United States

Securities and Exchange Commission

Washington, D.C. 20549

 

 

 

Form 10-Q

   

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2017

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission File Number 001-34044

 

 

 

REAL GOODS SOLAR, INC.

(Exact name of registrant as specified in its charter)

 

 

 

COLORADO   26-1851813

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

110 16th STREET, SUITE 300

DENVER, COLORADO 80202

(Address of principal executive offices)

 

(303) 222-8300

(Registrant’s telephone number, including area code)

 

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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   ¨   (Do not check if a smaller reporting company)   Smaller reporting company   x
             
        Emerging growth company   ¨

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

 

Outstanding at August 7, 2017

Class A Common Stock ($.0001 par value)   7,480,906

  

 

 

  

REAL GOODS SOLAR, INC.

 

 

 

FORM 10-Q

 

INDEX

 

PART I. FINANCIAL INFORMATION 4
     
Item 1.   Financial Statements (Unaudited): 4
     
    Condensed Consolidated Balance Sheets 4
     
    Condensed Consolidated Statements of Operations 5
     
    Condensed Consolidated Statement of Changes in Shareholders’ Equity  6
       
    Condensed Consolidated Statements of Cash Flows 7
     
    Notes to Condensed Consolidated Financial Statements 8
     
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
     
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 22
     
Item 4.   Controls and Procedures 22
   
PART II. OTHER INFORMATION  
     
Item 1.   Legal Proceedings 22
     
Item 1A.   Risk Factors 23
       
Item 6.   Exhibits 24
     
    SIGNATURES 25

 

 2 

 

  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This report may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they provide our current beliefs, expectations, assumptions and forecasts about future events, and include statements regarding our future results of operations and financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words “anticipate,” “believe,” “plan,” “estimate,” “expect,” “future,” “intend,” “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 ability to implement our revenue growth strategy; our history of operating losses; 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; restrictions on certain transactions and potential premiums and penalties under our outstanding warrants; 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; our failure to timely or accurately complete financing paperwork on behalf of customers; 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; existing and new regulations impacting solar installations including electric codes; delays or cancellations for system installations where revenue is recognized on a percentage-of-completion basis; 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 Hawaii and east coast states, loss of key personnel and ability to attract necessary personnel; loss or suspension of licenses required for installation of solar energy systems; adverse outcomes arising from litigation and legal disputes to which we may be subject from time to time; our failure to accurately predict future warranty claims; the outcome of a dispute with a customer of our former Commercial segment related to remedial work; the possibility that our insurance carrier seeks reimbursement of legal expenses up to $1.5 million in connection with a now closed U.S. Securities and Exchange Commission investigation related to our July 2014 private placement; 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 solar installations; increases in interest rates and tightening credit markets; our ability to meet customer expectations; risks and liabilities associated with placing employees and technicians in our customers’ homes and businesses; product liability claims; future data security breaches, or our inability to protect personally identifiable information or other information about our customers; failure to comply with the director independence standards of the U.S. Securities and Exchange Commission and the Nasdaq Capital Market; our inability to maintain effective disclosure controls and procedures and internal control over financial reporting; volatile market price of our Class A common stock; possibility of future dilutive issuances of securities and its impact on our ability to obtain additional financing; the low likelihood that we will pay any cash dividends on our Class A common stock for the foreseeable future; compliance with public reporting requirements; anti-takeover provisions in our organizational documents; the terms of our outstanding warrants to purchase Class A common stock and securities purchase agreements in connection with past offerings which limit our ability to enter into certain transactions or obtain financing, and which could result in our paying premiums or penalties to the holders of outstanding Senior Secured Convertible Notes due April 1, 2019 (the “Notes”) and warrants; an increase in our cost of materials that could arise if the United States imposes trade remedies on imported crystalline silicon photovoltaic cells and modules; and such other factors as discussed throughout Part I, Item 1A, Risk Factors and Part II, Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2016 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 our Quarterly Report on Form 10-Q for the period ended March 31, 2017 and this report.

 

Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

 

 3 

 

  

PART I – FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

REAL GOODS SOLAR, INC.

Condensed Consolidated Balance Sheets (unaudited)

 

(in thousands, except share data)  June 30,
2017
   December 31,
2016
 
         
ASSETS          
Current assets:          
Cash  $9,745   $2,940 
Restricted cash       173 
Accounts receivable, net   1,990    3,002 
Inventory, net   1,185    1,502 
Deferred costs on uncompleted contracts   314    398 
Other current assets   1,612    931 
Current assets of discontinued operations   1,415    909 
           
Total current assets   16,261    9,855 
Property and equipment, net   774    620 
Goodwill   1,338    1,338 
Net investment in sales-type leases and other assets   1,479    1,308 
Noncurrent assets of discontinued operations   605    1,252 
           
Total assets  $20,457   $14,373 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Line of credit  $   $663 
Convertible debt, net of deferred cost and pre-installment of $0 and $298   1    124 
Accounts payable   547    2,019 
Accrued liabilities   1,422    1,362 
Billings in excess of costs on uncompleted contracts       107 
Derivative liabilities       46 
Deferred revenue and other current liabilities   815    1,033 
Current liabilities of discontinued operations   733    921 
           
Total current liabilities   3,518    6,275 
Other liabilities   2,224    2,222 
Derivative liabilities   53    137 
Noncurrent liabilities of discontinued operations   758    761 
           
Total liabilities   6,553    9,395 
           
Commitments and contingencies (Note 4)          
Shareholders’ equity:          
Class A common stock, $.0001 par value, 150,000,000 shares authorized, 7,480,906 and 1,183,151 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively   8    8 
Additional paid-in capital   204,742    187,752 
Accumulated deficit   (190,846)   (182,782)
           
Total shareholders’ equity   13,904    4,978 
           
Total liabilities and shareholders’ equity  $20,457   $14,373 

 

See accompanying notes.

 

 4 

 

  

REAL GOODS SOLAR, INC.

Condensed Consolidated Statements of Operations (unaudited)

 

   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
(in thousands, except per share data)  2017   2016   2017   2016 
         
Contract revenue:                    
Sale and installation of solar energy systems  $2,708   $4,750   $6,070   $9,553 
Service   277    133    568    270 
Leasing, net   12    14    25    28 
Contract expenses:                    
Installation of solar energy systems   2,668    4,175    5,744    8,692 
Service   491    291    809    630 
Customer acquisition   1,329    618    2,251    1,416 
Contract income (loss)   (1,491)   (187)   (2,141)   (887)
Operating expense   2,461    2,743    5,432    5,759 
Litigation expense   55        135    24 
Operating loss   (4,007)   (2,930)   (7,708)   (6,670)
Taxes       (27)       (27)
Derivative and other   10    (576)   (368)   (648)
Loss from continuing operations, net of tax   (3,997)   (3,533)   (8,076)   (7,345)
Income (loss) from discontinued operations, net of tax   (33)   70    12    231 
                     
Net loss  $(4,030)  $(3,463)  $(8,064)  $(7,114)
Net income (loss) per share – basic and diluted:                    
From continuing operations  $(0.53)  $(165.90)  $(1.32)  $(349.50)
From discontinued operations   0.00    3.30    0.00    11.10 
                     
Net loss per share – basic and diluted  $(0.53)  $(162.60)  $(1.32)  $(338.40)
                     
Weighted-average shares outstanding:                    
Basic and diluted   7,481    21    6,102    21 

 

See accompanying notes.

