UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
x
|
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004 |
o
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission file number 000-2791
ELECTRIC CITY CORP.
| Delaware (State or other jurisdiction of incorporation or organization) |
36-4197337 (I.R.S. Employer Identification No.) |
1280 Landmeier Road, Elk Grove Village, Illinois 60007-2410
(Address of principal executive offices)
(847) 437-1666
(Issuer’s telephone number)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o
Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act) Yes x No o
40,922,022 shares of the
registrant’s common stock, $.0001 par value per share, were outstanding
as of March 31, 2004.
ELECTRIC CITY CORP.
FORM 10-Q
For The Quarter Ended March 31, 2004
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
ELECTRIC CITY CORP.
| March 31 | ||||||||
| 2004 | December 31, | |||||||
| (unaudited) |
2003(1) |
|||||||
Assets |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 4,518,221 | $ | 2,467,023 | ||||
Accounts receivable, net |
1,379,948 | 1,450,811 | ||||||
Inventories |
1,274,187 | 1,200,146 | ||||||
Prepaid expenses and other |
256,298 | 203,870 | ||||||
Total Current Assets |
7,428,654 | 5,321,850 | ||||||
Net Property and Equipment |
1,127,259 | 1,132,592 | ||||||
Deferred Financing Costs |
251,394 | 482,612 | ||||||
Cost in Excess of Assets Acquired |
416,573 | 416,573 | ||||||
| $ | 9,223,880 | $ | 7,353,627 | |||||
-1-
ELECTRIC CITY CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
| March 31, | ||||||||
| 2004 | December 31, | |||||||
| (unaudited) |
2003(1) |
|||||||
Liabilities and Stockholders’ Equity |
||||||||
Current Liabilities |
||||||||
Current maturities of long-term debt |
$ | 1,005,017 | $ | 536,809 | ||||
Accounts payable |
1,131,811 | 1,298,821 | ||||||
Accrued expenses |
639,180 | 541,588 | ||||||
Deferred revenue |
389,935 | 383,308 | ||||||
Customer deposits |
500,000 | 511,167 | ||||||
Total Current Liabilities |
3,665,943 | 3,271,693 | ||||||
Deferred Revenue |
216,666 | 229,166 | ||||||
Long-Term Debt, less current maturities, net of unamortized
discount of $125,942 and $241,775 at March 31, 2004 and
December 31, 2003, respectively |
178,836 | 811,836 | ||||||
Total Liabilities |
4,061,445 | 4,312,695 | ||||||
Stockholders’ Equity |
||||||||
Preferred stock, $.01 par value; 5,000,000 shares authorized
Series A – 0 and 2,396,590 shares issued and outstanding
as of March 31, 2004 and December 31, 2003, respectively |
— | 23,966 | ||||||
Series C – 0 and 233,614 issued and outstanding as of
March 31, 2004 and December 31, 2003, respectively |
— | 2,336 | ||||||
Series D – 0 and 157,769 issued and outstanding as of
March 31, 2004 and December 31, 2003, respectively |
— | 1,578 | ||||||
Series E – 217,030 and 0 issued and outstanding as of
March 31, 2004 and December 31, 2003,
respectively (liquidation value of $43,406,000
and $0 at March 31, 2004 and December 31, 2003,
respectively) |
2,171 | — | ||||||
Common stock, $.0001 par value; 120,000,000 shares
authorized, 40,922,022 and 34,342,022 issued as of March
31, 2004 and December 31, 2003, respectively |
4,094 | 3,436 | ||||||
Additional paid-in capital |
54,880,419 | 51,376,137 | ||||||
Accumulated deficit |
(49,724,249 | ) | (48,366,521 | ) | ||||
Total Stockholders’ Equity |
5,162,435 | 3,040,932 | ||||||
| $ | 9,223,880 | $ | 7,353,627 | |||||
See accompanying notes to condensed consolidated financial statements
| (1) | Derived from audited financial statements in the Company’s annual report on Form 10-KSB for the year ended December 31, 2003 |
-2-
ELECTRIC CITY CORP.
