UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark
one)
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December
31, 2008
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or
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TRANSITION
REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from
_____________ to _____________
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Commission file number:
001-33695
AKEENA SOLAR, INC.
(Exact name of registrant as specified
in its charter)
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Delaware
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90-0181035
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S.
Employer
Identification
No.)
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16005 Los Gatos
Boulevard
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Los Gatos, California
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95032
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(Address of principal executive offices)
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(Zip
Code)
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(408) 402-9400
(Registrant’s telephone number,
including area code)
Securities registered pursuant to
Section 12(b) of the Act:
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Common Stock, par value $0.001
per share
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The NASDAQ Stock Market
LLC
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(Title of
each
class)
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(Name of each exchange on which
registered)
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Securities registered pursuant to
Section 12(g) of the Exchange Act:
None
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No x
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the
Act.
Yes o No x
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act 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 requirements for the past 90 days.
Yes x No o
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference to Part III
of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large accelerated
filer o
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Accelerated
filer x
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
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Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Act).
Yes o No x
The
aggregate market value of the Common Stock held by non-affiliates of the
registrant, based on the closing sales price of the Common Stock as reported on
The NASDAQ Capital Market on June 30, 2008, was approximately
$119.2 million. For purposes of this computation, all officers and
directors of the registrant are deemed to be affiliates.
As of March 5, 2009, 31,539,961 shares of common stock of the registrant were
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Selected
portions of the Registrant’s definitive proxy statement for the 2009 annual
meeting of stockholders are incorporated by reference into Part III of this
Form 10-K.
AKEENA SOLAR, INC.
TABLE OF CONTENTS
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Page No.
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PART I
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Item 1
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Business
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2
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Item 1A
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Risk
Factors
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9
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Item 1B
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Unresolved Staff
Comments
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15
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Item 2
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Properties
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15
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Item 3
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Legal
Proceedings
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15
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Item 4
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Submission of Matters to a Vote of
Security Holders
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16
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PART II
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Item 5
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Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
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17
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Item 6
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Selected Financial
Data
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19
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Item 7
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Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
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20
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Item 7A
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Quantitative and Qualitative
Disclosures About Market Risk
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28
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Item 8
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Financial Statements and
Supplementary Data
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29
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Item 9
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Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure
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50
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Item 9A
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Controls and
Procedures
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50
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Item 9B
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Other
Information
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52
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PART III
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Item 10
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Directors, Executive
Officers and
Corporate Governance
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52
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Item 11
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Executive
Compensation
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52
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Item 12
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Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters
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52
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Item 13
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Certain Relationships and Related
Transactions, and Director Independence
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52
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Item 14
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Principal Accounting Fees and
Services
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52
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Part IV
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Item 15
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Exhibits, Financial Statement
Schedules
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53
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SIGNATURES
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55
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Exhibit
Index
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56
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As used in this Annual Report on Form
10-K, unless otherwise indicated, the terms “we,” “us,” “our” and “the Company”
refer to Akeena Solar, Inc. and its subsidiaries.
Our Annual Report on Form 10-K for 2008,
and information we provide in our Annual Report to Stockholders, press releases,
telephonic reports and other investor communications, including those on our
website, may contain forward-looking statements with respect to anticipated
future events and our projected financial performance, operations and
competitive position that are subject to risks and uncertainties that could
cause our actual results to differ materially from those forward-looking
statements and our expectations.
Forward-looking statements can be
identified by the use of words such as “expects,” “plans,” “will,” “may,”
“anticipates,” “believes,” “should,” “intends,” “estimates” and other words of
similar meaning. These statements constitute forward-looking statements within
the meaning of the Safe Harbor Provisions of the Private Securities Litigation
Reform Act of 1995. These statements are subject to risks and uncertainties that
may cause actual results to differ materially from those expressed or implied by
these forward-looking statements. These forward-looking statements reflect our
then current beliefs, projections and estimates with respect to future events
and our projected financial performance, operations and competitive
position.
Such risks and uncertainties include,
without limitation, our ability to raise capital to finance our operations, the
effectiveness, profitability and the marketability of our services, our ability
to protect our proprietary information, general economic and business
conditions, the impact of technological developments and competition, adverse
results of any legal proceedings, the impact of current, pending or future
legislation and regulation of the solar power industry, our ability to enter
into acceptable relationships with one or more manufacturers for solar panel
components and the ability of such contract manufacturers to manufacture
products or components of an acceptable quality on a cost-effective basis, our
ability to attract or retain qualified senior management personnel, including
sales and marketing and technical personnel and other risks detailed from time
to time in our filings with the SEC, including those described at the end of
Item 1 below. We do not undertake any obligation to update any forward-looking
statements.
Item 1.
Business.
Overview
We are a designer, integrator and
installer of solar power systems. We market, sell, design and install systems
for residential and commercial customers, sourcing components (such as solar
panels and inverters) from manufacturers such as Suntech, Kyocera Fronius and SMA. We have served
customers in California, New York, New Jersey, Pennsylvania, Colorado and Connecticut. According to data compiled by the
California Energy Commission, the Solar Electric Power Association and the New
Jersey Clean Energy Program, over the past four years we have been one of the
largest national integrators of residential and commercial solar electric power
systems in the United
States. We are a member of
the Solar Energy Industry Association, the California Solar Energy Industries
Association, the Northern California Solar Energy Association, the Independent
Power Providers, the Solar Energy Business Association of New England, and the
New York Solar Energy Industries Association. To date, we have installed over
3,000 solar power systems and since the commencement of our operations in 2001,
our sales have steadily grown to approximately $40.8 million in
2008.
We were formed as a Nevada corporation on July 29, 2005, under the
name Fairview Energy Corporation, Inc. (“Fairview”), and on August 4, 2006, were
reincorporated in the State of Delaware. On August 11, 2006, we consummated a
reverse merger (the “Merger”) with a privately-held company called Akeena Solar,
Inc. (“Akeena-Private”), pursuant to which the privately-held company, renamed
Akeena Corp., became a wholly-owned subsidiary of ours and we renamed our
company Akeena Solar, Inc. We had been in the development stage since our
inception and had not commenced business operations prior to the Merger.
Akeena-Private was incorporated in the State of California on February 23, 2001 under the name
Akeena, Inc., and on June 2, 2006, was reincorporated in the State of
Delaware under the name Akeena Solar, Inc. As a
result of the Merger, we succeeded to Akeena-Private’s line of business as our
sole line of business.
As of March 5, 2009, we had nine
offices. Our offices are located in Los Gatos, Fresno (Clovis), Lake Forest,
Santa Rosa, Palm Springs, San Diego and Thousand Oaks (Westlake Village),
California, as well as in Denver, Colorado and Milford, Connecticut. Our
Corporate headquarters are located at 16005 Los Gatos Boulevard, Los Gatos,
California 95032. Our telephone number is (408) 402-9400. Additional information
about Akeena Solar is available on our website at http://www.akeena.com.
The information on our web site is not incorporated herein by
reference.
2
Strategy
Our philosophy is simple: “we believe
that producing clean electricity directly from the sun is the right thing to do
for our environment and economy.” Since our founding, we have concentrated on
serving the solar power needs of residential and commercial customers tied to
the electric power grid.
The solar power industry is still at an
early stage of its growth and is highly fragmented. The prospects for long-term
worldwide demand for solar power have attracted many new solar panel
manufacturers, as well as a multitude of design/integration companies in our
market segment. We expect the manufacturing segment of the industry to
consolidate as more solar panel manufacturing capacity comes online. We also
expect there to be consolidation in the design/integration segment of the
industry based mostly on branding, development of new technology and business
process improvements.
Accordingly, our growth strategy
primarily includes:
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Developing and commercializing our
solar panel technology optimized for the residential and commercial
markets.
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Reducing installation costs and
improving the aesthetics and performance of solar systems compared to
ordinary, commercially available solar
equipment.
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Promoting and enhancing our
company's brand name and
reputation.
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Developing and utilizing a
process-driven approach to sell and install our solar power systems in
diverse geographic markets.
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Based on our experience as a solar power
designer and integrator, we believe we understand certain areas in which costs
for installations can be significantly reduced. We have introduced a new “plug
and play” solar panel technology (“Andalay”) which we believe will significantly
reduce the installation time, parts and costs, as well as provide superior
reliability and aesthetics for customers, when compared to other solar panel
mounting products and technology.
In
February 2009, we announced a strategic partnership with Enphase Energy, a
leading manufacturer of microinverter products, to develop and market Andalay
solar panel systems with ordinary AC house current output instead of high
voltage DC output. We expect to introduce Andalay AC panel products and to begin
offering them to our customers in the second half of 2009. Andalay AC panels are
expected to cost less to install and provide higher efficiency than ordinary DC
panels.
Industry
Electric power is used to operate
businesses, industries, homes, offices and provides the power for our
communications, entertainment, transportation and medical needs. As our energy
supply and distribution mix changes, electricity is likely to be used more for
local transportation (electric vehicles) and space/water heating needs.
According to the Edison Electric Institute, the electric power industry in the
U.S. is over $218 billion in size, and will
continue to grow with our economy.
According to the U.S. Department of
Energy (DOE), electricity is generated from the following: coal - 51%, nuclear
-21%, gas - 16%, hydro - 6%, and oil - 3%, with renewable energy contributing
3%. “Renewable Energy” typically refers to non-traditional energy sources,
including solar energy. Due to continuously increasing energy demands, we
believe the electric power industry faces the following
challenges:
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Limited Energy
Supplies. The primary
fuels that have supplied this industry, fossil fuels in the form of oil,
coal and natural gas, are limited. Worldwide demand is increasing at a
time that industry experts have concluded that supply is limited.
Therefore, the increased demand will probably result in increased prices,
making it more likely that long-term average costs for electricity will
continue to increase.
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Generation,
Transmission and Distribution Infrastructure Costs. Historically, electricity has
been generated in centralized power plants transmitted over high voltage
lines, and distributed locally through lower voltage transmission lines
and transformer equipment. As electricity needs increase, these systems
will need to be expanded. Without further investments in this
infrastructure, the likelihood of power shortages (“brownouts” and
“blackouts”) may increase.
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Stability of
Suppliers. Since many
of the major countries who supply fossil fuel are located in unstable
regions of the world, purchasing oil and natural gas from these countries
may increase the risk of supply shortages and cost
increases.
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Environmental
Concerns and Climate Change. Concerns about global warming
and greenhouse gas emissions has resulted in the Kyoto Protocol various
states enacting stricter emissions control laws and utilities in several
states being required to comply with Renewable Portfolio Standards, which
require the purchase of a certain amount of power from renewable
sources.
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3
Solar energy is the underlying energy
source for renewable fuel sources, including biomass fuels and hydroelectric
energy. By extracting energy directly from the sun and converting it into an
immediately usable form, either as heat or electricity, intermediate steps are
eliminated. We believe, in this sense, solar energy is one of the most direct
and unlimited energy sources.
Solar energy can be converted into
usable forms of energy either through the photovoltaic effect (generating
electricity from photons) or by generating heat (solar thermal energy). Solar
thermal systems include traditional domestic hot water collectors (DHW),
swimming pool collectors, and high temperature thermal collectors (used to
generate electricity in central generating systems). DHW thermal systems are
typically distributed on rooftops so that they generate heat for the building on
which they are situated. High temperature thermal collectors typically use
concentrating mirror systems and are typically located in remote
sites.