 

 5 

 

  

REAL GOODS SOLAR, INC.

Condensed Consolidated Statement of Changes in Shareholders’ Equity (unaudited)

 

   Class A Common Stock   Additional   Accumulated   Total
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 
Issuance of common stock and other equity changes related to compensation           226        226 
Proceeds from common stock offering, net of costs   6,110,000        16,029        16,029 
Fair value of shares issued for convertible notes and interest   177,018         735         735 
Fractional shares issued in connection with reverse split   10,737                 
Net loss               (8,064)   (8,064)
Balances, June 30, 2017   7,480,906   $8   $204,742   $(190,846)  $13,904 

 

See accompanying notes.

 

 6 

 

  

REAL GOODS SOLAR, INC.

Condensed Consolidated Statements of Cash Flows (unaudited)

 

   For the Six Months Ended
June 30,
 
(in thousands except share data)  2017   2016 
Operating activities          
Net loss  $(8,064)  $(7,114)
Gain from discontinued operations   12    231 
Loss from continuing operations   (8,076)   (7,345)
Adjustments to reconcile loss from continuing operations to net cash used in operating activities – continuing operations:          
Depreciation   201    215 
Amortization of debt discount and issuance costs       623 
Share-based compensation expense   226    342 
Change in valuation of derivative liabilities and loss on debt extinguishment   357    (267)
Loss on sale of assets   13    10 
Bad debt expense   23    101 
Changes in operating assets and liabilities:        —— 
Accounts receivable   989    1,081 
Costs in excess of billings on uncompleted contracts   8    571 
Inventory, net   317    818 
Deferred costs on uncompleted contracts   84    406 
Net investment in sales-type leases and other assets   (169)   (127)
Other current assets   (689)   (206)
Accounts payable   (1,472)   (445)
Accrued liabilities   185    (470)
Billings in excess of costs on uncompleted contracts   (107)   (662)
Deferred revenue and other current liabilities   (218)   19 
Other liabilities   2    8 
           
Net cash used in operating activities – continuing operations   (8,326)   (5,328)
Net cash (used in) provided by operating activities – discontinued operations   (38)   213 
Net cash used in operating activities   (8,364)   (5,115)
Investing activities          
Purchase of property and equipment   (372)    
Proceeds from sale of property and equipment   2    9 
Net cash (used in) provided by investing activities   (370)   9 
Financing activities          
Proceeds from warrant exercises, net of costs       17 
Proceeds from convertible debt, net of costs and restricted cash       1,533 
Restricted cash released upon conversion of debt   173     
Proceeds from the issuance of common stock, net of costs   16,029     
Principal payments on revolving line of credit   (663)   (9,198)
Principal borrowings on revolving line of credit       12,650 
Net cash provided by financing activities   15,539    5,002 
Net change in cash   6,805    (104)
Cash and cash equivalents at beginning of period   2,940    594 
           
Cash and cash equivalents at end of period  $9,745   $490 
           
Supplemental cash flow information          
Interest paid  $8   $94 
Non-cash items          
Transfer from accounts payable to other liabilities for amounts paid by insurance carrier  $   $1,510 
Transfer of accounts payable to vendor line of credit  $   $59 
Change in common stock warrant liability in conjunction with exercise/extinguishment of warrants  $   $103 
Payment on line of credit in Class A common stock  $   $167 
Discount from warrants issued in conjunction with 2016 Note Offering  $   $2,500 
Accrued closing costs on Convertible Note  $   $651 
Embedded derivative liability recorded in conjunction with April 2016 Offering  $   $2,616 
Convertible notes interest paid with common stock  $125   $ 

 

See accompanying notes.

 

 7 

 

  

Notes to Condensed Consolidated Financial Statements

 

1. Organization, Nature of Operations, and Principles of Consolidation

 

Real Goods Solar, Inc. (the “Company” or “RGS”) is a residential and small business commercial solar energy engineering, procurement, and construction firm.

 

Principles of Consolidation

 

We have prepared our unaudited interim condensed consolidated financial statements included herein pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to these rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, the unaudited interim financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, our condensed consolidated financial position as of June 30, 2017, the interim results of operations for the three months and six months ended June 30, 2017 and 2016, and cash flows for the six months ended June 30, 2017 and 2016. These interim statements have not been audited. The balance sheet as of December 31, 2016, was derived from our audited consolidated financial statements included in our annual report on Form 10-K. The interim condensed consolidated financial statements contained herein should be read in conjunction with our audited financial statements, including the notes thereto, for the year ended December 31, 2016.

 

Discontinued Operations

 

During 2014, we committed to a plan to sell certain contracts and rights comprising our large commercial installations business, otherwise known as our former Commercial segment. At the same time, we determined not to enter into further large commercial installation contracts in the mainland United States. Most contracts in process at December 31, 2014 were substantially completed during 2015 and remaining work was completed during 2016. We report this business as a discontinued operation, separate from our continuing operations. See Note 10. Discontinued Operations.

 

Liquidity and Financial Resources Update

 

The Company experienced recurring operating losses and negative cash flow from operations in recent years. Starting with the fourth quarter of 2014, measures were implemented to reduce cash outflow for operations such that the required level of sales to achieve break-even results was reduced. These measures included (i) exiting the large commercial segment which was operating at both an operating and cash flow loss, (ii) reducing staffing levels, (iii) physically exiting the California market where its costs to operate were high, (iv) focusing on cash sales to customers and not leasing to customers, (v) negotiating lower costs for equipment, and (vi) operating initiatives designed to improve profitability such as reducing the length of cycle time for customer installations and lowering the cost of marketing.

 

The Company’s historical operating losses have required the Company to raise financial capital. During the fourth quarter of 2016, the Company raised $16.1 million of financial capital, net of costs, and the Company raised an additional $16.0 million of financial capital, net of costs during the first quarter of 2017. See Note 5, Shareholders’ Equity. The Company used the proceeds from the financial capital raised to reduce accounts payable, purchase materials to convert its backlog to revenue and begin to execute its revenue growth strategy. The 2017 capital raises enabled the Company to terminate its line-of-credit facility and an Exclusive Supply Agreement (the “Supply Agreement”) with a co-terminus term, resulting in a reduction of costs for materials.

 

The Company estimates that to operate profitably it will require approximately $16 million in quarterly revenue. Current quarterly revenue is materially less than this amount and, accordingly, to be successful in increasing sales and resultant revenue, the Company is in the process of implementing a revenue growth strategy which includes the following components:

 

·Expand the size of the Company’s call center sales organization;
·Expand the size of the Company’s east coast residential, Sunetric field sales team, small business commercial sales team, and construction organizations;
·Expand the digital marketing program, and increase spending to generate greater customer leads while achieving desired cost of customer acquisition;
·Make available to the Company’s customers additional third-party providers to finance customer acquisitions of our solar energy systems

  

 8 

 

 

·Expand the Company’s network of authorized third party installers; and
·Invest in innovation for future sales and profitability, such as customer-centric software, new products and services such as the sale of energy storage and energy audit services to attract new customers.

