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 September 30, 2004
o
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 000-2791
ELECTRIC CITY CORP.
| Delaware | 36-4197337 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1280 Landmeier Road, Elk Grove Village, Illinois 60007-2410
(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 o No x
41,613,721 shares of the registrant’s common stock, $.0001 par value per share,
were outstanding
as of September 30, 2004.
ELECTRIC CITY CORP.
FORM 10-Q
For The Quarter Ended September 30, 2004
INDEX
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| Certification | ||||||||
| Certification | ||||||||
| Certification | ||||||||
| Certification | ||||||||
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
ELECTRIC CITY CORP.
| September 30 | ||||||||
| 2004 | December 31, | |||||||
| (unaudited) |
2003(1) |
|||||||
Assets |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 2,657,139 | $ | 2,467,023 | ||||
Accounts receivable, net |
1,049,824 | 1,450,811 | ||||||
Inventories |
1,038,239 | 1,200,146 | ||||||
Prepaid expenses and other |
72,546 | 203,870 | ||||||
Total Current Assets |
4,817,748 | 5,321,850 | ||||||
Net Property and Equipment |
1,851,275 | 1,132,592 | ||||||
Deferred Financing Costs |
129,686 | 482,612 | ||||||
Cost in Excess of Assets Acquired |
416,573 | 416,573 | ||||||
| $ | 7,215,282 | $ | 7,353,627 | |||||
- 1 -
ELECTRIC CITY CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
| September 30, | ||||||||
| 2004 | December 31, | |||||||
| (unaudited) |
2003(1) |
|||||||
Liabilities and Stockholders’ Equity |
||||||||
Current Liabilities |
||||||||
Current maturities of long-term debt |
$ | 890,374 | $ | 536,809 | ||||
Accounts payable |
740,644 | 1,298,821 | ||||||
Accrued expenses |
795,457 | 541,588 | ||||||
Deferred revenue |
425,104 | 383,308 | ||||||
Customer deposits |
984,941 | 511,167 | ||||||
Total Current Liabilities |
3,836,520 | 3,271,693 | ||||||
Deferred Revenue |
191,666 | 229,166 | ||||||
Long-Term Debt, less current maturities, net of unamortized
discount of $64,969 and $241,775 at September 30, 2004 and
December 31, 2003, respectively |
334,873 | 811,836 | ||||||
Total Liabilities |
4,363,059 | 4,312,695 | ||||||
Stockholders’ Equity |
||||||||
Preferred stock, $.01 par value; 5,000,000 shares authorized |
— | 23,966 | ||||||
Convertible Series A – 0 and 2,396,590 shares issued and
outstanding as of September 30, 2004 and
December 31, 2003, respectively (liquidation
value of $47,932,000 as of December 31, 2003) |
||||||||
Convertible Series C – 0 and 233,614 issued and
outstanding as of September 30, 2004 and December 31,
2003, respectively (liquidation value of $4,672,000 as
of December 31, 2003) |
— | 2,336 | ||||||
Convertible Series D – 0 and 157,769 issued and
outstanding as of September 30, 2004 and December 31,
2003, respectively (liquidation value of $3,155,000 as
of December 31, 2003) |
— | 1,578 | ||||||
Convertible Series E – 218,566 and 0 issued and
outstanding as of September 30, 2004 and December 31,
2003, respectively (liquidation value of $43,713,200
and $0 at September 30, 2004 and December 31, 2003,
respectively) |
2,186 | — | ||||||
Common stock, $.0001 par value; 120,000,000 shares
authorized, 41,613,722 and 34,342,022 issued as of September 30, 2004 and December 31, 2003, respectively |
4,163 | 3,436 | ||||||
Additional paid-in capital |
55,012,711 | 51,376,137 | ||||||
Accumulated deficit |
(52,166,837 | ) | (48,366,521 | ) | ||||
Total Stockholders’ Equity |
2,852,223 | 3,040,932 | ||||||
| $ | 7,215,282 | $ | 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, September 30 |
2004 |
2003 |
||||||
Revenue |
$ | 571,780 | $ | 857,021 | ||||
Expenses
|
||||||||
Cost of sales |
625,092 | 868,773 | ||||||
Selling, general and administrative |
1,166,831 | 1,059,416 | ||||||
| 1,791,923 | 1,928,189 | |||||||
Operating loss |
(1,220,143 | ) | (1,071,168 | ) | ||||
Other Income (Expense)
|
||||||||
Interest income |
5,924 | 3,167 | ||||||
Interest expense |
(83,220 | ) | (7,953 | ) | ||||
Total other income (expense) |
(77,296 | ) | (4,786 | ) | ||||
Net Loss |
(1,297,439 | ) | (1,075,954 | ) | ||||
Plus Preferred Stock Dividends |
(445,634 | ) | (1,379,889 | ) | ||||
Net Loss Available to Common Shareholder |
$ | (1,743,073 | ) | $ | (2,455,843 | ) | ||
Basic and Diluted Net Loss Per Common Share |
$ | (0.04 | ) | $ | (0.07 | ) | ||
Weighted Average Common Shares Outstanding |
41,467,028 | 34,149,435 | ||||||
See accompanying notes to condensed consolidated financial statements
- 3 -
ELECTRIC CITY CORP.
