Expand our network of authorized third-party
installers.
|
Recent Developments
On March 27, 2019, our Board of Directors determined to exit
our 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. We believe this structure and realignment enables us to effectively manage
our operations and resources. This realignment is expected to result in the reduction of workforce payroll plus burden of
approximately $4.0 million annually. Revenues and net loss in 2018 for the mainland residential solar business were approximately
$8.9 million and $6.3 million, respectively. In order for us to convert our existing backlog to revenue, we plan to use authorized
integrators to complete installations throughout the remainder of 2019.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial
condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally
accepted accounting principles, or “GAAP.” The preparation of these financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. We have identified the following to be
critical accounting policies whose application have a material impact on our reported results of operations, and which involve
a higher degree of complexity, as they require us to make judgments and estimates about matters that are inherently uncertain.
Revenue Recognition
Effective January 1, 2018, we have adopted
“Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606 –
Revenue from Contracts with Customers
related to revenue recognition. Under the standard, revenue is recognized 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 using a five-step model to achieve that principle. In addition, the standard
requires disclosures to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts
with customers. We have elected to adopt the modified retrospective method for transitioning this accounting standard which requires
that the cumulative effect of applying the revenue standard to existing contracts be recorded as an adjustment to retained earnings.
Based on our review of contracts that were not substantially completed on December 31, 2017, there was no impact to the opening
retained earnings balance.
Deferred Revenue
When we receive consideration,
or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the
terms of a sales contract, we record deferred revenue, which represents a contract liability. We recognize deferred revenue as
net sales after we have satisfied our performance obligations to the customer and all revenue recognition criteria are met.
Revenue Recognition –
Installation of photovoltaic modules (“PV”) solar systems
We use standard contract templates
to initiate sales with customers and determined that each project started during the year ended December 31, 2018 contains one
performance obligation. Although the contract states multiple services which are capable of being distinct, they are considered
a single integrated output to the customer which is customized for each customer. As such all the services promised within a contract
are considered one performance obligation. We recognize revenue for installation of PV solar systems over time following the transfer
of control to the customer which typically occurs as the PV solar system is being installed. If control transfers over time, revenue
is recognized based on the extent of progress towards the completion of the performance obligation. The method utilized by us to
measure the progress towards completion requires judgment and is based on the products and services provided. We utilize the input
method to measure the progress of our contracts because it best depicts the transfer of assets to the customer which incurs as
materials are consumed by the project. The input method measures the progress towards completion based on the ratio of costs incurred
to date (“actual cost”) to the total estimated costs (“budget”) at completion of performance obligation.
Revenue, including estimated fees, are recorded proportionally as costs are incurred. Costs to fulfill include materials, labor
and/or subcontractors’ costs, and other direct costs. Indirect costs and costs to procure the panels, inverters, and other
system miscellaneous costs needed to satisfy the performance obligation are excluded since the customer does not gain control of
those items until delivered to the site. Including the costs of those items would overstate the extent of our performance.
Each project’s transaction
price is included within the contract and although there is only one performance obligation, changes to the contract price could
take place after fulfillment of the performance obligation. We have considered financing components on projects started during
the year ended December 31, 2018 and elected the use of a practical expedient where an entity need not adjust the promised amount
of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period
between when the entity transfers a promised service to the customer and when the customer pays for that good or service will be
one year or less. All receivables from projects are expected to be received within one year from project completion and there were
no adjustments to the contract values.
Under ASC 606, we are required
to recognize as an asset the incremental costs of obtaining a contract with a customer if those costs are expected to be recovered.
We incur sales commissions that otherwise would not have been incurred if the contract had not been obtained. These costs are recoverable;
however, we have elected the use of a practical expedient to expense these costs as incurred as the amortization period of the
asset would be less than one year.
Revenue Recognition –
Operations & Maintenance
We generally recognize revenue
for standard, recurring commercial operations and maintenance services over time as customers receive and consume the benefits
of such services, which typically include corrective maintenance, data hosting or energy/deck monitoring services for a period.
These services are treated as stand-ready performance obligations and are satisfied evenly over the length of the agreement, so
we have elected a time-based method to measure progress and recorded revenue using a straight-line method.
Revenue Recognition –
Service & Warranty
Warranties for workmanship and
roof penetration are included within each contract. These warranties cannot be purchased separately from the related services,
are intended to safeguard the customer against workmanship defects and does not provide any incremental service to the customer.
It is necessary for us to perform the specified tasks to provide assurance that the final product complies with agreed-upon specifications
and likely do not give rise to a separate performance obligation. We will continue to account for any related warranties in accordance
with ASC 460-10 and record an accrual for potential warranty costs at the completion of a project. Any services provided to a customer
outside of warranties such as system inspections are recognized upon completion of the service.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts
for estimated losses resulting from the inability of our customers to make required payments. We estimate anticipated losses based
on the expected collectability of all of our accounts receivable, which takes into account collection history, the number of days
past due, identification of specific customer exposure and current economic trends. When we determine a balance is uncollectible
and no longer actively pursue collection of the account, it is written off.
Inventory
Inventory for our Solar Division segments
consists primarily of solar energy system components (such as photovoltaic modules and inverters) located at our warehouses and
is stated at the lower of cost (first-in, first-out method) or net realizable value. We identify the inventory items to be written
down for obsolescence based on the item’s current sales status and condition. We write down discontinued or slow-moving inventories
based on an estimate of the markdown to retail price needed to sell through our current stock level of the inventories on a quarterly
basis.
POWERHOUSE™ inventories are recorded
at the lower of cost (incurred from third party supply channel manufacturers) or net realizable value. Cost is determined using
the first-in, first-out method. Management will establish an estimated excess and obsolete inventory reserve based on slow-moving
and obsolete inventory. At December 31, 2018, there was no excess and obsolete inventory reserve.
Warranties
Currently, our standard manufacturing warranty
for our POWERHOUSE™ solar shingle comes with a 11-year product warranty, which is the standard product warranty of most traditional
solar panels today, and a 24-year power production warranty. We receive warranties from our supply chain matching the terms of
the POWERHOUSE™ solar shingle warranty.
We warrant our EPC solar energy systems
sold to customers for up to ten years against defects in installation workmanship. The manufacturers’ warranties on the solar
energy system components, which are typically passed through to the customers, typically have product warranty periods of 10 years
and a limited performance warranty period of 25 years. We generally provide for the estimated cost of warranties at the time the
related revenue is recognized. We also maintain specific warranty liabilities for large commercial customers. We assess the accrued
warranty reserve regularly and adjust the amounts as necessary based on actual experience and changes in future estimates.
Goodwill and Purchased Intangibles
We review goodwill for impairment annually
during the second quarter, or more frequently if a triggering event occurs between impairment testing dates. As a result of
the annual impairment test, we fully impaired the goodwill balance charging an impairment loss to the consolidated statement of
operations during the second quarter of 2018.
Up-front POWERHOUSE™ 3.0 license
payments when incurred, costs to obtain UL certification and legal costs to acquire the License are initially capitalized and thereafter
amortized to operations, commencing November 2018 after UL certification, on a straight-line basis over the expected life of the
License through 2034.
Common Stock Warrants
We account for common stock warrants in
accordance with applicable accounting guidance provided in FASB ASC 480,
Liabilities – Distinguishing Liabilities from
Equity
, as either liabilities or as equity instruments depending on the specific terms of the warrant agreement. Certain of
our 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, event of default or failure to deliver shares. We classify these warrant
liabilities on the Condensed Consolidated Balance Sheet as current or long-term liabilities based on their expiration date. They
are revalued at each balance sheet date after their initial issuance with changes in the value recorded in earnings. 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. The assumptions
used on April 9, 2018, June 30, 2018, September 30, 2018 and December 31, 2018 to value the common stock warrant liabilities are
as follows:
|
|
|
|
|
|
|
|
Closing
|
|
|
|
|
|
|
|
|
Market
|
|
|
Remaining
|
|
|
|
Exercise
|
|
|
|
|
|
Market
Price
|
|
|
Risk-free
|
|
|
Dividend
|
|
|
Price
|
|
|
Term
|
|
|
|
Price
|
|
|
Strike
Floor
|
|
|
(average)
|
|
|
Rate
|
|
|
Yield
|
|
|
Volatility
|
|
|
(years)
|
|
Warrant Liability April 09,
2018
|
|
$
|
1.12
|
|
|
$
|
0.97
|
|
|
$
|
0.85
|
|
|
|
2.60
|
%
|
|
|
0.00
|
%
|
|
|
120
|
%
|
|
|
5.00
|
|
Warrant Liability June 30, 2018
|
|
$
|
0.55
|
|
|
$
|
0.19
|
|
|
$
|
0.57
|
|
|
|
2.72
|
%
|
|
|
0.00
|
%
|
|
|
115
|
%
|
|
|
4.78
|
|
Warrant Liability September 30, 2018
|
|
$
|
0.32
|
|
|
$
|
0.19
|
|
|
$
|
0.39
|
|
|
|
2.93
|
%
|
|
|
0.00
|
%
|
|
|
115
|
%
|
|
|
4.53
|
|
Warrant Liability December 31, 2018
|
|
$
|
0.32
|
|
|
|
N/a
|
|
|
$
|
0.52
|
|
|
|
2.49
|
%
|
|
|
0.00
|
%
|
|
|
120
|
%
|
|
|
4.28
|
|
The Company also holds common
stock warrants which have been classified in equity. Upon conversion of the warrants, the Company determines the fair value of
the warrants exercised using the share price and records the impact to common stock and additional paid-in capital.
Derivatives
The 2018 Notes contained conversion features
which have been accounted for in accordance with FASB ASC 815,
Derivatives and Hedging.
The conversion options were embedded
within the 2018 Notes but have been separated as (i) their economic characteristics and risks did not clearly and closely relate
to the 2018 Notes (ii) the 2018 Notes were not remeasured at fair value and (iii) a separate instrument with the same terms as
the conversion options would be considered a derivative. The 2018 Notes also contained various redemption clauses (contingent)
that met all the criteria of a derivative and were measured and recorded at fair value at the date of issuance and were revalued
at each balance sheet date with changes in the value recorded in earnings.
We used a Lattice pricing model to value
these derivative liabilities. The Lattice pricing model, which is based, in part, upon unobservable inputs for which there is little
or no market data, requires us to develop its own assumptions. We classified these derivative liabilities on the Condensed Consolidated
Balance Sheet as short-term liabilities since they had maturities of one year. When the conversion option was exercised, for accounting
purposes both liabilities (i.e., the debt host and the separated derivative liability) were subject to extinguishment accounting.
As such, a gain or loss upon extinguishment of the two liabilities equal to the difference between the recorded value of the liabilities
and the fair value of the consideration issued to extinguish them was recorded. The assumptions used on April 9, 2018, June
30, 2018, September 30, 2018 and December 31, 2018 to value the derivative liabilities are as follows:
|
|
|
|
|
Closing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
Market
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
|
Conversion
|
|
|
Price
|
|
|
Risk-free
|
|
|
Dividend
|
|
|
Price
|
|
|
Term
|
|
|
Debt
|
|
|
Soft Call
|
|
|
Redemption
|
|
|
Redemption
|
|
|
|
Price
|
|
|
(average)
|
|
|
Rate
|
|
|
Yield
|
|
|
Volatility
|
|
|
(years)
|
|
|
Yield
|
|
|
Threshold
|
|
|
Period
|
|
|
Period
|
|
Derivative Liability April 09, 2018
|
|
$
|
1.26
|
|
|
$
|
0.85
|
|
|
|
2.08
|
%
|
|
|
0.00
|
%
|
|
|
110
|
%
|
|
|
1.00
|
|
|
|
60
|
%
|
|
$
|
2.52
|
|
|
|
20
|
%
|
|
|
25
|
%
|
Derivative Liability June 30, 2018
|
|
$
|
0.55
|
|
|
$
|
0.57
|
|
|
|
2.23
|
%
|
|
|
0.00
|
%
|
|
|
130
|
%
|
|
|
0.78
|
|
|
|
60
|
%
|
|
$
|
2.52
|
|
|
|
20
|
%
|
|
|
25
|
%
|
Derivative Liability September 30, 2018
|
|
$
|
0.31
|
|
|
$
|
0.39
|
|
|
|
2.36
|
%
|
|
|
0.00
|
%
|
|
|
125
|
%
|
|
|
0.53
|
|
|
|
60
|
%
|
|
$
|
2.52
|
|
|
|
20
|
%
|
|
|
25
|
%
|
Derivative Liability December 31, 2018
|
|
$
|
0.31
|
|
|
$
|
0.52
|
|
|
|
2.45
|
%
|
|
|
0.00
|
%
|
|
|
90
|
%
|
|
|
0.28
|
|
|
|
60
|
%
|
|
$
|
2.52
|
|
|
|
20
|
%
|
|
|
25
|
%
|
Share-Based Compensation
We recognize compensation expense for share-based
awards based on the estimated fair value of the award on the date of grant. We measure compensation cost at the grant date fair
value of the award and recognize compensation expense based on the probable attainment of a specified performance condition for
performance-based awards or over a service period for time-based awards. We use the Black-Scholes option valuation model to estimate
the fair value for purposes of accounting and disclosures. In estimating this fair value, certain assumptions are used (see Note 11.
Share-Based Compensation in Item 8 of the Financial Statements in this prospectus), including the expected life of the option,
risk-free interest rate, dividend yield, volatility and forfeiture rate. The use of different estimates for any one of these assumptions
could have a material impact on the amount of reported compensation expense. Expected volatilities were based on a value calculated
using the historical stock price volatility. Expected life was based on the specific vesting terms of the option and anticipated
changes to market value and expected employee exercise behavior. The risk-free interest rate used in the option valuation model
was based on U.S. Treasury zero-coupon securities with remaining terms similar to the expected term on the options. RGS does not
anticipate paying any cash dividends on its Common Stock in the foreseeable future and, therefore, an expected dividend yield of
zero was used in the option valuation model. The assumptions used to value to 2018 Options as of December 31, 2018 are as follows:
2018 Non-Qualified Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
|
|
|
|
|
|
Market
|
|
|
|
Vesting
|
|
Expected
|
|
Dividend
|
|
|
Risk-free
|
|
|
Price
|
|
Grant Date
|
|
Period
|
|
Life
|
|
Rate
|
|
|
Rate
|
|
|
Volatility
|
|
June 21, 2018
|
|
2.78 years
|
|
4.2 years
|
|
|
0
|
%
|
|
|
2.70
|
%
|
|
|
148.77
|
%
|
September 4, 2018
|
|
2.82 years
|
|
5.7 years
|
|
|
0
|
%
|
|
|
2.78
|
%
|
|
|
147.40
|
%
|
September 10, 2018
|
|
2.81 years
|
|
5.7 years
|
|
|
0
|
%
|
|
|
2.83
|
%
|
|
|
146.66
|
%
|
October 15, 2018
|
|
2.96 years
|
|
4.3 years
|
|
|
0
|
%
|
|
|
2.96
|
%
|
|
|
149.82
|
%
|
October 29, 2018
|
|
2.92 years
|
|
4.3 years
|
|
|
0
|
%
|
|
|
2.87
|
%
|
|
|
150.34
|
%
|
Income Taxes
We recognize income taxes under the asset
and liability method. Deferred income taxes are recognized based on temporary differences between financial reporting and income
tax bases of assets and liabilities, using current enacted income tax rates and regulations. These differences will result in taxable
income or deductions in future years when the reported amount of the asset or liability is recovered or settled, respectively.
Considerable judgment is required in determining when these events may occur and whether recovery of an asset, including the utilization
of a net operating loss carry-forward prior to its expiration, is more likely than not. A valuation allowance is established if
it is more likely than not that a deferred tax asset will not be realized. In determining the appropriate valuation allowance,
we consider projected realization of tax benefits based on expected levels of future taxable income, available tax planning strategies,
and our overall deferred tax position.
Results of Operations
Year Ended December 31, 2018 Compared to Year Ended
December 31, 2017
POWERHOUSE™ Segment:
We received our first purchase order from
a customer on December 27, 2018 and shipped to the customer in January 2019. Accordingly, we have no revenue during 2018 from POWERHOUSE™
and a backlog of one transaction. We commenced amortization of the POWERHOUSE™ license upon receiving UL approval on November
2, 2018 and have recorded two months of amortization expense of $0.03 million.
Solar Division Segments:
Contract revenue:
Sale and installation of solar
energy systems
. Sale and installation of solar energy system revenue decreased $2.5 million, or 17.9%, to $11.5 million during
the twelve months ended December 31, 2018, from $14.0 million during the twelve months ended December 31, 2017. During the twelve
months ended December 31, 2018, installations decreased 0.5 megawatts to 2.8 as compared to the 3.3 megawatts installed during
the twelve months ended December 31, 2017. This decrease was primarily due to slower sales in the beginning of the year and a decline
in our weighted average selling price per watt of 2.6%. Additionally, limitations including cutbacks of major incentive programs
in Massachusetts and Rhode Island caused delays in the installation of our backlog in the fourth quarter of 2018 as approvals required
for installation were not available. This delayed the installation of many projects in the fourth quarter, as Massachusetts and
Rhode Island comprised a significant portion of our backlog in 2018. As previously disclosed, we are exiting our Mainland residential solar
business.
Contract expenses:
Installation of solar energy
systems
. Installation of solar energy system expenses decreased $1.9 million, or 14.5%, to $11.2 million during the twelve
months ended December 31, 2018, from $13.1 million during the twelve months ended December 31, 2017, which corresponds to the reduction
of installation revenue during this same time comparison. We utilize gross margin percentage to measure performance utilizing an
internal time reporting system allowing us to measure both total incurred contract expense and contract expense excluding construction
crew idle time. For the twelve months ended December 31, 2018, our residential segments gross margin without idle time declined
due to a 2.6% decline in the average selling price per watt exceeding the 0.8% decline in the costs of installation per watt.
Customer acquisition.
Customer
acquisition expense decreased $2.3 million during the twelve months ended December 31, 2018, or 38.9%, to $3.6 million from $5.9
million during the twelve months ended December 31, 2017. This decrease is primarily attributable to a reduction in workforce related
to a targeted focus on increasing individual sales team member key performance indicators and a more selective hiring process allowed
for significant improvements in lead performance. Our continued efforts to refine our digital lead development also played a large
role in the decrease.
Operating expense:
Operating
expenses decreased $1.0 million, or 9.2%, to $9.8 million during the twelve months ended December 31, 2018 compared to $10.8 million
during the twelve months ended December 31, 2017, primarily due to a decrease in labor and legal fees.
Other Segment:
Goodwill impairment.
Goodwill
impairment increased by $1.3 million during the year ended December 31, 2018 due to the results of our annual impairment testing.
We concluded that the fair value of the goodwill no longer exceeded its carrying value and wrote off the goodwill balance.
Litigation and proxy contest expense.
Litigation and proxy contest expenses during the twelve months ended December 31, 2018 was $0.2 million compared to $1.5 million
during the twelve months ended December 31, 2017. The decrease of $1.3 million is primarily attributable to nonrecurring proxy
contest expenses of $1.2 million in 2017. Our legal expenses may increase in subsequent periods. See Note 7. Commitments and Contingencies.
Change in fair value of derivative liabilities,
loss on debt extinguishment and amortization of debt discount & deferred loan costs.
The issuance of the 2018 Notes, subsequent
conversions and revaluation of the derivative liabilities resulted in our recording derivative liabilities as disclosed in Note
9. Convertible Debt. Additionally, interest expense increased due to the accretion of the debt discount and deferred loan costs
related to the 2018 Notes. No such transaction occurred during the year ended December 31, 2017.
Other (income) expenses.
Other expenses
primarily represent a gain on settlement of a long-term liability with a directors and officers liability insurance provider.
Liquidity and Capital Resources
Our historical operating results indicate
substantial doubt exists related to our ability to continue as a going concern. Management’s plans and actions, which are
intended to mitigate the substantial doubt raised by our historical operating results in order to satisfy our estimated liquidity
needs for a period of 12 months from the issuance of the consolidated financial statements, are discussed below. As we cannot predict,
with certainty, the outcome of our 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.
As of December 31, 2018, we have cash of
$5.8 million, working capital of $6.9 million, debt of $0.3 million and shareholders’ equity of $10.8 million.
We have 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, see Note 16. Subsequent Events;
|
|
·
|
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. See Note 8.
Shareholders Equity and Note 16. Subsequent Events for transactions to raise capital during the second quarter of 2019.
|
No assurances can be given that we will
be successful with our plans to grow revenue for profitable operations.
We have historically incurred a cash outflow
from our operations as our revenue has not been at a level for profitable operations. As discussed above, a key component of our
revenue growth strategy is the sale of our POWERHOUSE™ 3.0 in-roof solar shingle. We obtained UL certification for POWERHOUSE™
at the close of 2018 and therefore only recently begun to market POWERHOUSE™ at the start of 2019. We believe that we will
require several quarters for us to generate sales to meet our goals for profitable operations.
The first quarter of the year has always
been one of our slowest sales periods and as such, this is a period of higher cash outflow. POWERHOUSE™ 3.0 sales during
the first quarter of 2019 have been materially less than our expectations and, accordingly, we raised additional capital during
the second quarter of 2019.
Additionally, we have arranged with a third-party
specialty lender to provide financing to our POWERHOUSE™ roofers for their purchases of POWERHOUSE™ in-roof shingles.
Under this agreement, we are to be paid the next day after the roofers place a purchase order and, accordingly, when roofers avail
themselves of this financing, we do not have accounts receivable, enhancing our cash flow from operations.
As discussed above, (i) we expect that
future sales of POWERHOUSE™ 3.0 in-roof solar shingles will be our primary source of revenue and (ii) we only recently began
marketing POWERHOUSE™ 3.0, and accordingly, we expect to incur a quarterly cash outflow for a portion of 2019. We have placed
purchase orders with our supply chain partners for inventory to be converted to revenue.
The Company has prepared its business plan
for the ensuing twelve months, which includes the following:
|
·
|
Exit from the mainland residential division
which historically has generated material cash outflows;
|
|
·
|
Generate POWERHOUSE™ revenue through
sales to local roofing companies, home builders and EPC companies;
|
|
·
|
Convert current mainland residential backlog
into revenue through authorized third-party integrators; and
|
|
·
|
Increase sales and installations with
commercial customers on the mainland and sales and installations of residential and commercial systems in Hawaii.
|
Cash Flows
The following table summarizes our primary
sources (uses) of cash during the periods presented:
|
|
2018
|
|
|
2017
|
|
Net cash (used in) provided by:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
(12,367
|
)
|
|
|
(16,035
|
)
|
Investing activities
|
|
|
(2,146
|
)
|
|
|
(1,959
|
)
|
Financing activities
|
|
|
19,174
|
|
|
|
16,224
|
|
Net increase (decrease) in cash
|
|
$
|
4,661
|
|
|
$
|
(1,770
|
)
|
Operating activities
. Cash outflow
from operations for the twelve-month period ended December 31, 2018 decreased $3.7 million as compared to the twelve-month period
ended December 31, 2017. This decrease in cash used in operations was primarily due to a reduction of $2.3 million in our customer
acquisition costs and a reduction in payroll costs corresponding to a reduction in personnel. Additionally, we collected on receivables
from certain previously installed commercial projects and settled on litigation related to a large commercial project which
released funds previously held in escrow.