 

The Company has prepared its business plan for the ensuing twelve months, and believes it has sufficient financial resources to operate for the ensuing 12-month period. The plan (i) expects that because accounts payable at June 30, 2017 has been reduced to only $500k, future expenditures will be used for producing customer installation revenue and no longer having to expend cash to catch-up on previously outstanding accounts payable (ii) anticipates an increase in contract income from increasing customer installation revenue from implementation of the revenue growth strategy. Until the Company is successful in implementing its plans to increase revenue to the level required to break-even, the Company expects to have cash outflow from operating activities. In addition, the Company expects to have cash outflow from operating activities for the remainder of the year, as cash is utilized to increase revenue by (i) funding an anticipated level of rooftop installations for customers, (ii) expanding e-sales and field sales organizations and (iii) increasing marketing spend for lead generation.

 

2. Significant Accounting Policies

 

The Company made no changes to its significant accounting policies during the six months ended June 30, 2017.

 

Reclassification of Prior Year Presentation

 

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations. In the three months ended June 30, 2017, the Company concluded that it was appropriate to classify items in the statement of operations to conform with operating metrics reported to investors and the manner in which management evaluates financial performance and to classify warranty liability separately as current and non-current liabilities. Accordingly, the Company had revised the classification of certain items to report items in the statement of operations and balance sheet.

 

   December 31,       December 31, 
   2016       2016 
   As Filed   Reclassification   Revised 
Current liabilities            
Accounts payable  $2,555   $(536)  $2,019 
Accrued liabilities  $1,284   $78  $1,362 
Current liabilities of discontinued operations   1,457    (536)   921 
   $5,296   $(994)  $4,302 
Long-term liabilities               
Other liabilities  $1,764   $458   $2,222 
Noncurrent liabilities of discontinued operations   225    536    761 
   $1,989   $994   $2,983 

 

These changes in classification did not change the previously reported operating income (loss) in the statement of operations, or cash generated (used) from operations in the statement of cash flows, or operating income (loss) for any business segment.

 

The change in classification of warranty liabilities increased working capital as follows:

 

   December 31,       December 31, 
   2016       2016 
(in thousands)  As Filed   Reclassification   Revised 
Working Capital  $2,586   $994   $3,580 

 

Service Revenue and Expense and Warranties

 

The Company recognizes service revenue when service work is completed for customers and third party owners of solar energy systems, and collection of receivables is reasonably assured. Concurrent with the recognition of revenue the costs of such services are reflected as service expense.

 

The Company warrants 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 passed through to the customers, typically have product warranty periods of 10 years and a limited performance warranty period of up to 25 years. The Company provides for the estimated cost of warranties at the time the related revenue is recognized. This estimated future costs for the limited warranty is recorded as contract expenses on installation of solar energy systems. The Company also maintains specific warranty liabilities for large commercial customers included in discontinued operations. The Company assesses the accrued warranty reserve regularly and adjusts the amounts as necessary based on actual experience and changes in future estimates. This variance between the previously estimated warranty at the time of installation of the solar energy system and actual experience rate is recorded as service expense.

 

 9 

 

  

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company’s management in accordance with GAAP for interim financial information and in compliance with the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, these unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the six months ended June 30, 2017 are not necessarily indicative of the expected results for the year ending December 31, 2017. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016. Intercompany balances and transactions have been eliminated.

 

Recently Issued Accounting Standards

 

ASU 2017-04

 

On January 26, 2017, the Financial Accounting Standards Board (“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. This ASU 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. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017, and the Company is assessing the impact of ASU 2017-04 on its consolidated financial statements.

 

ASU 2016-20

 

On December 21, 2016, the FASB issued Accounting Standards Update No. 2016-20 (“ASU 2016-20”), Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This ASU provides technical corrections and improvements to Topic 606. This ASU is effective for the Company on January 1, 2018, which coincides with the effective date of ASU 2014-09 (as defined below). The Company is assessing the impact of ASU 2016-20 on its consolidated financial statements.

 

ASU 2016-18

 

On November 17, 2016, the FASB issued Accounting Standards Update No. 2016-18 (“ASU 2016-18”), Statement of Cash Flows: Restricted Cash, which was issued to address the diversity that currently exists in the classification and presentation of changes in restricted cash on the statement of cash flows. This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts general described as restricted cash and restricted cash equivalents. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods therein. Early adoption is permitted and the Company is assessing the impact of ASU 2016-18 on its consolidated statements of cash flows.

 

ASU 2016-15

 

On August 26, 2016, the FASB issued Accounting Standards Update No. 2016-15 (“ASU 2016-15”), Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which was issued to provide clarification on how certain cash receipts and cash payments are reported in the statement of cash flows. This ASU addresses eight specific cash flow issues in an effort to reduce existing diversity between companies. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods therein. Early adoption is permitted and the Company is assessing the impact of ASU 2016-15 on its consolidated statements of cash flows.

 

ASU 2016-02

 

On February 25, 2016, the FASB issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods therein. The Company currently expects that upon adoption of ASU 2016-02, right-of-use assets and lease liabilities will be recognized on the balance sheet in amounts that will be material.

 

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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.

 

In August 2015, the FASB issued Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date, which defers the effective date of ASU 2014-09 one year. ASU 2014-09, as deferred by ASU 2015-14, will be effective for the first interim period within annual reporting periods beginning after December 15, 2017. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application.

 

During the second quarter of 2017, we began evaluating our contracts with customers and have determined that for the majority of our contracts, we do not currently anticipate there would be any significant change to timing or method of recognizing revenue. As such, we do not believe this new standard will have a material impact on our results of operations, financial condition or cash flows. We are planning to adopt the new standard as of January 1, 2018, and utilize the modified retrospective method.

 

3. Line of Credit

 

On February 9, 2017, the Company terminated its line of credit with Solar Solutions and Distribution, LLC.  Additionally, the Company had a Supply Agreement with Solar Solutions which was coterminous with the line of credit and accordingly, that was terminated as of the same date.  As of June 30, 2017, the Company does not have a line of credit facility.

 

4. 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 for certain field personnel through operating leases. Leases range up to five years with varying termination dates through August 2020.

 

The following schedule represents the annual future minimum payments of all leases as of June 30, 2017:

 

(in thousands) 

Future Minimum
Lease Payments

 
2017  $471 
2018   638 
2019   561 
2020   506 
2021   416 
2022 and thereafter   112 
      
Total minimum lease payments  $2,704 

 

The Company incurred office and warehouse rent expense of $0.2 and $0.2 million for the three months ended June 30, 2017 and 2016, respectively and $0.3 and $0.4 million for the six months ended June 30, 2017 and 2016, 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.

 

 11 

 

  

From time to time, the Company may be involved in legal proceedings that are considered to be in the normal course of business. As previously disclosed in the Company’s Quarterly Report on Form 10-Q for the first quarter of 2017, on February 16, 2017, Alpha Capital Anstalt, an investor in the Company’s February 6, 2017 public offering of common stock and warrants, filed a lawsuit against Roth Capital Partners, LLC, the Company’s investment banking firm in the offering, and the Company in U.S. District Court for the Southern District of New York. Alpha’s lawsuit alleges that the registration statement for the February 6, 2017 offering contained material misstatements or omissions and that the Company had breached contractual obligations owed to Alpha. Alpha seeks unspecified monetary damages, rescission and other unspecified relief in the lawsuit. The Company disputes Alpha’s allegations and intends to vigorously defend itself in the lawsuit.  Under local court rules, the Company filed a letter motion seeking permission to file a motion to dismiss the claims related to the alleged misstatements and omissions in the complaint. On May 12, 2017, Alpha Capital filed an amended complaint removing the fraud-related claims and leaving only breach of contract claims against the Company. The Company does not expect to incur any material charges in connection with this lawsuit and, as of June 30, 2017, the Company has not recorded a liability associated with this lawsuit. However, the Company expects its litigation expense to increase in the near future as a result thereof.