| Nine months ended, September 30 |
2004 |
2003 |
||||||
Revenue |
$ | 1,943,559 | $ | 3,676,495 | ||||
Expenses |
||||||||
Cost of sales |
2,008,184 | 3,485,217 | ||||||
Selling, general and administrative |
3,168,940 | 3,183,752 | ||||||
| 5,177,124 | 6,668,969 | |||||||
Operating loss |
(3,233,565 | ) | (2,992,474 | ) | ||||
Other Income (Expense) |
||||||||
Interest income |
17,660 | 6,154 | ||||||
Interest expense |
(584,411 | ) | (34,398 | ) | ||||
Total other income (expense) |
(566,751 | ) | (28,244 | ) | ||||
Loss from continuing operations |
(3,800,316 | ) | (3,020,718 | ) | ||||
Discontinued Operations |
||||||||
Loss from discontinued operations |
— | (302,503 | ) | |||||
Loss on disposal of discontinued operations |
— | (764,148 | ) | |||||
| — | (1,066,651 | ) | ||||||
Net Loss |
(3,800,316 | ) | (4,087,369 | ) | ||||
Plus Preferred Stock Dividends |
(4,232,539 | ) | (3,213,133 | ) | ||||
Net Loss Available to Common Shareholder |
$ | (8,032,855 | ) | $ | (7,300,502 | ) | ||
Basic and
diluted loss per common share from continuing operations |
$ | (0.20 | ) | $ | (0.19 | ) | ||
Discontinued operations |
— | (0.03 | ) | |||||
Basic and Diluted Net Loss Per Common Share |
$ | (0.20 | ) | $ | (0.22 | ) | ||
Weighted Average Common Shares Outstanding |
39,326,768 | 33,603,874 | ||||||
See accompanying notes to condensed consolidated financial statements
- 4 -
ELECTRIC CITY CORP.
| Series A | Series A | Series C | Series C | Series D | ||||||||||||||||||||||||
| Common | Common | Preferred | Preferred | Preferred | Preferred | Preferred | ||||||||||||||||||||||
| Shares |
Stock |
Shares |
Stock |
Shares |
Stock |
Shares |
||||||||||||||||||||||
Balance, December 31, 2003 |
34,342,022 | $ | 3,436 | 2,396,590 | $ | 23,966 | 233,614 | $ | 2,336 | 157,769 | ||||||||||||||||||
Issuance of common stock (net
of offering costs of $897,135) |
5,000,000 | 500 | — | — | — | — | — | |||||||||||||||||||||
Conversion of Preferred Stock |
1,956,700 | 196 | (145,000 | ) | (1,450 | ) | — | — | — | |||||||||||||||||||
Redemption of preferred stock |
— | — | (514,375 | ) | (5,144 | ) | — | — | (24,087 | ) | ||||||||||||||||||
Exchange of preferred stock |
— | — | (1,737,215 | ) | (17,372 | ) | (233,614 | ) | (2,336 | ) | (133,682 | ) | ||||||||||||||||
Cumulative dividends on preferred stock |
— | — | — | — | ||||||||||||||||||||||||
Satisfaction of accrued dividends through
the issuance of preferred stock |
— | — | — | — | — | — | — | |||||||||||||||||||||
Conversion of term note |
130,000 | 13 | — | — | — | — | — | |||||||||||||||||||||
Exercise of warrants |
185,000 | 18 | — | — | — | — | — | |||||||||||||||||||||
Warrants issued for services received |
— | — | — | — | — | — | ||||||||||||||||||||||
Net loss for the nine months ended
September 30, 2004 |
— | — | — | — | — | — | — | |||||||||||||||||||||
Balance, September 30, 2004 |
41,613,722 | $ | 4,163 | — | $ | — | — | $ | — | — | ||||||||||||||||||
[Continued from above table, first column(s) repeated]
| Series D | Series E | Series E | Additional | Total | ||||||||||||||||||||
| Preferred | Preferred | Preferred | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||
| Stock |
Shares |
Stock |
Capital |
Deficit |
Equity |
|||||||||||||||||||
Balance, December 31, 2003 |
$ | 1,578 | — | $ | — | $ | 51,376,137 | $ | (48,366,521 | ) | $ | 3,040,932 | ||||||||||||
Issuance of common stock (net
of offering costs of $897,135) |
— | — | — | 10,102,365 | — | 10,102,865 | ||||||||||||||||||
Conversion of Preferred Stock |
— | (5,067 | ) | (51 | ) | 1,305 | — | — | ||||||||||||||||
Redemption of preferred stock |
(241 | ) | — | — | (6,994,621 | ) | — | (7,000,006 | ) | |||||||||||||||
Exchange of preferred stock |
(1,337 | ) | 210,451 | 2,105 | 18,940 | — | — | |||||||||||||||||