Investing activities
. During the
year ended December 31, 2018, cash outflows for investing activities increased $0.2 million as compared to the twelve-months ended
December 31, 2017. We made payments to the Dow Chemical Company attributable to the License of $2.0 million in 2018 and $1.0 million
in 2017. Additionally, in 2017 we had approximately $0.8 million in capital expenditures.
Financing activities.
Cash
inflow from financing activities increased $3.0 million to $19.2 million in 2018 from $16.2 million in 2017. The increase is due
to capital raising activities in 2018 providing net cash inflows of $19.2 million consisting of (i) $9.9 million related to the
2018 Notes (ii) $8.7 million related to exercise of warrants and (iii) $1.8 million related to the January 2018 Offering less payments
for transaction costs of $1.2 million, as compared to cash inflows of $17.5 million related to the February 2017 offerings discussed
in Note 8. Shareholders’ Equity. Additionally, in 2017 we paid $1.0 million to close our revolving line of credit.
Off-Balance Sheet Arrangements
We have not participated in transactions
that generate relationships with unconsolidated entities or financial partnerships, such as special purpose entities or variable
interest entities, established for the purpose of facilitating off-balance sheet arrangements or other limited purposes.
MANAGEMENT
DIRECTORS
The following table sets forth the names and ages of our current
directors:
Name
|
|
Age
|
|
Position
|
Ian Bowles
|
|
53
|
|
Director and Chairman
|
Dennis Lacey
|
|
65
|
|
Director and Chief Executive Officer
|
Pavel Bouska
|
|
65
|
|
Director
|
Robert L. Scott
|
|
72
|
|
Director
|
Each director serves for a one-year term.
Biographical information for each director, including the years in which they began serving as directors and their positions with
the Company, are set forth below.
IAN BOWLES —age 53—Chairman of the
Company’s Board of Directors.
Mr. Bowles has served as a director
since December 2013. He is Co-founder and Managing Director of WindSail Capital Group, a Boston-based investment firm providing
growth capital to emerging clean energy companies; a position he has held since March 2011. Mr. Bowles is also Senior Director
of Albright Stonebridge Group, a global strategy firm based in Washington, DC; a position he has held since February 2011. From
January 2007 to January 2011, he served as Secretary of Energy and Environmental Affairs of Massachusetts, during which time he
oversaw all aspects of energy and environmental regulation and policy in Massachusetts. Earlier in his career, Mr. Bowles
served on the White House staff for President Bill Clinton, holding the posts of Senior Director of Global Environmental Affairs
at the National Security Council and Associate Director of the White House Council on Environmental Quality.
Our Board of Directors believes that Mr. Bowles
brings significant strategic focus, regulatory and public policy expertise and financial and industry experience.
DENNIS LACEY—age 65—Director and Chief
Executive Officer.
Mr. Lacey
joined the Company in February 2014 as Senior Vice President Finance and became the President of our Residential Solar Division
in April 2014 and our Chief Executive Officer and a director in August 2014. Mr. Lacey also served as our acting Principal Financial
Officer from October 2014 to February 2017. He brings to his role as Chief Executive Officer more than 25 years of executive financial
management experience. Before joining RGS, Mr. Lacey served as the Chief Financial Officer of Community Enhancement Group
REIT, Inc., formed to invest in multi-family properties and acquire REIT status, between May 2012 and February 2014. Between January
2010 and March 2012, Mr. Lacey served as Chief Financial Officer and Vice President of Stream Global Services, a publicly-traded
company providing business process outsourcing services. Between September 2006 and December 2009, he was the head of capital markets
for Republic Financial Corporation, a private investment firm engaged in aircraft leasing and alternative asset management. Before
that, Mr. Lacey held a number of senior executive positions at Imperial Bancorp, a $6 billion publicly-traded commercial bank
best known for its high-tech lending practice before it was acquired by Comerica. At Imperial Bancorp, he served as Executive Vice
President and Chief Financial Officer, President of the SBA Division, and President of the Equipment Leasing Division. Mr. Lacey
also served as President and Chief Executive Officer of Capital Associates, a publicly traded equipment leasing company. He previously
served as Chief Financial Officer of two multi-billion dollar publicly-traded companies: TeleTech Holdings, Inc., one of the largest
customer experience management companies in the United States, and CKE Restaurants, Inc., an owner, operator and franchisor of
popular brands in the quick-service restaurant industry. Earlier in his career, Mr. Lacey was an audit partner at Coopers &
Lybrand, an accounting firm.
Our
Board of Directors believes that Mr. Lacey brings significant senior leadership management, operational and financial experience.
PAVEL BOUSKA—age 65—Director.
Mr. Bouska has served as a director since
September 2012. Mr. Bouska has been an independent business consultant since 2006. From 2003 to 2006, he was the Chief Executive
Officer and served as a director of ionSKY Inc., a wireless Internet service provider. Between 1999 and 2003, Mr. Bouska served
as Executive Vice President and Chief Information Officer of Gaia, Inc. (formerly known as Gaiam, Inc.), as Chief Executive Officer
of Gaiam Energy Tech, Inc., the renewable energy division of Gaia that later became Real Goods Solar, and as a director of Gaiam.com,
Inc., an e-commerce subsidiary of Gaia. In addition, Mr. Bouska served as a director of Gaia between 1991 and 1999. From 1988 to
1999, he served as Chief Information Officer and Vice President, Information Technology of Corporate Express, Inc., a corporate
supplier, as it grew from $2.0 million of gross revenues to a Fortune 500 company. From 1985 to 1988 Mr. Bouska worked as project
leader at sd&a software company in Munich, Germany. He has experience with organization management and technology deployment
in rapidly growing and changing environments, business unit integrations, and mergers and acquisitions. From 2002 to 2012, Mr.
Bouska has also served as President and chairman of the Board of Sunshine Fire Protection District in Boulder, Colorado.
Our Board of Directors believes that Mr. Bouska
brings significant senior leadership, strategic focus, business development, and renewable energy experience.
ROBERT L. SCOTT—age 72—Director.
Mr. Scott has served as a director
since June 2012. Mr. Scott has advised and assisted a number of companies since retiring as a partner from Arthur Andersen,
LLP. From May to November 2009, he served as the interim Chief Financial Officer of Square Two Financial (formerly, Collect America),
a private consumer debt company, assisting them with financial administration and transition to a permanent Chief Financial Officer.
From 2004 to 2008, Mr. Scott assisted Colorado Mountain Development, engaged in retail land sales primarily in Texas, to improve
financial reporting and accounting systems and help transition toward the sale and relocation of the business. During 2003 and
2004, Mr. Scott served as a consultant to KRG Capital Partners, LLC, a Denver-based private equity firm, assisting them with
due diligence investigations of certain target companies. Mr. Scott joined Arthur Andersen, LLP, a public accounting firm,
in 1970 and was admitted as partner in 1981, continuing through his retirement in 2002. Within Arthur Andersen’s Audit &
Business Advisory Group, Mr. Scott served clients in numerous life cycle stages and industries including construction, venture
capital, energy exploration and development, manufacturing, cable and satellite television, software development, real estate and
manufacturing.
Our Board of Directors believes that Mr. Scott
brings exceptional technical skills in accounting, internal controls, taxation, equity compensation, and public company matters.
EXECUTIVE OFFICERS
The following table sets forth the names and ages of our current
executive officers:
Name
|
|
Age
|
|
Position
|
Dennis Lacey
|
|
65
|
|
Chief Executive Officer and Director
|
Alan Fine
|
|
65
|
|
Chief Financial Officer and Chief Administrative Officer
|
Nicolle Dorsey
|
|
40
|
|
Principal Accounting Officer and Controller
|
Our executive officers are appointed annually by our Board of
Directors. Biographical information about Mr. Lacey is included herein under the heading “
DIRECTORS
.”
ALAN FINE—
age 65—Mr.
Fine joined the Company in July 2014 as the Director of Commercial Accounting and Finance, was appointed the Company’s Treasurer
and Principal Accounting Officer in October 2014 and was later appointed the Company’s Principal Financial Officer in February
2016, while continuing to serve as the Company’s Treasurer. In September 2017, he was named the Company’s Chief Financial
Officer and Chief Administrative Officer. Before joining the Company, he served as the Chief Financial Officer and Principal Accounting
Officer of Roomlinx, Inc., a public company engaged in in-room guest entertainment systems servicing the hospitality industry,
between August 2011 and June 2014. From May 2008 to June 2011, Mr. Fine served as the Chief Financial Officer and Director of Operations
for Pearlstine Distributors, a privately held distributor of Anheuser Busch, Samuel Adams, Heineken, New Belgium and other craft
beers to the Charleston, South Carolina market. From November 1997 to May 2000, he served as the Vice President of Finance at Colorado
Greenhouse, an international producer of hydroponic tomatoes. Before that, Mr. Fine served as the Chief Financial Officer of Gold
Coast Beverage Distributors, a beer and water wholesaler serving Southern Florida, from May 1994 to July 1997. Mr. Fine has a Bachelor
of Science degree in accounting from Loyola College of Maryland, a bachelor of science degree in civil engineering from UMASS,
Lowell and is a licensed certified public accountant in Pennsylvania.
NICOLLE DORSEY
—age 40—
Ms. Dorsey joined the Company in September 2016 as Assistant Controller before she was named the Company’s Principal Accounting
Officer and Controller in September 2017. Before joining the Company, she worked for Cloud Peak Energy, a publicly held coal producing
company, from April 2014 to March 2016. Prior to that Ms. Dorsey worked in public accounting, auditing and performing compliance
work for energy sector clients. Ms. Dorsey has a BBA degree in accounting and a Master of Accountancy from the University of Wisconsin
and is a licensed certified public accountant in Colorado.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table includes information
concerning compensation for each of the last two completed fiscal years for our principal executive officer, and the other named
executive officers of our company.
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Awards (1)
|
|
|
Totals
|
|
Dennis Lacey
|
|
|
2018
|
|
|
$
|
375,972
|
|
|
$
|
211,600
|
|
|
$
|
587,572
|
|
Chief Executive Officer and Director
|
|
|
2017
|
|
|
$
|
375,000
|
|
|
$
|
-
|
|
|
$
|
375,000
|
|
Alan Fine
|
|
|
2018
|
|
|
$
|
191,346
|
|
|
$
|
85,800
|
|
|
$
|
277,146
|
|
Chief Financial Officer and Chief Administrative Officer
|
|
|
2017
|
|
|
$
|
185,000
|
|
|
$
|
-
|
|
|
$
|
185,000
|
|
Nicolle Dorsey (2)
|
|
|
2018
|
|
|
$
|
127,914
|
|
|
$
|
42,600
|
|
|
$
|
170,514
|
|
Principal Accounting Officer and Controller
|
|
|
2017
|
|
|
$
|
100,346
|
|
|
$
|
-
|
|
|
$
|
100,346
|
|
|
(1)
|
The amounts in the
Option Awards
column reflect the aggregated grant date fair value of awards granted during 2018 and 2017, all of which were computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of the aggregated grant date fair value for these options are included in Note 11. Share-Based Compensation to our audited financial statements, included in Item 8 of the Financial Statements in this prospectus. The terms of the options are described under the Outstanding Equity Awards at Fiscal Year-End Table below. The Company did not grant any option awards to its named executive officers during 2017.
|
|
(2)
|
Ms. Dorsey commenced service as our Principal Accounting Officer and Controller on September 21, 2017.
|
Outstanding Equity Awards at Fiscal Year-End
The following table includes certain information
with respect to unexercised options previously awarded to our executive officers named above in the Summary Compensation Table
and outstanding as of December 31, 2018.
|
|
Option Awards
|
|
|
Number of Securities Underlying
|
|
|
|
|
|
Option
|
|
|
Unexercised Options (1)
|
|
|
Option Exercise
|
|
|
Expiration Date
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price (1)
|
|
|
(1)
|
Dennis Lacey
|
|
|
12
|
|
|
|
-
|
|
|
$
|
45,120
|
|
|
2/28/2021
|
|
|
|
4
|
|
|
|
-
|
|
|
$
|
26,520
|
|
|
7/17/2021
|
|
|
|
25
|
|
|
|
-
|
|
|
$
|
24,720
|
|
|
8/18/2021
|
|
|
|
24
|
|
|
|
10
|
(2)
|
|
$
|
1,428
|
|
|
6/1/2022
|
|
|
|
47,500
|
|
|
|
142,500
|
|
|
$
|
1.08
|
|
|
6/21/2025
|
|
|
|
1,667
|
|
|
|
18,333
|
|
|
$
|
0.32
|
|
|
10/15/2025
|
Alan Fine
|
|
|
1
|
|
|
|
-
|
|
|
$
|
31,800
|
|
|
7/7/2021
|
|
|
|
2
|
|
|
|
-
|
|
|
$
|
14,760
|
|
|
10/19/2021
|
|
|
|
5
|
|
|
|
-
|
|
|
$
|
1,428
|
|
|
6/1/2022
|
|
|
|
18,750
|
|
|
|
56,250
|
|
|
$
|
1.08
|
|
|
6/21/2025
|
|
|
|
1,250
|
|
|
|
13,750
|
|
|
$
|
0.32
|
|
|
10/15/2025
|
Nicolle Dorsey
|
|
|
8,750
|
|
|
|
26,250
|
|
|
$
|
1.08
|
|
|
6/21/2025
|
|
|
|
1,250
|
|
|
|
13,750
|
|
|
$
|
0.32
|
|
|
10/15/2025
|
|
(1)
|
The exercise price of the options is equal to the closing stock market price of our Common Stock on the date of grant and the options expire seven years from the date of grant except as noted. For further information, see Note 11. Share-Based Compensation to our audited financial statements, included in Item 8 of the Financial Statements in this prospectus. Except as expressly noted, the unexercisable options vest in 8.3% equal quarterly installments on the last day of each calendar quarter following the grant, contingent on continuous employment.
|
|
(2)
|
25% of the options vested immediately upon grant, and the remaining 75% subsequently vest in equal quarterly installments of 5% following the grant.
|
Generally Available Benefit Programs
We maintain a tax-qualified 401(k) Plan,
which provides for broad-based employee participation. Our executive officers are eligible to participate in the 401(k) Plan on
the same basis as other employees. Effective January 1, 2019, the Company will match 100% of employee contributions up to 3% of
salary plus 50% of employee contributions greater than 3% but not to exceed 5% of salary. We do not provide defined benefit pension
plans or defined contribution retirement plans to our executives or other employees other than our 401(k) Plan described herein.
During 2018, our named executive officers
were eligible to receive the same health care coverage that was generally available to our other employees. Our benefit programs
include medical, dental and vision insurance, long-term and short-term disability insurance, life and accidental death and dismemberment
insurance, health and dependent care flexible spending accounts, business travel insurance, wellness programs (including chiropractic,
massage therapy, acupuncture, and fitness classes), relocation/expatriate programs and services, educational assistance, and certain
other benefits.
Our Compensation Committee believes that
our 401(k) Plan and contribution matching and the other generally available benefit programs allow us to remain competitive for
employee talent, and that the availability of the benefit programs generally enhances employee productivity and loyalty to us.
The main objectives of our benefits programs are to give our employees access to quality healthcare, financial protection from
unforeseen events, assistance in achieving retirement financial goals, and enhanced health and productivity, in full compliance
with applicable legal requirements. Typically, these generally available benefits do not specifically factor into decisions regarding
an individual executive officer’s total compensation or 2018 Long-Term Incentive Plan award package.
Stock Option Grant Timing Practices
Our Compensation Committee administers
and grants awards under our 2018 Long-Term Incentive Plan and has granted to our chief executive officer the authority to make
awards to our employees that do not report directly to the chief executive officer. During fiscal 2018, our chief executive officer,
Compensation Committee and Board of Directors consistently applied the following guidelines for stock option grant timing practices:
|
•
|
New Employees
: stock option grants to new hires are effective on the first day of the new employee’s employment with us or upon approval by our chief executive officer, Compensation Committee or Board of Directors, as applicable, and the exercise price for the options is set at the closing price of our Common Stock on that date.
|
|
•
|
Existing Employees
: stock option grants to existing employees are effective on the date that our chief executive officer, Compensation Committee or Board of Directors, as applicable, approves the grant, and the exercise price for the options is set at the closing price of our Common Stock on that date.
|
Employment Agreements and Compensation
of our Named Executive Officers
On June 1, 2015, we entered into a written
employment agreement with Dennis Lacey, outlining the terms of his employment as our Chief Executive Officer. We entered into an
amendment to the employment agreement on November 19, 2018 to increase the severance payment Mr. Lacey is eligible for if his employment
with the Company is terminated without Cause (as defined in the employment agreement) within 12 months after a Change of Control
(as defined in the employment agreement) or if Mr. Lacey terminates his employment for “Good Reason” (as defined in
the employment agreement). Pursuant to the terms of the employment agreement, Mr. Lacey will receive an initial annual base salary
of $375,000. Our Board of Directors may, in its sole discretion, adjust his base salary but may not reduce the base salary
unless such reduction is done in connection with a broad reduction of compensation of our management.
For each fiscal year, Mr. Lacey is eligible
for an annual performance bonus of up to 100% of his base salary, subject to such terms and conditions and upon achievement of
performance targets as determined by the Board of Directors or a committee created by its Board of Directors. Mr. Lacey must be
an employee on the date a performance bonus is to be paid to be eligible to receive it. We did not pay Mr. Lacey any bonuses for
2016, 2017 or 2018.
Mr. Lacey is eligible to participate in
the Company’s 401(k) plan and is eligible for expense reimbursement for business expenses incurred in connection with his
duties under his employment agreement. Mr. Lacey is also eligible for coverage under group insurance plans and to receive fringe
benefits made available to the Company’s executive and management employees. The Company will pay the premiums for coverage
of Mr. Lacey and his dependents under such insurance plans.
The term of the employment agreement continues
until terminated and may be terminated as described below and (i) by mutual agreement between the parties, (ii) automatically,
upon Mr. Lacey’s death or disability, (iii) by Mr. Lacey for any or no reason upon 30 days’ prior written notice, and
(iv) by the Company for “cause,” as discussed below, effective immediately. If terminated in this manner, the Company
will pay to Mr. Lacey any accrued but unpaid base salary, accrued but unused vacation and reimbursable business expenses and Mr.
Lacey is not entitled to any severance benefits. “Cause” is defined as Mr. Lacey (i) violating in any material respect
any term of the employment agreement or a nondisclosure agreement entered into with the Company in 2014, (ii) violating any Company
policy, procedure or guideline that results in material harm to the Company, (iii) acting with gross negligence in the performance
of his duties resulting in harm to the Company, (iv) engaging in any of the following forms of misconduct: commission of any felony
or any misdemeanor involving dishonesty or moral turpitude; theft or misuse of Company’s property; illegal use or possession
of any controlled substance; discriminatory or harassing behavior, whether or not illegal under federal, state or local law; or
falsifying any document or making any materially false or misleading statement relating to his employment, or (v) failing to cure,
within 30 days, any material injury to the economic or ethical welfare of the Company caused by his malfeasance, gross misconduct
or material inattention to his duties and responsibilities under the employment agreement (such cure right being limited to one
occurrence unless otherwise agreed to by the Board of Directors).
In addition to the foregoing, if the Company
terminates Mr. Lacey’s employment without “cause,” Mr. Lacey is entitled to severance compensation equal to 12
months of his most recent base salary, which shall be payable in equal installments in accordance with the Company’s standard
payroll practice. However, if the Company terminates Mr. Lacey’s employment within 12 months after the consummation of a
change of control (as defined in the employment agreement and as discussed below), such severance payment shall equal 24 months
of Mr. Lacey’s most recent base salary plus 200% of the maximum performance bonus that Mr. Lacey may earn for such fiscal
year and shall be payable in one lump sum within 30 calendar days after termination of employment. A “change of control”
means any transaction or series of related transactions (i) the result of which is that any person or persons controlling, controlled
by or under common control with such person becomes the beneficial owner of more than 50% of the issued and outstanding Company
voting stock (including securities convertible or exercisable for voting stock), (ii) that results in the sale of all or substantially
all of the Company’s assets, or (iii) that results in a consolidation or merger whereby the Company is not the surviving
entity. Mr. Lacey’s receipt of severance compensation is conditioned on his executing release and confidentiality agreements
as further described in the employment agreement.
Furthermore, subject to notice and cure
periods, Mr. Lacey may terminate the employment agreement for “good reason” if, without Mr. Lacey’s prior consent,
(i) the Company materially breaches its obligations under the employment agreement, (ii) following a change of control, the successor
company fails to assume the Company’s obligations under the employment agreement, or (iii) within 12 months after a change
of control, (A) Mr. Lacey is no longer the Chief Executive Officer of the surviving company, (B) his duties are materially altered
or his authority is materially diminished, (C) his employment-related benefits are materially diminished, or (D) the Company’s
principal executive offices are moved more than 25 miles from their current location. A termination for “good reason”
is deemed to be a termination by the Company without “cause.”
On May 31, 2015 and in connection with
entering into the employment agreement, our Board of Directors granted Mr. Lacey options to purchase 34 shares of the Company’s
Common Stock at an exercise price of $1,428 per share under the Incentive Plan. At the time of grant, 25% of the options
immediately vested and the remaining 75% subsequently vest in equal quarterly installments of 5% following the grant. The options
awarded to Mr. Lacey include the following terms and conditions:
|
·
|
The options expire on the seventh anniversary
of the effective date of the applicable stock option grant and may not be exercised after the close of business on the applicable
expiration date;
|
|
·
|
The options vest at a rate of 5.0% on
the last day of each calendar quarter occurring after the effective date of the applicable grant so long as the grantee has been
continuously employed from the effective date of grant through the applicable vesting date;
|
|
·
|
All of the unvested shares will vest immediately
prior to the consummation of a change in control (which definition is substantively the same as the description of the definition
of change of control in the employment agreement), provided that the grantee is an employee on the date the change in control is
consummated;
|
|
·
|
Vesting ceases on the date the grantee
ceases to be an employee;
|
|
·
|
Following the last day of employment,
vested options may be exercised at any time during the lesser of (i) 30 days starting the day after the last date of employment,
or (ii) the remaining term of the options; provided that if termination occurs (A) due to death or disability while grantee is
employed, the options may be exercised at any time during the lesser of (1) one year starting the day after the last date
of employment, or (2) the remaining term of the options, or (B) due to retirement, the option may be exercised at any time during
the lesser of (1) the three month period commencing on the first day after the employees last day of employment, or, if
employee dies during the three month period commencing on the first day after employee’s last day of employment, then the
one year period commencing on the first day after the employee’s last day of employment with RGS, or (2) the remaining term
of the option; and
|
|
·
|
In connection with their receipt of stock
options under the Employee Stock Option Agreement, employees agree to be subject to typical non-disparagement, confidentiality
and non-compete provisions.
|
On November 14, 2018, we entered into change
in control agreements (the “Change in Control Agreements”) with certain executive officers, employees that report directly
to the Company’s Chief Executive Officer and certain other employees considered to be part of the Company’s senior
leadership, including with each of Mr. Fine and Ms. Dorsey. The Change in Control Agreements are in substantially the same form
and provide that in the event a Change in Control (as defined below) occurs, and either (i) any successor to the Company as a result
of a Change in Control fails to assume the Company’s obligations under the applicable Change in Control Agreement, or (ii)
within the one-year period immediately following the consummation of the Change in Control, the subject employee’s employment
with the Company is (a) involuntarily terminated by the Company without Business Reasons (as defined in the Change in Control Agreement)
or (b) voluntary terminated by the subject employee for Good Reason (as defined in the Change in Control Agreement), then such
employee shall receive a lump sum severance payment equal to a percentage of the sum of his or her base salary plus target bonus
for the year in question. Mr. Fine’s and Ms. Dorsey’s percentage is 100%. The Change in Control Agreements were approved
to promote the incentive employees to stay with the Company during and after a potential future change in control transaction to
promote shareholders’ interests and preserve value.