According to SolarBuzz, a research and
consulting firm, the global solar power market, as defined by solar power system
installations, had an estimated $17.2 billion in revenue in 2007. The
U.S. solar power installation market
comprised approximately 8% of the total global market installations, reaching
approximately 220 megawatts installed during 2007. According to Solarbuzz,
the residential and small commercial market segments represent approximately 65%
of the U.S. market and are expected to continue to
do so through 2010.
Anatomy of a Solar Power
System
Solar power systems convert the energy
in sunlight directly into electrical energy within solar cells based on the
photovoltaic effect. Multiple solar cells, which produce DC power, are
electrically interconnected into solar panels. A typical 180 watt solar panel
may have 72 individual solar cells. Multiple solar panels are electrically wired
together. The number of solar panels installed on a building are generally
selected to meet that building’s annual electrical usage, or selected to fill
available un-shaded roof or ground space. Solar panels are electrically wired to
an inverter, which converts the power from DC to AC and interconnects with the
utility grid. The following diagram schematically shows a typical solar power
system:
Solar
Electric Cells. Solar
electric cells convert light energy into electricity at the atomic level. The
conversion efficiency of a solar electric cell is defined as the ratio of the
sunlight energy that hits the cell divided by the electrical energy that is
produced by the cell. By improving this efficiency, we believe solar electric
energy becomes competitive with fossil fuel sources. The earliest solar electric
devices converted about 1%-2% of sunlight energy into electric energy. Current
solar electric devices convert 5%-25% of light energy into electric energy (the
overall efficiency for solar panels is lower than solar cells because of the
panel frame and gaps between solar cells), and current mass produced panel
systems are substantially less expensive than earlier systems. Effort is the
industry is currently being directed towards the development of new solar cell
technology to reduce per watt costs and increase area
efficiencies.
Solar
Panels. Solar electric
panels are composed of multiple solar cells, along with the necessary internal
wiring, aluminum and glass framework, and external electrical connections.
Although panels are usually installed on top of a roof or on an external
structure, certain designs include the solar electric cells as part of
traditional building materials, such as shingles and rolled out roofing. Solar
electric cells integrated with traditional shingles is usually most compatible
with masonry roofs and, while it may offset costs for other building materials
and be aesthetically appealing, it is generally more expensive than traditional
panels.
Inverters. Inverters convert the DC power from
solar panels to the AC power used in buildings. Grid-tie inverters synchronize
to utility voltage and frequency and only operate when utility power is stable
(in the case of a power failure these grid-tie inverters shut down to safeguard
utility personnel from possible harm during repairs). Inverters also operate to
maximize the power extracted from the solar panels, regulating the voltage and
current output of the solar array based on sun intensity.
4
Monitoring. There are two basic approaches to
access information on the performance of a solar power system. We believe that
the most accurate and reliable approach is to collect the solar power
performance data locally from the inverter with a hard-wired connection and then
transmit that data via the internet to a centralized database. Data on the
performance of a system can then be accessed from any device with a web browser,
including personal computers and cell phones. As an alternative to web-based
remote monitoring, most commercial inverters have a digital display on the
inverter itself that shows performance data and can also display this data on a
nearby personal computer with a hard-wired or wireless
connection.
Net
Metering. The owner of a
grid-connected solar electric system may not only buy, but may also sell,
electricity each month. This is because electricity generated by the solar
electric system can be used on-site or fed through a meter into the utility
grid. Utilities are required to buy power from owners of solar electric systems
(and other independent producers of electricity) under the Public Utilities
Regulatory Policy Act of 1978 (PURPA). California’s net metering law provides that all
utilities must allow customers with solar electric systems rated up to 1.5
megawatts (“ mW”) to interconnect with the local utility grid and receive retail
value for the electricity produced. When a home or business requires more
electricity than the solar power array is generating (for example, in the
evening), the need is automatically met by power from the utility grid. When a
home or business requires less electricity than the solar electric system is
generating, the excess is fed (or sold) back to the utility and the electric
meter actually spins backwards. Used this way, the utility serves as a backup to
the solar electric similar to the way in which batteries serve as a backup in
stand-alone systems.
Solar Power Benefits
The direct conversion of light into
energy offers the following benefits compared to conventional energy
sources:
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Economic — Once a solar power system is
installed, the cost of generating electricity is fixed over the lifespan
of the system. There are no risks that fuel prices will escalate or fuel
shortages will develop. In addition, cash paybacks for systems range from
5 to 25 years, depending on the level of state and federal incentives,
electric rates, annualized sun intensity and installation costs. Solar
power systems at customer sites generally qualify for net metering to
offset a customer’s highest electric rate tiers, at the retail, as opposed
to the wholesale, electric
rate.
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Convenience — Solar power systems can be
installed on a wide range of sites, including small residential roofs, the
ground, covered parking structures and large industrial buildings. Solar
power systems also have few, if any, moving parts and are generally
guaranteed to operate for 25 years resulting, we believe, in low
maintenance and operating costs and reliability compared to other forms of
power generation.
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Environmental — We believe solar power systems
are one of the most environmentally friendly way of generating
electricity. There are no harmful greenhouse gas emissions, no wasted
water, no noise, no waste generation and no particulates. Such benefits
continue for the life of the
system.
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Security — Producing solar power improves
energy security both on an international level (by reducing fossil energy
purchases from hostile countries) and a local level (by reducing power
strains on local electrical transmission and distribution
systems).
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Infrastructure — Solar power systems can be
installed at the site where the power is to be used, thereby reducing
electrical transmission and distribution costs. Solar power systems
installed and operating at customer sites may also save the cost of
construction of additional energy infrastructure including power plants,
transmission lines, distribution systems and operating
costs.
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We believe escalating fuel costs,
environmental concerns and energy security make it likely that the demand for
solar power systems will continue to grow. The federal government, and several
states, have put a variety of incentive programs in place that directly spur the
installation of grid-tied solar power systems, so that customers will “purchase”
their own power generating system rather than “renting” power from a local
utility. These programs include:
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Rebates — to customers (or to installers)
to reduce the initial cost of the solar power system, generally based on
the size of the system. California, New Jersey, New York, Connecticut, Colorado and other states have rebates
that can substantially reduce initial
costs.
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Renewable
Energy Grants – the
federal government will provide grants equal to 30% of the cost of
commercial
solar power systems
placed in service in 2009 and 2010, and solar power systems that are not
placed into service prior to December 31, 2010 qualify for the
grants so long as construction begins prior to
December 31, 2010 and they are placed into service by December 31,
2017.
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Tax
Credits — federal and
state income tax offsets directly reducing ordinary income tax.
New York and California currently offer state
tax credits. There is
currently a 30%
federal tax credit
for residential and
commercial solar
power
systems. Commercial
customers can elect either a 30% cash payment from the federal grant
program or the traditional tax credit. Effective from the beginning
of 2009, the $2,000 cap on the federal tax credit for residential solar
power systems has been removed, and that credit is now
uncapped.
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5
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Accelerated
Depreciation — solar
power systems installed for businesses (including applicable home offices)
are generally eligible for accelerated
depreciation.
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Net
Metering — provides a
full retail credit for energy
generated.
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Feed-in
Tariffs — are
additional credits to consumers based on how much energy their solar power
system generates. Feed-in Tariffs set at appropriate rates have been
successfully used in Europe to accelerate
growth.
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Renewable
Portfolio Standards —
require utilities to deliver a certain percentage of power generated from
renewable energy sources.
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Renewable
Energy Credits (RECs)
— are additional credits provided to customers based on the amount of
renewable energy they
produce.
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Solar Rights
Acts — state laws to
prevent unreasonable restrictions on solar power systems. California’s Solar Rights Act has been
updated several times in past years to make it easier for customers of all
types and in all locations to install a solar power
system.
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PPA's — Power Purchase Agreements, or
agreements between a solar power system purchaser and an electricity user
under which electricity is sold/purchased on a long-term
basis.
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According to PV News, California and New Jersey account for approximately 90% of the
U.S. residential market. We believe this is
largely attributable to the fact that they currently have the most attractive
incentive programs. The California Solar Initiative provides $3.2 billion of
incentives toward solar development over 11 years. In addition, recently
approved regulations in New
Jersey require solar
photovoltaic power to provide 2% of New Jersey’s electricity needs by 2020, requiring
the installation of 1,500 megawatts of solar electric power. According to DSIRE
(the Database of State Incentives for Renewable Energy) at least 18 other states
also have incentive programs. We expect that such programs, as well as Federal
grants, tax rebates and other incentives, will continue to drive growth in the
solar power market for the near future.
Challenges Facing The Solar Power
Industry
We believe the solar power industry
faces three key challenges:
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Improve
Customer Economics —
In most cases, the cost to customers for electricity produced by a solar
power system at the customer’s site is comparable to conventional,
utility-generated power. We believe lower equipment (primarily solar
panels) and installation costs would reduce the total cost of a system and
increase the potential market for solar
power.
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Increase
System Performance and Reliability — We believe that a design that
incorporates factory assembly of an integrated solar power system versus
field assembly provides a more reliable solution. A system with these
characteristics will deliver improved system performance and allow the
customer to achieve the shortest possible
payback.
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Improve
Aesthetics — We
believe that customers prefer solar panels that blend into existing roof
surfaces with fewer shiny parts, mounted closely to the roof surface and
have more of a “skylight” appearance than the traditional rooftop metal
framed solar panels raised off the
roof.
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Competition
The solar power design and integration
industry is in its early stages of development and is highly fragmented,
consisting of many small privately-held companies with limited operating
histories and information available to us. We believe our major competitors in
the California market include SPG (formerly SunPower
and Geothermal), ReGrid, Borrego and Solarcity. Several companies have expanded
their market share in the California market by opening multiple offices
within the state. We believe our major competitors in the Northeastern market
include: Trinity Heating and Air, NJ Solar Power, The Solar Center, Energy
Enterprises, 1st Light Energy, GeoGenix, SunFarm, and Advanced Solar Products.
We believe our major national competitors include REC Solar (formerly Renewable
Energy Concepts), Suntechnics and PowerLight.
We believe the principal competitive
factors in the solar power services industry include:
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quality of
service;
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price;
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company
reputation;
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installation technology;
and
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responsiveness to customer
needs
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We believe that our competitive
advantages as a national designer and integrator of solar power systems
include:
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Reduced System
Installation Costs.
Our proprietary panel technology enables us to simplify and reduce the
cost of installation.
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Brand
Recognition.
According to data
from the California Solar Initiative, we ended the fourth
quarter of
2008 with the second
highest residential market share, with greater share than the four
following installers combined. We believe that the strength of
the Akeena brand and reputation along with being a public company are key
factors in the decision process as consumers consider solutions to their
solar power needs.
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Experienced
Management Team. Our
Founder and CEO
has been involved in
solar power development since the 1970s and has been in the solar power
industry since its infancy. Among other roles, our CFO
was previously the
CFO of a Fortune 500 media company and our EVP of Sales and
Marketing previously
served as President/Publisher,
VP/Advertising and
CFO for two major metropolitan newspapers. We believe this experience enables
us to anticipate trends and identify superior products and technologies
for our customers.
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Superior
Product. We have
introduced our Andalay technology which we believe will significantly
reduce the installation time, parts and costs, as well as provide superior
reliability and aesthetics for customers when compared to other solar
panel mounting products and technology. Andalay offers the following
advantages to our customers: (i) mounts closer to the roof with less space
in between panels; (ii) all black appearance with no unsightly racks
underneath or beside panels; (iii) built-in wiring connections; (iv) 70%
fewer roof-assembled parts and 50% less roof-top labor required; (v) 25%
fewer roof attachment points; (vi) complete compliance with the National
Electric Code and UL wiring and grounding
requirements.