 

On May 1, 2017, Roth Capital Partners, LLC requested indemnification by the Company for its legal expenses related to this lawsuit under the terms of the Placement Agency Agreement associated with the February 6, 2017 offering. The Company, under the circumstances, disputes the request for indemnification.

 

5. Shareholders’ Equity

 

The following transactions were completed during the six months ended June 30, 2017:

 

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 as part of the February 6 Primary Units, 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 Series K Warrants are currently exercisable at a price of $3.10 per share, and are exercisable for a period of five years. 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. As of June 30, 2017, there were 3,710,000 Series K warrants outstanding.

 

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 Class A 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 Series M Warrants are currently exercisable at a price of $2.40 per share, and are exercisable for a period of five years. 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. As of June 30, 2017, there were 1,800,000 Series M warrants outstanding.

 

Option and Warrant Exercises

 

During the three and six months ended June 30, 2017 and 2016, the Company issued no shares of its Class A common stock to employees upon the exercise of stock options. During the six months ended June 30, 2017 and 2016 the Company issued zero and 69 shares of its Class A common stock pursuant to the exercise of warrants, respectively.

 

At June 30, 2017, the Company had the following shares of Class A common stock reserved for future issuance:

 

Stock options and grants outstanding under incentive plans   182 
Common stock warrants outstanding - derivative liability   43,016 
Common stock warrants outstanding - equity security   6,484,934 
      
Total shares reserved for future issuance   6,528,132 

 

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6. Fair Value Measurements

 

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:

 

Balance at June 30, 2017 (in thousands)  Total   Quoted Prices
in Active
Markets for
Identical
Items
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 
Common stock warrant liability  $53   $   $   $53 

 

For the Company’s Level 3 measures, which represent common stock warrants, fair value is based on a Monte Carlo pricing model that is based, in part, upon unobservable inputs for which there is little or no market data, requiring the Company to develop its own assumptions. The Company used a market approach to valuing these derivative liabilities.

 

The following table shows the reconciliation from the beginning to the ending balance for the 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 June 30, 2017:

 

(in thousands)  Common stock 
warrant liability
   Embedded
derivative
liability
   Total 
Fair value of derivative liabilities at December 31, 2016  $137   $46   $183 
Change in the fair value of derivative liabilities, net   (84)   -    (84)
Adjustments for conversions of Notes   -    (46)   (46)
Fair value of derivative liabilities at June 30, 2017  $53    -   $53 

 

7. Share-Based Compensation

 

During the six months ended June 30, 2017, under its 2008 Long-Term Incentive Plan, as amended, the Company did not grant any stock options and cancelled zero stock options versus zero grants of stock options and cancellations of 20 stock options during the six months ended June 30, 2016. Substantially all stock options vest at 2% per month for the 50 months beginning with the first day of the eleventh month after date of grant.

 

Total share-based compensation expense recognized was $0.05 million and $0.2 million during the three months ended June 30, 2017 and 2016, respectively, and $0.2 million and $0.3 million during the six months ended June 30, 2017 and 2016, respectively.

 

8. Net Income (Loss) Per Share

 

Basic net income (loss) per share excludes any dilutive effects of options, warrants or the Notes. The Company computes basic net income (loss) per share using the weighted average number of shares of its Class A common stock outstanding during the period. The Company computes diluted net income (loss) per share using the weighted average number of shares of its Class A common stock and common stock equivalents outstanding during the period. The Company excluded common stock equivalents of 6.5 million and 110,000 for the three months ended June 30, 2017 and 2016, respectively, and 6.5 million and 110,000 for the six months ended June 30, 2017 and 2016, respectively, from the computation of diluted net loss per share because their effect was antidilutive.

 

9. Segment Information

 

The Company operates as three reportable segments: (1) Residential – the installation of solar energy systems for homeowners, including lease financing thereof, and small business commercial in the continental United States; (2) Sunetric – the installation of solar energy systems for both homeowners and business owners (commercial) in Hawaii; and (3) Other – corporate operations. The Company discontinued its former large commercial segment and it is presented as discontinued operations.

 

Financial information for the Company’s segments and a reconciliation of the total of the reportable segments’ loss from operations to the Company’s consolidated net loss are as follows:

 

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   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
(in thousands)  2017   2016   2017   2016 
Contract revenue:                    
Residential  $2,472   $3,309   $6,119   $7,076 
Sunetric   525    1,588    544    2,775 
Other                
Consolidated contract revenue   2,997    4,897    6,663    9,851 
Loss from continuing operations:                    
Residential   (1,706)   (893)   (2,354)   (2,157)
Sunetric   (532)   (291)   (1,336)   (1,089)
Other   (1,769)   (1,746)   (4,018)   (3,424)
Consolidated loss from continuing operations   (4,007)   (2,930)   (7,708)   (6,670)
Reconciliation of consolidated loss from operations to consolidated net loss:                    
Derivative and other   10    (576)   (368)   (648)
Income tax (expense) benefit       (27)       (27)
Income (loss) from discontinued operations, net of tax   (33)   70    12    231 
Net loss  $(4,030)  $(3,463)  $(8,064)  $(7,114)

 

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)  June 30, 2017   December 31, 2016 
Total assets – continuing operations:          
Residential  $6,317   $7,159 
Sunetric   1,043    1,196 
Other   11,077    3,857 
   $18,437   $12,212 
Total assets – discontinued operations:          
Commercial   2,020    2,161 
   $20,457   $14,373 

 

10. Discontinued Operations

 

The following is a reconciliation of the major line items constituting pretax income of discontinued operations to the after-tax gain on discontinued operations that are presented in the condensed consolidated statements of operations as indicated:

 

   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
(in thousands)  2017   2016   2017   2016 
Major line items constituting pretax gain (loss) of discontinued operations:                    
Contract revenue  $1   $123   $5   $346 
Contract expense   2    17        30 
Operating and other expense   32    36    (17)   85 
Pretax income (loss) from discontinued operations   (33)   70    22    231 
Income (loss) from discontinued operations, net of tax  $(33)  $70   $12   $231 

 

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The following is a reconciliation of the carrying amounts of major classes of assets and liabilities of the discontinued operations to the total assets and liabilities of the discontinued operations presented separately in the condensed consolidated balance sheets as indicated:

 

(in thousands)  June 30,
2017
   December 31,
2016
 
         
Carrying amounts of major classes of assets included as part of discontinued operations:          
Current assets:          
Accounts receivable, net  $584   $536 
Costs in excess of billings on uncompleted contracts   62    207 
Inventory, net   37    37 
Surety bond deposit   624     
Other current assets   108    129 
           
Total major classes of current assets of the discontinued operations   1,415    909 
           
Noncurrent assets:          
Other noncurrent assets   605    1,252 
           
Total noncurrent assets of discontinued operations   605    1,252 
           
Total assets of the discontinued operations in the balance sheet  $2,020   $2,161 
           
Carrying amounts of major classes of liabilities included as part of discontinued operations:          
Current liabilities:          
Accounts payable  $270   $285 
Accrued liabilities   350    523 
Deferred revenue and other current liabilities   113    113 
           
Total current liabilities of discontinued operations   733    921 
           
Noncurrent liabilities:          
Other liabilities   758    761 
           
Total major classes of noncurrent liabilities of the discontinued operations   758    761 
           
Total liabilities of the discontinued operations in the balance sheet  $1,491   $1,682 

 

11. Subsequent Events

 

The Company has evaluated events up to the filing date of these interim financial statements and determined that no subsequent event activity required disclosure.