A “change in control” is defined
in the Change in Control Agreements as a single transaction or a series of related transactions of any one or more of the following
(subject to some exceptions): (i) any merger, consolidation or business combination of the Company with or into any other entity
or person, or any other reorganization, in each case in which the equity holders of the Company immediately prior to such merger,
consolidation, business combination or reorganization, own less than 50% of the voting power of the surviving entity immediately
after such merger, consolidation, business combination or reorganization, (ii) any transaction in which in excess of 50% of the
Company's voting power is transferred to a person or a group other than the equity holders of the Company immediately prior to
such transaction(s), or (iii) a sale or other disposition of all or substantially all of the assets of the Company.
Other than as described above, we have
not entered into traditional employment agreements or change in control agreement with any other named executive officers. Generally,
those named executive officers who have been granted stock options, are subject to covenants concerning confidentiality, non-competition,
non-solicitation of employees and customers and assignment of inventions contained in our standard form of stock option agreement
executed upon grant.
Potential Payments Upon Termination or Change-in-Control
Pursuant to the terms of the employment
agreement with Mr. Lacey and the Change in Control Agreements with Mr. Fine and Ms. Dorsey, each is entitled to receive the severance
payments in the amount and pursuant to the terms described above in “Employment Agreements and Compensation for our Named
Executive Officers.”
Our standard form of stock option agreement
provides that option vesting ceases upon termination of employment. A former employee may exercise vested options (i) within 30
days (generally), (ii) within three months (upon retirement at or after normal retirement age) or (iii) within one year (upon termination
due to death or disability or (iv) within one year (after a change of control) after termination, but in no event after the expiration
term of the applicable option. Additionally, 100% of unvested options immediately vest upon the occurrence of a change of control.
Accounting and Tax Considerations
In designing our compensation programs,
we take into consideration the accounting and tax effect that each element will or may have on us and our executive officers and
other employees. We aim to keep the expense related to our compensation programs as a whole within certain affordability levels.
When determining how to apportion between differing elements of compensation, our goal is to meet our objectives while maintaining
relative cost neutrality. For instance, if we increase benefits under one program resulting in higher compensation expense, we
may seek to decrease costs under another program in order to avoid a compensation expense that is above the level then deemed affordable
under existing circumstances. For options, we recognize a charge to earnings for accounting purposes equally from the grant date
until the end of the vesting period.
We believe we have structured our compensation
program to comply with Internal Revenue Code Sections 162(m) and 409A. Under Section 162(m), a limitation is placed on tax
deductions of any publicly-held corporation for individual compensation to certain executives of such corporation exceeding $1
million in any taxable year. If an executive is entitled to nonqualified deferred compensation benefits that are subject to Section 409A,
and such benefits do not comply with Section 409A, then the benefits are taxable in the first year they are not subject to
a substantial risk of forfeiture. In such case, the service provider is subject to regular federal income tax, interest and an
additional federal income tax of 20% of the benefit includible in income. We do not believe we have individuals with non-performance
based compensation paid in excess of the Internal Revenue Code Section 162(m) tax deduction limit.
Director Compensation Policy
During 2018, directors who were not employees
of our company or its affiliates were paid an annual retainer of $20,000 plus fees of $1,000 for each in-person board meeting attended,
$200 for each telephonic board meeting attended, $500 for each committee meeting attended and $200 for each telephonic committee
meeting attended. Members of each standing committee receive an annual fee of $4,000 and chairpersons of each standing committee
receive an annual fee of $10,000.
Director Compensation Table
The following table provides compensation
information for the year ended December 31, 2018 for each director who served during 2018 and was compensated for his or her
service other than as a named executive officer.
|
|
Fees Earned or
|
|
|
Option
|
|
|
|
|
Name
|
|
Paid in Cash
|
|
|
Awards (1)
|
|
|
Totals
|
|
Ian Bowles
|
|
$
|
50,600
|
|
|
$
|
50,200
|
|
|
$
|
100,800
|
|
Robert L. Scott
|
|
$
|
44,600
|
|
|
$
|
50,200
|
|
|
$
|
94,800
|
|
Pavel Bouska
|
|
$
|
30,200
|
|
|
$
|
50,200
|
|
|
$
|
80,400
|
|
(1)
|
The amounts in the
Option Awards
column reflect the aggregated grant date fair value of awards granted during 2018 and 2017, all of which were computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of the aggregated grant date fair value for these options are included in Note 11. Share-Based Compensation to our audited financial statements, included in Item 8 of the Financial Statements in this prospectus. All directors have 50,008 option awards outstanding as of December 31, 2018.
|
BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth information
with respect to the beneficial ownership of our Common Stock as of April 11, 2019 (except as noted) for (i) each person (or group
of affiliated persons) who, insofar as we have been able to ascertain, beneficially owned more than 5% of the outstanding shares
of our Common Stock, (ii) each director, (iii) each executive officer named in the Summary Compensation Table above, and (iv) all
current directors and executive officers as a group. As of April 11, 2019, there were 108,902,754 shares of our Common Stock and
no shares of our Class B common stock outstanding.
|
|
Amount and
|
|
|
|
|
|
|
Nature of
|
|
|
|
|
|
|
Beneficial
|
|
|
Percent of
|
|
Name and Address of Beneficial Owner
|
|
Ownership (1)
|
|
|
Class
|
|
Hudson Bay Capital Management LP (2)
|
|
|
8,961,318
|
|
|
|
7.81
|
%
|
Intracoastal Capital, LLC (3)
|
|
|
8,942,342
|
|
|
|
7.80
|
%
|
Dennis Lacey (4)
|
|
|
436,662
|
|
|
|
*
|
|
Alan Fine (5)
|
|
|
122,478
|
|
|
|
*
|
|
Nicolle Dorsey (6)
|
|
|
14,150
|
|
|
|
*
|
|
Pavel Bouska (7)
|
|
|
35,829
|
|
|
|
*
|
|
Ian Bowles (8)
|
|
|
165,830
|
|
|
|
*
|
|
Robert L. Scott (9)
|
|
|
65,825
|
|
|
|
*
|
|
All directors and executive officers as a group (6 persons) (10)
|
|
|
840,774
|
|
|
|
0.91
|
%
|
*
|
Indicates less than 1% ownership.
|
(1)
|
This table is based upon information supplied by officers, directors and principal shareholders directly to the Company or on Schedules 13D and 13G and Forms 3, 4 and 5 filed with the SEC. All beneficial ownership is direct and the beneficial owner has sole voting and investment power over the securities beneficially owned unless otherwise noted. Share amounts and percent of class include stock options exercisable and restricted stock vesting within 60 days after April 11, 2019.
|
(2)
|
According to information available to the Company, consists of (i) 3,055,657 shares of our Common Stock; (ii) 2,503,516 shares of our Common Stock issuable upon exercise of warrants that are currently exercisable (subject to a 4.99% beneficial ownership limitation); and (iii) 3,402,145 shares of our Common Stock issuable upon exercise of warrants that are currently exercisable (subject to a 9.99% beneficial ownership limitation), which together represent 7.81% of our outstanding shares of Common Stock as of April 11, 2019. Does not include additional shares of Common Stock issuable upon exercise of additional warrants because the holder does not have the right to receive such shares if the holder, together with certain attribution parties, would beneficially own in excess of 4.99% of the outstanding shares of our Common Stock. Hudson Bay Capital Management LP, the investment manager of Hudson Bay Master Fund Ltd., has voting and investment power over these securities. Sander Gerber is the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management LP. Hudson Bay Capital Management LP may be deemed to be the beneficial owner of all shares of Common Stock underlying the securities held by Hudson Bay Master Fund Ltd. Mr. Gerber disclaims beneficial ownership of these securities. The address of Hudson Bay Master Fund Ltd. is c/o Hudson Bay Capital Management LP, 777 Third Avenue, 30
th
Floor, New York, NY 10017.
|
(3)
|
According to a Schedule 13G filed April 11, 2019 by Intracoastal Capital LLC (“Intracoastal”), Mitchell P. Kopin and Daniel B. Asher and information available to the Company. Consists of (i) 3,255,658 shares of our Common Stock; and (ii) 5,686,640 shares of our Common Stock issuable upon exercise of warrants that are currently exercisable (subject to a 9.99% beneficial ownership limitation), which together represent 7.72% of our outstanding shares of Common Stock as of April 11, 2019. Does not include additional shares of Common Stock issuable upon exercise of additional warrants because the holder does not have the right to receive such shares if the holder, together with certain attribution parties, would beneficially own in excess of 4.99% of the outstanding shares of our Common Stock. The reporting persons share voting and dispositive power over the shares. Mr. Kopin and Mr. Asher, each of whom are managers of Intracoastal, share voting control and investment discretion over the securities held by Intracoastal. As a result, each of Mr. Kopin and Mr. Asher may be deemed to have beneficial ownership (as determined under Section 13(d) of the Exchange Act) of the securities held by Intracoastal. The address of Intracoastal and Mr. Kopin is 245 Palm Trail, Delray Beach, FL 33483. The address of Mr. Asher is 111 W. Jackson Boulevard, Suite 2000, Chicago, IL 60604.
|
(4)
|
Consists of (i) 170,000 shares of our Common Stock owned by Mr. Lacey, (ii) 155,000 shares of our Common Stock owned by a limited partnership, of which Mr. Lacey and his spouse are each a general partner and a limited partner, over which Mr. Lacey shares voting and investment power with his spouse, (iii) 45,000 shares of our Common Stock owned by Mr. Lacey’s spouse, (iv) 49,232 shares of our Common Stock issuable upon exercise of stock options that are currently exercisable and (v) 17,430 share of our Common Stock issuable upon exercise of stock options exercisable within 60 days after April 11, 2019.
|
(5)
|
Consists of (i) 95,000 shares of our Common Stock, (ii) 20,008 shares of our Common Stock issuable upon exercise of stock options that are currently exercisable and (iii) 7,470 share of our Common Stock issuable upon exercise of stock options exercisable within 60 days after April 11, 2019.
|
(6)
|
Consists of (i) 10,000 shares of our Common Stock issuable upon exercise of stock options that are currently exercisable and (iii) 4,150 share of our Common Stock issuable upon exercise of stock options exercisable within 60 days after April 11, 2019.
|
(7)
|
Consists of (i) 20,004 shares of our Common Stock, (ii) 11,675 shares of our Common Stock issuable upon exercise of stock options that are currently exercisable and (iii) 4,150 share of our Common Stock issuable upon exercise of stock options exercisable within 60 days after April 11, 2019.
|
(8)
|
Consists of (i) 150,005 shares of our Common Stock, (ii) 11,675 shares of our Common Stock issuable upon exercise of stock options that are currently exercisable and (iii) 4,150 share of our Common Stock issuable upon exercise of stock options exercisable within 60 days after April 11, 2019.
|
(9)
|
Consists of (i) 50,000 shares of our Common Stock, (ii) 11,675 shares of our Common Stock issuable upon exercise of stock options that are currently exercisable and (iii) 4,150 share of our Common Stock issuable upon exercise of stock options exercisable within 60 days after April 11, 2019.
|
(10)
|
Includes Messrs. Lacey, Fine, Dorsey, Bouska, Bowles, and Scott.
|
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
Related Party Transactions
The following is a description of certain
transactions involving us and persons who are considered “related persons,” as such term is defined in Item 404 of
Regulation S-K.
Transactions with Hudson Bay
We believe that Hudson Bay Master Fund,
Ltd. (“Hudson Bay”) currently is a “related person” as a result of being the beneficial owner of more than
5% of our outstanding Common Stock. In addition, we believe that Hudson Bay either was a “related person” at the time
of, or became a “related person” as a result of, entering into the transactions listed below.
On April 1, 2016, we sold $6.0 million
in principal amount of 2016 Notes and Series G Warrants to purchase 4,980 shares of our Common Stock to Hudson Bay as part of the
April 2016 Offering. As a result of the purchase of the 2016 Notes, Hudson Bay became the beneficial owner of up to 9.99% of our
outstanding Common Stock. The 2016 Notes bore interest at 8% per annum (or 18% per annum during an event of default). As of April
1, 2019, the maturity date of the 2016 Notes, we have converted into shares of our Common Stock $5,999,000 in principal and $274,395
in accrued interest owed to Hudson Bay. As a result, we have issued an aggregate of 334,303 shares of our Common Stock to Hudson
Bay. The largest amount of principal outstanding since January 1, 2017 and the date of this prospectus was $124,000. On April 1,
2019, we made a payment of $1,281.02 to pay off the outstanding principal balance and related accrued interest under the 2016 Notes.
On February 6, 2017, we sold an aggregate
of $2.6 million of units to Hudson Bay as part of a registered offering of an aggregate amount of $11.5 million of (i) “primary
units” consisting of one share of our Common Stock, and a Series K warrant to purchase one share of our Common Stock and
(ii) “alternative units” consisting of a prepaid Series L warrant to purchase one share of our Common Stock, and a
Series K Warrant to purchase one share of Common Stock (the “February 6, 2017 Offering”). We sold the primary units
at an initial purchase price of $3.10 per unit and the alternative units at an initial purchase price of $3.09 per unit. Hudson
Bay purchased 290,323 primary units and 547,146 alternative units. As a result of the February 6, 2017 Offering, Hudson Bay received
an aggregate of 290,323 shares of our Common Stock, a Series K warrant to purchase 837,469 shares of our Common Stock and a Series
L warrant to purchase 547,146 shares of our Common Stock.
On February 9, 2017, we sold an aggregate
of $2.7 million of units to Hudson Bay as part of a registered offering of an aggregate amount of $6.0 million of (i) “primary
units” consisting of one share of our Common Stock, and a Series M warrant to purchase 75% of one share of our Common Stock,
and (ii) “alternative units” consisting of a prepaid Series N warrant to purchase one share of our Common Stock, and
a Series M Warrant to purchase 75% of one share of Common Stock (the “February 9, 2017 Offering”). We sold the primary
units at an initial purchase price of $2.50 per unit and the alternative units at an initial purchase price of $2.49 per unit.
Hudson Bay purchased 500,000 primary units and 600,000 alternative units. As a result of the February 9, 2017 Offering, Hudson
Bay received an aggregate of 500,000 shares of our Common Stock, a Series M warrant to purchase 825,000 shares of our Common Stock,
and a Series N warrant to purchase 600,000 shares of our Common Stock.
On January 4, 2018, we sold (i) 800,000
shares of Common Stock, (ii) a prepaid Series P Warrant to purchase 800,000 shares of Common Stock, and (iii) a Series O Warrant
to purchase 1,600,000 shares of Common Stock to Hudson Bay for aggregate gross proceeds of approximately $1.8 million in connection
with the January 2018 Offering. We sold the shares of Common Stock at a purchase price of $1.15 per share, and the share of Common
Stock underlying the Series P Warrant at a purchase price of $1.14 per share.
On April 9, 2018, we sold $3,225,000 in
principal amount and $3 million funding amount (reflecting $225,000 of original issue discount) of 2018 Notes and Series Q Warrants
to purchase 2,781,137 shares of our Common Stock to Hudson Bay as part of the April 2018 Offering. The 2018 Notes do not bear interest
other than upon the occurrence of an event of default, in which case the 2018 Notes bear interest at 18% per year. As of April
9, 2019, the maturity date of the 2018 Notes, we have converted into shares of our Common Stock $3,199,800 in principal, $5,249,145
of Additional Amount (as defined in the Series A Notes) and $3,132,508 of Additional True-Up Amount (as defined in the Series B
Notes). As a result, we have issued an aggregate of 24,099,375 shares of Common Stock to Hudson Bay. The largest amount of principal
outstanding since January 1, 2018 and the date of this prospectus was $1,725,000. On April 9, 2019, we made a payment of $50,200
to pay off the remaining outstanding principal balance under the 2018 Notes. At the closing, we received approximately $1.5 million
from Hudson Bay. After closing and as of April 10, 2019, we have received approximately $2.9 million from Hudson Bay upon exercise
of Series Q Warrants.
On
April 2, 2019, we sold an aggregate of $1.1 million of units to Hudson Bay as part of the April 2019 Offering. Hudson Bay purchased
5,573,935 primary units and 5,810,309 alternative units. As a result of the April 2019 Offering, Hudson Bay received an aggregate
of 5,337,561 shares of our Common Stock, a Series R warrant to purchase 5,573,935 shares of our Common Stock, and a Series S warrant
to purchase 236,374 shares of our Common Stock.
Transactions with Intracoastal Capital
We believe that Intracoastal Capital, LLC
(“Intracoastal”) became, and currently is, a “related person” as a result of being the beneficial owner
of more than 5% of our outstanding Common Stock when we entered into the transaction listed below.
On
April 2, 2019, we sold an aggregate of $1.0 million of units to Intracoastal as part of the April 2019 Offering. Intracoastal purchased
5,263,157 primary units and 5,263,157 alternative units. As a result of the April 2019 Offering, Intracoastal received an aggregate
of 5,263,157 shares of our Common Stock, and a Series R warrant to purchase 5,263,157 shares of our Common Stock.
Transaction with Iroquois
We believe that Iroquois Master Fund, Ltd
became a “related person” as a result of the transaction described below as a result of becoming the beneficial owner
of more than 5% of our outstanding Common Stock. Insofar as we have been able to ascertain, as of April 12, 2019, Iroquois is not
a “related person.”
On January 2, 2018, we entered into a Cooperation
Agreement with Iroquois Capital Management LLC, Iroquois Master Fund, Ltd., Iroquois Capital Investment Group LLC, Richard Abbe
and Kimberly Page (collectively, “Iroquois Capital”), wherein Iroquois Capital agreed to (i) immediately terminate,
and cease any and all solicitation and other efforts with respect to, the solicitation of proxies in opposition to our proposals
for the 2017 annual meeting of shareholders, (ii) withdraw (and not resubmit) Iroquois’ proxy statement in opposition to
our proposals for the 2017 annual meeting of shareholders, and (iii) promptly notify the staff of the SEC in writing that it is
terminating the solicitation of proxies in opposition to the our proposals for the 2017 annual meeting of shareholders.
Pursuant to the Cooperation Agreement,
we issued to Iroquois Master Fund LTD and Iroquois Capital Investment Group LLC, 456,000 and 144,000 unregistered and restricted
shares of Common Stock respectively as reimbursement for expenses incurred in connection with the 2017 annual meeting of shareholders
and the negotiation, execution and effectuation of the Cooperation Agreement.
Transaction with Mobomo, LLC
On May 23, 2017, the Company entered into
an agreement with Mobomo, LLC for the design and development of certain intellectual property for a total fee of $516,000. The
intellectual property consisted of an integrated mobile phone application and the new RGS 365™ customer portal. As
of December 31, 2018, and April 10, 2019, the Company had paid an aggregate amount of $0.5 million.
Mobomo’s Chief Executive Officer
Brian Lacey is the son of the Company’s CEO Dennis Lacey. The Company approved the agreement in accordance with its related-party
transaction policy.
Our Policies Regarding Review, Approval or Ratification of
Related-Party Transactions
Any related-party transaction is reviewed by disinterested members
of management and, if material, by disinterested members of our Board of Directors or a committee thereof to ensure that the transaction
reflects terms that are at least as favorable for us as we would expect in a similar transaction negotiated at arm’s length
by unrelated parties.
EXPERTS
The financial statements as of and for
the year ended December 31, 2018 included in this Prospectus and in the Registration Statement have been so included in reliance
on the report of BDO USA, LLP, an independent registered public accounting firm (the report on the financial statements contains
an explanatory paragraph regarding the Company's ability to continue as a going concern) appearing elsewhere herein and in the
Registration Statement, given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements
of Real Goods Solar, Inc. as of December 31, 2017, and for the year then ended, included in this prospectus have been so
included in reliance on the report (which report expresses an unqualified opinion and includes an explanatory paragraph regarding
going concern uncertainty) of Moss Adams LLP, an independent registered public accounting firm, given upon the authority of such
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Class A common stock
issued and issuable upon exercise of the Warrants will be passed upon for us by Brownstein Hyatt Farber Schreck, LLP, Denver, Colorado.
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE
The SEC allows us
to “incorporate by reference” into this prospectus the information we file with the SEC, which means that we can disclose
important information to you by referring you to other documents filed separately with the SEC. The information incorporated by
reference is considered part of this prospectus, and any information that we file with the SEC subsequent to this prospectus and
prior to the termination of the offerings referred to in this prospectus will automatically be deemed to update and supersede this
information.
We incorporate by
reference all documents we subsequently file with the SEC (other than information furnished pursuant to Item 2.02 or Item 7.01
of Form 8-K or as otherwise permitted by SEC rules) pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
initial filing of the registration statement of which this prospectus is a part (including prior to the effectiveness of the registration
statement) and prior to the termination of the offering. Any documents that we subsequently file with the SEC will automatically
update and supersede the information previously filed with the SEC and will be considered to be a part of this prospectus from
the date those documents are filed. Thus, for example, in the case of a conflict or inconsistency between information set forth
in this prospectus and information incorporated by reference into this prospectus, you should rely on the information contained
in the document that was filed later.
This prospectus is
part of a registration statement on Form S-1 that we have filed with the SEC relating to the Common Stock offered by this prospectus.
As permitted by SEC rules, this prospectus does not contain all of the information included in the registration statement and the
accompanying exhibits and schedules we file with the SEC. We have filed certain legal documents that control the terms of the Common
Stock offered by this prospectus as exhibits to the registration statement. We may file certain other legal documents that control
the terms of the Common Stock offered by this prospectus as exhibits to reports we file with the SEC. You may refer to the registration
statement and the exhibits and schedules for more information about us and our securities. The registration statement and exhibits
and schedules are also available at the SEC’s Public Reference Room or through its website.
We will provide, without
charge and upon oral or written request, to each person, including any beneficial owner, to whom a copy of this prospectus has
been delivered, a copy of any of the documents referred to above as being incorporated by reference into this prospectus but not
delivered with it. You may obtain a copy of these filings, at no cost, by writing or calling us at Real Goods Solar, Inc., 110
16
th
Street, 3
rd
Floor, Denver, Colorado 80202, (303) 222-8300. Exhibits to the filings will not be provided,
however, unless those exhibits have been specifically incorporated by reference in this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus, which constitutes a part
of a registration statement on Form S-1 that we have filed with the SEC, omits certain of the information set forth in the registration
statement. Accordingly, you should refer to the registration statement and its exhibits for further information with respect to
us and our Common Stock. Copies of the registration statement and its exhibits are on file at the offices of the SEC. This prospectus
contains statements concerning documents filed as exhibits. For the complete text of any of these documents, we refer you to the
copy of the document filed as an exhibit to the registration statement.
We file annual, quarterly and current reports,
proxy and information statements and other information with the SEC. The SEC maintains a website that contains information we file
electronically with the SEC, which you can access over the Internet at http://www.sec.gov. We maintain a website at http://www.rgsenergy.com
with information about our company. You may access copies of the documents incorporated by reference into this prospectus. Information
contained on our website or any other website is not incorporated into this prospectus and does not constitute a part of this prospectus.