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Our Services and
Products
Many companies play a role in creating
solar power systems, including companies specializing in the
following:
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Silicon Refiners — companies that
produce refined silicon, a material that has historically been used as the
primary ingredient for solar panels. Other materials may be used as the
primary ingredient in the
future.
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Wafer and Cell Manufacturers —
companies that manufacture the electricity generating solar
cells.
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Panel Manufacturers — companies
that assemble solar cells into solar panels, generally laminating the
cells between glass and plastic film, and attaching the wires and panel
frame.
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Distributors — companies that
purchase from manufacturers and resell to designers/ integrators and other
equipment resellers.
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Designer/Installer — companies
that sell products to end user
customers.
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We are active in the solar power
industry as a designer and installer.
Solar Power System Design and
Installation
We provide marketing, sales, design,
construction, installation, maintenance, support and related solar power system
services to residential and small commercial customers in the United States in locations in which the economics are
favorable to solar power. We provide our customers with a single point of
contact for their system design, engineering work, building permit, rebate
approval, utility hookup and subsequent maintenance. We use our own crews or
contractors, and perform engineering and design work with in-house staff and
outside engineering firms. We concentrate on solar power
systems.
We concentrate on the design and
installation of grid-tied solar power systems. These systems are electrically
connected to the utility grid so that excess energy produced during the day
flows backwards through the utility’s electric meter, actually running the
electric meter backwards. The meter will run backwards when the power produced
by the solar system is greater than the power needs of the building. During the
evenings or on cloudy days, energy is drawn from the grid normally and the meter
runs forwards. Most utilities serving the areas in which we install systems
allow for “net metering.” Customers on net metering only pay for the net amount
of energy they consume during the year, essentially getting full retail credit
for the energy they transmit back onto the utility grid during the day. We
typically do not install off-grid systems (systems in which there is no utility
service, such as a remote cabin), nor do we typically install battery backup
systems or solar thermal systems.
7
Andalay Solar Panel
Technology
Based on our experience as a solar power
designer and integrator over the past seven years, we believe we understand
certain areas in which costs for installations can be significantly reduced. We
have introduced a new “plug and play” solar panel technology (“Andalay”) which
we believe will significantly reduce the installation time and costs, as well as
provide superior reliability and aesthetics, when compared to other solar
panels. Andalay offers the following features: (i) mounts closer to the roof
with less space in between panels; (ii) all black appearance with no unsightly
racks underneath or beside panels; (iii) built-in wiring connections; (iv) 70%
fewer roof-assembled parts and 50% less labor required; (v) 25% fewer roof
attachment points; (vi) complete compliance with the National Electric Code and
UL wiring and grounding requirements. We have applied for U.S. and international patents for
Andalay.
Installation costs for a solar power
system are generally proportional to the area of panels installed. Thin film and
amorphous solar cell technologies, although less expensive on a cost per watt
basis, are generally less efficient (producing fewer watts per square foot) and
more expensive to install. Therefore, we believe that Andalay becomes even more
useful for the new generation of less expensive but lower efficiency solar
panels. Andalay is generally applicable to all framed rooftop solar cell
technologies, including silicon, amorphous, thin film and
concentrators.
Customers
Our current residential customers are
generally highly educated, high-income professionals who are concerned about the
environment and also have the disposable income to install a solar power system.
We have installed solar power systems in some of the most affluent counties in
California, New Jersey, Connecticut and Colorado. Installation sizes for our residential
customers range from 1.5 kW up to 35 kW. Average residential size systems are
approximately 5 kW.
Our current commercial customers are
owner occupied businesses, including wineries and small commercial offices in
California. We have installed commercial systems
ranging in size from 10 kW to 400 kW.
Suppliers
The components used in our systems are
purchased from a limited number of manufacturers. Suntech, Kyocera Fronius and
SMA accounted for over 90% of our purchases of photovoltaic panels during 2008.
Pursuant to our agreement with Suntech Power Holdings Co. Ltd. (“Suntech”),
Suntech will provide us with volume manufacturing and delivery of our Andalay
product. We are subject to market price fluctuations for the components that we
purchase for our installations. We also entered into an agreement with Kyocera
Solar Inc. (“Kyocera”) during March 2008. Under the Kyocera agreement, Kyocera
will manufacture Andalay panels utilizing their high efficiency solar cells and.
Kyocera is our preferred supplier for up to 10 MW of products for our commercial
installations.
Sales and Marketing
Our sales and marketing program
incorporates a mix of print, web and radio advertisements as well as
participation in industry trade shows and individual consultations with
prospective customers. In addition, we rely heavily on the skill of our sales
team. Our residential sales staff are trained to design a system that best meets
a customer’s needs, taking into account the unique installation and
economic requirements for
each location. Our commercial sales people take a more consultative, long-term
selling approach to meet the varying needs of larger customers. Our sales
process typically includes, a determination that a potential customer’s site has
the required exposure for solar power, a site visit and a survey with our
proprietary software that analyzes current utility rate options, current
electric rates, system performance, tax rate scenarios, equipment costs,
installation costs, incentives and other factors applicable to a specific
customer’s circumstances.
We currently provide a five-year or
ten-year warranty on our system installation. Solar panels and inverters
are excluded from this warranty since they are covered under the manufacturer’s
warranty (generally 25 years and 10 years, respectively).
We regularly evaluate the effectiveness
of our sales team and marketing efforts using sales management software and make
tactical marketing and sales changes as indicated to achieve and maintain cost
effectiveness. Solar system design work is facilitated by our proprietary
software which provides certain controls on price, margins, performance
estimates, financial analyses and contract terms so that we can standardize our
product offerings while still customizing a system for each
application.
Intellectual
Property
Andalay Solar Panel
We have
been issued U.S. Patent #7,406,800 from the United States Patent and Trademark
Office which covers key claims of our Andalay solar panel technology. Several
other of our patent applications covering Andalay are currently
pending.
Trademarks
We have registered the trademark
“Akeena” with the United States Patent and Trademark Office for providing
consulting services in the field of energy systems, technical information via a
global computer network in the field of renewable energy systems, and renewable
energy systems, namely, photovoltaic systems composed of photovoltaic solar
panels, batteries, voltage regulators, inverters, racks and electrical controls,
as well as the installation of such systems.
8
We have also registered the trademarks
“Double Your Power” and “Andalay” with the United States Patent and Trademark
Office for two goods classes: providing computer software for photovoltaic
systems for evaluating electric consumption, determining system sizing,
estimating electrical output, estimating customer costs, and estimating
financial life cycle savings, for use by consumers and businesses; and,
installation of renewable energy systems, namely photovoltaic systems composed
of solar panels, batteries, voltage regulators, inverters, racks and electrical
controls. Additionally, we have applications currently pending with the United
States Patent and Trademark Office to expand the goods classes for “Double Your
Power” and “Andalay.”
Proprietary Design
Software
We have developed solar design
proprietary software to perform the necessary site survey, initial design work,
system performance, financial analysis, report generation and contract
preparation required for installation of a solar power system in a single visit,
for most residential customers. This software analyzes current utility rate
options, current electric rates, system performance, tax rate scenarios,
equipment costs, installation costs, incentives and other factors applicable to
a specific customer’s circumstances. By using this software, we are able to
standardize our product offerings, improve consistency in our project pricing,
improve accuracy and consistency in cost estimates, and differentiate our
customer presentations from that of our competitors.
Employees
As of March 3, 2009, Akeena Solar had
140 employees, of which 62 were operations employees, 52 sales and marketing
employees, 22 general and administrative employees and 4 research and
development employees. Of our total employees, 139 are full-time employees. Our
employees are not party to any collective bargaining agreement and we have never
experienced an organized work stoppage. We believe our relations with our
employees are good.
Item 1A. Risk
Factors.
Our Annual Report on Form 10-K for 2008,
and information we provide in our press releases, telephonic reports and other
investor communications, may contain forward-looking statements with respect to
anticipated future events and our projected financial performance, operations
and competitive position that are subject to risks and uncertainties that could
cause our actual results to differ materially from those forward-looking
statements and our expectations. Future economic and industry trends that could
potentially impact revenue, profitability, and growth remain difficult to
predict. The factors underlying our forecasts forward-looking statements are
dynamic and subject to change. As a result, any forecasts or forward-looking
statements speak only as of the date they are given and do not necessarily
reflect our outlook at any other point in time.
Risks
Related to Our Business
We
are exposed to risks associated with the ongoing financial crisis and weakening
global economy, which increase the uncertainty of project financing for
commercial solar installations and the risk of non-payment from both commercial
and residential customers.
The
recent severe tightening of the credit markets, turmoil in the financial
markets, and weakening global economy are contributing to slowdowns in the solar
industry, which slowdowns may worsen if these economic conditions are prolonged
or deteriorate further. The market for installation of solar power systems
depends largely on commercial and consumer capital spending. Economic
uncertainty exacerbates negative trends in these areas of spending, and may
cause our customers to push out, cancel, or refrain from placing orders, which
may reduce our net sales. Difficulties in obtaining capital and deteriorating
market conditions may also lead to the inability of some customers to obtain
affordable financing, including traditional project financing and tax-incentive
based financing and home equity based financing, resulting in lower sales to
potential customers with liquidity issues, and may lead to an increase of
incidents where our customers are unwilling or unable to pay for systems they
purchase, and additional bad debt expense for Akeena. Further, these conditions
and uncertainty about future economic conditions make it challenging for us to
obtain equity and debt financing to meet our working capital requirements to
support our business, forecast our operating results, make business decisions,
and identify the risks that may affect our business, financial condition and
results of operations. If we are unable to timely and appropriately adapt to
changes resulting from the difficult macroeconomic environment, our business,
financial condition or results of operations may be materially and adversely
affected.
Our
currently available capital resources and cash flows from operations may be
insufficient to meet our working capital and capital expenditure
requirements.
Our
currently available capital resources, combined with the net cash proceeds from
this offering, cash flows from operations and expected interest income, may be
insufficient to meet our working capital and capital expenditure
requirements. Our cash requirements will depend on numerous factors,
including the rate of growth of our sales, the timing and levels of products
purchased, payment terms and credit limits from manufacturers, the availability
and terms of asset-based credit facilities, the timing and level of our accounts
receivable collections, and our ability to manage our business
profitability.
We may
need to raise additional funds through public or private debt or equity
financings or enter into new asset-based or other credit facilities, but such
financings may dilute our stockholders. We cannot assure you that any
additional financing that we may need will be available on terms favorable to
us, or at all. If adequate funds are not available or are not
available on acceptable terms, we may not be able to take advantage of
unanticipated opportunities, develop new products or otherwise respond to
competitive pressures. In any such case, our business, operating
results, or financial condition could be materially adversely
affected.
9
We
are dependent upon our suppliers for the components used in the systems we
design and install; and our major suppliers are dependent upon the continued
availability and pricing of silicon and other raw materials used in solar
modules.