 

Item 2.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 interim condensed consolidated financial statements and related footnotes. This discussion and analysis contains 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 our Form 10-K for the year ended December 31, 2016 and in this Quarterly Report for the period ended June 30, 2017.

 

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Discontinued Operations

 

During 2014, we committed to a plan to sell certain contracts and rights comprising our large commercial installations business, otherwise known as our former Commercial segment. At the same time, we determined not to enter into further large commercial installation contracts in the mainland United States. Most contracts in process at December 31, 2014 were substantially completed during 2015 and remaining work was completed in 2016. We now report this business as a discontinued operation, separate from our continuing operations. The following management discussion and analysis of financial condition and results of operations is for our continuing operations, unless indicated otherwise.

 

Overview

 

We are a residential and small business commercial solar energy engineering, procurement and construction firm. 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.

 

We, including our predecessors, have more than 39 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 25,000 residential and commercial solar energy systems since our founding.

 

During 2014, we discontinued our entire former Commercial segment and sold the assets associated with our catalog business (a portion of the Other segment). As a result of this major strategic shift, we now operate as three reportable segments: (1) Residential – the installation of solar energy systems for homeowners, including lease financing thereof, and for small businesses (small business commercial) in the continental U.S.; (2) Sunetric – the installation of solar energy systems for both homeowners and business owners (commercial) in Hawaii; and (3) Other – corporate operations. We believe this structure enables us to more effectively manage our operations and resources.

 

We experienced recurring operating losses and negative cash flow from operations in recent years. Starting with the fourth quarter of 2014, we implemented measures to reduce cash outflow for operations such that the required level of sales to achieve break-even results was reduced. These measures included (i) exiting the large commercial segment which was operating at both an operating and cash flow loss, (ii) reducing staffing levels, (iii) physically exiting the California market where its costs to operate were high, (iv) focusing on cash sales to customers and not leasing to customers, (v) negotiating lower costs for equipment, and (vi) operating initiatives designed to improve profitability such as reducing the length of cycle time for customer installations and lowering the cost of marketing.

 

Our historical operating losses have required us to raise financial capital. During the fourth quarter of 2016, we raised $16.1 million of financial capital, net of costs, and we raised an additional $16.0 million of financial capital, net of costs during the first quarter of 2017. We used a portion of the proceeds from the financial capital raised to reduce accounts payable, purchase materials to convert backlog to revenue and begin to execute our revenue growth strategy.

 

Revenue Growth Strategy

 

We estimate that to operate profitably we will require approximately $16 million in quarterly revenue. Current quarterly revenue is materially less than this amount and, accordingly, to be successful in increasing sales and resultant revenue, we are in the process of implementing a revenue growth strategy which includes the following components:

 

·Expand the size of our call center sales organization;
·Expand the size of our field sales teams on the east coast and Sunetric, small business commercial sales team, and construction organizations;
·Expand the digital marketing program, as well as increase our spending to generate greater customer leads while achieving desired cost of customer acquisition;
·Make available to our customers, additional third-party providers to finance customer acquisitions of our solar energy systems
·Expand our network of authorized third party installers; and
·Invest in innovation for future sales and profitability, such as customer-centric software, new products and services such as the sale of energy storage and energy audit services to attract new customers.

 

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.

 

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Explanation of Key Operating Metrics and Other Items

 

We regularly review a number of metrics, including the following key operating metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Some of our key operating metrics are estimates that are based on our management’s beliefs and assumptions and on information currently available to management. Although we believe that we have a reasonable basis for each of these estimates, we caution you that these estimates are based on a combination of assumptions that may prove to be inaccurate over time. Any inaccuracies could be material to our actual results when compared to our calculations. Please see the section titled “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and Item 1A of this Quarterly Report on Form 10-Q for more information. Furthermore, other companies may calculate these metrics differently than we do now or in the future, which would reduce their usefulness as a comparative measure.

 

Statement of Operations

 

We took the necessary steps to reclassify our statement of operations this quarter to help our shareholders understand better the business through the eyes of management. We concluded that it was appropriate to classify items to conform with operating metrics reported to investors and the way management evaluates financial performance. Definitions of the statement of operations is as follows:

 

Revenue from installation of solar energy systems

 

Revenue includes the contractual sales price of solar energy systems substantially completed.

 

Revenue from leasing of solar energy systems

 

Revenue includes net amortization of unearned revenue and projected expenses related to residential customer leases of solar energy systems.

 

Installation of solar energy systems expense

 

The expense of solar energy systems installed principally includes the costs of materials we purchase from manufacturers of photovoltaic equipment and the cost of personnel directly involved with the installation of solar energy systems including direct labor of our construction crews and those of third party integrators. In addition, cost of services includes the estimated cost of our limited warranty, travel costs, and fees we pay third party financiers providing loans to our customers to finance their solar energy systems.

 

Service income and expense

 

Service income includes revenue from service contracts with customers to provide maintenance on customer owned solar energy systems. In addition, it includes revenue from operating and maintenance service provided to third-party owners of portfolios of solar energy systems. Service expense includes the labor and material costs of servicing customers under service contracts and excess warranty expense over estimated warranty costs included in the expense of solar energy systems sold.

 

Customer acquisition expense

 

Customer acquisition expense principally includes compensation expense, including commissions, of our sales and marketing personal and expenses we incur to receive potential customer leads from third party providers and digital marketing. Customer acquisition expense is a key metric for us as our goal is to acquire customers at a cost enabling us to achieve a targeted contribution to recovery of overhead expenses.

 

Contract income (loss)

 

Contract income is a key metric for us because it must be in excess of our operating expenses in order to achieve break-even and better results in future periods.

 

Operating expense

 

Operating expense consists of costs associated with managing our business segments; Residential, Sunetric and Corporate. These items include administrative costs associated with sales, general and administrative expenses associated with administrative services such as product development, legal settlements, legal, information systems (including core technology and telephony infrastructure), and accounting and finance. It also includes outside professional fees (i.e., legal and accounting services), building expenses and other items associated with general business administration.

 

Derivative and other

 

Derivative and other principally include changes in fair value of derivative liabilities, loss on debt extinguishment, gain (loss) on sale of fixed assets, amortization of debt discount, and interest expense.

 

Other Key Metrics

 

Backlog

 

Backlog is discussed below and is an important metric as we implement our revenue growth strategy.

 

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Key Operational Metric, Gross Margin on Residential Segment, Our Largest Segment

 

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. We anticipate an improvement in our gross margin percentage in future periods from increased revenue from our implementation of our revenue growth strategy.