Our website address referenced above is intended to be an inactive textual reference only and not an active hyperlink to our website.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered
Public Accounting Firm
Shareholders and Board of Directors
Real Goods Solar, Inc.
Denver, Colorado
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated
balance sheet of Real Goods Solar, Inc. (the “Company”) and subsidiaries as of December 31, 2018, the related consolidated
statements of operations, shareholders’ equity, and cash flows for the year ended December 31, 2018, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2018, and the
results of their operations and their cash flows for the year ended December 31, 2018, in conformity with accounting principles
generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company has suffered recurring losses and negative cash flows from operations and has an accumulated
deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to
these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures
to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audit provides a reasonable basis for our opinion.
/s/ BDO USA, LLP
We have served as the Company's auditor
since 2018.
Dallas, Texas
April 15, 2019
Report of Independent Registered
Public Accounting Firm
To the Shareholders and the Board of Directors of
Real Goods Solar, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet
of Real Goods Solar, Inc. (the “Company”) as of December 31, 2017, the related consolidated statements of operations,
shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the consolidated financial position of the Company as of December 31, 2017, and the consolidated results of its operations and
its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements,
the Company has suffered recurring losses from operations and has an accumulated deficit as of December 31, 2017 that raise substantial
doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described
in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements
based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to
obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks
of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audit provides a reasonable basis for our opinion.
/s/ Moss Adams LLP
Denver, Colorado
April 2, 2018, except for the reclassification adjustments
applied to the 2017 financial statements as described under the heading
Discontinued Operations
in Note 2 as to which the
date is April 15, 2019.
We have served as the Company’s auditor from 2017 to 2018.
REAL GOODS SOLAR, INC.
Consolidated Balance Sheets
|
|
As of December 31,
|
|
(in thousands, except share and per share data)
|
|
2018
|
|
|
2017
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5,831
|
|
|
$
|
1,170
|
|
Accounts receivable, net
|
|
|
1,340
|
|
|
|
2,787
|
|
Costs in excess of billings
|
|
|
11
|
|
|
|
62
|
|
Inventory, net
|
|
|
1,595
|
|
|
|
2,013
|
|
Deferred costs on uncompleted contracts
|
|
|
236
|
|
|
|
615
|
|
Other current assets
|
|
|
1,613
|
|
|
|
1,987
|
|
Total current assets
|
|
|
10,626
|
|
|
|
8,634
|
|
Property and equipment, net
|
|
|
778
|
|
|
|
1,154
|
|
POWERHOUSE™ license, net
|
|
|
3,202
|
|
|
|
1,114
|
|
Goodwill
|
|
|
-
|
|
|
|
1,338
|
|
Net investment in sales-type leases and other assets
|
|
|
1,654
|
|
|
|
2,018
|
|
Total assets
|
|
$
|
16,260
|
|
|
$
|
14,258
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Convertible debt, net
|
|
|
336
|
|
|
|
1
|
|
Accounts payable
|
|
|
862
|
|
|
|
1,657
|
|
Accrued liabilities
|
|
|
1,571
|
|
|
|
1,474
|
|
Deferred revenue and other current liabilities
|
|
|
956
|
|
|
|
1,810
|
|
Total current liabilities
|
|
|
3,725
|
|
|
|
4,942
|
|
Other liabilities
|
|
|
1,242
|
|
|
|
3,074
|
|
Common stock warrant liabilities
|
|
|
511
|
|
|
|
76
|
|
Total liabilities
|
|
|
5,478
|
|
|
|
8,092
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $.0001 per share; 50,000,000 shares authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Class A common stock, par value $.0001 per share; 150,000,000 shares authorized;
91,859,638 and 8,151,845 shares issued and outstanding at December 31, 2018 and 2017, respectively
|
|
|
17
|
|
|
|
8
|
|
Class B common stock, par value $.0001 per share; 50,000,000 shares authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Additional paid-in capital
|
|
|
253,331
|
|
|
|
206,640
|
|
Accumulated deficit
|
|
|
(242,566
|
)
|
|
|
(200,482
|
)
|
Total shareholders’ equity
|
|
|
10,782
|
|
|
|
6,166
|
|
Total liabilities and shareholders’ equity
|
|
$
|
16,260
|
|
|
$
|
14,258
|
|
See accompanying notes to consolidated financial
statements.
REAL GOODS SOLAR, INC.
Consolidated Statements of Operations
|
|
For the years ended December 31,
|
|
(in thousands, except per share data)
|
|
2018
|
|
|
2017
|
|
Contract revenue:
|
|
|
|
|
|
|
|
|
Sale and installation of solar energy systems
|
|
$
|
11,511
|
|
|
$
|
14,030
|
|
Service
|
|
|
1,159
|
|
|
|
1,509
|
|
Leasing, net
|
|
|
59
|
|
|
|
53
|
|
Contract expenses:
|
|
|
|
|
|
|
|
|
Installation of solar energy systems
|
|
|
11,177
|
|
|
|
13,135
|
|
Service
|
|
|
1,589
|
|
|
|
1,623
|
|
Customer acquisition
|
|
|
3,616
|
|
|
|
5,918
|
|
Contract loss
|
|
|
(3,653
|
)
|
|
|
(5,084
|
)
|
Operating expense
|
|
|
9,793
|
|
|
|
10,789
|
|
Proxy contest expense
|
|
|
-
|
|
|
|
1,186
|
|
Goodwill impairment
|
|
|
1,338
|
|
|
|
-
|
|
Litigation
|
|
|
187
|
|
|
|
327
|
|
Operating loss
|
|
|
(14,971
|
)
|
|
|
(17,386
|
)
|
Change in fair value of derivative liabilities and loss on debt extinguishment
|
|
|
(27,134
|
)
|
|
|
(379
|
)
|
Amortization of debt discount and deferred loan costs
|
|
|
(1,042
|
)
|
|
|
(3
|
)
|
Other income
|
|
|
1,063
|
|
|
|
68
|
|
Net loss
|
|
$
|
(42,084
|
)
|
|
$
|
(17,700
|
)
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(1.18
|
)
|
|
$
|
(2.55
|
)
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
35,618
|
|
|
|
6,950
|
|
See accompanying notes to consolidated financial
statements.
REAL GOODS SOLAR, INC.
Consolidated Statement of Changes in Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Class A Common Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Shareholders’
|
|
(in thousands, except share data)
|
|
Shares
|
|
|
Amount
|
|
|
Paid - in
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balances, January 1, 2017
|
|
|
1,183,151
|
|
|
$
|
8
|
|
|
$
|
187,752
|
|
|
$
|
(182,782
|
)
|
|
$
|
4,978
|
|
Equity changes related to compensation
|
|
|
|
|
|
|
-
|
|
|
|
249
|
|
|
|
-
|
|
|
|
249
|
|
Proceeds from common stock offering and warrant exercises, net of costs
|
|
|
6,780,939
|
|
|
|
-
|
|
|
|
17,095
|
|
|
|
-
|
|
|
|
17,095
|
|
Fair value of shares issued for convertible note and interest and preferred stock liability converted to common stock
|
|
|
177,018
|
|
|
|
-
|
|
|
|
734
|
|
|
|
-
|
|
|
|
734
|
|
Fractional shares issued in connection with reverse split
|
|
|
10,737
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proxy contest consideration
|
|
|
-
|
|
|
|
-
|
|
|
|
810
|
|
|
|
-
|
|
|
|
810
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17,700
|
)
|
|
|
(17,700
|
)
|
Balances, December 31, 2017
|
|
|
8,151,845
|
|
|
$
|
8
|
|
|
$
|
206,640
|
|
|
$
|
(200,482
|
)
|
|
$
|
6,166
|
|
Proceeds from January 2018 Offering of common stock issuance and warrant exercises, net of costs
|
|
|
1,600,000
|
|
|
|
-
|
|
|
|
1,524
|
|
|
|
-
|
|
|
|
1,524
|
|
Issuance and conversion of 2018 Notes, net of costs
|
|
|
72,826,126
|
|
|
|
8
|
|
|
|
31,816
|
|
|
|
-
|
|
|
|
31,824
|
|
Proceeds from warrant exercises related to 2018 Note Offering
|
|
|
8,681,667
|
|
|
|
1
|
|
|
|
13,088
|
|
|
|
-
|
|
|
|
13,089
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
263
|
|
|
|
-
|
|
|
|
263
|
|
Common stock issued to settle proxy contest
|
|
|
600,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(42,084
|
)
|
|
|
(42,084
|
)
|
Balances, December 31, 2018
|
|
|
91,859,638
|
|
|
$
|
17
|
|
|
$
|
253,331
|
|
|
$
|
(242,566
|
)
|
|
$
|
10,782
|
|
See accompanying notes to consolidated financial
statements.
REAL GOODS SOLAR, INC.
Consolidated Statements of Cash Flows
|
|
For the years ended December 31,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$(42,084)
|
|
|
$(17,700)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
401
|
|
|
|
415
|
|
Amortization of POWERHOUSE™ License
|
|
|
33
|
|
|
|
-
|
|
Share-based compensation expense
|
|
|
263
|
|
|
|
249
|
|
Goodwill impairment
|
|
|
1,338
|
|
|
|
-
|
|
Change in fair value of derivative liabilities and loss on debt extinguishment
|
|
|
27,134
|
|
|
|
379
|
|
Amortization of debt discount and issuance costs
|
|
|
1,042
|
|
|
|
-
|
|
Bad debt expense
|
|
|
37
|
|
|
|
353
|
|
Inventory obsolescence
|
|
|
32
|
|
|
|
398
|
|
Gain on settlement of liability
|
|
|
(942
|
)
|
|
|
-
|
|
(Gain) loss on sale of assets
|
|
|
-
|
|
|
|
(3
|
)
|
Loss on settlement of proxy contest
|
|
|
-
|
|
|
|
810
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,410
|
|
|
|
397
|
|
Costs in excess of billings on uncompleted contracts
|
|
|
51
|
|
|
|
164
|
|
Inventory
|
|
|
386
|
|
|
|
(872
|
)
|
Deferred costs on uncompleted contracts
|
|
|
379
|
|
|
|
(217
|
)
|
Net investment in sales-type leases and other current assets
|
|
|
277
|
|
|
|
(945
|
)
|
Other non-current assets
|
|
|
364
|
|
|
|
542
|
|
Accounts payable
|
|
|
(834
|
)
|
|
|
(804
|
)
|
Accrued liabilities
|
|
|
97
|
|
|
|
(844
|
)
|
Billings in excess of costs on uncompleted contracts
|
|
|
-
|
|
|
|
(107
|
)
|
Deferred revenue and other current liabilities
|
|
|
(854
|
)
|
|
|
664
|
|
Other liabilities
|
|
|
(897
|
)
|
|
|
1,086
|
|
Net cash used in operating activities
|
|
|
(12,367
|
)
|
|
|
(16,035
|
)
|
Investing activities:
|
|
|
|
|
|
|
|
|
Payments related to POWERHOUSE™ license
|
|
|
(2,121
|
)
|
|
|
(1,114
|
)
|
Purchases of property and equipment
|
|
|
(25
|
)
|
|
|
(432
|
)
|
Payments related to RGS 365™ portal
|
|
|
-
|
|
|
|
(413
|
)
|
Net cash used in investing activities
|
|
|
(2,146
|
)
|
|
|
(1,959
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from warrants
|
|
|
9,614
|
|
|
|
1,064
|
|
Proceeds from issuance of 2018 Notes
|
|
|
5,000
|
|
|
|
-
|
|
Proceeds from collection of Investor Notes
|
|
|
4,891
|
|
|
|
-
|
|
Proceeds from the issuance of common stock
|
|
|
920
|
|
|
|
16,187
|
|
Payments for transaction costs
|
|
|
(1,251
|
)
|
|
|
(158
|
)
|
Restricted cash released upon conversion of debt
|
|
|
-
|
|
|
|
173
|
|
Principal borrowings on revolving line of credit
|
|
|
-
|
|
|
|
1,498
|
|
Principal payments on revolving line of credit
|
|
|
-
|
|
|
|
(2,540
|
)
|
Net cash provided by financing activities
|
|
|
19,174
|
|
|
|
16,224
|
|
Net increase (decrease) in cash
|
|
|
4,661
|
|
|
|
(1,770
|
)
|
Cash at beginning of year
|
|
|
1,170
|
|
|
|
2,940
|
|
Cash at end of year
|
|
$
|
5,831
|
|
|
$
|
1,170
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
|
-
|
|
|
|
-
|
|
Interest paid
|
|
|
-
|
|
|
|
8
|
|
Non-cash items
|
|
|
|
|
|
|
|
|
Proxy contest settlement payment in shares of common stock
|
|
|
-
|
|
|
|
810
|
|
Debt discount arising from 2018 Note Offering
|
|
|
10,088
|
|
|
|
-
|
|
Embedded derivative liability with 2018 Note Offering
|
|
|
12,987
|
|
|
|
-
|
|
Common stock warrant liability with 2018 Note Offering
|
|
|
6,818
|
|
|
|
-
|
|
Issuance of Class A common stock for conversion of 2018 Notes, net of costs
|
|
|
31,824
|
|
|
|
-
|
|
Issuance of Class A common stock for exercise of common stock warrants
|
|
|
13,089
|
|
|
|
-
|
|
Interest paid with common stock
|
|
|
-
|
|
|
|
125
|
|
See accompanying notes to consolidated
financial statements.
Notes to consolidated financial statements
1. Principles of Consolidation, Organization and Nature of
Operations
Real Goods Solar, Inc. (“RGS” or the “Company”)
is in the solar energy systems business as (i) the manufacturer of POWERHOUSE™ 3.0 in-roof solar shingles under a license
agreement with Dow Global Technologies LLC (“Dow”) and (ii) a residential and commercial solar energy engineering,
procurement, and construction firm (“EPC”).
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.
POWERHOUSE™ License Agreement
A material significant event occurred on September 29, 2017
(the “Effective Date”), when the Company executed an exclusive domestic and international world-wide Technology License
Agreement (the “License”) with Dow for its POWERHOUSE™ in-roof solar shingle. The License allows RGS to market
the POWERHOUSE™ 3.0 product using the Dow name, and under the terms of the License agreed to a license fee of $3 million.
The license fee was comprised of two payments; the first $1 million was paid in connection with the Effective Date of the License
in 2017 and the remaining $2 million was paid in 2018 in connection with receiving UL certification. The License requires the Company
to commercialize and sell a minimum of 50 megawatts of solar within 5-years of the Effective Date to retain exclusive world-wide
rights.
The Company obtained UL certification for POWERHOUSE™
3.0 during November 2018, immediately after which the Company commenced commercialization of POWERHOUSE™ 3.0 entailing the
manufacturing, marketing and sale of POWERHOUSE™ 3.0 to roofing companies and homebuilders. The first purchase order for
POWERHOUSE™ 3.0 was received from a customer on December 27, 2018 and shipped to the customer in January 2019.
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.
As of December 31, 2018, the Company has cash of $5.8 million, working capital of $6.9 million, debt of
$0.5 million and shareholders’ equity of $10.8 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, see Note 16. Subsequent
Events;
|
|
·
|
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. See Note 8. Shareholders Equity and Note 16. Subsequent Events for transactions
to raise capital during the second quarter of 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 begun to market POWERHOUSE™ at the start of 2019. The
Company believes that it will require several quarters to generate sales to meet its goals for profitable operations.
The first quarter of the year has always been one of the Company’s
slowest sales periods and as such, this is a period of higher cash outflow. POWERHOUSE™ 3.0 sales during the first quarter
of 2019 have been materially less than the Company’s expectations and, accordingly, the Company raised additional capital
during the second quarter of 2019.
As discussed above, (i) the Company expects that future sales
of POWERHOUSE™ 3.0 in-roof solar shingles will be its primary source of revenue and (ii) the Company only recently began
marketing POWERHOUSE™ 3.0, and accordingly, expects to incur a quarterly cash outflow for a portion of 2019.
Errors Identified in Previously Issued Consolidated Financial
Statements
During the preparation of the 2018 consolidated financial statements, the Company identified an error
in the accounting for the 2018 Note Offering (Note 9. Convertible Debt). The Company incorrectly included debt issue costs of $0.6
million in the calculation of the debt discount and loss upon issuance, which resulted in amortization of debt discount being overstated
and the loss on debt extinguishment to be understated. As a result, “change in fair value of derivative liabilities and loss
on debt extinguishment” was understated by $0.5 million and $0.7 million and “amortization of debt discount and deferred
loan costs” was overstated by $0.8 million and $0.7 million for the quarters ended June 30, 2018, and September 30, 2018,
respectively. The Company evaluated the impact of the error on its previously issued financial statements and concluded that the
impact was not material. The error was corrected in the fourth quarter of 2018 and resulted in a net impact of $0.09 million.
2. Significant Accounting Policies
Use of Estimates
The preparation of the consolidated financial statements in
accordance with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the 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.
Significant estimates are used to value warranty liabilities, the fair value of derivative liabilities embedded in complex financial
instruments, common stock warrants, and allowance for doubtful accounts. Actual results could differ materially from those estimates.
Discontinued Operations
During 2014, the Company committed to a plan to sell certain
contracts and rights comprised of the Company’s large commercial installations business, otherwise known as the Company’s
former Commercial segment. The Company had previously reported this business as a discontinued operation, separate from the Company’s
continuing operations. As of December 31, 2018, this business no longer met the criteria to be presented as discontinued operations.
The remaining assets and liabilities were reclassified out of discontinued operations to continuing operations on the consolidated
balance sheet as of December 31, 2017. Income from discontinued operations on the consolidated statements of operations was reclassified
into the loss related to current continuing operations for the years ended December 31, 2018 and 2017 and had no impact on net
loss. References to any gains or losses from discontinued operations as well as net cash used or provided by discontinued operations
were removed, with these amounts reclassified into the continuing operations figures for the years ending December 31, 2018 and
2017. The 2017 financial statements have been reclassified to eliminate the presentation of the business as a discontinued operation
and did not result in a material change.
Cash
The Company considers all highly liquid instruments with an
original maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of demand deposit accounts
with financial institutions that are denominated in U.S. dollars
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments. The Company estimates anticipated losses based
on the expected collectability of all accounts receivable, taking into account collection history, number of days past due, identification
of specific customer exposure and current economic trends. When the Company determines a balance is uncollectible and no longer
actively pursues collection of the account, it is written off. The allowance for doubtful accounts was $0.5 million and $0.8 million
December 31, 2018 and 2017, respectively.
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 $0.7 and $0.6 million at December 31, 2018 and 2017, respectively.
POWERHOUSE™ inventories are recorded at lower of cost (incurred from third party supply channel
manufacturers) or net realizable value. Cost is determined using the FIFO method. Management will establish an estimated excess
and obsolete inventory reserve based on slow-moving and obsolete inventory. At December 31, 2018, there was no excess and obsolete
inventory reserve.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation
and amortization. Depreciation of property and equipment is computed on the straight-line method over estimated useful lives, generally
three to twenty years. RGS amortizes leasehold and building improvements over the shorter of the estimated useful lives of the
assets or the remaining term of the lease or remaining life of the building, respectively.
Goodwill and Purchased Intangibles
Intangible assets arising from business combinations, such as
acquired customer contracts and relationships (collectively, “customer relationships”), licenses, trademarks, non-compete
agreements are initially recorded at fair value. Goodwill represents the excess of the purchase price over the fair value of the
net identifiable assets acquired in a business combination.
The Company early adopted ASU 2017-04 during the second quarter of 2018 while performing its annual impairment
test. The Company’s impairment assessment begins with a qualitative assessment to determine whether it is more likely than
not that the fair value of a reporting unit is less than its carrying value. The qualitative assessment includes comparing the
overall financial performance of the reporting units against the planned results used in the last quantitative goodwill impairment
test. If it is determined under the qualitative assessment that it is more likely than not that the fair value of a reporting unit
is less than its carrying value, then a quantitative impairment test is performed. The estimated fair value of the reporting unit
is compared with its carrying value (including goodwill) and if the carrying value exceeds estimated fair value, an impairment
charge is recorded. As a result of the annual impairment test, the Company fully impaired the Goodwill balance charging an impairment
loss to the Consolidated Statement of Operations.
Fair value of the reporting unit is determined using a discounted
cash flow analysis. The use of present value techniques requires us to make estimates and judgments about the Company’s future
cash flows. These cash flow forecasts will be based on assumptions that are consistent with the plans and estimates the Company
uses to manage its business. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant
judgment at many points during the analysis. Application of alternative assumptions and definitions could yield significantly different
results.
The Company capitalized the up-front POWERHOUSE™ 3.0 license
payment, costs to obtain UL certification and legal costs to acquire the License. The intangible asset is amortized to operations,
commencing November 2018 after UL certification, on a straight-line basis over the expected life of the License through 2034. As
of December 31, 2018, the intangible asset had a carrying cost of $3.2 million, with $0.03 million in related amortization. The
estimated amortization expense for each of the five succeeding fiscal years is expected to be $0.2 million per annum.
Intangible assets with finite useful lives are amortized over
their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable.
Revenue Recognition
For the Company’s significant accounting policy related
to revenue please see Note 3. Revenue.
Share-Based Compensation
The Company recognizes compensation expense for share-based awards based on the estimated fair value of
the award on the date of grant and the probable attainment of a specified performance condition or over a service period. The Company
uses the Black-Scholes option valuation model to estimate the fair value for purposes of accounting and disclosures. In estimating
this fair value, certain assumptions are used (see Note 11. Share-Based Compensation), including the expected life of the
option, risk-free interest rate, dividend yield, volatility and forfeiture rate. The use of different estimates for any one of
these assumptions could have a material impact on the amount of reported compensation expense.
Income Taxes
The Company recognizes income taxes under the asset and liability
method. Deferred income taxes are recognized based on temporary differences between financial reporting and income tax basis of
assets and liabilities, using current enacted income tax rates and regulations. These differences will result in taxable income
or deductions in future years when the reported amount of the asset or liability is recovered or settled, respectively. Considerable
judgment is required in determining when these events may occur and whether recovery of an asset is more likely than not. RGS has
significant net operating loss carry-forwards and evaluates at the end of each reporting period whether it expects it is more likely
than not that the deferred tax assets will be fully recoverable and provides a tax valuation allowance as necessary. A valuation
allowance is established if it is more likely than not that a deferred tax asset will not be realized. In determining the
appropriate valuation allowance, the Company considered projected realization of tax benefits based on expected levels of future
taxable income, available tax planning strategies, and its overall deferred tax position. To identify any uncertain tax positions,
the Company reviews (1) the decision to exclude from the tax return certain income or transactions; (2) the assertion that a particular
equity restructuring (e.g., a spin-off transaction) is tax-free when that position might actually be uncertain, and; (3) the decision
not to file a tax return in a particular jurisdiction for which such a return might be required in tax years that are still subject
to assessment or challenge under relevant tax statutes. The Company recognizes the effect of income tax positions only if those
positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that
is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change
in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in selling,
general, and administrative expenses when applicable.
Warranties
The Company warrants its EPC solar energy systems sold to customers
for up to 10 years against defects in installation workmanship. The manufacturers’ warranties on the solar energy system
components, which are typically passed through to the customers, typically have product warranty periods of 10 years and a limited
performance warranty period of 25 years. The Company generally provides for the estimated cost of warranties at the time the related
revenue is recognized. The Company also maintains specific warranty liabilities for large commercial customers. The Company assesses
the accrued warranty reserve quarterly and adjusts the amounts as necessary based on actual experience and changes in future estimates.