The
components used in our systems are purchased from a limited number of
manufacturers. We source components (such as solar panels and inverters) from
manufacturers such as Suntech,
Kyocera Fronius and SMA. We are subject
to market prices for the components that we purchase for our installations,
which are subject to fluctuation. We cannot ensure that the prices charged by
our suppliers will not increase because of changes in market conditions or other
factors beyond our control. An increase in the price of components used in our
systems could result in an increase in costs to our customers and could have a
material adverse effect on our revenues and demand for our services. Our
suppliers are dependent upon the availability and pricing of silicon, one of the
main materials used in manufacturing solar panels. In the past, the world market
for solar panels experienced a shortage of supply due to insufficient
availability of silicon. This shortage caused the prices for solar modules to
increase. Interruptions in our ability to procure needed components for our
systems, whether due to discontinuance by our suppliers, delays or failures in
delivery, shortages caused by inadequate production capacity or unavailability,
financial failure, or for other reasons, would adversely affect or limit our
sales and growth. In addition, increases in the prices of modules could make
systems that have been sold but not yet installed unprofitable for us. There is
no assurance that we will continue to find qualified manufacturers on acceptable
terms and, if we do, there can be no assurance that product quality will
continue to be acceptable, which could lead to a loss of sales and
revenues.
Geographical
business expansion efforts we make could result in difficulties in successfully
managing our business and consequently harm our financial
condition.
As part
of our business strategy, we may seek to expand into other geographic markets.
We face challenges in managing expanding product and service offerings and in
integrating acquired businesses with our own. During 2007, we commenced
operations at our Bakersfield, Manteca and Santa Rosa offices in California. We
commenced operations in Fresno (Clovis), California, through the purchase of
customer contracts, and additionally, we opened offices in Lake Forest, Palm
Springs, San Diego and Thousand Oaks (Westlake Village), California. During
2008, we opened offices in Connecticut and Colorado and consolidated our
California Central Valley operations in Fresno (Clovis), closing offices in
Bakersfield and Manteca. In February 2009, we announced that we will
be closing our Connecticut office. We may seek additional locations
for expansion. We cannot accurately predict the timing, size and success of our
expansion efforts and the associated capital commitments that might be required.
In addition, expansion efforts involve a number of other risks,
including:
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Failure
of the expansion efforts to achieve expected
results;
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Diversion
of management’s attention and resources to expansion efforts;
and
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Risks
associated with unanticipated events, liabilities or
contingencies.
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Client
dissatisfaction or performance problems at a single location could negatively
affect our reputation. The inability to integrate and manage a new location
could result in dilution, unfavorable accounting charges and difficulties in
successfully managing our business.
Our
Andalay technology may encounter unexpected problems, which could adversely
affect our business and results of operations.
Our
Andalay technology is relatively new and has not been tested in installation
settings for a sufficient period of time to prove its long-term effectiveness
and benefits. Problems may occur with Andalay that are unexpected and could have
a material adverse effect on our business or results of operations. We have been
issued U.S. Patent #7,406,800 from the United States Patent and Trademark Office
which covers key claims of our Andalay solar panel technology. Several other of
our patent applications covering Andalay are currently pending. Ultimately, we
may not be able to realize the benefits from any patent that is
issued.
Because
our industry is highly competitive and has low barriers to entry, we may lose
market share to larger companies that are better equipped to weather a
deterioration in market conditions due to increased competition.
Our
industry is highly competitive and fragmented, is subject to rapid change and
has low barriers to entry. We may in the future compete for potential customers
with solar and HVAC systems installers and servicers, electricians, utilities
and other providers of solar power equipment or electric power. Some of these
competitors may have significantly greater financial, technical and marketing
resources and greater name recognition than we have.
10
We
believe that our ability to compete depends in part on a number of factors
outside of our control, including:
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the
ability of our competitors to hire, retain and motivate qualified
technical personnel;
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the
ownership by competitors of proprietary tools to customize systems to the
needs of a particular customer;
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the
price at which others offer comparable services and
equipment;
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the
extent of our competitors’ responsiveness to client needs;
and
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installation
technology.
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Competition
in the solar power services industry may increase in the future, partly due to
low barriers to entry, as well as from other alternative energy sources now in
existence or developed in the future. Increased competition could result in
price reductions, reduced margins or loss of market share and greater
competition for qualified technical personnel. There can be no assurance that we
will be able to compete successfully against current and future competitors. If
we are unable to compete effectively, or if competition results in a
deterioration of market conditions, our business and results of operations would
be adversely affected.
Our
profitability depends, in part, on our success and brand recognition and we
could lose our competitive advantage if we are not able to protect our
trademarks and patents against infringement, and any related litigation could be
time-consuming and costly.
We
believe our brand has gained substantial recognition by customers in certain
geographic areas. We have registered the “Akeena” and “Andalay” trademarks with
the United States Patent and Trademark Office. Use of our trademarks or similar
trademarks by competitors in geographic areas in which we have not yet operated
could adversely affect our ability to use or gain protection for our brand in
those markets, which could weaken our brand and harm our business and
competitive position. In addition, any litigation relating to protecting our
trademarks and patents against infringement could be time consuming and
costly.
The
success of our business depends on the continuing contributions of Barry
Cinnamon and other key personnel who may terminate their employment with us at
any time, and we will need to hire additional qualified personnel.
We rely
heavily on the services of Barry Cinnamon, our Chief Executive Officer, as well
as several other management personnel. Loss of the services of any such
individuals would adversely impact our operations. In addition, we believe our
technical personnel represent a significant asset and provide us with a
competitive advantage over many of our competitors and that our future success
will depend upon our ability to retain these key employees and our ability to
attract and retain other skilled financial, engineering, technical and
managerial personnel. None of our key personnel are party to any employment
agreements with us and management and other employees may voluntarily terminate
their employment at any time. We do not currently maintain any “key man” life
insurance with respect to any of such individuals.
If
we are unable to attract, train and retain highly qualified personnel, the
quality of our services may decline and we may not successfully execute our
internal growth strategies.
Our
success depends in large part upon our ability to continue to attract, train,
motivate and retain highly skilled and experienced employees, including
technical personnel. Qualified technical employees periodically are in great
demand and may be unavailable in the time frame required to satisfy our
customers’ requirements. While we currently have available technical expertise
sufficient for the requirements of our business, expansion of our business could
require us to employ additional highly skilled technical personnel. We expect
competition for such personnel to increase as the market for solar power systems
expands.
There can
be no assurance that we will be able to attract and retain sufficient numbers of
highly skilled technical employees in the future. The loss of personnel or our
inability to hire or retain sufficient personnel at competitive rates of
compensation could impair our ability to secure and complete customer
engagements and could harm our business.
Unexpected
warranty expenses or service claims could reduce our profits.
We
maintain a warranty reserve on our balance sheet for potential warranty or
service claims that could occur in the future. This reserve is adjusted based on
our ongoing operating experience with equipment and installations. It is
possible, perhaps due to bad supplier material or defective installations, that
we would have actual expenses substantially in excess of the reserves we
maintain. Our failure to accurately predict future warranty claims could result
in unexpected profit volatility.
Risks Relating to Our
Industry
We
have experienced technological changes in our industry. New technologies
may prove inappropriate and result in liability to us or may not gain
market acceptance by our customers.
The solar power industry (and the
alternative energy industry, in general) is subject to technological change. Our
future success will depend on our ability to appropriately respond to changing
technologies and changes in function of products and quality. If we adopt
products and technologies that are not attractive to consumers, we may not be
successful in capturing or retaining a significant share of our market. In
addition, some new technologies are relatively untested and unperfected and may
not perform as expected or as desired, in which event our adoption of such
products or technologies may cause us to lose money.
11
A
drop in the retail price of conventional energy or non-solar
alternative energy
sources may negatively impact our profitability.
We believe that a customer’s decision to
purchase or install solar power capabilities is primarily driven by the cost and
return on investment resulting from solar power systems. Fluctuations in
economic and market conditions that impact the prices of conventional and
non-solar alternative energy sources, such as decreases in the prices of oil and
other fossil fuels, could cause the demand for solar power systems to decline,
which would have a negative impact on our profitability. Changes in utility
electric rates or net metering policies could also have a negative effect on our
business.
Existing
regulations, and changes to such regulations, may present technical,
regulatory and economic barriers to the purchase and use of solar power
products, which may significantly reduce demand for our
products.
Installation of solar power systems are
subject to oversight and regulation in accordance with national and local
ordinances, building codes, zoning, environmental protection regulation, utility
interconnection requirements for metering and other rules and regulations. We
attempt to keep up-to-date about these requirements on a national, state, and
local level, and must design systems to comply with varying standards. Certain
cities may have ordinances that prevent or increase the cost of installation of
our solar power systems. In addition, new government regulations or utility
policies pertaining to solar power systems are unpredictable and may result in
significant additional expenses or delays and, as a result, could cause a
significant reduction in demand for solar energy systems and our services. For
example, there currently exist metering caps in certain jurisdictions which
effectively limit the aggregate amount of power that may be sold by solar power
generators into the power grid.
Our
business depends on the availability of rebates, tax credits and
other financial
incentives; reduction, elimination or uncertainty of which would reduce the
demand for our services.
Many states, including California and New Jersey, offer substantial incentives to offset
the cost of solar power systems. These systems can take many forms, including
direct rebates, state tax credits, system performance payments and Renewable
Energy Credits (RECs). Moreover, the Federal government currently offers a 30%
tax credit for the installation of solar power systems. Effective 2009, the
federal tax credit is 30% (uncapped) for residences. The Federal government also
currently offers commercial customers the option to elect a 30% grant in lieu of
the 30% tax credit if they begin construction on the system before December 31,
2010, and the system is put into service by December 31, 2017. Businesses may
also elect to accelerate the depreciation on their system over five years.
Uncertainty about the introduction of, reduction in or elimination of such
incentives or delays or interruptions in the implementation of favorable federal
or state laws could substantially increase the cost of our systems to our
customers, resulting in significant reductions in demand for our services, which
would negatively impact our sales.
If
solar power technology is not suitable for widespread adoption or sufficient
demand for solar power products does not develop or takes longer to
develop than we anticipate, our sales would decline and we would be unable
to
achieve or sustain profitability.
The market for solar power products is
emerging and rapidly evolving, and its future success is uncertain. Many factors
will influence the widespread adoption of solar power technology and demand for
solar power products, including:
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cost effectiveness of solar power
technologies as compared with conventional and non-solar alternative
energy technologies;
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performance and reliability of
solar power products as compared with conventional and non-solar
alternative energy products;
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capital expenditures by customers
that tend to decrease if the U.S. economy slows;
and
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availability of government
subsidies and incentives.
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If solar power technology proves
unsuitable for widespread commercial deployment or if demand for solar power
products fails to develop sufficiently, we would be unable to generate enough
revenue to achieve and sustain profitability. In addition, demand for solar
power products in the markets and geographic regions we target may not develop
or may develop more slowly than we anticipate.
Risks Relating to our Common
Stock
If
the trading price of our common stock falls, our common stock could be delisted
from the NASDAQ Capital Market.
We must
meet NASDAQ’s continuing listing requirements in order for our common stock to
remain listed on the NASDAQ Capital Market. The listing criteria we must meet
include, but are not limited to, a minimum bid price for our common stock of
$1.00 per share. The recent trading price of our common stock has
fallen below that level, and has been as low as $0.58 per share within the last
twelve months. Failure to meet NASDAQ’s continued listing criteria
may result in the delisting of our common stock from the NASDAQ Capital Market.
A delisting from the NASDAQ Capital Market will make the trading market for our
common stock less liquid, and will also make us ineligible to use Form S-3 to
register the sale of shares of our common stock or to register the resale of our
securities held by certain of our security holders with the SEC, thereby making
it more difficult and expensive for us to register our common stock or other
securities and raise additional capital.
12
Our
stockholders may be diluted by the exercise of outstanding warrants to purchase
common stock.