Cumulative dividends on preferred stock |
— | — | (1,308,780 | ) | — | (1,308,780 | ) | |||||||||||||||||
Satisfaction of accrued dividends through
the issuance of preferred stock |
— | 13,088 | 131 | 1,308,649 | — | 1,308,780 | ||||||||||||||||||
Conversion of term note |
— | — | — | 275,587 | — | 275,600 | ||||||||||||||||||
Exercise of warrants |
— | 94 | 1 | 193,629 | 193,648 | |||||||||||||||||||
Warrants issued for services received |
— | — | — | 39,500 | 39,500 | |||||||||||||||||||
Net loss for the nine months ended
September 30, 2004 |
— | — | — | — | (3,800,316 | ) | (3,800,316 | ) | ||||||||||||||||
Balance, September 30, 2004 |
$ | — | 218,566 | $ | 2,186 | $ | 55,012,711 | $ | (52,166,837 | ) | $ | 2,852,223 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
- 5 -
ELECTRIC CITY CORP.
| Nine months ended September 30 |
2004 |
2003 |
||||||
Cash Flow from Operating Activities |
||||||||
Net loss |
$ | (3,800,316 | ) | $ | (4,087,369 | ) | ||
Adjustments to reconcile net loss to net cash used in
operating activities, net of asset disposals |
||||||||
Depreciation and amortization |
56,801 | 94,828 | ||||||
Recovery on bad debt |
— | (55,000 | ) | |||||
Warrants issued in exchange for services received |
39,500 | 299,100 | ||||||
Loss from disposal of discontinued operations |
— | 764,148 | ||||||
Amortization of deferred financing costs |
352,926 | — | ||||||
Amortization of original issue discount |
176,806 | — | ||||||
Accrued interest converted to common stock |
4,736 | — | ||||||
Changes in assets and liabilities, net of dispositions |
||||||||
Accounts receivable |
400,987 | 230,945 | ||||||
Inventories |
(343,222 | ) | 658,914 | |||||
Other current assets |
(125,790 | ) | (31,263 | ) | ||||
Accounts payable |
(558,177 | ) | (190,401 | ) | ||||
Accrued expenses |
253,869 | (273,328 | ) | |||||
Deferred revenue |
4,296 | 19,339 | ||||||
Customer deposits |
473,774 | — | ||||||
Net cash used in operating activities |
(3,063,810 | ) | (2,570,087 | ) | ||||
Cash Flows Used In Investing Activities |
||||||||
Sale of discontinued operations |
— | 929,032 | ||||||
Purchase of property and equipment |
(13,241 | ) | (18,135 | ) | ||||
Net cash (used in) provided by investing activities |
(13,241 | ) | 910,897 | |||||
Cash Flows Provided by (Used in) Financing Activities |
||||||||
Net payment on line of credit |
— | (500,000 | ) | |||||
Proceeds from long-term debt |
— | 1,010,000 | ||||||
Payment on long-term debt |
(29,340 | ) | (420,769 | ) | ||||
Preferred stock redemption |
(7,000,006 | ) | ||||||
Proceeds from issuance of preferred stock |
— | 1,500,000 | ||||||
Proceeds from issuance of common stock |
11,000,000 | 1,669,916 | ||||||
Issuance costs related to stock issuances |
(897,135 | ) | (301,290 | ) | ||||
Cash paid for deferred financing costs |
— | (304,400 | ) | |||||
Proceeds from exercise of warrants |
193,648 | 32,000 | ||||||
Short-swing profit contribution |
— | 798 | ||||||
Net cash provided by financing activities |
3,267,167 | 2,686,255 | ||||||
Net Increase in Cash and Cash Equivalents |
190,116 | 1,027,065 | ||||||
Cash and Cash Equivalents, at beginning of period |
2,467,023 | 1,555,904 | ||||||
Cash and Cash Equivalents, at end of period |
$ | 2,657,139 | $ | 2,582,969 | ||||
Supplemental Disclosure of Cash Flow Information |
||||||||
Cash paid during the periods for interest |
$ | 63,784 | $ | 36,791 | ||||
Cash paid during the periods for interest – discontinued operations |
— | 8,702 | ||||||
Supplemental Disclosures of Noncash Investing and Financing Activities |
||||||||
Conversion of convertible debt to common stock |
$ | 270,864 | $ | — | ||||
Accrued interest satisfied through the issuance of common stock |