The Company’s manufacturing warranties for its POWERHOUSE™
solar shingle, are an 11-year product warranty, which is the standard product warranty of most traditional solar panels today,
and a 24-year power production warranty. The Company receives warranties from its supply chain matching the terms of the POWERHOUSE™
solar shingle warranty. As of December 31, 2018, there were no POWERHOUSE™ sales which required an estimate of warranty liability.
Net Loss per Share
RGS computes net loss per share by dividing net income (loss) by the weighted average number of shares
of common stock outstanding for the period. Diluted net loss per share reflects the potential dilution that could occur if options
or warrants to issue shares of the Company’s Class A common stock were exercised. Common share equivalents of 10,445,294
and 5,857,861 shares have been omitted from net loss per share for 2018 and 2017, respectively, as they are anti-dilutive. The
Series O warrants, Series Q warrants, and the 2018 Notes are considered participating securities, and as such, are entitled to
participate in any dividends or distribution of assets made by the Company. There was no effect on earnings per share for these
participating securities as the Company operated with a net loss for both 2018 and 2017. See Note 8. Shareholders’ Equity
for a description of these transactions.
The following table sets forth the computation of basic and
diluted net income (loss) per share:
|
|
For the Years Ended December 31,
|
|
(In thousands, except per share data)
|
|
2018
|
|
|
2017
|
|
Numerator for basic and diluted net loss per share
|
|
$
|
(42,084
|
)
|
|
$
|
(17,700
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares for basic net loss per share
|
|
|
35,618
|
|
|
|
6,950
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Weighted average of common stock, stock options and warrants
|
|
|
-
|
|
|
|
-
|
|
Denominators for diluted net loss per share
|
|
|
35,618
|
|
|
|
6,950
|
|
Net loss per share—basic and diluted
|
|
$
|
(1.18
|
)
|
|
$
|
(2.55
|
)
|
Segment Information
Operating segments are defined as components of a company about
which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making
group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is
the executive team. Based on the financial information presented to and reviewed by the chief operating decision maker in deciding
how to allocate the resources and in assessing the performance of the Company, the Company has determined that it has three reporting
segments: Solar Division, POWERHOUSE™ and corporate expenses (“other segment”).
Common Stock Warrants
The Company accounts for common stock warrants as either liabilities
or as equity instruments depending on the specific terms of the warrant agreement. Certain of the Company’s warrants are
accounted for as liabilities due to redemption provisions that are outside the control of the Company. The Company classifies
these warrant liabilities with maturities of five years on the Consolidated Balance Sheet as long-term liabilities. They are revalued
at each balance sheet date after their initial issuance with changes in the value recorded in earnings. The Company used a Monte
Carlo pricing model to value these warrant liabilities. The Company also has issued common stock warrants which have been classified
in equity. Upon exercise of the warrants, the Company determines the fair value of the warrants exercised using the share price
and records the impact to common stock and additional paid-in capital.
Derivatives
The Company’s
Senior
Convertible Notes issued on April 9, 2018 (the "2018 Notes") contained conversion features and various redemption clauses
that were required to be bifurcated and were initially measured and recorded at fair value and were revalued at each balance sheet
date with changes in the value recorded in earnings. Each of the 2018 Notes gave the holder the right to convert the 2018 Notes
into shares of Class A common stock at a set strike price (“conversion feature”). In addition to the conversion feature,
redemption of the 2018 Notes could have been triggered by failure to notify the holders timely of a change in control, subsequent
placement and failure to timely deliver shares to convert the 2018 Notes. The Company used a Lattice pricing model to value these
derivative liabilities. The Lattice pricing model, which is based, in part, upon unobservable inputs for which there is little
or no market data, required the Company to develop its own assumptions. Upon completing our fair value estimate of the derivative
liabilities, the Company determined that the fair value exceeded the cash proceeds received and recorded a loss upon issuance.
This loss was recorded within the “Change in fair value of derivative liabilities and loss on debt extinguishment”
in our Consolidated Statements of Operations and the derivative liabilities are classified as short-term in the Consolidated Balance
Sheet as of December 31, 2018, due to their maturity in April 2019. Upon exercise of the conversion option, the derivative liabilities
and related debt host were accounted for as an extinguishment whereby a gain or loss was recognized in an amount equal to the
difference between the recorded value of the liabilities and the fair value of the consideration issued to extinguish them.
Residential Leases
To determine lease classification, the Company evaluates lease
terms to determine whether there is a transfer of ownership or bargain purchase option at the end of the lease, whether the lease
term is greater than 75% of the useful life, or whether the present value of minimum lease payments exceed 90% of the fair value
at lease inception. The Company’s leased systems are treated as sales-type leases under GAAP accounting policies due to the
present value of their minimum lease payments exceeding 90% of the fair value at lease inception.
Financing receivables are generated by solar energy systems
leased to residential customers under sales-type leases. Financing receivables represents gross minimum lease payments to be received
from customers over a period commensurate with the remaining lease term of up to 20 years and the systems estimated residual value,
net of allowance for estimated losses. Initial direct costs for sales-type leases are recognized as cost of sales when the solar
energy systems are placed in service.
For systems classified as sales-type leases, the net present
value of the minimum lease payments, net of executory costs, is recognized as revenue when the lease is placed in service. This
net present value as well as the net present value of the residual value of the lease at termination are recorded as other assets
in the Consolidated Balance Sheet. The difference between the initial net amounts and the gross amounts are amortized to revenue
over the lease term using the interest method. The residual values of the Company’s solar energy systems are determined at
the inception of the lease applying an estimated system fair value at the end of the lease term.
RGS considers the credit risk profile for its lease customers
to be homogeneous due to the criteria the Company uses to approve customers for its residential leasing program, which among other
things, requires a minimum “fair” FICO credit quality. Accordingly, the Company does not regularly categorize its financing
receivables by credit risk.
Recently Issued 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 is 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 Company has 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 new standard provides a number of optional
practical expedients in transition. The Company has elected the ‘package of practical expedients’. The Company expects
that this standard will have a material effect on our financial statements for contracts in which the Company is the lessee. While
the Company continues to assess all of the effects of adoption, the Company currently believe the most significant effects relate
to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our real estate and vehicle operating leases
and (2) providing significant new disclosures about our leasing activities. 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 our 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 our leases.
The accounting standards noted above also requires
lessors to classify leases as sales-type, direct financing or operating leases. The Company currently holds leases of solar systems
where it is the lessor. While the Company continues to evaluate certain aspects of the new standard, it does not expect the new
standard to have a material effect on its financial statements for contracts where the Company is the lessor and it does not expect
a significant change in our sales-type leasing activities between now and adoption. The Company believes substantially all of its
leases will continue to be classified as sales-type leases under the new standard. While the new standard identifies maintenance
as a non-lease component of equipment lease contracts, the Company will account for solar system leases and associated maintenance
service components as a single, combined lease component. Consequently, the Company does not expect the new standard’s changed
guidance on contract components to significantly affect its financial reporting.
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 that now are presented as pending content in the Codification, to a
scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of ASU
2017-11 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The amendments
in Part II of ASU 2017-11 do not require any transition guidance because those amendments do not have an accounting effect. The
Company will assess the impact of ASU 2017-11 on any derivative instruments entered into in the future.
Recently Adopted Accounting Standards
ASU 2017-04
On January 26, 2017, the FASB issued Accounting Standards Update
No. 2017-04 (“ASU 2017-04”),
Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for
Goodwill Impairment
, which was issued to simplify the accounting for goodwill impairment. The guidance removes Step 2 of the
goodwill impairment test, which requires a hypothetical purchase price allocation. Impairment will now be the amount by which a
reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill
impairment guidance remains largely unchanged. The standard is effective for financial statements issued for fiscal years beginning
after December 15, 2019. The Company early adopted ASU 2017-04 during the second quarter of 2018 while performing its annual impairment
test. As a result, the Company fully impaired the Goodwill balance charging an impairment loss to the consolidated statement of
operations.
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
. This
standard outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers
and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue
model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has
the ability to direct the use of and obtain the benefits from the good or service. Transfer of control is not the same as transfer
of risks and rewards, as it is considered in current guidance. The Company adopted 2014-09 as of January 1, 2018 and utilized the
modified retrospective method. See Note 3. Revenue below for all required disclosures.
3. Revenue
Effective January 1, 2018, the Company has adopted “ASC
606 –
Revenue from Contracts with Customers
” related to revenue recognition. Under the standard, revenue is
recognized 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 using a five-step model to achieve that principle. In
addition, the standard requires disclosures to understand the nature, amount, timing, and uncertainty of revenue and cash flows
arising from contracts with customers. The Company has elected to adopt the modified retrospective method for transitioning this
accounting standard which requires that the cumulative effect of applying the revenue standard to existing contracts be recorded
as an adjustment to retained earnings. Based on the Company’s review of contracts that were not substantially completed on
December 31, 2017, there was no impact to the opening retained earnings balance.
Deferred Revenue
When the Company receives consideration, or such consideration
is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract,
it records deferred revenue, which represents a contract liability. The Company recognizes deferred revenue as net sales after
it has satisfied its performance obligations to the customer and all revenue recognition criteria are met.
Revenue Recognition – Installation of photovoltaic
modules (“PV”) solar systems
The Company uses standard contract templates to initiate
sales with customers and determined that each project started during the year ended December 31, 2018 and each project that was
not substantially complete at the adoption date, contains one performance obligation. Although the contract states multiple services
which are capable of being distinct, they are considered a single integrated output to the customer which is customized for each
customer. As such all the services promised within a contract are considered one performance obligation. The Company generally
recognizes revenue for installation of PV solar systems over time following the transfer of control to the customer which typically
occurs as the PV solar system is being installed. If control transfers over time, revenue is recognized based on the extent of
progress towards the completion of the performance obligation. The method utilized by the Company to measure the progress towards
completion requires judgment and is based on the products and services provided. The Company utilizes the input method to measure
the progress of its contracts because it best depicts the transfer of assets to the customer which incurs as materials are consumed
by the project. The input method measures the progress towards completion based on the ratio of costs incurred to date (“actual
cost”) to the total estimated costs (“budget”) at completion of performance obligation. Revenue, including estimated
fees, are recorded proportionally as costs are incurred. Costs to fulfill include materials, labor and/or subcontractors’
costs, and other direct costs. Indirect costs and costs to procure the panels, inverters, and other system miscellaneous costs
needed to satisfy the performance obligation are excluded since the customer does not gain control of those items until delivered
to the site. Including the costs of those items would overstate the extent of our performance.
Each project’s transaction price is included
within the contract and although there is only one performance obligation, changes to the contract price could take place after
fulfillment of performance obligation. The Company has considered financing components on projects started during the year ended
December 31, 2018 and elected the use of a practical expedient where an entity need not adjust the promised amount of consideration
for the effects of a significant financing component if the entity expects, at contract inception, that the period between when
the entity transfers a promised service to the customer and when the customer pays for that good or service will be one year or
less. Typically, the payments are received as the performance obligation is being satisfied with a final payment received after
the solar system has been installed. All receivables from projects are expected to be received within one year from project completion
and there were no adjustments to the contract value.
Under ASC 606, the Company is required to recognize
as an asset the incremental costs of obtaining a contract with a customer if those costs are expected to be recovered. The Company
incurs sales commissions that otherwise would not have been incurred if the contract had not been obtained. These costs are recoverable;
however, the Company has elected the use of a practical expedient to expense these costs as incurred as the amortization period
of the asset would be less than one year.
Revenue Recognition – Operations & Maintenance
The Company generally recognizes revenue for standard,
recurring commercial operations and maintenance services over time as customers receive and consume the benefits of such services,
which typically include corrective maintenance, data hosting or energy/deck monitoring services for a period. These services are
treated as stand-ready performance obligations and are satisfied evenly over the length of the agreement, so the Company has elected
a time-based method to measure progress and recorded revenue using a straight-line method.
Revenue Recognition – Service & Warranty
Warranties for workmanship and roof penetration are
included within each contract. These warranties cannot be purchased separately from the related services, are intended to safeguard
the customer against workmanship defects and does not provide any incremental service to the customer. It is necessary for the
Company to perform the specified tasks to provide assurance that the final product complies with agreed-upon specifications and
likely do not give rise to a separate performance obligation. The Company will continue to account for any related warranties in
accordance with ASC 460-10 and record an accrual for potential warranty costs at the completion of a project. Any services provided
to a customer outside of warranties such as system inspections are recognized upon completion of the service.
Adoption of the standard related to revenue recognition had no impact to cash from or used in operating,
financing, or investing on our consolidated cash flows statements.
In
the following table, revenue is disaggregated by primary geographical market and includes a reconciliation of the disaggregated
revenue with the reportable segments for the years ended December 31, 2018 and 2017.
Reportable Segments
|
December 31, 2018
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Regions
|
|
Solar Division
|
|
|
POWERHOUSE™
|
|
|
Total reportable segments
|
|
|
All other segments
|
|
|
Total
|
|
East
|
|
$
|
10,022
|
|
|
$
|
-
|
|
|
$
|
10,022
|
|
|
$
|
-
|
|
|
$
|
10,022
|
|
West
|
|
|
2,681
|
|
|
|
-
|
|
|
|
2,681
|
|
|
|
25
|
|
|
|
2,706
|
|
|
|
$
|
12,703
|
|
|
$
|
-
|
|
|
$
|
12,703
|
|
|
$
|
25
|
|
|
$
|
12,728
|
|
Reportable Segments
|
December 31, 2017
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographical Regions
|
|
Solar Division
|
|
|
POWERHOUSE™
|
|
|
Total reportable segments
|
|
|
All other segments
|
|
|
Total
|
|
East
|
|
$
|
12,324
|
|
|
$
|
-
|
|
|
$
|
12,324
|
|
|
$
|
-
|
|
|
$
|
12,324
|
|
West
|
|
|
3,262
|
|
|
|
-
|
|
|
|
3,262
|
|
|
|
6
|
|
|
|
3,268
|
|
|
|
$
|
15,586
|
|
|
$
|
-
|
|
|
$
|
15,586
|
|
|
$
|
6
|
|
|
$
|
15,592
|
|
4. Property and Equipment
Property and equipment, stated at lower of cost or estimated
fair value, consists of the following as of December 31:
(in thousands)
|
|
2018
|
|
|
2017
|
|
Buildings and leasehold improvements
|
|
$
|
441
|
|
|
$
|
441
|
|
Furniture, fixtures and equipment
|
|
|
1,832
|
|
|
|
1,811
|
|
Software
|
|
|
2,135
|
|
|
|
2,135
|
|
Vehicles and machinery
|
|
|
1,142
|
|
|
|
1,167
|
|
Total property and equipment
|
|
|
5,550
|
|
|
|
5,554
|
|
Accumulated depreciation and amortization
|
|
|
(4,772
|
)
|
|
|
(4,400
|
)
|
Total property and equipment, net
|
|
$
|
778
|
|
|
$
|
1,154
|
|
Depreciation on other property, plant and equipment is calculated
using the straight-line method to allocate their depreciable amounts over their estimated useful lives as follows:
|
|
Useful lives
|
Buildings
|
|
40 years
|
Leasehold improvements
|
|
3-5 years
|
Furniture, fixtures and equipment
|
|
3-5 years
|
Software
|
|
3-15 years
|
Vehicles and machinery
|
|
2-7 years
|
For the years ended December 31, 2018 and 2017, depreciation
expense was $0.4 million per annum.
5. Accrued Liabilities
Accrued expenses consist of the following:
(in thousands)
|
|
2018
|
|
|
2017
|
|
Accrued Expenses
|
|
$
|
924
|
|
|
$
|
524
|
|
Accrued Compensation
|
|
|
476
|
|
|
|
690
|
|
Other
|
|
|
69
|
|
|
|
130
|
|
Accrued Project Costs
|
|
|
102
|
|
|
|
130
|
|
Total
|
|
$
|
1,571
|
|
|
$
|
1,474
|
|
6. Related Parties
On May 23, 2017, the Company entered into an agreement with
Mobomo, LLC (“Mobomo”) pursuant to 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. In 2018,
Mobomo continued to provide data hosting services which totaled approximately $20,000.
Mobomo’s Chief Executive Officer Brian Lacey is the son
of the Company’s CEO Dennis Lacey. The Company approved the agreement in accordance with its related-party transaction policy.
7. Commitments and Contingencies
The Company leases office and warehouse space through operating
leases. Some of the leases have renewal clauses, which range from one month to five years.
The Company leases vehicles through operating leases for certain
field personnel. Leases range up to five years with varying termination dates through May 2022.
The following schedule represents the annual future minimum
payments of all leases as of December 31, 2018:
|
|
Future Minimum
|
|
(in thousands)
|
|
Lease Payments
|
|
2019
|
|
$
|
848
|
|
2020
|
|
|
505
|
|
2021
|
|
|
378
|
|
2022
|
|
|
112
|
|
2023 and thereafter
|
|
|
-
|
|
Total minimum lease payments
|
|
$
|
1,843
|
|
The Company incurred office and warehouse rent expense of $0.6
million and $0.7 million for the years ended December 31, 2018 and 2017, respectively. The Company incurred automobile lease
expense of $0.3 million and $0.4 million for the years ended December 31, 2018 and 2017, 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 incurred
with respect to identified risks and uncertainties based upon the facts and circumstances currently available.
8. Shareholders’ Equity
January 2017 Reverse Stock Split
On January 25, 2017, the Company executed a reverse stock split
of all outstanding shares of the Company’s Class A common stock at a ratio of one-for-thirty, whereby thirty shares
of Class A common stock were combined into one share of Class A common stock. The reverse split was previously authorized
by a vote of the Company’s shareholders on January 23, 2017. The Company did not decrease its authorized shares of capital
stock in connection with the reverse stock split. Share amounts are presented to reflect the reverse split for all periods.
February 2017 Offerings
On February 6, 2017, the Company closed
a $11.5 million offering and sale of (a) units, “February 6 Primary Units,” each consisting of one share of the Company’s
Class A common stock, and a Series K warrant to purchase one share of Class A common stock, and (b) units, “February 6 Alternative
Units,” each consisting of a prepaid Series L warrant to purchase one share of Common Stock, and a Series K warrant pursuant
to the Securities Purchase Agreement, dated as of February 1, 2017, by and among the Company and several institutional investors,
and to public retail investors. As a result, the Company issued 2,096,920 February 6 Primary Units, 1,613,080 February 6 Alternative
Units, 2,096,920 shares of Class A common stock, Series K warrants to purchase 3,710,000 shares of Class A common stock, and Series
L warrants to purchase 1,613,080 shares of Class A common stock. The purchase price for a February 6 Primary Unit was $3.10 and
the purchase price for a February 6 Alternative Unit was $3.09. The Company received net proceeds of approximately $10.5 million
at the closing, after deducting commissions to the placement agents and estimated offering expenses payable by the Company associated
with the offering.
On February 9, 2017, the Company closed
a $6 million offering and sale of (a) units, “February 9 Primary Units,” each consisting of one share of the Company’s
Class A common stock, and a Series M warrant to purchase 75% of one share of Class A common stock, and (b) units, “February
9 Alternative Units,” each consisting of a prepaid Series N warrant to purchase one share of Class A common stock, and a
Series M warrant, pursuant to the Securities Purchase Agreement, dated as of February 7, 2017, by and among the Company and several
institutional and accredited investors. As a result, the Company issued 1,650,000 February 9 Primary Units, 750,000 February 9
Alternative Units, 1,650,000 shares of Common Stock as part of the February 9 Primary Units, Series M warrants to purchase 1,800,000
shares of Class A common stock, and Series N warrants to purchase 750,000 shares of Class A common stock. The purchase price for
a February 9 Primary Unit was $2.50 and the purchase price for a February 9 Alternative Unit was $2.49. The Company received net
proceeds of approximately $5.5 million at the closing, after deducting commissions to the placement agents and estimated offering
expenses payable by the Company associated with the offering.
January 2018 Offering
On January 4, 2018, the Company closed
a $1.8 million offering and sale of (a) 800,000 shares of Class A common stock, (b) a prepaid Series P Warrant to purchase 800,000
shares of Class A common stock, and (c) a Series O Warrant to purchase 1,600,000 shares of Class A common stock, pursuant to the
Securities Purchase Agreement, dated as of January 2, 2018, by and between the Company and one unaffiliated institutional and accredited
investor. The purchase price was $1.15 per share of Class A common. The Company received net proceeds of approximately $1.5 million
at the closing, after deducting commissions to the placement agents and estimated offering expenses associated with the offering.
2018 Convertible Note Offering
On March 30, 2018, the Company entered into a Securities Purchases
Agreement with two unaffiliated institutional and accredited investors for a private placement (the "2018 Notes Offering",
see Note 9) of up to $10.75 million in principal amount and $10 million funding amount (reflecting $750,000 of original issue
discount) of the 2018 Notes, and Series Q Warrants to purchase 9,270,457 shares of Class A Common Stock. As of December 31, 2018,
a total of 73 million shares of Class A common stock had been issued upon conversion of the 2018 Notes, and 8.7 million shares
of Class A common stock had been issued upon exercise of the Series Q warrants in exchange for gross proceeds of $8.7 million,
before placement agent fees and other expenses.
Option Exercises, 2018 Convertible
Note Conversions and Warrant Exercises
During the twelve months ended December 31, 2018, the Company issued stock options as discussed in Note
11. Share-Based
Compensation. During the twelve months
ended December 31, 2018, the Company issued 800,000 shares of its Class A common stock upon exercise of Series P warrants and 81,507,793
shares upon conversion of the 2018 Notes and exercise of Series Q warrants.
At December 31, 2018, RGS had the following shares of Class A
common stock reserved for future issuance:
Stock options and grants outstanding under incentive plans
|
|
|
1,206,645
|
|
Common stock warrants outstanding
|
|
|
8,714,871
|
|
2018 Notes outstanding - derivative liability
|
|
|
1,726,423
|
|
Total shares reserved for future issuance
|
|
|
11,647,939
|
|
The table below summarizes the Company’s warrant activity:
|
|
Issuances
|
|
Warrants outstanding at December 31, 2016
|
|
|
682,693
|
|
Issuances
|
|
|
8,178,580
|
|
Exercised
|
|
|
(3,007,412
|
)
|
Warrants outstanding at December 31, 2017
|
|
|
5,853,861
|
|
Issuances
|
|
|
12,385,143
|
|
Expired
|
|
|
(42,465
|
)
|
Exercised
|
|
|
(9,481,668
|
)
|
Warrants outstanding at December 31, 2018
|
|
|
8,714,871
|
|
9. Convertible Debt
2018 Convertible Note Offering
On March 30, 2018, the Company entered into a Securities Purchase
Agreement with two unaffiliated institutional and accredited investors for a private placement (the "2018 Note Offering")
of up to $10.75 million in principal amount and $10 million funding amount (reflecting $750,000 of original issue discount) of
Series A Senior Convertible Notes (“Series A Notes”), Series B Senior Secured Convertible Notes (“Series B Notes,”
and collectively with the Series A Notes, the “2018 Notes”), and Series Q warrants (the “Series Q Warrants”)
to purchase 9,126,984 shares of Class A Common Stock. On April 9, 2018, the Company closed the 2018 Note Offering. At the closing
on April 9, 2018, the Company received $5 million of the gross proceeds and two secured promissory notes, one note from each investor,
in a combined aggregate amount of $5 million (each, an “Investor Note”), secured by cash and/or securities held in
investor accounts. These Investor Notes are presented net of the convertible debt carrying amount on the Consolidated Balance
Sheets due to right of offset. All amounts outstanding under the 2018 Notes matured and were due and payable on or before the
one-year anniversary of the issuance of the 2018 Notes (“Maturity Date”).