Warrants
we originally issued in March 2007 and May 2007 for the purchase of 588,010
shares of Common Stock at a weighted average exercise price of $3.83 per share,
have become exercisable for an aggregate of approximately 2,618,943 shares of
Akeena Common Stock at an exercise price of $0.86 per share, as a result of
antidilution adjustments following the closing of our recent issuance of Common
Stock, Series A Preferred Stock and warrants on March 3, 2009. The
number of shares of our common stock issuable upon exercise of those warrants,
and therefore the dilution of existing common stockholders, is subject to
increase as a result of certain sales of our securities that trigger the
antidilution provisions of those warrants at a price below the applicable
exercise price of those warrants. Future exercises of those warrants
may dilute the ownership interests of our current stockholders.
Future
sales of common stock by our existing stockholders may cause our stock price to
fall.
The
market price of our common stock could decline as a result of sales by our
existing stockholders of shares of common stock in the market, or the perception
that these sales could occur. These sales might also make it more difficult for
us to sell equity securities at a time and price that we deem appropriate. As of
March 5, 2009, we have approximately 31,539,961 shares of common stock
outstanding (which includes 855,507 unvested shares of restricted stock granted
to our employees), and we have warrants to purchase 7,181,407
shares of common stock and options to purchase 2,092,264 shares of common stock
outstanding. All of the shares of common stock issuable upon exercise
of our outstanding warrants and any vested options will be freely tradable
without restriction under the federal securities laws unless purchased by our
affiliates.
Our
stock price may be volatile, which could result in substantial losses
for investors.
The market price of our common stock is
likely to be highly volatile and could fluctuate widely in response to various
factors, many of which are beyond our control, including the
following:
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technological innovations or new
products and services by us or our
competitors;
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announcements or press releases
relating to the energy sector or to our business or
prospects;
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additions or departures of key
personnel;
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regulatory, legislative or other
developments affecting us or the solar power industry
generally;
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our ability to execute our
business plan;
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operating results that fall below
expectations;
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volume and timing of customer
orders;
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industry
developments;
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economic and other external
factors; and
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period-to-period fluctuations in
our financial results.
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In addition, the securities markets have
from time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. These market
fluctuations may also significantly affect the market price of our common
stock.
Risks Relating to Our
Company
Our
Chief Executive Officer, Barry Cinnamon, beneficially owns a significant number
of shares of our common stock, which gives him significant influence over
decisions on which our stockholders may vote and which may discourage an
acquisition of the Company.
Barry
Cinnamon, our Chief Executive Officer, beneficially owns, in the aggregate,
approximately 25.6% of our outstanding
common stock before this offering. The interests of our Chief Executive Officer
may differ from the interests of other stockholders. As a result, Mr. Cinnamon’s
voting power may have a significant influence on the outcome of virtually all
corporate actions requiring stockholder approval, irrespective of how our other
stockholders may vote, including the following actions:
13
|
·
|
election
of our directors;
|
|
·
|
the
amendment of our Certificate of Incorporation or
By-laws;
|
|
·
|
the
merger of our company or the sale of our assets or other corporate
transaction; and
|
|
·
|
controlling
the outcome of any other matter submitted to the stockholders for
vote.
|
Mr.
Cinnamon’s stock ownership may discourage a potential acquirer from seeking to
acquire shares of our common stock or otherwise attempting to obtain control of
our company, which in turn could reduce our stock price or prevent our
stockholders from realizing a premium over our stock price.
We
are subject to the reporting requirements of the federal securities laws,
which impose additional burdens on us.
We are a public reporting company and,
accordingly, subject to the information and reporting requirements of the
Exchange Act and other federal securities laws, including compliance with the
Sarbanes-Oxley Act of 2002. As a public company, these rules and regulations resulted in increased
compliance costs in 2008 and beyond and make certain activities more time
consuming and costly.
Our
Certificate of Incorporation authorizes our board to create new
series of
preferred stock without further approval by our stockholders, which
could adversely
affect the rights of the holders of our common stock.
Our Board of Directors has the authority
to fix and determine the relative rights and preferences of preferred stock. Our
Board of Directors also has the authority to issue preferred stock without
further stockholder approval. As a result, our Board of Directors could
authorize the issuance of new series of preferred stock that would
grant to holders the preferred right to our assets upon liquidation, the right
to receive dividend payments before dividends are distributed to the holders of
common stock and the right to the redemption of the shares, together with a
premium, prior to the redemption of our common stock. In addition, our Board of
Directors could authorize the issuance of new series of preferred stock that has
greater voting power than our common stock or that is convertible into our
common stock, which could decrease the relative voting power of our common stock
or result in dilution to our existing stockholders.
14
Item 1B. Unresolved Staff
Comments.
None
Item 2. Properties.
As of March 5, 2009, we had nine
offices. Our offices are located in Los Gatos, Fresno (Clovis), Lake Forest,
Santa Rosa, Palm Springs, San Diego and Thousand Oaks (Westlake Village),
California, as well as in Denver, Colorado and Milford, Connecticut. Our corporate headquarters are located
at 16005 Los Gatos
Boulevard, Los Gatos, California 95032. We maintain installation offices at
all of our facilities. In February 2009, we announced that we would be closing
our Connecticut office. The following table indicates
the approximate square footage for each of our leased office
locations.
|
Property
Location
|
Approximate
Square
Footage
|
|||
|
Los Gatos, California
|
27,000
|
|||
|
Fresno (Clovis), California
|
10,300
|
|||
|
Lake Forest, California
|
2,400
|
|||
|
Santa Rosa, California
|
2,900
|
|||
|
Palm Springs, California
|
3,200
|
|||
|
San Diego, California
|
3,000
|
|||
|
Denver, Colorado
|
2,400
|
|||
|
Milford, Connecticut
|
2,400
|
|||
Item 3. Legal
Proceedings.
15
Item 4. Submission of Matters
to a Vote of Security Holders.
We initially convened our Annual Meeting
of Stockholders for 2008 on September 23, 2008, in accordance with the Notice of
Annual Meeting mailed to the stockholders on or about September 9,
2008. Because there was not a sufficient number of shares present or
represented at the meeting to constitute a quorum, the meeting was not
authorized to conduct the proposed business at that time, no vote on those
matters was then taken, and a majority of the shares present at the meeting
voted to adjourn the meeting until October 21, 2008. The meeting
reconvened on October 21, 2008, and our stockholders voted on and approved the
following proposals:
1. Electing four (4) directors to our
Board of Directors to a one year term.
2. Approving a Third Modification to our
2006 Incentive Stock Plan (“Plan”), increasing the total number of shares of
stock reserved for issuance under the Plan from 1,000,000, to
5,000,000.
3. Ratifying the appointment of Burr,
Pilger and Mayer LLP as our independent auditors for the fiscal year ending
December 31, 2008.
Proposal 1: Election of four (4)
directors to the Board of Directors to a one year term.
| Director |
In favor
|
Withheld
|
Broker
Non-Votes
|
Term
expires
|
||||||||||
|
Barry
Cinnamon
|
14,253,838 | 426,483 | 13,965,731 |
2009
|
||||||||||
|
Ed Roffman
|
14,191,356 | 488,965 | 13,965,731 |
2009
|
||||||||||
|
Jon Witkin
|
14,197,352 | 482,969 | 13,965,731 |
2009
|
||||||||||
|
George
Lauro
|
14,196,770 | 483,551 | 13,965,731 |
2009
|
||||||||||
George
Lauro tendered his resignation as a director of the Company, effective October
1, 2008, and chose not to stand for re-election at the 2008 Annual Meeting of
Stockholders.
As a
result of the vacant Board seat created by the resignation of Mr. Lauro on
October 7, 2008, NASDAQ provided notice to the Company that it currently does
not satisfy Marketplace Rule 4350 regarding Audit Committee composition, for
continued listing on the NASDAQ Stock Market. That Rule requires listed
companies to maintain an Audit Committee composed of at least three members who
each satisfy the independence requirements. The notice from NASDAQ confirmed
that, in accordance with Rule 4350(d)(4), the Company has a grace period in
which to regain compliance, which grace period extends until the earlier of
Akeena’s next Annual Stockholders’ meeting or October 1, 2009 (or until March
30, 2009 in the event the next Annual Stockholders’ meeting is held before March
30, 2009). In order to regain compliance, the Company must provide documentation
to NASDAQ evidencing the appointment of an additional independent director to
its Board of Directors and Audit Committee. The Company does not anticipate
difficulty in regaining compliance within the grace period, and has begun the
process of identifying a replacement independent director to join its Board and
Audit Committee.
Proposal 2: To approve the Third
Modification to our Plan, to increase the total number of shares of stock
reserved for issuance under the Plan from 1,000,000, to
5,000,000.
|
For
|
Against
|
Abstain
|
Broker
Non-Votes
|
|||||||||
|
13,463,362
|
1,133,651 | 83,308 | 13,965,731 | |||||||||
Proposal 3: To ratify the appointment of
Burr, Pilger and Mayer LLP as our independent auditors for the fiscal year
ending December 31, 2008.
|
For
|
Against
|
Abstain
|
Broker
Non-Votes
|
|||||||||
|
14,502,432
|
58,594
|
119,295
|
13,965,731
|
|||||||||
16
Item 5. Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of
Equity Securities
Price Range of Common Stock
Our common stock has been quoted on the
NASDAQ Capital Market since September 2007 under the symbol AKNS and was
previously quoted on the OTC Bulletin Board since August 31, 2006 under the
symbol AKNS.OB. Prior to that date, there was no active market for our common
stock. The following table sets forth the high and low bid prices for our common
stock for the periods indicated, as reported by the NASDAQ and the OTC Bulletin
Board. The OTC Bulletin Board quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
|
High
|
|
Low
|
||||||
|
Fiscal Year
2007
|
||||||||
|
First
Quarter
|
$ | 3.07 | $ | 1.85 | ||||
|
Second
Quarter
|
$ | 3.95 | $ | 2.44 | ||||
|
Third Quarter (Represents both OTC
Bulletin Board and NASDAQ Quotations)
|
$ | 8.40 | $ | 3.87 | ||||
|
Fourth
Quarter
|
$ | 10.05 | $ | 4.00 | ||||
|
Fiscal Year
2008
|
||||||||
|
First
Quarter
|
$ | 16.80 | $ | 4.52 | ||||
|
Second
Quarter
|
$ | 8.90 | $ | 5.05 | ||||
|
Third
Quarter
|
$ | 5.50 | $ | 3.01 | ||||
|
Fourth
Quarter
|
$ | 4.75 | $ | 1.50 | ||||
The last reported sale price of our
common stock on the NASDAQ on March 5, 2009, was $0.65 per share. As of March 5,
2009, there were approximately 173 holders of record of our common
stock.
We have not declared or paid any cash
dividends on our common stock and do not anticipate declaring or paying any cash
dividends in the foreseeable future. We currently expect to retain future
earnings, if any, for the development of our business. Dividends may be paid on
our common stock only if and when declared by our board of
directors.
Equity Compensation Plan
Information
We maintain a 2006 Incentive Stock Plan
(the “Stock Plan”). As of December 31, 2008, we had granted 1,658,859
shares of restricted stock under the Stock Plan, of which restrictions have
lapsed as to 779,278 shares. As of December 31, 2008, 2,501,871
non-qualified stock options have been granted under the Stock Plan, of which
432,330 have vested and 1,134,940 were forfeited or cancelled (See the
information to be included under Item 11 of this Annual Report on Form 10-K for
a detailed description of our equity compensation plan.)
The information to be included under
Item 11 of this Annual Report on Form 10-K under the caption “Equity
Compensation Plan Information as of December 31, 2008” is incorporated herein by
reference.