| Three months ended, March 31 |
2004 |
2003 |
||||||
Revenue |
$ | 816,242 | $ | 1,150,752 | ||||
Expenses |
||||||||
Cost of sales |
786,009 | 1,116,504 | ||||||
Selling, general and administrative |
1,027,639 | 1,021,326 | ||||||
| 1,813,648 | 2,137,830 | |||||||
Operating loss |
(997,406 | ) | (987,078 | ) | ||||
Other Income (Expense) |
||||||||
Interest income |
4,364 | 1,667 | ||||||
Interest expense |
(364,686 | ) | (14,107 | ) | ||||
Total other income (expense) |
(360,322 | ) | (12,440 | ) | ||||
Loss from continuing operations |
(1,357,728 | ) | (999,518 | ) | ||||
Discontinued Operations |
||||||||
Loss from discontinued operations |
— | (244,811 | ) | |||||
| — | (244,811 | ) | ||||||
Net Loss |
(1,357,728 | ) | (1,244,329 | ) | ||||
Plus Preferred Stock Dividends |
(3,164,021 | ) | (833,992 | ) | ||||
Net Loss Available to Common Shareholder |
$ | (4,521,749 | ) | $ | (2,078,321 | ) | ||
Basic and diluted loss per common share from
continuing operations |
$ | (0.13 | ) | $ | (0.05 | ) | ||
Discontinued operations |
— | (0.01 | ) | |||||
Basic and Diluted Net Loss Per Common Share |
$ | (0.13 | ) | $ | (0.06 | ) | ||
Weighted Average Common Shares Outstanding |
35,551,362 | 32,681,886 | ||||||
See accompanying notes to condensed consolidated financial statements
-3-
ELECTRIC CITY CORP.
| Series A | Series A | Series C | Series C | |||||||||||||||||||||
| Common | Preferred | Preferred | Preferred | Preferred | ||||||||||||||||||||
| Common Shares |
Stock |
Shares |
Stock |
Shares |
Stock |
|||||||||||||||||||
Balance, December 31, 2003 |
34,342,022 | $ | 3,436 | 2,396,590 | $ | 23,966 | 233,614 | $ | 2,336 | |||||||||||||||
Issuance of common stock (net
of offering costs of $796,363) |
5,000,000 | 500 | — | — | — | — | ||||||||||||||||||
Conversion of Series A Preferred Stock |
1,450,000 | 145 | (145,000 | ) | (1,450 | ) | — | — | ||||||||||||||||
Redemption of preferred stock |
— | — | (514,375 | ) | (5,144 | ) | — | — | ||||||||||||||||
Exchange of preferred stock |
— | — | (1,737,215 | ) | (17,372 | ) | (233,614 | ) | (2,336 | ) | ||||||||||||||
Cumulative dividends on preferred stock |
— | — | — | — | — | — | ||||||||||||||||||
Satisfaction of accrued dividends through
the issuance of preferred stock |
— | — | — | — | — | — | ||||||||||||||||||
Conversion of term note |
130,000 | 13 | — | — | — | — | ||||||||||||||||||
Net loss for the three months ended
March 31, 2004 |
— | — | — | — | — | — | ||||||||||||||||||
Balance, March 31, 2004 |
40,922,022 | $ | 4,094 | — | $ | — | — | $ | — | |||||||||||||||
[Continued from above table, first column(s) repeated]
| Series D | Series D | Series E | Series E | Additional | Total | |||||||||||||||||||||||
| Preferred | Preferred | Preferred | Preferred | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||
| Shares |
Stock |
Shares |
Stock |
Capital |
Deficit |
Equity |
||||||||||||||||||||||
Balance, December 31, 2003 |
157,769 | $ | 1,578 | — | $ | — | $ | 51,376,137 | $ | (48,366,521 | ) | $ | 3,040,932 | |||||||||||||||
Issuance of common stock (net
of offering costs of $796,363) |
— | — | — | — | 10,203,137 | — | 10,203,637 | |||||||||||||||||||||
Conversion of Series A Preferred Stock |
— | — | — | — | 1,305 | — | — | |||||||||||||||||||||
Redemption of preferred stock |
(24,087 | ) | (241 | ) | — | — | (6,994,621 | ) | — | (7,000,006 | ) | |||||||||||||||||
Exchange of preferred stock |
(133,682 | ) | (1,337 | ) | 210,451 | 2,105 | 18,940 | — | — | |||||||||||||||||||
Cumulative dividends on preferred stock |
— | — | — | — | (657,900 | ) | — | (657,900 | ) | |||||||||||||||||||
Satisfaction of accrued dividends through
the issuance of preferred stock |
— | — | 6,579 | 66 | 657,834 | — | 657,900 | |||||||||||||||||||||
Conversion of term note |
— | — | — | — | 275,587 | — | 275,600 | |||||||||||||||||||||
Net loss for the three months ended
March 31, 2004 |
— | — | — | — | — | (1,357,728 | ) | (1,357,728 | ) | |||||||||||||||||||
Balance, March 31, 2004 |
— | $ | — | 217,030 | $ | 2,171 | $ | 54,880,419 | $ | (49,724,249 | ) | $ | 5,162,435 | |||||||||||||||
See accompanying notes to condensed consolidated financial statements.