 

   Three Months Ended
June 30, 2016
   Six Months Ended
June 30, 2016
   Three Months Ended
June 30, 2017
   Six Months Ended
June 30, 2017
 
Gross margin % on actual installation time   24%   22%   20%   24%
Gross margin % including idle time   12%   9%   4%   11%

 

Backlog

 

Backlog represents the dollar amount of revenue that we may recognize in the future from signed contracts to install solar energy systems that have not yet been installed. The backlog amounts we disclose are net of cancellations and include anticipated revenues associated with (i) the original contract amounts, and (ii) change orders for which we have received written confirmations from the applicable customers. Backlog may not be indicative of future operating results, and projects in our backlog may be cancelled, modified or otherwise altered by customers. We can provide no assurance as to the profitability of our contracts reflected in backlog. Backlog is not a measure defined by GAAP, 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 following table summarizes changes to our backlog by segment during the six-month period ended June 30, 2017: 

 

(in thousands)  Residential   Sunetric   Totals 
Backlog of December 31, 2016  $6,927   $2,448   $9,375 
Bookings from new awards (“Sales”)   2,953    82    3,035 
Cancellations and reductions on existing contracts   (1,646)       (1,646)
Amounts recognized in revenue upon installation   (3,372)       (3,372)
Backlog at March 31, 2017   4,862    2,530    7,392 
Bookings from new awards (“Sales”)   6,402    1,004    7,406 
Cancellations and reductions on existing contracts   (1,870)   (545)   (2,415)
Amounts recognized in revenue upon installation   (2,204)   (494)   (2,698)
Backlog at June 30, 2017  $7,190   $2,495   $9,685 

 

We typically see an increase in the absolute number of cancellations when sales increase. Nonetheless, our net sales after cancellations more than tripled in the three months ended June 30, 2017 as compared to the three months ended June 30, 2016. Our small business commercial operations (included in our Residential segment) demonstrated especially strong growth as we increased the dedicated small commercial sales team. Further, during the second quarter of 2017, we were awarded two solarize communities in which we will begin selling to homeowners during the third quarter of 2017.

 

During the second quarter of 2017, we increased our average monthly headcount of direct sales representatives by almost 50%. With this rapid growth in our sales headcount we are intently focused on continuing to develop and implement our sales training programs to increase our team’s productivity. We believe that by supporting our growing sales force with state of the art sales training programs, we will enable them to address typical customer questions during the sales and installation processes, increasing sales and reducing cancellations.

 

We compete with larger capitalized firms for customers, employees, and the services of third party financiers and installers and, accordingly, there can be no assurance that we will be successful in meeting our goals for increasing sales and revenue.

 

Backlog is a key metric for us as our goal is to increase our backlog.

 

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Critical Accounting Policies and Estimates

 

There were no material changes to our critical accounting policies or estimates during the six months ended June 30, 2017 from those disclosed in our annual report on Form 10-K for the year ended December 31, 2016.

 

Results of Operations

 

Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016

 

Contract revenue:

 

Sale and installation of solar energy systems. Sale and installation of solar energy system revenue decreased $2.0 million, or 43.0%, to $2.7 million during the three months ended June 30, 2017, from $4.8 million during the three months ended June 30, 2016. The decrease is primarily due to a decrease in the number of installations, with 0.7 MW installed during the three months ended June 30, 2017 compared to 1.1 MW installed during the three months ended June 30, 2016. Because our backlog had declined so much until we received funding for growth in February 2017, we have been advising that our installation revenue will lag the sales growth. Because our backlog had declined until we received funding to effectively pursue our revenue growth strategy in February 2017, we predicted that our installation revenue would lag the sales growth, as previously disclosed. We experienced such a lag in the second quarter of 2017, and growing sales and our backlog is a necessary first step to growing installation revenue. It is important to note that as a result of our capital raises of $16 million in February 2017, the second quarter of 2017 is our first full quarter of operating with what we feel is appropriate working capital in place for effectively pursuing our revenue growth strategy.

 

Service. Service revenue increased $0.2 million, or 108.3%, to $0.3 million during the three months ended June 30, 2017, from $0.1 million during the three months ended June 30, 2016. The increase is primarily due to a contract entered into with a third party in the fourth quarter of 2016 to provide service work on their existing customers.

 

Contract expenses:

 

Installation of solar energy systems. Installation of solar energy system expenses decreased $1.5 million, or 36.1%, to $2.7 million during the three months ended June 30, 2017, from $4.2 million during the three months ended June 30, 2016, which is attributable to the reduction of installation revenue. Because we believe that we will enjoy future sales growth, we have continued to maintain our construction crews to meet that anticipated growth. We anticipate that our cost of idle time will decline and gross margin percentage improve, along with revenue growth.

 

Service. Service expense increased $0.2 million, or 68.7%, to $0.5 million during the three months ended June 30, 2017, from $0.3 million during the three months ended June 30, 2016. The increase is primarily due to the additional costs attributed to a contract entered into with a third party in the fourth quarter of 2016 to provide service work on their existing customers

 

Customer acquisition. Customer acquisition expense increased $0.7 million during the three months ended June 30, 2017, or 115.0%, to $1.3 million during the three months ended June 30, 2017 from $0.6 million during the three months ended June 30, 2016. This increase is primarily due to increased hiring in our sales department as well as an increase in marketing spend to obtain higher quality leads and to promote incentive programs in various states in which we operate. We have been working on what has been emerging as an industry issue – controlling customer acquisition costs. Our stated target has been to move more toward digital marketing. These leads are not only more cost effective but we have seen that they also close sales at a higher rate. This is part of our continued focus on moving away from time old tradition of costly paid leads, electing for partnering with lead providers that only get paid when we sign a contract, not just leads.

 

Operating expense. Operating expenses decreased $0.2 million, or 10.3%, to $2.5 million during the three months ended June 30, 2017, compared to $2.7 million during the three months ended June 30, 2016.

 

Litigation expense. Litigation expenses during the three months ended June 30, 2017 was $55,000 compared to $0 during the three months ended June 30, 2016. Our legal expenses may increase in subsequent periods. See Note 4, Commitments and Contingencies.

 

Derivative and other. Derivative and other income (loss) during the three months ended June 30, 2017 was $0.01 million compared to a loss of $0.6 million during the three months ended June 30, 2016. The reduction in loss during the three months ended June 30, 2017 was related to the reduction in debt and the conversion of financial derivative instruments.

 

 19 

 

  

Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

 

Contract revenue:

 

Sale and installation of solar energy systems. Sale and installation of solar energy system revenue decreased $3.5 million, or 36.5%, to $6.1 million during the six months ended June 30, 2017, from $9.6 million during the six months ended June 30, 2016. The decrease is primarily due to a decrease in the number of installations, with 1.6 MW installed during the six months ended June 30, 2017 compared to 2.3 MW installed during the six months ended June 30, 2016. Because our backlog had declined so much until we received funding for growth in February 2017, we have been advising that our installation revenue will lag the sales growth. That occurred in the second quarter of 2017, and growing sales and our backlog is a necessary first step. It is important to note that given our capital raises of $16 million in February this is our first full quarter of operating with what we feel is appropriate working capital in place for growth.

 

Service. Service revenue increased $0.3 million, or 110.4%, to $0.6 million during the six months ended June 30, 2017 from $0.3 million during the six months ended June 30, 2016. The increase is primarily due to a contract entered into with a third party in the fourth quarter of 2016 to provide service work on their existing customers.

 

Contract expenses:

 

Installation of solar energy systems. Installation of solar energy system expenses decreased $2.9 million, or 33.9%, to $5.7 million during the six months ended June 30, 2017, from $8.7 million during the six months ended June 30, 2016, which corresponds to the reduction of installation revenue during this same time comparison.