The 2018 Notes did not incur interest other than upon the occurrence
of an event of default, in which case the 2018 Notes bore interest at 18% per year (“Interest Rate”). The 2018 Notes
were convertible at any time, at the option of the holders, into shares of Common Stock at a conversion price. The initial fixed
conversion price (“ICP”) was $1.2405 per share, subject to reduction, as described below, and adjustment for stock
splits, stock dividends, and similar events.
The ICP of the 2018 Notes were subject to reduction subsequent to
shareholder approval. On June 21, 2018 the Company held its 2018 annual shareholder meeting at which time the shareholders approved
the 2018 Note Offering and thereby initiating a reset period which enabled the note holders to earn additional amounts (“Additional
Amounts”), effectively a make-whole for amounts previously converted. As a result of the shareholder approval, the conversion
price of the 2018 Notes and the exercise price of the Series Q Warrants were reset. Subsequent to that date, the Company agreed
to permanently reduce the conversion price of the 2018 Notes from $0.3223 to $0.3067 effective on August 27, 2018. The 2018 Notes
were convertible at any time, at the option of the holder, into shares of the Company’s Class A common stock at a conversion
price equal to $0.3067. The Series Q Warrants were exercisable into shares of the Company’s Class A common stock at an exercise
price of $0.3223 per share.
If the Company were to have consummated a Subsequent Placement,
subject to some exceptions, a Note holder would have had the right to require that the Company redeem, in whole or in part, a portion
of the amounts owed by the Company to such holder under a Note in cash. A Note holder could also have required the Company to redeem
all or a portion of its 2018 Note in connection with a transaction resulting from a Change of Control and upon the occurrence of
an event of default.
The 2018 Notes contained customary events of default, including
but not limited to: (i) failure to file or have declared effective by the SEC the applicable registration statement required by
the Registration Rights Agreement within certain time periods or failure to keep the registration statement effective as required
by the Registration Rights Agreement, (ii) failure to maintain the listing of the Common Stock, (iii) failure to make payments
when due under the Notes, (iv) breaches of covenants, and (iv) bankruptcy or insolvency. The occurrence of an event of default
under the 2018 Notes would have triggered default interest and would have caused an Equity Condition Failure, which may mean that
the Company would have been unable to force mandatory conversion of the Notes and that Note Holders may not be required to prepay
the Investor Note under a mandatory prepayment event. Following an event of default, Note holders could have required the Company
to redeem all or any portion of their Notes in cash at a conversion price equal to the greater of (i) 125% of the amount to be
redeemed, and (ii) the product of (A) the amount to be redeemed divided by the conversion price, multiplied by (B) the product
of (x) 125% multiplied by (y) the greatest closing sale price of the Common Stock on any trading day during the period commencing
on the date immediately preceding such event of default and ending on the date the Company makes the entire redemption payment.
The principal amount of the Series B Notes was considered restricted
principal until collection of the Investor Notes was received by the Company (“Restricted Principal”). Upon any offset,
the restricted principal under a Series B Note would automatically and simultaneously be reduced, on a dollar-for-dollar basis,
in an amount equal to the principal amount of an investor’s Investor Note cancelled and offset. Under the terms of the
Series B Notes, the Company granted a security interest to each investor in such investor’s Investor Note to secure the Company’s
obligations under the applicable Series B Note. Each investor perfected its security interest by taking possession of such investor’s
Investor Note at the closing.
Each Series Q Warrant is immediately exercisable and will expire
five years from the date of issuance. Initially, only 75% of the shares of Common Stock issuable upon exercise of a Series Q Warrant
may be exercised, which amount increases upon an investor’s prepayment under such investor’s Investor Note. A holder
may not exercise any of the Series Q Warrants, and the Company may not issue shares of Common Stock upon exercise of any of the
Series Q Warrants if, after giving effect to the exercise, a holder together with (i) any investment vehicle, including, any funds,
feeder funds or managed accounts, currently, or from time to time after the issuance date, directly or indirectly managed or advised
by the holder’s investment manager or any of its affiliates or principals, (ii) any direct or indirect affiliates of the
holder or any of the foregoing, (iii) any person acting or who could be deemed to be acting as a group together with the holder
or any of the foregoing and (iv) any other persons whose beneficial ownership of the Company’s Common Stock would or could
be aggregated with the holder’s and certain other “Attribution Parties” would beneficially own in excess of 4.99
or 9.99%, as elected by each investor at closing, of the outstanding shares of Common Stock. At each holder’s option, the
cap may be increased or decrease to any other percentage not in excess of 9.99%, except that any increase will not be effective
until the 61st day after notice to the Company.
As disclosed in Note 2. Significant Accounting Policies, the warrants
issued in connection with the 2018 Note Offering as well as the embedded derivatives were accounted for as liabilities that had
been initially measured and recorded at fair value and were revalued at each balance sheet date after their initial issuance with
the changes in value recorded in earnings. These conversion options accounted for as embedded derivatives were incorporated into
the 2018 Notes to incentivize the holders to provide the Company with short term funding for POWERHOUSE™. See Note 10. Fair
Value Measurements for information about the techniques the Company uses to measure the fair value of our derivative instruments.
The fair value of the embedded derivatives and Series Q warrants exceeded the proceeds received from the 2018 Notes Offering which
was recognized as a loss within the line item “Change in fair value of derivative liabilities and loss on debt extinguishment”
in the statement of operations.
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 following tables present the fair values of derivative instruments
included in our consolidated balance sheets as of December 31, 2018 and 2017 (in thousands):
Fair Value of Derivative Instruments
|
|
|
Liability Derivatives
|
|
|
2018
|
|
2017
|
|
Balance at December 31, 2018
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
|
Balance Sheet
Location
|
|
|
Fair Value
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deriviative liability
|
|
Convertible debt, net
|
|
$
|
344
|
|
|
|
N/a
|
|
|
$
|
-
|
|
The Effect of Derivative Instrument
on the Statement of Operations
for the Nine Months Ended December
31, 2018 and 2017
|
|
|
|
Amount of Loss Recognized
in Statement of Operations
|
|
Derivatives not designated as
hedging instruments
|
|
Location of Loss Recognized in
Statement of Operations
|
|
2018
|
|
|
2017
|
|
2018 Notes Conversion Options
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liabilities and loss on debt extinguishment
|
|
$
|
(27,134
|
)
|
|
$
|
-
|
|
|
|
Amortization of debt discount & deferred loan costs
|
|
|
(1,042
|
)
|
|
|
-
|
|
|
|
|
|
$
|
(28,176
|
)
|
|
$
|
-
|
|
The Company accounts for Series Q warrants in accordance with
ASC 480. The Series Q warrants are accounted for as liabilities due to provisions in the warrants allowing the warrant holders
to request redemption, upon a change of control, and failure to timely deliver shares of Class A common stock upon exercise or
default. 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 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.
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 December 31, 2018 (in thousands)
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Common stock warrant liability
|
|
$
|
511
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
511
|
|
Derivative liability
|
|
|
344
|
|
|
|
-
|
|
|
|
-
|
|
|
|
344
|
|
|
|
$
|
855
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
855
|
|
The following table shows the reconciliation from the beginning
to the ending balance for the Company’s common stock warrant liability and embedded derivative liability measured at fair
value on a recurring basis using significant unobservable inputs (i.e. Level 3) for the period ended December 31, 2018:
|
|
|
|
|
Embedded
|
|
|
|
|
|
|
Common Stock
|
|
|
derivative
|
|
|
|
|
(in thousands)
|
|
warrant liability
|
|
|
liability
|
|
|
Total
|
|
Fair value of financial liabilities at December 31, 2017
|
|
$
|
76
|
|
|
$
|
-
|
|
|
$
|
76
|
|
Common stock warrant liability
|
|
|
6,818
|
|
|
|
-
|
|
|
|
6,818
|
|
Expiration of common stock warrant liabilities
|
|
|
(48
|
)
|
|
|
-
|
|
|
|
(48
|
)
|
Change in the fair value of common stock warrant liabilities, net
|
|
|
(1,940
|
)
|
|
|
-
|
|
|
|
(1,940
|
)
|
Adjustment for exercise of common stock warrant liabilities
|
|
|
(4,395
|
)
|
|
|
-
|
|
|
|
(4,395
|
)
|
Derivative liability
|
|
|
-
|
|
|
|
3,195
|
|
|
|
3,195
|
|
Investor Notes
|
|
|
|
|
|
|
(109
|
)
|
|
|
(109
|
)
|
Change in the fair value of derivative liabilities and additional amounts earned
|
|
|
-
|
|
|
|
17,910
|
|
|
|
17,910
|
|
Conversions of 2018 Notes
|
|
|
-
|
|
|
|
(20,652
|
)
|
|
|
(20,652
|
)
|
Fair value of financial liabilities at December 31, 2018
|
|
$
|
511
|
|
|
$
|
344
|
|
|
$
|
855
|
|
2018 Notes Derivative Liability
The fair value of the 2018 Notes derivative liabilities was
derived using a Lattice pricing model, which is based, in part, upon unobservable inputs for which there is little or no market
data, requiring the Company to develop its own assumptions. The assumptions used on April 9, 2018, June 30, 2018, September 30,
2018 and December 31, 2018 to value the derivative liabilities are as follows:
|
|
Conversion
Price
|
|
|
Closing
Market
Price
(average)
|
|
|
Risk-free
Rate
|
|
|
Dividend
Yield
|
|
|
Market
Price
Volatility
|
|
|
Remaining
Term
(years)
|
|
|
Debt
Yield
|
|
|
Soft
Call
Threshold
|
|
|
First
Redemption
Period
|
|
|
Second
Redemption
Period
|
|
Derivative Liability April 09, 2018
|
|
$
|
1.26
|
|
|
$
|
0.85
|
|
|
|
2.08
|
%
|
|
|
0.00
|
%
|
|
|
110
|
%
|
|
|
1.00
|
|
|
|
60
|
%
|
|
$
|
2.52
|
|
|
|
20
|
%
|
|
|
25
|
%
|
Derivative Liability June 30, 2018
|
|
$
|
0.55
|
|
|
$
|
0.57
|
|
|
|
2.23
|
%
|
|
|
0.00
|
%
|
|
|
130
|
%
|
|
|
0.78
|
|
|
|
60
|
%
|
|
$
|
2.52
|
|
|
|
20
|
%
|
|
|
25
|
%
|
Derivative Liability September 30, 2018
|
|
$
|
0.31
|
|
|
$
|
0.39
|
|
|
|
2.36
|
%
|
|
|
0.00
|
%
|
|
|
125
|
%
|
|
|
0.53
|
|
|
|
60
|
%
|
|
$
|
2.52
|
|
|
|
20
|
%
|
|
|
25
|
%
|
Derivative Liability December 31, 2018
|
|
$
|
0.31
|
|
|
$
|
0.52
|
|
|
|
2.45
|
%
|
|
|
0.00
|
%
|
|
|
90
|
%
|
|
|
0.28
|
|
|
|
60
|
%
|
|
$
|
2.52
|
|
|
|
20
|
%
|
|
|
25
|
%
|
Common Stock Warrants
The fair value of Series Q Warrants was derived using a Monte
Carlo pricing model, which is based, in part, upon unobservable inputs for which there is little or no market data, requiring the
Company to develop its own assumptions. The assumptions used on April 9, 2018, June 30, 2018, September 30, 2018 and December 31,
2018 to value the common stock warrant liabilities are as follows:
|
|
Exercise
Price
|
|
|
Strike Floor
|
|
|
Closing
Market Price
(average)
|
|
|
Risk-free
Rate
|
|
|
Dividend
Yield
|
|
|
Market
Price
Volatility
|
|
|
Remaining
Term
(years)
|
|
Warrant Liability April 09, 2018
|
|
$
|
1.12
|
|
|
$
|
0.97
|
|
|
$
|
0.85
|
|
|
|
2.60
|
%
|
|
|
0.00
|
%
|
|
|
120
|
%
|
|
|
5.00
|
|
Warrant Liability June 30, 2018
|
|
$
|
0.55
|
|
|
$
|
0.19
|
|
|
$
|
0.57
|
|
|
|
2.72
|
%
|
|
|
0.00
|
%
|
|
|
115
|
%
|
|
|
4.78
|
|
Warrant Liability September 30, 2018
|
|
$
|
0.32
|
|
|
$
|
0.19
|
|
|
$
|
0.39
|
|
|
|
2.93
|
%
|
|
|
0.00
|
%
|
|
|
115
|
%
|
|
|
4.53
|
|
Warrant Liability December 31, 2018
|
|
$
|
0.32
|
|
|
|
N/a
|
|
|
$
|
0.52
|
|
|
|
2.49
|
%
|
|
|
0.00
|
%
|
|
|
120
|
%
|
|
|
4.28
|
|
2018 Options
The determination of the estimated fair value of the 2018 Options
(as defined in Note 10) using the Black-Scholes option-pricing model was affected by the Company’s stock price as well as
assumptions regarding a number of complex and subjective variables. Expected volatilities were based on a value calculated using
the historical stock price volatility. Expected life was based on the specific vesting terms of the option and anticipated changes
to market value and expected employee exercise behavior. The risk-free interest rate used in the option valuation model was based
on U.S. Treasury zero-coupon securities with remaining terms similar to the expected term on the options. RGS does not anticipate
paying any cash dividends on its Class A common stock in the foreseeable future and, therefore, an expected dividend yield
of zero was used in the option valuation model. The assumptions used to value to 2018 Options as of December 31, 2018 are as follows:
2018 Non-Qualified Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
Vesting
Period
|
|
Expected
Life
|
|
Expected
Dividend
Rate
|
|
|
Risk-free
Rate
|
|
|
Market
Price
Volatility
|
|
June 21, 2018
|
|
2.78 years
|
|
4.2 years
|
|
|
0
|
%
|
|
|
2.70
|
%
|
|
|
148.77
|
%
|
September 4, 2018
|
|
2.82 years
|
|
5.7 years
|
|
|
0
|
%
|
|
|
2.78
|
%
|
|
|
147.40
|
%
|
September 10, 2018
|
|
2.81 years
|
|
5.7 years
|
|
|
0
|
%
|
|
|
2.83
|
%
|
|
|
146.66
|
%
|
October 15, 2018
|
|
2.96 years
|
|
4.3 years
|
|
|
0
|
%
|
|
|
2.96
|
%
|
|
|
149.82
|
%
|
October 29, 2018
|
|
2.92 years
|
|
4.3 years
|
|
|
0
|
%
|
|
|
2.87
|
%
|
|
|
150.34
|
%
|
Nonrecurring Fair Value Measurements
The Company tests its long-lived assets
for impairment annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable
or that the carrying value may exceed its fair value.
As described in Note 12. Goodwill Impairment, during the second quarter of 2018, the Company recorded
a $1.3 million impairment charge related to goodwill measured at fair value on a nonrecurring basis. When recognizing an impairment
charge, the carrying value of the asset is reduced to fair value and the difference is recorded within operating earnings in our
consolidated statements of operations. The fair value measurements included in the indefinite-lived intangible impairments were
primarily based on significant unobservable inputs (Level 3) developed using company-specific information.
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. Share-Based Compensation
At December 31, 2017, the Company’s 2008 Long-Term
Incentive Plan provided that an aggregate of 52,536 shares of its Class A common stock could be issued or subject to awards
under the plan. Employees, members of the Board of Directors, consultants, service providers and advisors were eligible to participate
in the 2008 Long-Term Incentive Plan. The 2008 Long-Term Incentive Plan expired under its terms in 2018. All outstanding options
are nonqualified and were generally granted with an exercise price equal to the closing market price of the Company’s Class
A common stock on the date of the grant. Options vest based on service conditions, performance (attainment of a certain amount
of pre-tax income for a given year), or some combination thereof. Grants typically expire seven years from the date of grant.
On June 21, 2018, Company shareholders approved the Real Goods
Solar 2018 Long-Term Incentive Plan (the “2018 Incentive Plan”) which allows the Company to issue, or grant awards
for, up to 1,300,000 shares of Class A common stock. Employees or individuals who perform services for the Company are eligible
to participate in the 2018 Incentive Plan, which terminates upon the earlier of a board resolution terminating the 2018 Incentive
Plan or ten years after the effective date of June 21, 2018, unless extended by action of the Board of Directors for up to an
additional five years. All options are non-qualified and are generally granted with an exercise price equal to the closing market
price of the Company’s Class A common stock on the date of the grant. Under the 2018 Incentive Plan, the Company granted
multiple non-qualified stock options (“2018 Options”) with various requisite service periods, described in Note 9
Fair Value Measurements, which expire seven years from the grant date. On the last day of each calendar quarter occurring after
the grant date, the 2018 Options will vest at 8.3% contingent on continuous employment. The 2018 Options are classified as equity
and measured using the “fair-value-based method” with share-based compensation expense recognized in the income statement
on a straight-line basis over the requisite service for the entire award.
The determination of the estimated fair value of share-based
payment awards on the date of grant using the Black-Scholes option-pricing model is affected by the Company’s stock price
as well as assumptions regarding a number of complex and subjective variables. Expected volatilities are based on a value calculated
using the combination of historical volatility of comparable public companies in RGS’ industry and its stock price volatility
since the Company’s initial public offering. Expected life is based on the specific vesting terms of the option and anticipated
changes to market value and expected employee exercise behavior. The risk-free interest rate used in the option valuation model
is based on U.S. Treasury zero-coupon securities with remaining terms similar to the expected term on the options. RGS does not
anticipate paying any cash dividends on its Class A common stock in the foreseeable future and, therefore, an expected dividend
yield of zero is used in the option valuation model. RGS is required to estimate forfeitures at the time of grant and revise those
estimates in subsequent periods if actual forfeitures differ from those estimates. In accordance with ASC 718, an entity can make
an accounting policy to either estimate the number of awards that are expected to vest or account for forfeitures as they occur.
The Company utilizes the plan life-to-date forfeiture experience rate to estimate option forfeitures and records share-based compensation
expense only for those awards that are expected to vest.
The tables below present a summary of the Company’s option
activity as of December 31, 2018 and 2017 and changes during the years then ended:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
(Yrs)
|
|
|
Value
|
|
Outstanding at January 1, 2017
|
|
|
185
|
|
|
$
|
15,736.67
|
|
|
|
3.30
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(36
|
)
|
|
|
4,990.00
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
149
|
|
|
$
|
18,452.38
|
|
|
|
2.60
|
|
|
$
|
-
|
|
Exercisable at December 31, 2017
|
|
|
141
|
|
|
$
|
19,418.30
|
|
|
|
2.80
|
|
|
$
|
-
|
|
Granted
|
|
|
1,331,500
|
|
|
|
0.96
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(125,004
|
)
|
|
|
1.13
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
1,206,645
|
|
|
$
|
3.22
|
|
|
|
6.58
|
|
|
$
|
-
|
|
Exercisable at December 31, 2018
|
|
|
268,189
|
|
|
$
|
11.26
|
|
|
|
6.53
|
|
|
$
|
-
|
|
The Company granted 1,331,500 stock options and cancelled 125,004
stock options and did not grant any stock options and cancelled 36 stock options during 2018 and 2017, respectively. The Company’s
share-based compensation cost charged against income for continuing operations was approximately $0.2 million and $0.2 million
during the years 2018 and 2017, respectively.
12. Goodwill Impairment
The Company performed its annual test
of goodwill as of June 30, 2018, and based on the results of this test, the Company determined that the fair value of the goodwill
no longer exceeded the carrying amount. The fair value was determined using a discounted cash flow valuation technique and resulted
in the full impairment of goodwill of $1.3 million charging an impairment loss to the consolidated statement of operations during
the twelve months ended December 31, 2018.
13. Supplier Concentration
The Company relies on a limited number of third-party suppliers
to provide the components used in our POWERHOUSE™ in-roof solar shingles and our solar energy systems. The production of
POWERHOUSE™ solar laminates, connectors and wire harnesses is concentrated in China so it is reasonably possible that operations
could be disrupted in the future.
14. Income Taxes
On December 22, 2017, The President of the United States signed
the TCJA. The enactment of TCJA requires companies, under Accounting Standards Codification (ASC) 740, Income Taxes, to recognize
the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax
laws in the period in which the new legislation is enacted. The TCJA would permanently reduce the maximum corporate income tax
rate from 35% to 21% effective for tax years beginning after December 31, 2017, and the future benefits of existing deferred tax
assets would need to be computed at the new tax rate. In addition to the change in the corporate income tax rate, the TCJA
further introduced a number of other changes including a one-time transition tax via a mandatory deemed repatriation of post-1986
undistributed foreign earnings and profits; the introduction of a tax on global intangible low-taxed income (“GILTI”)
for tax years beginning after December 31, 2017; the limitation of deductible net interest to 30% of adjustable taxable income;
the further limitation of the deductibility of share-based compensation of certain highly compensated employees; the ability to
elect to accelerate bonus depreciation on certain qualified assets; and the Base Erosion and Anti-Abuse Tax ("BEAT"),
amongst other changes. The Company recognized the income tax effects of the 2017 Tax Act in its financial statements in accordance
with Staff Accounting Bulletin (SAB) No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes.
The Company has finalized its accounting for the income tax effects of the 2017 Tax Act.
The tax effects recorded primarily include an estimate of the
impact of the reduction in the U.S. tax rate on our deferred tax assets and liabilities in 2017. The Company had $0 of income
tax expense (benefit) for the years ended December 31, 2018 and 2017. Variations from the federal statutory rate are as follows:
|
|
Years ended December 31,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
Expected federal income tax expense (benefit) at statutory rate of 21% and 35% at December 31, 2018 and 2017, respectively
|
|
$
|
(8,888
|
)
|
|
$
|
(6,191
|
)
|
Effect of permanent other differences
|
|
|
|
|
|
|
|
|
Debt extinguishment
|
|
|
5,145
|
|
|
|
170
|
|
Transaction Cost Amortization
|
|
|
552
|
|
|
|
-
|
|
Other
|
|
|
319
|
|
|
|
(28
|
)
|
Effect of valuation allowance
|
|
|
3,479
|
|
|
|
(12,572
|
)
|
Other
|
|
|
39
|
|
|
|
(1,147
|
)
|
Impact of change in federal tax rate on deferred tax asset
|
|
|
-
|
|
|
|
20,479
|
|
State income tax expense (benefit), net of federal benefit
|
|
|
(646
|
)
|
|
|
(690
|
)
|
|
|
$
|
-
|
|
|
$
|
21
|
|
Deferred income taxes reflect net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The components of the net accumulated deferred income tax assets shown on a gross basis as of December 31, 2018 and 2017 are
as follows:
(in thousands)
|
|
2018
|
|
|
2017
|
|
Deferred tax assets (liabilities)
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
$
|
138
|
|
|
$
|
195
|
|
Inventory-related expense
|
|
|
195
|
|
|
|
209
|
|
Accrued liabilities
|
|
|
367
|
|
|
|
444
|
|
Depreciation and amortization
|
|
|
2,084
|
|
|
|
2,128
|
|
Net operating loss carry-forwards
|
|
|
39,154
|
|
|
|
35,754
|
|
Other
|
|
|
705
|
|
|
|
719
|
|
Total deferred tax assets
|
|
|
42,643
|
|
|
|
39,449
|
|
Valuation allowance
|
|
|
(42,643
|
)
|
|
|
(39,449
|
)
|
Total net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2018, RGS had $140.7 million of federal net operating loss carryforwards expiring,
if not utilized, beginning in 2020 and $14.1 million with no expiration. Additionally, the Company had $142.8 million of state
net operating loss carryforwards expiring, it not utilized, beginning in 2020.