4,736 | — | ||||||
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. |
In July and September of 2004, certain holders of Series E preferred stock converted 5,067 shares of Series E preferred stock into 506,700 shares of the Company’s common stock. |
See accompanying notes to condensed consolidated financial statements
- 6 -
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 Company has experienced operating losses and negative cash flow from operations since inception and currently has an accumulated deficit. At the rate it is currently consuming cash, its cash balances should be sufficient to fund operations for 6 to 9 months, after which it will need to utilize its working capital line. Availability under the working capital line will in part depend on there being sufficient eligible receivables to support the Company’s borrowing needs, the adequacy of which can not be assured. As of September 30, 2004 eligible receivables would support borrowings of approximately $615,000 under the facility. To date the Company has funded its operations primarily through the issuance of equity, however, there is no assurance that it will be able to continue to raise funds in this manner in the future. The Company’s ability to continue as a going concern is ultimately dependent on its ability to increase sales to a level that will allow it to operate profitably. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. Please see the liquidity and capital resources section of Item 2 to this report for additional information on Management’s plan for addressing potential future liquidity concerns.
The results of operations for the three and nine months ended September 30, 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 September 30, 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 29, 2004. 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 or nine month periods ended September 30, 2004 or September 30, 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:
- 7 -
| Three Months Ended | Nine months Ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
Net Loss, as reported |
$ | (1,297,000 | ) | $ | (1,076,000 | ) | $ | (3,800,000 | ) | $ | (4,087,000 | ) | ||||
Deduct: Stock-based employee
compensation expense included in
reported net loss |
— | — | — | — | ||||||||||||
Add: Total stock-based
employee compensation expense
determined under fair value based
method for awards 1 |
(249,000 | ) | (223,000 | ) | (777,000 | ) | (566,000 | ) | ||||||||
Net Loss, pro-forma |
(1,546,000 | ) | (1,299,000 | ) | (4,577,000 | ) | (4,653,000 | ) | ||||||||
Preferred stock dividends |
(446,000 | ) | (1,380,000 | ) | (4,233,000 | ) | (3,213,000 | ) | ||||||||
Net Loss Available to
Common Shareholder |
$ | (1,992,000 | ) | $ | (2,679,000 | ) | $ | (8,810,000 | ) | $ | (7,866,000 | ) | ||||
Net loss per share |
||||||||||||||||
Basic and diluted –
as reported |
$ | (0.04 | ) | (0.07 | ) | $ | (0.20 | ) | (0.22 | ) | ||||||
Basic and diluted –
pro- forma |
$ | (0.05 | ) | (0.08 | ) | $ | (0.22 | ) | (0.24 | ) | ||||||
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. |
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
- 8 -
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 and nine months ended September 30, 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 | Nine months Ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
Weighted average shares
issuable upon exercise of
outstanding options |
10,776,000 | 10,319,000 | 10,590,000 | 10,282,000 | ||||||||||||
Weighted average shares
issuable upon exercise of
outstanding warrants |
11,262,000 | 9,447,000 | 10,904,000 | 9,037,000 | ||||||||||||
Weighted average shares
issuable upon conversion
of preferred stock |
21,682,000 | 26,544 | ||||||||||||||