 

Service. Service expense increased slightly to $0.8 million during the six months ended June 30, 2017, from $0.6 million during the six months ended June 30, 2016. The increase is primarily due to the additional costs attributed to a contract entered into with a third party in the fourth quarter of 2016 to provide service work on their existing customers.

 

Customer acquisition. Customer acquisition expense increased $0.8 million during the six months ended June 30, 2017, or 59.0%, to $2.3 million during the six months ended June 30, 2017 from $1.4 million during the six months ended June 30, 2016. This increase is primarily due to increased hiring in our sales department as well as an increase in marketing spend to obtain higher quality leads and to promote incentive programs in various states in which we operate.

 

Operating expense. Operating expenses decreased $0.3 million, or 5.7%, to $5.4 million during the six months ended June 30, 2017 compared to $5.8 million during the six months ended June 30, 2016.

 

Litigation expense. Litigation expenses during the six months ended June 30, 2017 was $135,000 compared to $24,000 during the six months ended June 30, 2016. Our legal expenses may increase in subsequent periods. See Note 4, Commitments and Contingencies.

 

Derivative and other. Derivative and other (loss) during the six months ended June 30, 2017 was a loss of $0.4 million compared to a loss of $0.6 million during the six months ended June 30, 2016. The reduction in loss during the six months ended June 30, 2017 was related to the reduction in debt and conversion of financial derivative instruments. The loss on conversion results from the trading price of the Company’s Class A common stock being higher when converted than the effective conversion price per share to the debt holder.

 

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 energy systems, with the fourth and first quarters of the year being less sales orders than the second and third quarters.

 

Liquidity and Capital Resources

 

We experienced recurring operating losses and negative cash flow from operations in recent years. Starting with the fourth quarter of 2014, we implemented measures to reduce our cash outflow for operations such that the required level of sales to achieve break-even results was reduced. These measures included (i) exiting the large commercial segment which was operating at both an operating and cash flow loss, (ii) reducing staffing levels, (iii) physically exiting the California market where its costs to operate were high, (iv) focusing on cash sales to customers and not leasing to customers, (v) negotiating lower costs for equipment, and (vi) operating initiatives designed to improve profitability such as reducing the length of cycle time for customer installations and lowering the cost of marketing. We repaid in full and terminated our line-of-credit facility during the first quarter of 2017 as our working capital was sufficient for current operations. See Note 3, Line of Credit. We believe there are sufficient financial resources to operate for the ensuing 12 months.

 

The historical operating losses have required us to raise financial capital. During the fourth quarter of 2016, we raised $16.1 million of financial capital, net of costs and an additional $16.0 million of financial capital, net of costs during the first quarter of 2017. See Note 5, Shareholders’ Equity. We used the proceeds from the financial capital raised to reduce accounts payable, purchase materials to convert backlog to revenue and begin to execute our revenue growth strategy. The 2017 capital raises enabled us to terminate our line-of-credit facility and a Supply Agreement which had a coterminous term, resulting in a reduction of costs for materials.

 

 20 

 

  

Until we are successful in implementing our revenue growth strategy, we expect to have cash outflow from operating activities. In addition, we expect that we will have cash outflow from operating activities for the remainder of the year as we will utilize cash to increase revenue by (i) funding an anticipated level of rooftop installations for customers, (ii) expanding our e-sales and field sales organizations and (iii) increasing our marketing spend for lead generation.

 

The following table shows the number of outstanding warrants, the associated exercise prices. We do not control when the investors exercise their warrants, and, accordingly, there can be no assurance that the investors will exercise any warrants or whether we would receive any cash from the exercise of these warrants.

 

   Number of 
Exercise Price  Warrants 
$ 1.270   616,731 
$ 1.360   8,302 
$ 2.400   1,800,000 
$ 3.100   3,710,000 
$ 3.125   120,000 
$ 3.875   185,500 
$ 8.250   30,834 
Greater than  $45.000   56,590 
Total   6,527,957 

 

Warrant holders have the option of cashless exercise

  

Cash Flows

 

The following table summarizes our primary sources (uses) of cash during the periods presented:

 

   For the Six
Months Ended June 30,
 
(in thousands)  2017   2016 
Net cash provided by (used in):          
Operating activities – continuing operations  $(8,326)  $(5,328)
Operating activities – discontinued operations   (38)   213 
           
Operating activities   (8,364)   (5,115)
           
Investing activities   (370)   9 
           
Financing activities   15,539    5,002 
           
Net increase (decrease) in cash  $6,805   $(104)

 

Continuing Operations

 

Operating activities. Cash outflow from operations for the six-month period ended June 30, 2017 increased $3.2 million as compared to the six-month period ended June 30, 2016. This increase was primarily due to (i) an increase in vendor payments on prior obligations, (ii) an increase in customer acquisition expenses of $0.9 million to begin the revenue growth strategy, (iii) an increase in prepayments of $0.5 million and (iv) a reduction in gross margin of $0.4 million arising from the reduction in revenue. Our net cash used in operating activities during the six months ended June 30, 2016 was due to our net loss decreased by noncash items of $1.0 million and a net decrease in working capital assets and liabilities of $1.0 million.

 

Investing activities. During the six months ended June 30, 2017, we received proceeds of $2,000 for the sale of equipment, and purchased equipment of $372,000. During the six months ended June 30, 2016, we received proceeds of $9,000 for the sale of equipment.

 

Financing activities. Our financing activities provided net cash of $15.5 million and $5.0 million during the six months ended June 30, 2017 and 2016, respectively. Our net cash provided by financing activities during the six months ended June 30, 2017 reflected the net proceeds $0.2 million from the 2016 Note Offering, net proceeds of $16.0 million from the issuance of common stock during the February 2017 offerings, offset by repayment of our line-of-credit facility of $0.7 million. Our net cash provided by financing activities during the six months ended June 30, 2016 reflected the net proceeds received from the 2016 Note Offering of $1.5 million and additional borrowings on our line of credit of $3.5 million.

 

 21 

 

  

Discontinued Operations

 

Operating activities. Our operating activities used net cash of $38,000 and provided $0.2 million during the six months ended June 30, 2017 and 2016, respectively. The cash used by discontinued operations during the six months ended June 30, 2017 was primarily due to legal fees as compared to the six months ended June 30, 2016 where cash provided was attributable to the continued wind-down of remaining commercial projects.

 

Off-Balance Sheet Arrangements

 

We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as special purpose entities or variable interest entities, established for the purpose of facilitating off-balance sheet arrangements or other limited purposes and as a result we do not have and are not reasonably likely to have future off-balance sheet arrangements.

 

Risk Factors

 

We caution that there are risks and uncertainties that could cause our actual results to be materially different from those indicated by forward-looking statements that, from time-to-time, we make in filings with the U.S. Securities and Exchange Commission, news releases, reports, proxy statements, registration statements and other written communications as well as oral forward-looking statements made by our representatives. These risks and uncertainties include, but are not limited to, those risks set forth in Part II, Item 1A of this and other quarterly reports and listed in the section entitled “RISK FACTORS” in our Annual Report on Form 10-K for the year ended December 31, 2016 which is on file with the U.S. Securities and Exchange Commission. Except for the historical information contained herein, the matters discussed in this analysis are forward-looking statements that involve risk and uncertainties, including, but not limited to, general economic and business conditions, competition, pricing, brand reputation, consumer trends, and other factors which are often beyond our control.