-4-
ELECTRIC CITY CORP.
(Unaudited)
| Three months ended March 31 |
2004 |
2003 |
||||||
Cash Flow from Operating Activities |
||||||||
Net loss |
$ | (1,357,728 | ) | $ | (1,244,329 | ) | ||
Adjustments to reconcile net loss to net cash used in
operating activities, net of asset disposals
|
||||||||
Depreciation and amortization |
14,208 | 45,015 | ||||||
Provision for bad debt |
239 | 5,726 | ||||||
Warrants issued in exchange for services received |
— | 58,500 | ||||||
Amortization of deferred financing costs |
231,218 | — | ||||||
Amortization of original issue discount |
115,834 | — | ||||||
Accrued interest converted to common stock |
4,737 | — | ||||||
Changes in assets and liabilities, net of dispositions
|
||||||||
Accounts receivable |
70,624 | (87,718 | ) | |||||
Inventories |
(74,041 | ) | 139,996 | |||||
Other current assets |
(52,428 | ) | (51,701 | ) | ||||
Accounts payable |
(167,010 | ) | 204,160 | |||||
Accrued expenses |
97,592 | (254,036 | ) | |||||
Deferred revenue |
(5,873 | ) | (12,498 | ) | ||||
Other current liabilities |
(11,167 | ) | — | |||||
Net cash used in operating activities |
(1,133,795 | ) | (1,196,885 | ) | ||||
Cash Flows Used In Investing Activities |
||||||||
Purchase of property and equipment |
(8,875 | ) | — | |||||
Net cash provided by (used in) investing activities |
(8,875 | ) | — | |||||
Cash Flows Provided by (Used in) Financing Activities |
||||||||
Payment on long-term debt |
(9,763 | ) | (37,676 | ) | ||||
Preferred stock redemption |
(7,000,006 | ) | — | |||||
Proceeds from issuance of common stock |
11,000,000 | 1,000,000 | ||||||
Issuance costs related to stock issuances |
(796,363 | ) | (95,690 | ) | ||||
Short-swing profit contribution |
— | 798 | ||||||
Net cash provided by financing activities |
3,193,868 | 867,432 | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents |
2,051,198 | (329,453 | ) | |||||
Cash and Cash Equivalents, at beginning of period |
2,467,023 | 1,555,904 | ||||||
Cash and Cash Equivalents, at end of period |
$ | 4,518,221 | $ | 1,226,451 | ||||
Supplemental Disclosure of Cash Flow Information |
||||||||
Cash paid during the periods for interest |
$ | 12,106 | $ | 14,143 | ||||
Cash paid during the periods for interest – discontinued operations |
— | 4,577 | ||||||
Supplemental Disclosures of Noncash Investing and Financing Activities |
||||||||
Conversion of convertible debt to common stock |
$ | 270,863 | $ | — | ||||
Accrued interest satisfied through the issuance of common stock |
17,481 | — | ||||||
In February and March of 2004, certain holders of Series A preferred
stock converted 145,000 shares of Series A preferred stock into
1,450,000 shares of the Company’s common stock. |
||||||||
See accompanying notes to condensed consolidated financial statements
-5-
Electric City Corp.
Note 1 – Basis of Presentation
The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which, in the opinion of management, are necessary for a fair statement of results for the interim periods.
The results of operations for the three months ended March 31, 2004 and 2003 are not necessarily indicative of the results to be expected for the full year.
For further information, refer to the audited financial statements and the related footnotes included in the Electric City Corp. Annual Report on Form 10-KSB, for the year ended December 31, 2003.