17
Notwithstanding any statement to the
contrary in any of our previous or future filings with the SEC, the following
information relating to the price performance of our common stock shall not be
deemed “filed” with the SEC or “soliciting material” under the Exchange Act and
shall not be incorporated by reference into any such
filings.
The following graph shows a comparison
from August 31, 2006 (when
our common stock was first registered under Section 12 of the Exchange
Act) through
December 31, 2008 of cumulative total return for our common stock, the
NASDAQ Composite Index and the NASDAQ Clean Edge U.S. Liquid
Series. Such returns are
based on historical results and are not intended to suggest future performance.
Data for the NASDAQ Composite Index and the NASDAQ Clean Edge U.S. Liquid
Series assume reinvestment
of dividends. We have never paid dividends on our common stock and have no
present plans to do so.
COMPARISON OF 28 MONTH CUMULATIVE TOTAL
RETURN*
Among Akeena Solar, Inc., The NASDAQ Composite
Index
And The NASDAQ Clean Edge U.S. Liquid Series Index
|
*$100
invested on 8/31/06 in stock or index, including reinvestment of
dividends.
Fiscal
year ending December 31.
|
| 8/06 | 12/06 | 12/07 | 12/08 | |||||||||||||
|
Akeena
Solar, Inc.
|
100.00 | 92.86 | 284.29 | 61.43 | ||||||||||||
|
NASDAQ
Composite
|
100.00 | 105.79 | 132.16 | 73.99 | ||||||||||||
|
NASDAQ
Clean Edge U.S. Liquid Series
|
100.00 | 98.68 | 198.68 | 65.40 |
18
Item 6. Selected Financial
Data.
The following table sets forth our
selected consolidated financial information for the years ended
December 31, 2008, 2007 and 2006, and have been derived from the audited
consolidated financial statements included elsewhere in this Annual Report on
Form 10-K. The selected consolidated financial data for the years ended
December 31, 2005 and 2004 have been derived from audited consolidated
financial statements not included in this Annual Report on Form 10-K. The
information presented below should be read in conjunction with “Item 7:
Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and the related
notes.
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
|
Net sales
|
$ | 40,761,302 | $ | 32,211,761 | $ | 13,390,139 | $ | 7,191,391 | $ | 5,876,365 | ||||||||||
|
Cost of
sales
|
34,796,546 | 25,372,691 | 10,444,539 | 5,595,475 | 4,519,905 | |||||||||||||||
|
Gross profit before revaluation of
inventory
|
5,964,756 | 6,839,070 | 2,945,600 | 1,595,916 | 1,356,460 | |||||||||||||||
|
Revaluation of
inventory
|
2,646,292 | — | — | — | — | |||||||||||||||
|
Gross
profit
|
3,318,464 | 6,839,070 | 2,945,600 | 1,595,916 | 1,356,460 | |||||||||||||||
|
Operating
expenses
|
||||||||||||||||||||
|
Sales and
marketing
|
8,618,139 | 5,978,799 | 1,562,732 | 547,810 | 457,318 | |||||||||||||||
|
General and
administrative
|
19,052,489 | 11,941,700 | 3,124,454 | 1,034,448 | 748,298 | |||||||||||||||
|
Total operating
expenses
|
27,670,628 | 17,920,499 | 4,687,186 | 1,582,258 | 1,205,616 | |||||||||||||||
|
Gain (loss) from
operations
|
(24,352,164 | ) | (11,081,429 | ) | (1,741,586 | ) | 13,658 | 150,844 | ||||||||||||
|
Other income
(expense)
|
||||||||||||||||||||
|
Total other income
(expense)
|
4,786 | 34,650 | (67,655 | ) | (11,806 | ) | 5,167 | |||||||||||||
|
Gain (loss) income before provision for
income taxes
|
(24,347,378 | ) | (11,046,779 | ) | (1,809,241 | ) | 1,852 | 156,011 | ||||||||||||
|
Provision for income
taxes
|
— | — | — | — | — | |||||||||||||||
|
Net income
(loss)
|
$ | (24,347,378 | ) | $ | (11,046,779 | ) | $ | (1,809,241 | ) | $ | 1,852 | $ | 156,011 | |||||||
|
Loss per common and common
equivalent share:
|
||||||||||||||||||||
|
Basic
|
$ | (0.87 | ) | $ | (0.52 | ) | $ | (0.16 | ) | $ | 0.00 | $ | 0.00 | |||||||
|
Diluted
|
$ | (0.87 | ) | $ | (0.52 | ) | $ | (0.16 | ) | $ | 0.00 | $ | 0.00 | |||||||
|
Weighted average shares used in
computing loss per common and common equivalent
share:
|
||||||||||||||||||||
|
Basic
|
28,124,047 | 21,117,399 | 11,193,143 | 8,000,000 | 8,000,000 | |||||||||||||||
|
Diluted
|
28,124,047 | 21,117,399 | 11,193,143 | 8,000,000 | 8,000,000 | |||||||||||||||
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
|
Working
capital
|
$ | 14,131,137 | $ | 33,140,695 | $ | 1,009,766 | $ | (64,389 | ) | $ | 5,053 | |||||||||
|
Total
assets
|
42,138,388 | 46,324,307 | 7,531,864 | 3,007,536 | 1,466,465 | |||||||||||||||
|
Total debt
|
19,545,526 | 907,239 | 776,430 | 542,558 | 60,807 | |||||||||||||||
|
Total stockholders’
equity
|
15,874,333 | 34,812,075 | 1,389,450 | (797 | ) | 57,666 | ||||||||||||||
19
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
The following discussion highlights what
we believe are the principal factors that have affected our financial condition
and results of operations as well as our liquidity and capital resources for the
periods described. This discussion should be read in conjunction with our
financial statements and related notes appearing elsewhere in this Annual
Report. This discussion contains “forward-looking statements,” which can be
identified by the use of words such as “expects,” “plans,” “will,” “may,”
“anticipates,” “believes,” “should,” “intends,” “estimates” and other words of
similar meaning. These forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially from those
expressed or implied by these forward-looking statements. Such risks and
uncertainties include, without limitation, the risks described on page 1 of this
Annual Report, and the risks described at the end of Item 1
above.
Company Overview
We are a designer, integrator and
installer of solar power systems. We market, sell, design and install systems
for residential and commercial customers, sourcing components (such as solar
panels and inverters) from manufacturers such as Suntech, Kyocera Fronius and SMA. We currently serve
customers in California, New York, New Jersey, Pennsylvania and Connecticut. According to data compiled by the
California Energy Commission, the Solar Electric Power Association and the New
Jersey Clean Energy Program, over the past four years we have been one of the
largest national integrators of residential and commercial solar electric power
systems in the United
States. We are a member of
the Solar Energy Industry Association, the California Solar Energy Industries
Association, the Northern California Solar Energy Association, the Independent
Power Providers, the Solar Energy Business Association of New England, and the
New York Solar Energy Industries Association. To date, we have installed over
3,000 solar power systems and since the commencement of our operations in 2001,
our sales have steadily grown to approximately $40.8 million in
2008.
Akeena Solar was formed in
February 2001 as a California corporation under the name “Akeena,
Inc.” and reincorporated as a As of March 5, 2009, we had nine offices.
Our offices are located in Los Gatos, Fresno (Clovis), Lake Forest, Santa Rosa,
Palm Springs, San Diego and Thousand Oaks (Westlake Village), California, as
well as in Denver, Colorado and Milford, Connecticut. Our Corporate headquarters are located
at 16005 Los Gatos
Boulevard, Los Gatos, California 95032. We maintain installation offices at
all of our facilities. Our telephone number is (408) 402-9400. Additional
information about Akeena Solar is available on our website at http://www.akeena.com. The information on our web site is not
incorporated herein by reference.
On August 11, 2006, we entered into
a reverse merger transaction (the “Merger”) with Fairview Energy Corporation,
Inc. (“Fairview”). Since the stockholders of Akeena
Solar owned a majority of the outstanding shares of Fairview common stock
immediately following the Merger, and the management and board of Akeena Solar
became the management and board of Fairview immediately following the Merger,
the Merger was accounted for as a reverse merger transaction and Akeena Solar
was deemed to be the acquirer.
During September 2007, we introduced our
new solar panel technology (“Andalay”), which we believe will significantly
reduce the installation time and costs, as well as provide superior reliability
and aesthetics, when compared to other solar panel mounting products and
technology. Andalay offers the following features: (i) mounts closer to the roof
with less space in between panels; (ii) all black appearance with no unsightly
racks underneath or beside panels; (iii) built-in wiring connections; (iv) 70%
fewer roof-assembled parts and 50% less roof-top labor required; (v) 25% fewer
roof attachment points; (vi) complete compliance with the National Electric Code
and UL wiring and grounding requirements. Pursuant to an agreement with
Suntech Power Holdings Co. Ltd. (“Suntech”), Suntech provides us with volume
manufacturing and delivery of our Andalay product used in our solar system
installations. During January 2008, we also entered into a Licensing Agreement
with Suntech that authorize Suntech to distribute our Andalay product in Europe,
Japan, and Australia.
20
Results of
Operations
The following table sets forth, for the
periods indicated, certain information related to our operations as a percentage
of our net sales:
|
Year Ended December
31,
|
||||||||||||||||||||||||
|
2008
|
%
|
%
|
2006
|
%
|
||||||||||||||||||||
|
Net sales
|
$ | 40,761,302 | 100.0 | $ | 32,211,761 | 100.0 | $ | 13,390,139 | 100.0 | |||||||||||||||
|
Cost of
sales
|
34,796,546 | 85.4 | 25,372,691 | 78.8 | 10,444,539 | 78.0 | ||||||||||||||||||
|
Gross profit before revaluation of
inventory
|
5,964,756 | 14.6 | 6,839,070 | 21.2 | 2,945,600 | 22.0 | ||||||||||||||||||
|
Revaluation of
inventory
|
2,646,292 | 6.5 | — | 0.0 | — | 0.0 | ||||||||||||||||||
|
Gross
profit
|
3,318,464 | 8.1 | 6,839,070 | 21.2 | 2,945,600 | 22.0 | ||||||||||||||||||
|
Operating
Expenses
|
||||||||||||||||||||||||
|
Sales and
marketing
|
8,618,139 | 21.1 | 5,978,799 | 18.5 | 1,562,732 | 11.7 | ||||||||||||||||||
|
General and
administrative
|
19,052,489 | 46.7 | 11,941,700 | 37.1 | 3,124,454 | 23.3 | ||||||||||||||||||
|
Total operating
expenses
|
27,670,628 | 67.9 | 17,920,499 | 55.6 | 4,687,186 | 35.0 | ||||||||||||||||||
|
Loss from
operations
|
(24,352,164 | ) | (59.7 | ) | (11,081,429 | ) | (34.4 | ) | (1,741,586 | ) | (13.0 | ) | ||||||||||||
|
Other income
(expense)
|
||||||||||||||||||||||||
|
Interest income (expense),
net
|
4,786 | 0.0 | 34,650 | 0.1 | (67,655 | ) | (0.5 | ) | ||||||||||||||||
|
Total other income
(expense)
|
4,786 | 0.0 | 34,650 | 0.1 | (67,655 | ) | (0.5 | ) | ||||||||||||||||
|
Loss before provision for income
taxes
|
(24,347,378 | ) | (59.7 | ) | (11,046,779 | ) | (34.3 | ) | (1,809,241 | ) | (13.5 | ) | ||||||||||||
|
Provision for income
taxes
|
— | 0.0 | — | 0.0 | — | 0.0 | ||||||||||||||||||
|
Net loss
|
$ | (24,347,378 | ) | (59.7 | ) | $ | (11,046,779 | ) | (34.3 | ) | $ | (1,809,241 | ) | (13.5 | ) | |||||||||
Year Ended December 31, 2008 as compared
to Year Ended December 31, 2007
Net sales
Net sales totaled $40.8 million for the
year ended December 31, 2008, as compared to $32.2 million in 2007, or an
increase of 26.5%. The increase was due to a higher volume of residential
installations for the year ended December 31, 2008 as compared to 2007. The
increased volume reflects widening acceptance of photovoltaic technology on the
consumer level. At December 31, 2008, we were operating seven offices in
California and one office each in Colorado and Connecticut, as compared to eight offices in
California and one office in New Jersey at December 31,
2007.