Utilization of the net operating loss carry-forwards may be
subject to annual limitation under applicable federal and state ownership change limitations and, accordingly, net operating losses
may expire before utilization. The Company has not completed a Section 382 analysis through December 2018 and therefore has
not determined the impact of any ownership changes, as defined under Section 382 of the Internal Revenue Code has occurred
in prior years. Therefore, the net operating loss carryforwards above do not reflect any possible limitations and potential loss
attributes to such ownership changes. However, the Company believes that upon completion of a Section 382 analysis, as a result
of prior period ownership changes, substantially all of the net operating losses will be subject to limitation.
The Company’s valuation allowance increased by approximately
$3.5 million for the year ended December 31, 2018 as a result of its operating loss for the year. The valuation allowance was determined
in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both negative and positive evidence
when measuring the need for a valuation allowance. Based upon the available objective evidence and the Company’s history
of losses, management believes it is more likely than not that the net deferred tax assets will not be realized. At December 31,
2018, the Company has a valuation allowance against its deferred tax assets net of the expected income from the reversal of its
deferred tax liabilities.
The Company’s predecessor, Real Goods Trading Corporation,
was acquired by Gaiam, Inc. (now known as Gaia, Inc. and hereinafter as Gaia) in 2001. Gaia operated Real Goods Trading Corporation
essentially as a separate business until 2008 when operations were consolidated into the corporate entity, Real Goods Solar, Inc.,
upon its formation. Following the Company’s initial public offering, a tax sharing agreement was entered into with Gaia.
The Company is required, under the terms of its tax sharing agreement with Gaia, to distribute to Gaia the tax effect of certain
tax loss carryforwards as utilized by the Company in preparing its federal, state and local income tax returns. At December 31,
2018, utilizing the new federal income tax rate of 21%, the Company estimates that the maximum amount of such distributions to
Gaia could aggregate $1.1 million.
15. 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:
(in thousands)
|
|
2018
|
|
|
2017
|
|
Contract revenue:
|
|
|
|
|
|
|
|
|
Solar Division
|
|
|
12,703
|
|
|
|
15,586
|
|
POWERHOUSE™
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
25
|
|
|
|
6
|
|
Consolidated contract revenue
|
|
|
12,728
|
|
|
|
15,592
|
|
Operating loss from continuing operations:
|
|
|
|
|
|
|
|
|
Solar Division
|
|
|
(5,855
|
)
|
|
|
(8,729
|
)
|
POWERHOUSE™
|
|
|
(598
|
)
|
|
|
(20
|
)
|
Other
|
|
|
(8,518
|
)
|
|
|
(8,637
|
)
|
Operating Loss
|
|
|
(14,971
|
)
|
|
|
(17,386
|
)
|
Reconciliation of consolidated loss from operations to consolidated net loss:
|
|
|
|
|
|
|
|
|
Other income
|
|
|
1,063
|
|
|
|
68
|
|
Change in fair value of derivative liabilities and loss on debt extinguishment
|
|
|
(27,134
|
)
|
|
|
(379
|
)
|
Amortization of debt discount and deferred loan costs
|
|
|
(1,042
|
)
|
|
|
(3
|
)
|
Net loss
|
|
|
(42,084
|
)
|
|
|
(17,700
|
)
|
The following is a reconciliation of reportable segments’
assets to the Company’s consolidated total assets. The Other segment includes certain unallocated corporate amounts.
(in thousands)
|
|
2018
|
|
|
2017
|
|
Total assets:
|
|
|
|
|
|
|
|
|
Solar Division
|
|
$
|
10,615
|
|
|
$
|
9,840
|
|
POWERHOUSE™
|
|
|
1,366
|
|
|
|
1,140
|
|
Other
|
|
|
4,279
|
|
|
|
3,278
|
|
|
|
$
|
16,260
|
|
|
$
|
14,258
|
|
16. Subsequent Events
On March 29, 2019, the Company announced an operational realignment
to exit its mainland residential solar business so as to focus on the POWERHOUSE™ in-roof shingle market. Revenues and net
loss in 2018 for the mainland residential solar business were approximately $8.9 million and $6.3 million, respectively.
On April 4, 2019, the Company closed a registered offering in
which it issued and sold (i) 15,938,280 shares of Class A common stock, (ii) prepaid Series S Warrants to purchase 1,430,141 shares
of Class A common stock and (iii) Series R Warrants to purchase 17,368,421 shares of Class A common stock pursuant to the terms
of the Securities Purchase Agreement dated April 2, 2019 between the Company and the investors. The investors paid $0.19 per share
of Class A common stock and $0.18 per share of Class A common stock underlying the Series S Warrant for aggregate gross proceeds
of $3.3 million at the closing and before $0.34 million of expenses.
PART II. INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13. Other Expenses of Issuance
and Distribution
The following expenses incurred in connection
with the sale of the securities being registered will be borne by the registrant. Other than the SEC registration fee, the amounts
stated are estimates.
SEC Registration Fee
|
|
$
|
511.56
|
|
Legal Fees and Expenses
|
|
$
|
40,000
|
|
Accounting Fees and Expenses
|
|
$
|
20,000
|
|
Miscellaneous
|
|
$
|
10,000
|
|
Total
|
|
$
|
70,511.56
|
|
Item 14. Indemnification of Directors
and Officers
The Colorado Business Corporation Act (the
“CBCA”) generally provides that a corporation may indemnify a person made party to a proceeding because the person
is or was a director against liability incurred in the proceeding if: the person’s conduct was in good faith; the person
reasonably believed, in the case of conduct in an official capacity with the corporation, that such conduct was in the corporation’s
best interests, and, in all other cases, that such conduct was at least not opposed to the corporation’s best interests;
and, in the case of any criminal proceeding, the person had no reasonable cause to believe that the person’s conduct was
unlawful. The CBCA prohibits such indemnification in a proceeding by or in the right of the corporation in which the person was
adjudged liable to the corporation or in connection with any other proceeding in which the person was adjudged liable for having
derived an improper personal benefit. The CBCA further provides that, unless limited by its articles of incorporation, a corporation
shall indemnify a person who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the person
was a party because the person is or was a director or officer of the corporation, against reasonable expenses incurred by the
person in connection with the proceeding. In addition, a director or officer, who is or was a party to a proceeding, may apply
for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. The CBCA allows a corporation
to indemnify and advance expenses to an officer, employee, fiduciary or agent of the corporation to the same extent as a director.
As permitted by the CBCA, the Company’s
articles of incorporation and bylaws generally provide that the Company shall indemnify its directors and officers to the fullest
extent permitted by the CBCA. In addition, the Company may also indemnify and advance expenses to an officer who is not a director
to a greater extent, not inconsistent with public policy, and if provided for by its bylaws, general or specific action of the
Company’s board of director or shareholders.
The Company has entered into substantively
identical Indemnification Agreements with two current director and several former directors and officers (the “Indemnitees”),
which generally provide that, to the fullest extent permitted by Colorado law, the Company shall indemnify such Indemnitee if the
Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact that the Indemnitee is or was or has agreed to
serve at the Company’s request as a director, officer, employee or agent of the Company, or while serving as a director or
officer of the Company, is or was serving or has agreed to serve at the Company’s request as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, or by reason of
any action alleged to have been taken or omitted in such capacity or by reason of the imposition upon such officer or director
of any federal and/or state income tax obligation (inclusive of any interest and penalties, if applicable), that is imposed on
such officer or director with respect to income, “phantom income,” rescinded or unconsummated transactions, or any
other allegedly taxable event for which no benefit was received by such officer or director. The indemnification obligation includes,
without limitation, claims for monetary damages against an Indemnitee in respect of an alleged breach of fiduciary duties and generally
covers expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred
by an Indemnitee or on an Indemnitee’s behalf in connection with such action, suit or proceeding and any appeal therefrom,
but shall only be provided if the Indemnitee acted in good faith; and, in the case of conduct in an official capacity with the
corporation, if such conduct was in the Company’s best interests, and, in all other cases, if such conduct was at least not
opposed to the Company’s best interests; and, with respect to any criminal action, suit or proceeding, if the Indemnitee
had no reasonable cause to believe the Indemnitee’s conduct was unlawful.
Section 7-108-402(1) of the CBCA permits
a corporation to include in its articles of incorporation a provision eliminating or limiting the personal liability of directors
to the corporation or its shareholders for monetary damages for any breach of fiduciary duty as a director (except for breach of
a director’s duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation
of law, unlawful distributions, or any transaction from which the director derived improper personal benefit). Further, Section
7-108-402(2) of the CBCA provides that no director or officer shall be personally liable for any injury to persons or property
arising from a tort committed by an employee, unless the director or officer was either personally involved in the situation giving
rise to the litigation or committed a criminal offense in connection with such situation.
As permitted by the CBCA, the Company’s
articles of incorporation provide that the personal liability of the Company’s directors to the Company or its shareholders
is limited to the fullest extent permitted by the CBCA. The Indemnification Agreements described above also provide that the Company’s
indemnification obligation includes, without limitation, claims for monetary damages against the Indemnitee in respect of an alleged
breach of fiduciary duties to the fullest extent permitted by the CBCA.
Section 7-109-108 of the CBCA provides
that a corporation may purchase and maintain insurance on behalf of a person who is or was a director, officer, employee, fiduciary
or agent of the corporation, or who, while a director, officer, employee, fiduciary or agent of the corporation, is or was serving
at the request of the corporation as a director, officer, partner, trustee, employee, fiduciary or agent of another entity or an
employee benefit plan, against liability asserted against or incurred by the person in that capacity or arising from the person’s
status as a director, officer, employee, fiduciary or agent, whether or not the corporation would have power to indemnify the person
against the same liability under the CBCA.
As permitted by the CBCA, the Company’s
bylaws authorize the Company to purchase and maintain such insurance. The Company currently maintains a directors and officers
insurance policy insuring its past, present and future directors and officers, within the limits and subject to the limitations
of the policy, against expenses in connection with the defense of actions, suits or proceedings, and certain liabilities that might
be imposed as a result of such actions, suits or proceedings.
Item 15. Recent Sales of Unregistered Securities
All share amounts and the per share consideration
received in the following description of recent sales of unregistered securities have been restated to give effect to reverse stock
splits affected by the Company on June 2, 2016 and January 25, 2017.
|
1.
|
April 2016 Convertible Notes, Series G Warrants and April 2016 PA Warrants
|
On April 1, 2016, the Company issued $10.0
million of 2016 Notes and Series G Warrants to purchase 8,300 shares of Common Stock to institutional and accredited investors
in connection with the April 2016 Offering.
The 2016 Notes were convertible into shares
of Common Stock at a floating conversion price. From September 29, 2016 thorough January 30, 2017 (there were no subsequent conversions),
holders converted an aggregate principal amount of $10,000,000 into 596,070 shares of Common Stock at a weighted average exercise
price of $16.90 per share and holders converted an aggregate amount of interest of $552,860 into 64,108 shares of Common Stock
at a weighted average exercise price of $7.19 per share.
On April 1, 2016, in connection with the
April 2016 Offering, the Company sold and issued to the placement agent, Roth, for an aggregate purchase price of $100, the April
2016 PA Warrant to purchase 1,411 shares of Common Stock pursuant to the terms of the engagement letter between the Company and
Roth.
On May 25, 2016 the Company and its wholly-owned
subsidiaries RGS Financing, Inc., Real Goods Energy Tech, Inc., Alteris Renewables, Inc., Real Goods Syndicated, Inc., Mercury
Energy, Inc., Real Goods Solar, Inc. – Mercury Solar, Elemental Energy, LLC, and Sunetric Management LLC (collectively with
the Company, the “Borrower Parties”) entered into a First Loan Modification Agreement effective as of May 19, 2016
(the “Modification Agreement”), with Solar Solutions and Distribution, LLC, a Colorado-based renewable energy solutions
company (“Solar Solutions”). The Modification Agreement modified the Amended and Restated Loan Agreement dated March
30, 2016 between the Borrower Parties and Solar Solutions (the “Loan Agreement”) to: (i) reschedule the payment of
$167,513.41 from May 15, 2016 to a date on or before June 3, 2016; and (ii) require the Company to issue to Solar Solutions 969
shares of its Common Stock at a price of $172.80 per share as a payment on the revolving line of credit under the Loan Agreement.
|
3.
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December 2016 PA Warrants
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On December 13, 2016, the Company closed
the December 2016 Offering. In connection with the closing, the Company issued to the placement agent, Roth, the December 2016
PA Warrants to purchase 30,834 shares of Common Stock, pursuant to the terms of the Placement Agency Agreement between the Company
and Roth.
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4.
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February 6, 2017 PA Warrants and February 9, 2017 PA Warrants
|
On February 6, 2017, the Company closed
a registered offering of units. In connection with the closing, the Company issued to the placement agent, Roth, the February 6,
2017 PA Warrant to purchase 185,000 shares of Common Stock, pursuant to the terms of the Placement Agency Agreement between the
Company and Roth.
On February 9, 2017, the Company closed
a registered offering of units. In connection with the closing, the Company issued to the placement agent, Roth, the February 9,
2017 PA Warrant to purchase 120,000 shares of Common Stock, pursuant to the terms of the Placement Agency Agreement between the
Company and Roth.
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5.
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January 2018 Shares of Common Stock
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On January 2, 2018, the Company entered
into a Cooperation Agreement with Iroquois Capital to terminate Iroquois Capitals’ proxy campaign in opposition to the Company’s
proposals for the 2017 annual meeting of shareholders. Under the agreement, the Company issued to Iroquois Master Fund LTD and
Iroquois Capital Investment Group LLC 456,000 and 144,000 shares of Common Stock, respectively, as reimbursement for expenses incurred
in connection with the 2017 annual meeting of shareholders and the negotiation, execution and effectuation of the agreement.
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6.
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January 2018 Series O Warrants and January 2018 PA Warrants
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On January 4, 2018, in connection with
the January 2018 Offering, the Company issued and sold a Series O Warrant to purchase 1,600,000 shares of Common Stock to one institutional
and accredited investor pursuant to the terms of the Securities Purchase Agreement, dated as of January 2, 2018, between the Company
and the investor in a private placement in connection with a concurrent registered sales of shares of Common Stock and Series P
Warrants to the investor. The investor paid $1.15 per share of Common Stock and $1.14 per share of Common Stock underlying the
Series P Warrant for aggregate gross proceeds of approximately $1.8 million. The Company received net proceeds of approximately
$1.5 million at the closing, after deducting commissions to the placement agent and estimated offering expenses payable by the
Company associated with the January 2018 Offering.
On January 4, 2018, in connection with
the January 2018 Offering, the Company sold and issued to the placement agent, WestPark, for an aggregate purchase price of $100,
the January 2018 PA Warrants to purchase 128,000 shares of Common Stock pursuant to the terms of the engagement letter between
the Company and WestPark.
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7.
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April 2018 Convertible Notes, Series Q Warrants and April 2018 PA Warrants
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On April 9, 2018, the Company closed the
April 2018 Offering.
Between April 9, 2018 and July 8, 2018,
(i) the holders of the Series A Notes converted (a) an aggregate principal amount of $5,670,500 into 4,500,397 shares of Common
Stock, (b) an aggregate Additional Amount (as defined in the Series A Notes) of $7,514,525 into 5,963,958 shares of Common Stock,
in each case at a conversion price of $1.26 per share, (ii) the holders of the Series B Notes converted an aggregate principal
amount of $600,000 into 476,190 shares of the Common Stock, and (iii) the holders of Series Q Warrants exercised warrants for 7,100,000
shares of Common Stock at an exercise price of $1.12 per share.
Between July 19, 2018 and August 26, 2018,
(i) the holders of the Series A Notes converted (a) an aggregate principal amount of $22,700 into 47,341 shares of Common Stock,
(b) an aggregate Additional Amount (as defined in the Series A Notes) of $5,868,724 into 8,493,108 shares of Common Stock, (c)
an aggregate Original Issue Discount (as defined in the Series A Notes) of $25,943 into 80,493 shares of Common Stock, in each
case at a conversion price of $0.3223 per share, (ii) the holders of the Series B Notes converted (a) an aggregate principal amount
of $252,956 into 770,992 shares of the Common Stock, (b) an aggregate Additional True-Up Amount (as defined in the Series B Notes)
of $2,661,962 into 7,072,505 shares of Common Stock, in each case at a conversion price of $0.3223 per share, and (iii) the holders
of Series Q Warrants exercised warrants for 291,667 shares of Common Stock at an exercise price of $0.3223 per share.
Between August 27, 2018 and April 9, 2019,
(i) the holders of the Series A Notes converted (a) an aggregate principal amount of $35,100 into 114,444 shares of Common Stock,
(b) an aggregate Additional Amount (as defined in the Series A Notes) of $5,403,364 into 17,617,750 shares of Common Stock, (c)
an aggregate Original Issue Discount (as defined in the Series A Notes) of $482,707 into 1,573,873 shares of Common Stock in each
case at a conversion price of $0.3067 per share, (ii) the holders of the Series B Notes converted (a) an aggregate principal amount
of $4,013,044 into 13,084,591 shares of the Common Stock, (b) an aggregate Additional True-Up Amount (as defined in the Series
B Notes) of $4,270,859 into 13,925,315 shares of Common Stock, in each case at a conversion price of $0. 3067 per share, and (iii)
the holders of Series Q Warrants exercised warrants for 1,500,000 shares of Common Stock at an exercise price of $0.3223 per share.
On April 9, 2018, in connection with the
April 2018 Offering, the Company sold and issued to the placement agent, WestPark, for an aggregate purchase price of $100, the
April 2018 PA Warrants to purchase 730,159 shares of Common Stock pursuant to the terms of the engagement letter between the Company
and WestPark.
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8.
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April 2019 PA Warrants
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On April 2, 2019, in connection with the
Company’s April 2019 Offering, the Company sold and issued to the placement agent, Dawson James., for an aggregate purchase
price of $100, the April 2019 PA Warrants to purchase 1,389,474 shares of Common Stock pursuant to the terms of the engagement
letter between the Company and Dawson James.
Exemptions from Registration
Offerings numbered above as 1, 6, 7: Each
of these offerings was conducted as a private placement exempt from registration under Section 4(a)(2) and Rule 506(b) promulgated
by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”). The
investors were sophisticated and represented in writing that they were accredited investors and acquired the securities for their
own accounts for investment purposes. A legend was placed on the securities and will be placed on any stock certificates issued
upon the exchange or conversion of securities convertible or exchangeable for the Company’s Common Stock, subject to the
terms of the applicable transaction documents, stating that the securities have not been registered under the Securities Act and
cannot be sold or otherwise transferred without registration or an exemption therefrom.
Offerings numbered above as 1, 2, 3, 4,
5, 6, 7, 8: Each of these offerings was conducted as a private placement exempt from registration under Section 4(a)(2) of the
Securities Act because the Company consummated the transactions with parties with which the Company had a pre-existing, long-standing
and substantive relationship, who were sophisticated and accredited investor. A legend was placed on the securities and will be
placed on any stock certificates issued upon the exchange or conversion of securities convertible or exchangeable for the Company’s
Common Stock, subject to the terms of the applicable transaction documents, stating that the securities have not been registered
under the Securities Act and cannot be sold or otherwise transferred without registration or an exemption therefrom.
Item 16. Exhibits and Financial Statements
The exhibits to this registration statement
are listed in the exhibit index attached immediately before the signature pages.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during
any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus
required by Section 10(a)(3) of the Securities Act;
(ii) To reflect in the
prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in
the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any
material information with respect to the plan of distribution not previously disclosed in the registration statement or any material
change to such information in the registration statement;
provided, however
, that paragraphs (1)(i), (1)(ii) and (1)(iii)
do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports
filed with or furnished to the SEC by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act, that are incorporated
by reference in this registration statement.
(2) That, for the purpose
of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from
registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination
of the offering.
(4) That, for the purpose
of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses
filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first
used after effectiveness.
Provided, however,
that no statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose
of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser
and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus
or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing
prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The portion of
any other free writing prospectus relating to the offering containing material information about the undersigned registrant or
its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication
that is an offer in the offering made by the undersigned registrant to the purchaser.
(6) That, for purposes
of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to section
13(a) or section 15(d) of the Exchange Act that is incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(7) Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant
pursuant to the indemnification provisions described herein, or otherwise, the Registrant has been advised that in the opinion
of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
EXHIBITS INDEX
Exhibit No.
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Description
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3.1
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Articles of Incorporation of Real Goods Solar, Inc. (Incorporated by reference to Exhibit 3.1 to Real Goods Solar’s Quarterly Report on Form 10-Q filed November 8, 2016 (Commission File No. 001-34044)).
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3.2
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Certificate of Designation of Preferences, Rights and Limitations of Series A 12.5% Mandatorily Convertible Preferred Stock (Incorporated by reference to Exhibit 3.2 to Real Goods Solar’s Quarterly Report on Form 10-Q filed November 8, 2016 (Commission File No. 001-34044)).
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3.3
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Statement of Correction to Articles of Incorporation of Real Goods Solar, Inc. (Incorporated by reference to Exhibit 3.3 to Real Goods Solar, Inc.’s Quarterly Report on Form 10-Q filed May 10, 2017 (Commission File No. 001-34044)).
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3.4†
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Articles of Incorporation of Real Goods Solar, Inc., revised to reflect correction made by Statement of Correction to Articles of Incorporation (filed herewith).
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3.5
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Bylaws of Real Goods Solar, Inc. (Incorporated by reference to Exhibit 3.2 to Real Goods Solar’s Amendment No. 1 to Registration Statement on Form S-1 filed March 28, 2008 (Commission File No. 333-149092)).
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4.1
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Form of Real Goods Solar Class A Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Amendment No. 5 to Registration Statement on Form S-1 filed May 2, 2008 (Commission File No. 333-149092)).
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4.2
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Warrant, dated March 26, 2013, pursuant to the Second Loan Modification and Reinstatement Agreement, dated November 13, 2012, among Silicon Valley Bank, Real Goods Energy Tech, Inc., Real Goods Trading Corporation, Earth Friendly Energy Group Holdings, LLC, Alteris Renewables, Inc., Earth Friendly Energy Group, LLC, Solar Works, LLC, Alteris RPS, LLC, and Alteris ISI, LLC (Incorporated by reference to Exhibit 10.21 to Real Goods Solar’s Annual Report on Form 10-K filed April 1, 2013 (Commission File No. 001-34044)).
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4.3
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Warrant, dated March 27, 2013, issued to Silicon Valley Bank pursuant to the Third Loan Modification Agreement, dated March 27, 2013, among Silicon Valley Bank, Real Goods Energy Tech, Inc., Real Goods Trading Corporation, and Alteris Renewables, Inc. (Incorporated by reference to Exhibit 10.22 to Real Goods Solar’s Annual Report on Form 10-K filed April 1, 2013 (Commission File No. 001-34044)).