Note 2 - Stock-based Compensation
At March 31, 2004, the Company had a stock-based compensation plan, which is more fully described in Note 16 in the Company’s Annual Report on Form 10-KSB as filed on March 31, 2003. The Company applies and intends to continue to apply the recognition and intrinsic value measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations in accounting for those plans. No stock-based compensation expense was reflected in the net loss for the three month periods ended March 31, 2004 or March 31, 2003, as all options granted under the plan had an exercise price equal to or greater than the market value of the underlying common stock on the date of the grant. The following table illustrates the effect on the net loss and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based compensation:
| Three Months Ended | ||||||||
| March 31 | ||||||||
| 2003 |
2003 |
|||||||
Net Loss, as reported |
$ | (1,358,000 | ) | $ | (1,244,000 | ) | ||
Deduct: Stock-based employee
compensation expense included in
reported net loss |
— | — | ||||||
Add: Total stock-based employee
compensation (expense) income
determined under fair value based
method for awards (1) |
(135,000 | ) | (259,000 | ) | ||||
Net Loss, pro-forma |
(1,493,000 | ) | (1,503,000 | ) | ||||
Preferred stock dividends |
(3,164,000 | ) | (834,000 | ) | ||||
Net Loss Available to Common Shareholder |
$ | (4,657,000 | ) | (2,337,000 | ) | |||
Net loss per share |
||||||||
Basic and diluted – as reported |
$ | (0.13 | ) | $ | (0.06 | ) | ||
Basic and diluted – pro forma |
$ | (0.13 | ) | $ | (0.07 | ) | ||
| 1 All awards refer to awards granted, modified, or settled in fiscal periods beginning after December 15, 1994 – that is, awards for which the fair value was required to be measured and disclosed under Statement 123. |
-6-
Note 3 - Recent Accounting Pronouncements
In March, 2004, the FASB issued an exposure document entitled Share-Based Payment - an amendment of Statements No. 123 and 95 (Proposed Statement of Financial Accounting Standards). The proposed Statement would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25 and generally require instead that such transactions be accounted for using a fair-value-based method. This accounting, if approved, will result in compensation expense charges to our future results of operations. The proposed Statement, if adopted, would be applied to public entities prospectively for fiscal years beginning after December 15, 2004, as if all share-based compensation awards granted, modified, or settled after December 15, 1994, had been accounted for using the fair-value method of accounting. Retrospective application of the proposed Statement is not permitted.
Note 4 – Net Loss Per Share
The Company computes loss per share under Statement of Financial Accounting Standards (SFAS) No. 128 “Earnings Per Share,” which requires presentation of two amounts: basic and diluted loss per common share. Basic loss per common share is computed by dividing loss available to common stockholders by the number of weighted average common shares outstanding, and includes all common stock issued. Diluted earnings would include all common stock equivalents. The Company has not included the outstanding options, warrants or shares issuable upon conversion of the preferred stock and convertible debt as common stock equivalents in the computation of diluted loss per share for the three months ended March 31, 2004 and 2003 because the effect would be antidilutive.
The following table sets forth the weighted average shares issuable upon exercise of outstanding options and warrants and conversion of preferred stock and convertible debt that are not included in the basic and diluted loss per share available to common stockholders because to do so would be antidilutive:
| Three Months Ended | ||||||||
| March 31 | ||||||||
| 2004 |
2003 |
|||||||
Weighted average shares issuable
upon exercise of outstanding
options |
10,417,895 | 10,223,848 | ||||||
Weighted average shares issuable
upon exercise of outstanding
warrants |
9,994,867 | 8,664,622 | ||||||
Weighted average shares issuable
upon conversion of preferred stock |
26,940,366 | 23,834,970 | ||||||
Weighted average shares issuable
upon conversion of convertible debt |
348,578 | — | ||||||
Total |
47,701,706 | 42,723,440 | ||||||
-7-
Note 5 - Warranty Obligations