Cost of sales
Cost of sales, including all
installation expenses, during the year ended December 31, 2008 was 85.4% of
sales, as compared to 78.8% in 2007. Gross profit for the year ended December
31, 2008 (before revaluation of inventory) was 14.6% of net sales, as compared
to 21.2% in 2007. The decline in gross profit over the same period of the prior
year reflects increased
panel cost related to the
introductory costs and
higher mix of Andalay installations in residential projects, along with higher subcontractor costs
associated with commercial projects. Our average sales price remained
relatively constant at $7,900 per kilowatt installed for 2008 and
2007.
Revaluation of
inventory
During the fourth quarter of 2008,
we recorded a $2.6 million inventory write-down, which represented 6.5%
of net sales. This non-cash
charge was an adjustment to the carrying value of our solar panel inventory to
reflect the sharp decline in world-wide panel prices since the end of the third
quarter of 2008.
Inventory at year end
was $10.5 million, 86% of
which were solar
panels. Andalay solar panels accounted for
approximately 73% of our
total inventory. The
valuation adjustment reflects both the decline in the year end market price of
solar panels compared to our original cost as well as the lower year end cost
for Andalay’s integrated wiring, grounding and mounting
technology.
Sales and marketing
expenses
Sales and marketing expenses for the
year ended December 31, 2008 were 21.1% of net sales as compared to 18.6% of net
sales during the prior year. Sales and marketing expenses were approximately
$8.6 million for the year ended December 31, 2008 as compared to approximately
$6.0 million in 2007. This increase for the year ended December 31, 2008 as
compared to the prior year, was due to an increase in sales commissions, as a
result of higher sales, advertising expense, public relations expense, internet
marketing expense, trade shows and conferences expense and stock-based
compensation expense.
21
General and administrative
expenses
General and administrative expenses for
the year ended December 31, 2008 were 46.7% of net sales as compared to 37.1% of
net sales during the prior year. General and administrative expenses increased
to approximately $19.1 million in 2008 compared to approximately $11.9 million
for the year ended December 31, 2007. During the fourth quarter of 2008, we
recorded a $1.0 million provision for bad debts, primarily related to a single
customer who lost project funding. We will continue to assess collectability and
take appropriate actions to collect all amounts that are owed. Rent expense
increased $533,000 due to new locations in Colorado and Connecticut opened in 2008 and due to a non-cash
charge in the fourth quarter of 2008 of approximately $200,000 for future lease
payments for office space in Bakersfield and Manteca that we no longer occupy. We
consolidated our California Central Valley operations in the Clovis/Fresno area.
During the year ended December 31, 2008, payroll expense increased by
approximately $3.5 million and stock-based compensation expense increased
approximately $802,000 compared to the prior year. Depreciation and
Amortization increased by $225,000 and research and development costs increased
by $144,000 for the year ended December 31, 2008 as compared to the prior
year.
Interest expense,
net
Interest expense was approximately
$428,000 for the year ended December 31, 2008, related primarily to our 2007
Credit Facility with Comerica Bank, including credit facility loan fees of
approximately $78,000, resulting in net interest income of $5,000. During the
year ended December 31, 2008, interest expense was more than offset by interest
income of approximately $433,000. Interest expense was approximately $112,000
during the same period in 2007, which was more than offset by interest income of
$147,000.
Income taxes
During the years ended December 31, 2008
and 2007, there was no income tax expense or benefit for federal and state
income taxes in our consolidated statements of operations due to our net loss
and a valuation allowance on the resulting deferred tax
asset.
Year Ended December 31, 2007 as compared
to Year Ended December 31, 2006
Net sales
Net sales totaled $32.2 million for the
year ended December 31, 2007, as compared to $13.4 million in 2006, or an
increase of 140.6%. The increase was due to a higher volume of both residential
and commercial installations for the year ended December 31, 2007 as compared to
2006. The increased volume reflects both widening acceptance of photovoltaic
technology on the consumer level, and a steadily accelerating pace of
installation throughout the year ended December 31, 2007. At December 31, 2007,
we were operating eight offices in California and one office in New Jersey, as compared to two offices in
California and one office in New Jersey at December 31,
2006.
Cost of sales
Cost of sales, including all
installation expenses, during the year ended December 31, 2007 was 78.8% of
sales, as compared to 78.0% in 2006. Gross profit for the year ended December
31, 2007 was 21.2% of net sales, as compared to 22.0% in 2006. This slight
decline over the same period of the prior year is the result of higher panel
costs and parts and supplies costs as a percentage of revenue. Our average sales
price decreased to approximately $7,900 per kilowatt installed for 2007 as
compared to approximately $8,700 per kilowatt installed during
2006.
Sales and marketing
expenses
Sales and marketing expenses for the
year ended December 31, 2007 were 18.5% of net sales as compared to 11.7% of net
sales during the prior year. Sales and marketing expenses were approximately
$6.0 million for the year ended December 31, 2007 as compared to approximately
$1.6 million in 2006. This increase is mainly due to higher sales and marketing
payroll and sales commissions related to 55 additional sales and marketing
employees hired during 2007 to support our increased sales levels. Advertising,
public relations, internet marketing expenditures, trade shows, conferences and
marketing expenditures also increased over 2006. We added an additional 55 sales
and marketing employees during 2007 in order to support our increased sales
levels.
General and administrative
expenses
General and administrative expenses for
the year ended December 31, 2007 were 37.1% of net sales as compared to 23.3% of
net sales during the prior year. General and administrative expenses increased
to approximately $11.9 million in 2007 compared to approximately $3.1 million
for the year ended December 31, 2006. We increased our general and
administrative headcount by 10 positions during 2007 and payroll expenses
increased by approximately $2.8 million. Stock-based compensation increased
approximately $2.3 million during the year ended December 31, 2007. Research and
development costs increased by $958,000 for the year ended December 31, 2007 as
compared to the prior year. General and administrative expenses for legal,
accounting and other professional services increased approximately $830,000 due
primarily to investor relations costs and costs associated with Sarbanes-Oxley
implementation costs. Rent expense increased by $441,000 as a result of
expanding our infrastructure and opening six additional offices during the year
ended December 31, 2007.
22
Interest expense,
net
Interest expense was approximately
$112,000 for the year ended December 31, 2007, related primarily to our 2007
Credit Facility with Comerica Bank, including credit facility loan fees of
approximately $4,000. Interest expense was offset by interest income of
approximately $147,000 during the year ended December 31, 2007. Interest expense
was approximately $68,000 during the same period in 2006, which related
primarily to our previous credit facility with Citibank (West)
FSB.
Income taxes
During the years ended December 31, 2007
and 2006, there was no income tax expense or benefit for federal and state
income taxes in the Company’s consolidated statements of operations due to the
Company’s net loss and a valuation allowance on the resulting deferred tax
asset.
Liquidity and Capital
Resources
The current economic downturn presents
us with challenges in meeting the working capital needs of our business. In
recent years, we have incurred losses from operations and have undertaken
several equity financing transactions to provide us with capital as we worked to
grow our business. While our revenue has grown significantly over the last three
years, our operating expenses and our need for working capital to support that
growth has grown faster and occurred sooner than the resulting revenue growth.
We have plans to reach break even cash flow from operations in the second half
of 2009, but we have not reached that goal yet. We intend to address our working
capital needs through a combination of expense reductions and careful management
of our operations, along with ongoing efforts to raise additional equity and to
obtain a replacement asset-backed credit facility.
Our primary requirements for working
capital are to fund purchases of solar panels and inverters, and to cover our
payroll and lease expenses. Sources of liquidity are cash on hand, and cash
flows from operating activities. Historically, we have also relied on borrowings
from our revolving line of credit and proceeds from equity financings. As of
December 31, 2008 we had approximately $17.6 million in cash on hand (of which
$17.5 million was restricted cash), and approximately $5.4 million in additional
borrowing capacity was available under our 2007 Credit Facility at December 31,
2008. In March 2009, we amended our 2007 Credit Facility and it no longer
provides for that borrowing capacity.
We have taken recent cost reduction
measures, including reductions in force and the announced closure of our Connecticut office. In November 2008, we eliminated
approximately 38
positions. In February
2009, we
eliminated approximately 45 positions, or
approximately 25% of our workforce, and reduced the regular hours and salaries of our
remaining workforce by 10%.
We believe these measures
will adjust our capacity to a level that reflects our current customer demand
and our improved efficiency in sales, design and
installation. In 2008, we derived less than 8% of our
revenue from the region supported by the Connecticut office. We expect these changes to result in a
significant reduction in our monthly operating expenses, as well as a
corresponding reduction in the level of revenue we need to become break-even on
the basis of our continuing operations. However even after these changes, we anticipate that we will
continue to sustain losses in the near term, and we cannot assure investors that
we will be successful in reaching break-even.
We
recently completed a stock and warrant offering in March 2009 (described below).
In addition to the proceeds from that offering, we are currently benefiting from
a lower cost structure as a result our November 2008 reduction in force, our
February 2009 cost reduction actions, and the utilization of our panel inventory
on hand. We believe we can generate positive cash flow during 2009 due to the
continued utilization of our panel inventory, the collection of receivables and
our February 2009 cost reduction actions. We believe the combination of our
improved gross margins (as a result of lower world-wide panel prices and our
related fourth quarter 2008 inventory write-down to the lower of cost or
market), a more streamlined cost structure, and tight expense control will allow
us to achieve cash flow breakeven in the second half of 2009. In the event that
our revenue is lower than anticipated, further staffing reductions and expense
cuts could occur.
As an
additional potential source of capital, the terms of our March 2009 equity
offering provide the possibility for us to receive additional proceeds over the
next several months upon the exercise of warrants, depending on market
conditions. We have an effective shelf registration statement, permitting us to
raise funds in the public markets from time to time. We are also pursuing
discussions with banks for an asset-backed credit line.
We believe funds generated by our
operations and the amounts that should be available to us through debt and equity financing
are adequate to fund our
anticipated cash needs, at least through the next twelve months. The current
economic downturn adds uncertainty to our anticipated revenue levels and to the
timing of cash receipts, which are needed to support our operations. It also worsens the market conditions
for seeking equity and debt financing. We currently anticipate that we will
retain all of our earnings, if any, for development of our business and do not
anticipate paying any cash dividends in the foreseeable
future.