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4.4
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Form of Warrant, dated June 3, 2013, issued to the investors under the Securities Purchase Agreement, dated May 24, 2013, among Real Goods Solar, Inc. and the investors identified therein (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed June 3, 2013 (Commission File No. 001-34044)).
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4.5
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Form of Warrant, dated November 20, 2013, issued pursuant to the Underwriting Agreement, dated November 15, 2013 by and between the Company and Cowen and Company (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed November 21, 2013 (Commission File No. 001-34044)).
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4.6
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Form of Warrant, dated July 9, 2014, issued to the investors under the Securities Purchase Agreement, dated July 2, 2014, among Real Goods Solar, Inc. and the investors identified therein (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed July 3, 2014 (Commission File No. 001-34044)).
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4.7
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Warrant, dated June 6, 2014, issued to Silicon Valley Bank pursuant to the Joinder and Sixth Loan Modification Agreement, dated June 6, 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 (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Quarterly Report on Form 10-Q filed August 19, 2014 (Commission File No. 001-34044)).
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Exhibit No.
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Description
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4.8
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Warrant, dated November 19, 2014, issued to Silicon Valley Bank pursuant to the Seventh Loan Modification Agreement, dated November 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 (Incorporated by reference to Exhibit 4.8 to Real Goods Solar’s Annual Report on Form 10-K filed March 31, 2015 (Commission File No. 001-34044)).
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4.9
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Combined Form of Warrant issued to investors on February 26 and 27, 2015 (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed February 24, 2015 (Commission File No. 001-34044)).
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4.10
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Warrant to Purchase Common Stock dated February 27, 2015, issued to WestPark Capital, Inc. (Incorporated by reference to Exhibit 4.2 to Real Goods Solar’s Quarterly Report on Form 10-Q filed May 11, 2015 (Commission File No. 001-34044)).
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4.11
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Waiver and Amendment Agreement, dated March 31, 2015, among Real Goods Solar, Inc. and the investor party thereto (Incorporated by reference to Exhibit 4.3 to Real Goods Solar’s Quarterly Report on Form 10-Q filed May 11, 2015 (Commission File No. 001-34044)).
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4.12
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Form of Series F Warrant issued to investors on June 30 and July 1, 2015 (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed June 26, 2015 (Commission File No. 001-34044)).
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4.13
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Form of Warrant to Purchase Common Stock, dated June 30, 2015, issued to WestPark Capital, Inc. (Incorporated by reference to Exhibit 4.3 to Real Goods Solar’s Quarterly Report on Form 10-Q filed August 10, 2015 (Commission File No. 001-34044)).
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4.14
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Form of Senior Secured Convertible Note issued to the investors under the Securities Purchase Agreement, dated April 1, 2016 (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed April 1, 2016 (Commission File No. 001-34044)).
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4.15
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Form of Series G Warrants issued to the investors under the Securities Purchase Agreement, dated April 1, 2016 (Incorporated by reference to Exhibit 4.2 to Real Goods Solar’s Current Report on Form 8-K filed April 1, 2016 (Commission File No. 001-34044)).
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4.16†
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Placement Agent Warrant, dated as of April 1, 2016, issued to Roth Capital Partners, LLC.
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4.17
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Form of Termination and Amendment Agreement, dated May 12, 2016, between Real Goods Solar, Inc. and each of the investors party to the Securities Purchase Agreement, dated April 1, 2016 (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Quarterly Report on Form 10-Q filed May 12, 2016 (Commission File No. 001-34044)).
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4.18
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Form of Series H Warrant, dated September 14, 2016, issued to investors participating in the September 14, 2016 public unit offering (Incorporated by reference to Exhibit 4.17 to Amendment No. 5 to Real Goods Solar’s Registration Statement on Form S-1 filed September 7, 2016 (Commission File No. 333-211915)).
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4.19
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Form of Real Goods Solar Series A 12.5% Mandatorily Convertible Preferred Stock Certificate (Incorporated by reference to Exhibit 4.18 to Amendment No. 3 to Real Goods Solar’s Registration Statement on Form S-1 filed August 25, 2016 (Commission File No. 333-211915)).
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4.20
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Representative Warrant to Purchase Units Consisting of Series A 12.5% Mandatorily Convertible Preferred Stock and Series H Warrant to Purchase Common Stock, dated September 14, 2016, issued to Roth Capital Partners, LLC (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed September 14, 2016 (Commission File No. 001-34044)).
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Exhibit No.
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Description
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4.21
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Form of Series I Warrant, dated December 8, 2016, issued to investors party the Securities Purchase Agreement, dated December 8, 2016 (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed December 13, 2016 (Commission File No. 001-34044)).
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4.22
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Form of Series J Warrant, dated December 8, 2016, issued to investors party the Securities Purchase Agreement, dated December 8, 2016 (Incorporated by reference to Exhibit 4.2 to Real Goods Solar’s Current Report on Form 8-K filed December 13, 2016 (Commission File No. 001-34044)).
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4.23
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Placement Agent Warrant, dated December 13, 2016, issued to Roth Capital Partners, LLC (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed December 14, 2016 (Commission File No. 001-34044)).
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4.24
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Form of Series K Warrant, dated February 6, 2017, issued to investors party to the Securities Purchase Agreement, dated February 1, 2017 (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed February 2, 2017 (Commission File No. 001-34044)).
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4.25
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Form of Series L Warrant, dated February 6, 2017, issued to investors party to the Securities Purchase Agreement, dated February 1, 2017 (Incorporated by reference to Exhibit 4.2 to Real Goods Solar’s Current Report on Form 8-K filed February 2, 2017 (Commission File No. 001-34044)).
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4.26
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Placement Agency Warrant, dated February 6, 2017, issued to Roth Capital Partners, LLC (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed February 6, 2017 (Commission File No. 001-34044)).
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4.27
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Form of Series M Warrant, dated February 9, 2017, issued to investors party to the Securities Purchase Agreement, dated February 7, 2017 (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Amendment No. 1 Current Report on Form 8-K/A filed February 15, 2017 (Commission File No. 001-34044)).
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4.28
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Form of Series N Warrant, dated February 9, 2017, issued to investors party to the Securities Purchase Agreement, dated February 7, 2017 (Incorporated by reference to Exhibit 4.2 to Real Goods Solar’s Amendment No. 1 Current Report on Form 8-K/A filed February 15, 2017 (Commission File No. 001-34044)).
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4.29
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Placement Agency Warrant, dated February 9, 2017, issued to Roth Capital Partners, LLC (Incorporated by reference to Exhibit 4.3 to Real Goods Solar’s Amendment No. 1 Current Report on Form 8-K/A filed February 15, 2017 (Commission File No. 001-34044)).
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4.30
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Form of Series O Warrant, dated January 4, 2018, issued to the investor party to the Securities Purchase Agreement, dated January 2, 2018 (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed January 2, 2018 (Commission File No. 001-34044)).
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4.31
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Form of Series P Warrant, dated January 4, 2018, issued to the investor party to the Securities Purchase Agreement, dated January 2, 2018 (Incorporated by reference to Exhibit 4.2 to Real Goods Solar’s Current Report on Form 8-K filed January 2, 2018 (Commission File No. 001-34044)).
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4.32
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Placement
Agency Warrant, dated January 4, 2018, issued to Westpark Capital, LLC (Incorporated by reference to Exhibit 4.1 to Real Goods
Solar’s Current Report on Form 8-K filed January 4, 2018 (Commission File No. 001-34044)).
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4.33
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Form of Series A Senior Convertible Note, dated April 9, 2018, issued to the investors under the Securities Purchase Agreement, dated March 30, 2018 (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044)).
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Exhibit No.
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Description
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4.34
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Form of Series B Senior Secured Convertible Note, dated April 9, 2018, issued to the investors under the Securities Purchase Agreement, dated March 30, 2018 (Incorporated by reference to Exhibit 4.2 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044)).
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4.35
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Form of Series Q Warrants, dated April 9, 2018, issued to the investors under the Securities Purchase Agreement, dated March 30, 2018 (Incorporated by reference to Exhibit 4.3 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044)).
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4.36
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Form of Secured Promissory Notes, dated April 9, 2018, issued to Real Goods Solar, Inc. under the Note Purchase Agreement, dated April 9, 2018 by each of the investors under the Securities Purchase Agreement, dated March 30, 2018 (Incorporated by reference to Exhibit 4.4 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044)).
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4.37
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Form of Placement Agent Warrant, dated April 9, 2018, issued by Real Goods Solar, Inc. to WestPark Capital, Inc. (Incorporated by reference to Exhibit 4.5 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044)).
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4.38
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Form of Series R Warrant, dated April 2, 2019, issued to the investors under the Securities Purchase Agreement, dated April 2, 2019 (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed April 2, 2019 (Commission File No. 001-34044)).
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4.39
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Form of Series S Warrant, dated April 2, 2019, issued to the investors under the Securities Purchase Agreement, dated April 2, 2019 (Incorporated by reference to Exhibit 4.2 to Real Goods Solar’s Current Report on Form 8-K filed April 2, 2019 (Commission File No. 001-34044)).
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4.40
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Form of Placement Agent Warrant, dated as of April 4, 2019, issued to Dawson James Securities, Inc. (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed April 4, 2019 (Commission File No. 001-34044)).
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5.1††
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Opinion of Brownstein Hyatt Farber Schreck LLP
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10.1*
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Form of Real Goods Solar, Inc. Employee Stock Option Agreement (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Amendment No. 1 to Registration Statement on Form S-1 filed March 28, 2008 (Commission File No. 333-149092)).
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10.2*
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Amended and Restated Real Goods Solar, Inc. 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed February 12, 2018 (Commission File No. 001-34044)).
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10.3
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Tax Sharing and Indemnification Agreement between Real Goods Solar, Inc. and Gaiam, Inc. (Incorporated by reference to Exhibit 10.7 to Real Goods Solar’s Amendment No. 3 to Registration Statement on Form S-1 filed April 17, 2008 (Commission File No. 333-149092)).
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10.4
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Shareholders Agreement, dated December 19, 2011, between Real Goods Solar, Inc. and Riverside Renewable Energy Investments, LLC (Incorporated by reference to Exhibit 10.4 to Real Goods Solar’s Current Report on Form 8-K filed December 21, 2011 (Commission File No. 001-34044)).
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10.5
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First Amendment to Tax Sharing Agreement, dated December 19, 2011, between Real Goods Solar, Inc. and Gaiam, Inc. (Incorporated by reference to Exhibit 10.17 to Real Goods Solar’s Annual Report on Form 10-K filed April 1, 2013 (Commission File No. 001-34044)).
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Exhibit No.
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Description
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10.6
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Securities Purchase Agreement, dated May 24, 2013, among Real Goods Solar, Inc. and the investors thereunder (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed May 24, 2013 (Commission File No. 001-34044)).
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10.7
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Securities Purchase Agreement, dated July 2, 2014, among Real Goods Solar, Inc. and the investors thereunder (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed July 3, 2014 (Commission File No. 001-34044)).
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10.8
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Form of Registration Rights Agreement, dated July 9, 2014, 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’s Current Report on Form 8-K filed July 3, 2014 (Commission File No. 001-34044)).
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10.9
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Placement Agency Agreement, dated February 23, 2015, between Real Goods Solar, Inc. and WestPark Capital, Inc. (Incorporated by reference to Exhibit 1.1 to Real Goods Solar’s Current Report on Form 8-K filed February 24, 2015 (Commission File No. 001-34044)).
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10.10
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Form of Securities Purchase Agreement, dated February 23, 2015, among Real Goods Solar, Inc. and the investors thereunder (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed February 24, 2015 (Commission File No. 001-34044)).
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10.11*
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Employment Agreement, dated June 1, 2015, between Real Goods Solar, Inc. and Dennis Lacey (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed June 3, 2015 (Commission File No. 001-34044)).
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10.12*
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Form of Employee Stock Option Agreement (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed June 3, 2015 (Commission File No. 001-34044)).
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10.13
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Placement Agency Agreement, dated June 25, 2015, between Real Goods Solar, Inc. and WestPark Capital, Inc. (Incorporated by reference to Exhibit 1.1 to Real Goods Solar’s Current Report on Form 8-K filed June 26, 2015 (Commission File No. 001-34044)).
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10.14
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Form of Securities Purchase Agreement, dated June 25, 2015, among Real Goods Solar, Inc. and the investors party thereto (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed June 26, 2015 (Commission File No. 001-34044)).
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10.15
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Securities Purchase Agreement, dated April 1, 2016, among Real Goods Solar, Inc. and the investors party thereto (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed April 1, 2016 (Commission File No. 001-34044)).
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10.16
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Registration Rights Agreement, dated April 1, 2016, among Real Goods Solar, Inc. and the investors party thereto (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed April 1, 2016 (Commission File No. 001-34044)).
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10.17
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Placement Agency Agreement, dated December 8, 2016, among Real Goods Solar, Inc., Roth Capital Partners, LLC and WestPark Capital, Inc. (Incorporated by reference to Exhibit 1.1 to Real Goods Solar’s Current Report on Form 8-K filed December 13, 2016 (Commission File No. 001-34044)).
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10.18
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Form of Securities Purchase Agreement, dated December 8, 2016, among Real Goods Solar, Inc. and the purchasers party thereto (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed December 13, 2016 (Commission File No. 001-34044)).
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Exhibit No.
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Description
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10.19
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Form of Leak-Out Agreement, dated December 8, 2016, entered into by $10,000 or greater investors party to the Securities Purchase Agreement, dated December 8, 2016 (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed December 13, 2016 (Commission File No. 001-34044)).
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10.20
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Form of Amendment to Securities Purchase Agreement, dated December 12, 2016, among Real Goods Solar, Inc. and the purchasers party thereto (Incorporated by reference to Exhibit 10.3 to Real Goods Solar’s Current Report on Form 8-K filed December 13, 2016 (Commission File No. 001-34044)).
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10.21
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Placement Agency Agreement, dated February 1, 2017, between Real Goods Solar, Inc. and Roth Capital Partners, LLC (Incorporated by reference to Exhibit 1.1 to Real Goods Solar’s Current Report on Form 8-K filed February 2, 2017 (Commission File No. 001-34044)).
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10.22
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Form of Securities Purchase Agreement, dated February 1, 2017, among Real Goods Solar, Inc. and the purchasers party thereto (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed February 2, 2017 (Commission File No. 001-34044)).
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10.23
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Form of Leak-Out Agreement, dated February 1, 2017, among Real Goods Solar, Inc. and certain purchasers party to the Securities Purchase Agreement, dated February 1, 2017 (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed February 2, 2017 (Commission File No. 001-34044)).
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10.24
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Placement Agency Agreement, dated February 7, 2017, between Real Goods Solar, Inc. and Roth Capital Partners, LLC (Incorporated by reference to Exhibit 1.1 to Real Goods Solar’s Current Report on Form 8-K filed February 8, 2017 (Commission File No. 001-34044)).
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10.25
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Form of Securities Purchase Agreement, dated February 7, 2017, among Real Goods Solar, Inc. and the purchasers party thereto (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Amendment No. 1 Current Report on Form 8-K/A filed February 15, 2017 (Commission File No. 001-34044)).
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10.26
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Form of Leak-Out Agreement, dated February 7, 2017, among Real Goods Solar, Inc. and certain purchasers party to the Securities Purchase Agreement, dated February 7, 2017 (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed February 8, 2017 (Commission File No. 001-34044)).
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10.27
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Master Services Agreement, dated May 23, 2017, between Real Goods Solar, Inc. and Mobomo, LLC (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Quarterly Report on Form 10-Q filed August 14, 2017 (Commission File No. 001-34044)).
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10.28
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Statement of Work, dated May 24, 2017, between Real Goods Solar, Inc. and Mobomo, LLC (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Quarterly Report on Form 10-Q filed August 14, 2017 (Commission File No. 001-34044)).
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10.29
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Technology License Agreement, dated September 29, 2017, by and between Real Goods Solar, Inc. and Dow Global Technologies LLC (Incorporated by reference to Exhibit 10.1 to Real Goods Solar, Inc.’s Current Report on Form 8-K filed October 4, 2017 (Commission File No. 001-34044)).
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10.30
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Engagement Agreement, dated December 13, 2017, among Real Goods Solar, Inc. and WestPark Capital, Inc. (Incorporated by reference to Exhibit 1.1 to Real Goods Solar, Inc.’s Current Report on Form 8-K filed January 2, 2018 (Commission File No. 001-34044)).
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Exhibit No.
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Description
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10.31
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Form of Securities Purchase Agreement, dated January 2, 2018, between Real Goods Solar, Inc. and the purchaser party thereto (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed January 2, 2018 (Commission File No. 001-34044)).
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10.32
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Cooperation Agreement dated January 2, 2018, between Real Goods Solar, Inc. and Iroquois Capital Management LLC, Iroquois Master Fund LTD, Iroquois Capital Investment Group LLC, Richard Abbe and Kimberly Page (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed January 3, 2018 (Commission File No. 001-34044)).
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10.33*
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Amended and Restated Real Goods Solar, Inc. 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed February 12, 2018 (Commission File No. 001-34044)).
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10.34
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Placement Agency Agreement, dated January 29, 2018, between Real Goods Solar, Inc. and WestPark Capital, Inc. (Incorporated by reference to Exhibit 1.1 to Real Goods Solar’s Quarterly Report on Form 10-Q filed August 14, 2018 (Commission File No. 001-34044)).
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10.35
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Securities Purchase Agreement, dated March 30, 2018, among Real Goods Solar, Inc. and the investor parties thereto (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed April 2, 2018 (Commission File No. 001-34044)).
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10.36
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Form of Amendment No. 1 to Securities Purchase Agreement, dated April 9, 2018, between Real Goods Solar, Inc. and each of the investors under the Securities Purchase Agreement, dated March 30, 2018 (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044)).
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10.37
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Registration Rights Agreement, dated April 9, 2018, among Real Goods Solar, Inc. and the investors under the Securities Purchase Agreement, dated March 30, 2018 (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044)).
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10.38
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Form of Note Purchase Agreement, dated April 9, 2018, between Real Goods Solar, Inc. and each of the investors under the Securities Purchase Agreement, dated March 30, 2018 (Incorporated by reference to Exhibit 10.3 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044)).
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10.39
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Form of Master Netting Agreement, dated April 9, 2018, between Real Goods Solar, Inc. and each of the investors under the Securities Purchase Agreement, dated March 30, 2018 (Incorporated by reference to Exhibit 10.4 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044)).
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10.40
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Registration Rights Agreement, dated June 5, 2018, among Real Goods Solar, Inc., Iroquois Master Fund Ltd. and Iroquois Capital Investment Group LLC (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed June 7, 2018 (Commission File No. 001-34044)).
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10.41*
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Real Goods Solar, Inc. 2018 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed June 21, 2018 (Commission File No. 001-34044)).
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10.42*
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Form of Real Goods Solar, Inc. Employee Stock Option Agreement (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed June 21, 2018 (Commission File No. 001-34044)).
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10.43
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Form of Letter Agreement, dated August 29, 2018, between Real Goods Solar, Inc. and each holder of Series A Senior Convertible Notes and Series B Senior Secured Convertible Notes, in each case due April 9, 2019 (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed August 29, 2018 (Commission File No. 001-34044)).
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Exhibit No.
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Description
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10.44*
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Form of Change in Control Agreement entered into on November 14, 2018 between Real Goods Solar, Inc. and each of, among others, Alan Fine and Nicolle Dorsey (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed November 20, 2018 (Commission File No. 001-34044)).
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10.45*
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Amendment to Employment Agreement, dated November 19, 2018, between Real Goods Solar, Inc. and Dennis Lacey (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed November 20, 2018 (Commission File No. 001-34044)).
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10.46*
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Real Goods Solar, Inc. 2019 Incentive Compensation Plan (Incorporated by reference to Exhibit 10.3 to Real Goods Solar’s Current Report on Form 8-K filed November 20, 2018 (Commission File No. 001-34044)).
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10.47*
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Real Goods Solar, Inc. 2019 One-Time Special Discretionary Bonus Plan (Incorporated by reference to Exhibit 10.4 to Real Goods Solar’s Current Report on Form 8-K filed November 20, 2018 (Commission File No. 001-34044)).
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10.48
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Engagement Letter, dated March 19, 2019, among Real Goods Solar, Inc. and Dawson James Securities, Inc. (Incorporated by reference to Exhibit 1.1 to Real Goods Solar’s Current Report on Form 8-K filed April 2, 2019 (Commission File No. 001-34044)).
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10.49
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Form of Securities Purchase Agreement, dated April 2, 2019, among Real Goods Solar, Inc. and the purchasers party thereto (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed April 2, 2019 (Commission File No. 001-34044)).
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10.50
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Form of Leak-Out Agreement (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed April 2, 2019 (Commission File No. 001-34044)).
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10.51
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Form of Indemnification Agreement and schedule of directors and officers who have entered into such agreement (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Quarterly Report on Form 10-Q filed November 14, 2012 (Commission File No. 001-34044)).
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21.1
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Subsidiaries of the Registrant (Incorporated by reference to Exhibit 21.1 to Real Goods Solar’s Annual Report on Form 10-K filed April 2, 2018 (Commission File No. 001-34044))
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23.1††
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Consent of Brownstein Hyatt Farber Schreck, LLP (included in Exhibit 5.1)
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23.2†
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Consent of BDO USA, LLP
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23.3†
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Consent of Moss Adams LLP
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24.1
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Power of Attorney (included on the signature page to this Registration Statement)
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101.INS
|
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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* Indicates management contract or compensatory
plan or arrangement.
† Filed herewith
†† To be filed by amendment
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Denver, State of Colorado, on April 15, 2019.
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Real Goods Solar, Inc.
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/s/
Dennis Lacey
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By: Dennis Lacey
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Chief Executive Officer and Director
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(Principal Executive Officer)
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KNOW ALL PEOPLE BY THESE PRESENTS, that
each person whose signature appears below constitutes and appoints Dennis Lacey and Alan Fine, and each of them severally, as his
or her true and lawful attorneys-in-fact and agents, each acting alone with full power of substitution and resubstitution, for
him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including pre-effective
and post-effective amendments) and exhibits to this Registration Statement on Form S-1, and to any registration statement relating
to the same offering of securities that are filed pursuant to Rule 462 of the Securities Act of 1933, as amended, and to file the
same, with all exhibits thereto, and all other documents in connection therewith, with the SEC, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to
be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or theirs or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities
Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature
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Title
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Date
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/s/ Ian Bowles
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Ian Bowles, Chairman of the Company’s Board of Directors
|
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April 15, 2019
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/s/ Dennis Lacey
|
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Dennis Lacey, Chief Executive Officer and Director (Principal Executive Officer)
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April 15, 2019
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/s/ Alan Fine
|
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Alan Fine, Chief Financial Officer and Treasurer
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April 15, 2019
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/s/ Nicolle Dorsey
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Nicolle Dorsey, Principal Accounting Officer and Controller
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April 15, 2019
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/s/ Pavel Bouska
|
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Pavel Bouska, Director
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April 15, 2019
|
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/s/ Robert L. Scott
|
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Robert L. Scott, Director
|
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April , 2019
|