The Company warrants to the purchasers of its EnergySaver line of products that the product will be free of defects in material and workmanship for one year from the date of installation. The Company records the estimated cost that may be incurred under its warranties at the time the product revenue is recognized based upon the relationship between historical and anticipated warranty costs and sales volumes. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. While the Company believes that its estimated liability for product warranties is adequate and that the judgment applied is appropriate, the estimated liability for product warranties could differ materially from actual future warranty costs. Changes in the Company’s warranty liability are as follows:
| Three Months Ended | ||||||||
| March 31 | ||||||||
| 2004 |
2003 |
|||||||
Balance, beginning of year |
$ | 121,702 | $ | 107,127 | ||||
Warranties issued |
8,250 | 12,250 | ||||||
Settlements |
(3,217 | ) | (15,932 | ) | ||||
Balance, as of March 31 |
$ | 126,735 | $ | 103,445 | ||||
Note 6 - Inventories
Inventories consisted of the following:
| March 31, | December 31, | |||||||
| 2004 |
2003 |
|||||||
Raw materials |
$ | 508,313 | $ | 496,906 | ||||
Work in process |
5,850 | 12,817 | ||||||
Finished goods |
760,024 | 690,423 | ||||||
| $ | 1,274,187 | $ | 1,200,146 | |||||
-8-
Note 7 - Dividends
Dividends are comprised of the following:
| Three Months Ended | ||||||||
| March 31 |
||||||||
| 2004 |
2003 |
|||||||
Accrual of Dividend on Series A Convertible
Preferred |
$ | 540,705 | $ | 542,798 | ||||
Accrual of Dividend on Series C Convertible
Preferred |
53,206 | 52,911 | ||||||
Accrual of Dividend on Series D Convertible
Preferred |
35,932 | — | ||||||
Accrual of Dividend on Series E Convertible
Preferred |
28,057 | — | ||||||
Deemed dividend associated with beneficial
conversion price on shares issued in
satisfaction of convertible preferred dividends |
638,163 | 238,283 | ||||||
Deemed dividend associated with the redemption
and exchange of outstanding preferred stock |
1,860,458 | — | ||||||
Deemed dividend associated with change in the
expiration date of warrants to purchase shares
of preferred stock |
7,500 | — | ||||||
Total |
$ | 3,164,021 | $ | 833,992 | ||||
-9-
Note 8 – Business Segment Information
The Company organizes and manages its business in two distinct segments: the Energy Technology segment, and the Building Control and Automation segment. In classifying its operational entities into a particular segment, the Company segregated its businesses with similar economic characteristics, products and services, production processes, customers, and methods of distribution into distinct operating groups.
The Energy Technology segment designs, manufactures and markets energy saving technologies, primarily to commercial and industrial customers. The principal products produced and marketed by this segment are the EnergySaver, the Global Commander and negative power systems under the trade name, Virtual “Negawatt” Power Plan or “VNPP”. This segment is headquartered, and most of its operations are located, in Elk Grove Village, Illinois.
The Building Control and Automation segment, which is comprised of our Great Lakes Controlled Energy subsidiary, provides integration of building and environmental control systems for commercial and industrial customers. Great Lakes Controlled Energy is headquartered in, and operates out of its own facility, located in Elk Grove Village, Illinois.
Prior to fiscal year 2003, the Company’s reportable segments included the Power Management segment, which designed, manufactured and marketed a wide range of commercial and industrial switching gear and distribution panels. Effective May 31, 2003, the Company divested this segment, accordingly, the net assets and operating results have been separately reported as discontinued operations. Prior year segment information has been restated to reflect corporate costs previously allocated to the Power Management segment, which will continue despite the divestiture of the segment.
The following is the Company’s business segment information:
| Three Months Ended | ||||||||
| March 31 | ||||||||
| 2004 |
2003 |
|||||||
Revenues: |
||||||||
Energy Technology |
$ | 323,000 | $ | 485,000 | ||||
Building Automation Controls |
493,000 | 677,000 | ||||||
Intercompany sales – Energy
Technology |
— | (5,000 | ) | |||||
Intercompany sales – Building
Control and Automation |
— | (6,000 | ) | |||||
Total |
816,000 | 1,151,000 | ||||||
Operating Loss: |
||||||||
Energy Technology |
(513,000 | ) | (521,000 | ) | ||||
Building Automation Controls |
(148,000 | ) | (129,000 | ) | ||||
Corporate Overhead |
(377,000 | ) | (337,000 | ) | ||||
Total |
(998,000 | ) | (987,000 | ) | ||||
Interest Expense, net |
(360,000 | ) | (13,000 | ) | ||||
Loss from continuing operations |
$ | (1,358,000 | ) | $ | (1,000,000 | ) | ||
-10-
| March 31, 2004 |
December 31, 2003 | |||||||