 

The risks and uncertainties we have described are not the only ones facing our Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. We do not undertake any obligation to update forward-looking statements except as required by law.

 

Item 3.Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4.Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our chief executive officer and principal financial officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and Rule 15d-15(e) under the Exchange Act. Based upon their evaluation as of June 30, 2017, they have concluded that those disclosure controls and procedures are effective.

 

Changes in Internal Control over Financial Reporting

 

No changes in our internal control over financial reporting occurred during the three months ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1.Legal Proceedings

 

From time to time, we are involved in legal proceedings that we consider to be in the normal course of business.

 

As previously disclosed in the Company’s Quarterly Report on Form 10-Q for the first quarter of 2017, on February 16, 2017, Alpha Capital Anstalt, an investor in the Company’s February 6, 2017 public offering of common stock and warrants, filed a lawsuit against Roth Capital Partners, LLC, the Company’s investment banking firm in the offering, and the Company in U.S. District Court for the Southern District of New York. Alpha’s lawsuit alleges that the registration statement for the February 6, 2017 offering contained material misstatements or omissions and that the Company had breached contractual obligations owed to Alpha. Alpha seeks unspecified monetary damages, rescission and other unspecified relief in the lawsuit. The Company disputes Alpha’s allegations and intends to vigorously defend itself in the lawsuit.  Under local court rules, the Company filed a letter motion seeking permission to file a motion to dismiss the claims related to the alleged misstatements and omissions in the complaint. On May 12, 2017, Alpha Capital filed an amended complaint removing the fraud-related claims and leaving only breach of contract claims against the Company. The Company does not expect to incur any material charges in connection with this lawsuit and, as of June 30, 2017, the Company has not recorded a liability associated with this lawsuit. However, the Company expects its litigation expense to increase in the near future as a result thereof.

 

 22 

 

  

On May 1, 2017, Roth Capital Partners, LLC requested indemnification by the Company for its legal expenses related to this lawsuit under the terms of the Placement Agency Agreement associated with the February 6, 2017 offering. The Company, under the circumstances, disputes the request for indemnification.

 

Item 1A.Risk Factors

 

Except for the risk factor appearing below, there have been no material changes from the risk factors disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

 

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 have not paid bonuses in over two years and do not have a significant amount of employee stock options or other equity incentive awards available to issue. If we are unable to pay bonuses or issue stock options or other equity incentive awards in the future, we may lose the services of members of our management team or other key personnel, and our business may be significantly impaired. In addition, we cannot assure you that we will be able to attract additional qualified senior executive and management personnel.

 

An increase in our cost of materials could arise if the United States imposes trade remedies on imported crystalline silicon photovoltaic cells and modules.

 

In April 2017, Suniva, a US-based manufacturer of solar panels in bankruptcy, filed a safeguard petition under Section 201 of the Trade Act of 1974 requesting that the U.S. International Trade Commission recommend that the President impose trade remedies on imported crystalline silicon photovoltaic cells and modules in the form of an initial duty rate on imported solar cells of $0.40/watt and an initial minimum price on imported solar modules of $0.78/watt. The potential threat of increased costs on modules is causing shortages within the marketplace as developers and contractors build up their supply of panels, rather than risk a price increase in the future, and may affect our revenue in future periods.

 

 23 

 

  

Item 6.Exhibits.

 

Exhibit No.   Description 
     
3.1   Articles of Incorporation of Real Goods Solar, Inc. (Incorporated by reference to Exhibit 3.1 to Real Goods Solar, Inc.’s Quarterly Report on Form 10-Q filed May 10, 2017 (Commission File No. 001-34044))
     
3.2   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, Inc.’s Quarterly Report on Form 10-Q filed May 10, 2017 (Commission File No. 001-34044))
     
3.3   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))
     
10.1*   Master Services Agreement, dated May 23, 2017, between Real Goods Solar, Inc. and Mobomo, LLC
     
10.2*   Statement of Work, dated May 24, 2017, between Real Goods Solar, Inc. and Mobomo, LLC
     
31.1   Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 (filed herewith)
     
31.2   Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 (filed herewith)
     
32.1   Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
     
32.2   Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
     
101.INS*   XBRL Instance Document
     
101.SCH*   XBRL Taxonomy Extension Schema
     
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF*   XBRL Taxonomy Extension Definition Linkbase
     
101.LAB*   XBRL Taxonomy Extension Label Linkbase
     
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase

 

 

* Filed herewith
** Furnished herewith

 

 24 

 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.

 

        Real Goods Solar, Inc.
        (Registrant)
       
Date: August 9, 2017       By:  

/s/ Dennis Lacey

            Dennis Lacey
           

Chief Executive Officer and Director

(authorized officer)

       
Date: August 9, 2017       By:  

/s/ Alan Fine

            Alan Fine
            Principal Financial Officer and Treasurer

 

Date: August 9, 2017       By:   /s/ Thomas Mannik
            Thomas Mannik
            Principal Accounting Officer and Controller

 

 25 

 

  

EXHIBIT INDEX

 

Exhibit No.   Description 
     
3.1   Articles of Incorporation of Real Goods Solar, Inc. (Incorporated by reference to Exhibit 3.1 to Real Goods Solar, Inc.’s Quarterly Report on Form 10-Q filed May 10, 2017 (Commission File No. 001-34044))
     
3.2   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, Inc.’s Quarterly Report on Form 10-Q filed May 10, 2017 (Commission File No. 001-34044))
     
3.3   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))
     
10.1*   Master Services Agreement, dated May 23, 2017, between Real Goods Solar, Inc. and Mobomo, LLC
     
10.2*   Statement of Work, dated May 24, 2017, between Real Goods Solar, Inc. and Mobomo, LLC
     
31.1   Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 (filed herewith)
     
31.2   Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 (filed herewith)
     
32.1   Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
     
32.2   Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
     
101.INS*   XBRL Instance Document
     
101.SCH*   XBRL Taxonomy Extension Schema
     
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF*   XBRL Taxonomy Extension Definition Linkbase
     
101.LAB*   XBRL Taxonomy Extension Label Linkbase
     
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase

 

 

* Filed herewith
** Furnished herewith

 

 26 

  

Exhibit 10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 10.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 31.1

 

CERTIFICATION

 

I, Dennis Lacey, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Real Goods Solar, Inc.;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 9, 2017

 

 

/s/ Dennis Lacey

  Dennis Lacey
 

Chief Executive Officer and Director

(Principal Executive Officer)

 

 

 

 

Exhibit 31.2

 

CERTIFICATION

 

I, Alan Fine, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Real Goods Solar, Inc.;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 9, 2017

 

 

/s/ Alan Fine

  Alan Fine
  Principal Financial Officer and Treasurer

 

 

 

 

Exhibit 32.1

 

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Real Goods Solar, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2017, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis Lacey, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

(1)The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 9, 2017

 

/s/ Dennis Lacey

  Dennis Lacey
  Chief Executive Officer and Director
  (Principal Executive Officer)

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

 

 

 

 

Exhibit 32.2

 

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350

 

In connection with the Quarterly Report of Real Goods Solar, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2017, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Alan Fine, Principal Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1)The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 9, 2017

 

/s/ Alan Fine

  Alan Fine
  Principal Financial Officer and Treasurer

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.