23
Our line of credit
On March
3, 2009, we entered into a Loan and Security Agreement (Cash Collateral Account)
with Comerica Bank, dated as of February 10, 2009 (the “2009 Bank Facility”),
which replaced and amended our 2007 Credit Facility with Comerica Bank. The 2009
Bank Facility has a termination date of January 1, 2011. We fully repaid the
$17.2 million outstanding principal balance as of March 3, 2009 on the 2007
Credit Facility by using our restricted cash balance that was on deposit with
Comerica. Under the 2009 Bank Facility, our credit facility with Comerica has a
limit of $1.0 million, subject to our obligation to maintain cash as collateral
for any borrowings incurred or any letters of credit issued on our behalf. The
2009 Bank Facility no longer includes an asset-based line of credit, and
Comerica Bank has released its security interest in our inventory, accounts
receivable, and other assets (other than the cash collateral account as provided
in the 2009 Bank Facility). The 2009 Bank Facility does not include any ongoing
minimum net worth or other financial covenants, and we are in compliance with
the terms of the 2009 Bank Facility as of March 12, 2009.
Previously, our 2007 Credit Facility was
evidenced by a loan and security agreement with Comerica Bank, entered into on
January 29, 2007 and subsequently amended (the “Security Agreement”). Borrowings
under the 2007 Credit Facility bore interest at prime minus 0.5%, payable
on the first of each month. The Security Agreement granted Comerica Bank a first
priority security interest in all of our assets, then owned or later acquired,
to secure timely repayment of the 2007 Credit Facility. As of December 31, 2008,
$18.7 million was outstanding under the 2007 Credit Facility, with approximately
$5.4 million in additional borrowing capacity available at December 31, 2008. On
December 31, 2008, we were not in compliance with the debt covenant that
required us to maintain a “Tangible Net Worth” (as defined in the 2007 Credit
Facility) of not less than $25,000,000; our Tangible Net Worth at December 31,
2008 was $15.5 million.
Equity Financing Activity in Recent
Years
On March 3, 2009, we closed a registered offering of securities pursuant to a
securities purchase agreement with certain investors, dated February 26,
2009 (the “March 2009
Offering”). Net proceeds
to us from the offering are estimated to be
$1.557 million, after deducting the placement agents’ fees and estimated
expenses. In the March 2009
Offering, we sold units
consisting of an aggregate of (i) 1,785,714 shares of Common Stock at a price of
$1.12 per share; (ii) 2,000 shares of Series A Preferred Stock which are
convertible into a maximum aggregate of 539,867 shares of Common
Stock; (iii) Series E
Warrants to purchase up to 1,339,286 shares of Common Stock at a strike price of
$1.34 per share, which warrants are not exercisable until six months after the
closing and have a term of seven years
from the date of first exercisability; (iv) Series F Warrants to purchase up to
an aggregate of 540,000 shares of Common Stock (subject to reduction share for
share to the extent shares of Common Stock are issued upon conversion of the
Series A Preferred Stock) at a strike price of $1.12 per share, which warrants
are immediately exercisable and have a term of 150 trading days from the
Closing; and (v) Series G Warrants to purchase up to an aggregate of 2,196,400
shares of Common Stock at a strike price of $1.12 per share, which warrants are
immediately exercisable and have a term of 67 trading days from the
Closing. The 2,000 shares of Series A Preferred
Stock issued in the
financing subsequently converted into 539,867 shares of Common
Stock. As a result of issuance of the
conversion shares, the shares of Common Stock
subject to purchase under the Series F Warrants have been reduced by 539,867 shares, and only 133
shares of Common Stock remain subject to exercise under the Series F
Warrants.
On November 6, 2007, we closed a private
placement offering to accredited investors (the “November 2007 Private
Placement”) in which we realized gross proceeds of approximately $26.1 million,
before commissions and expenses. In connection with the November 2007 Private
Placement, we issued to investors an aggregate of 3,728,572 shares of common
stock and five-year warrants to purchase 745,716 shares of common stock with an
exercise price of $10.08 per share. Cowen and Company, LLC acted as the sole
placement agent with respect to the November 2007 Private Placement and received
(i) a cash fee of $1,246,500 which included a placement agent fee of
$1,171,500 and $75,000 for legal and out-of-pocket expenses and (ii) a
three-year warrant to purchase 83,679 shares of common stock at an exercise
price of $10.08 per share. Empire Financial Group, Inc. received (i) a cash
fee of $460,250 and (ii) a five-year warrant to purchase 197,250 shares of
common stock at an exercise price of $10.08 per share as a finder’s fee in
connection with the November 2007 Private Placement. On November 29, 2007, we
filed a registration statement on Form S-3 with the SEC covering the shares of
common stock sold in the November 2007 Private Placement and shares of common
stock underlying the warrants issued in the November 2007 Private Placement.
Such registration statement was declared effective on December 14,
2007.
On June 4, 2007, we closed a private
placement offering to accredited investors (the “June 2007 Private Placement”)
in which we realized gross proceeds of approximately $12.6 million, before
commissions and expenses. In connection with the closing of the June 2007
Private Placement, we issued to investors an aggregate of 4,567,270 shares of
common stock and three-year warrants to purchase 913,455 shares of common stock
with an exercise price of $3.95 per share. Empire Financial Group, Inc. acted as
placement agent with respect to the June 2007 Private Placement and received
(i) a cash fee of $633,850 and (ii) a three-year warrant to purchase
376,800 shares of common stock at an exercise price of $3.95 per share.
Westminster Securities Corporation also received a finder’s fee of $21,000 and a
three-year warrant to purchase 9,164 shares of common stock at an exercise
price of $2.75 per share. On July 3, 2007, we filed a registration statement
with the SEC covering the shares of common stock sold in the June 2007 Private
Placement and shares of common stock underlying the warrants issued in the June
2007 Private Placement. Such registration statement was declared effective on
July 24, 2007.
On March 8, 2007, we closed a
private placement offering to accredited investors (the “March 2007 Private
Placement”) in which we realized gross proceeds of approximately $4.1 million,
before commissions and expenses. In connection with the March 2007 Private
Placement closing, we issued to investors an aggregate of 2,062,304 shares of
common stock and (i) three-year warrants to purchase 206,230 shares of
common stock with an exercise price of $2.75 per share, and (ii) three-year
warrants to purchase 206,230 shares of common stock with an exercise price of
$3.00 per share. Empire Financial Group, Inc. acted as placement agent with
respect to the offering and received (i) a cash fee of $149,250 and
(ii) a three-year warrant to purchase 53,250 shares of common stock at an
exercise price of $2.75 per share. The Westly Group acted as a finder with
respect to the offering and received (i) a cash fee of $35,000 and
(ii) a three-year warrant to purchase 15,000 shares of common stock at an
exercise price of $2.75 per share. Westminster Securities Corporation also
received a finder’s fee of $21,000 and a three-year warrant to purchase 11,726
shares of common stock at an exercise price of $1.97 per share. On April 6, 2007
we filed a registration statement with the SEC covering the shares of common
stock issued in the March 2007 Private Placement and the shares of common stock
issuable upon exercise of the warrants issued in the March 2007 Private
Placement. Such registration statement became effective on April 16,
2007.
24
Cash paid for placement agent fees and
finder’s fees for the March 2007 Private Placement were $180,250. Cash paid for
placement agent fees and finder’s fees for the June 2007 Private Placement were
$654,850. Cash paid for placement agent fees and finder’s fees for the November
2007 Private Placement were $1,706,750. Cash paid for other direct professional
and registration fees incurred relating to the March 2007 Private Placement, the
June 2007 Private Placement, the November 2007 Private Placement and other
registration statements totaled $484,196 during the year ended December 31,
2007. In connection with the Merger, we also completed a private placement
during 2006. Cash paid for placement agent fees during 2006 were
$61,500.
Our Cash Flows
Cash used in operating activities was
approximately $24.8 million, approximately $18.8 million and approximately $2.3
million for the years ended December 31, 2008, 2007 and 2006, respectively. Cash
used in operating activities during the year ended December 31, 2008, was
primarily due to an increase in inventory, an increase in prepaid expenses and
other current assets and a decrease in accounts payable, partially offset by
non-cash stock-based compensation expense, the write-down of inventory and the
increase in bad debt expense. The increase in inventory was primarily the
purchase of solar panels, while the increase in prepaid expenses and other
current assets and the decrease in accounts payable were due to the timing of
payments. Cash used in operating activities during the year ended December 31,
2007, was primarily an increase in inventory, an increase in accounts
receivables, an increase in prepaid expenses and other current assets and a
decrease in customer rebate payable. These uses of cash were offset by an
increase in accounts payable and by non-cash stock-based compensation expense.
The increase in inventory was primarily the purchase of solar panels, while the
increase in accounts receivables and the increase in prepaid expenses and other
current assets was primarily the timing of payments. The decrease in customer
rebate payable was due to the timing of receipts from state government agencies.
The increase in accounts payable was primarily the timing of payments related to
the purchase of solar panels at the end of 2007. Cash used in operating
activities during the year ended December 31, 2006, was primarily an increase in
accounts receivable and an increase in inventory, partially offset by increases
in accounts payable, customer rebates payable, accrued liabilities and accrued
warranty and deferred revenue.
Cash flows used in investing activities
were approximately $611,000, approximately $1.8 million and approximately
$174,000, respectively, for the years ended December 31, 2008, 2007 and 2006.
During the year ended December 31, 2008, cash flows used in investing activities
was primarily due to the purchase of property and equipment, primarily the
purchase of vehicles and office furniture and equipment. During the year ended
December 31, 2007, we acquired vehicles, office equipment, office furniture and
other fixed assets primarily for our new corporate office location and for our
most recently added Lake Forest, Bakersfield, Manteca, Santa Rosa, Palm Springs
and San Diego office locations. Cash used in investing activities during the
year ended December 31, 2006, was primarily the purchase of property and
equipment and the purchase of customer contracts from Alternative Energy,
Inc.
Cash flows provided by financing
activities were approximately $3.2 million, approximately $41.9 million and
approximately $3.2 million, respectively, for the years ended December 31, 2008,
2007 and 2006. During the year ended December 31, 2008, cash provided from
financing activities was primarily the result of borrowings of $18.7 million
under our revolving line of credit and from proceeds from the exercise of common
stock warrants, offset by restricted cash of $17.5 million. During the year
ended December 31, 2007, we raised proceeds of approximately $42.7 million,
before cash paid for placement agent fees and registration fees of approximately
$3.0 million, from the issuance of our common stock under three private
placements. We received proceeds of approximately $2.0 million during 2007 from
the exercise of warrants for shares of our common stock. In addition, we repaid
$500,000 under our 2007 Credit Facility during the year ended December 31, 2007.
During the year ended December 31, 2006, we raised proceeds of approximately
$3.2 million from the issuance of our common stock under a private placement.
Cash provided by financing activities were primarily from the issuance of common
stock under private placements.
25
Contractual
obligations
|
Payments
Due
|
||||||||||||||||||||
|
Obligation
|
Total
|
Less than
1 year
|
1-3 years
|
4-5 years
|
More than
5 years
|
|||||||||||||||
|
Line of credit
(1)
|
$ | 18,746,439 | $ | 18,746,439 | $ | — | $ | — | $ | — | ||||||||||
|
Long-term
debt
|
755,178 | 219,876 | 523,009 | 12,293 | — | |||||||||||||||
|
Operating
leases
|
1,295,127 | 767,203 | 527,924 | — | — | |||||||||||||||
|
Capital
leases
|
43,909 | 23,292 | 20,617 | — | — | |||||||||||||||
| $ | 20,840,653 | $ | 19,756,810 | $ | 1,071,550 | $ | 12,293 | $ | — | |||||||||||
|
(1)
|
On
March 3, 2009, the outstanding principal balance on the line of credit was
$17.2 million and the Company repaid the this outstanding balance by using
its restricted cash balance that was on deposit with Comerica
Bank.
|
Application of critical accounting
policies and estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States requires estimates and assumptions that
affect the reporting of assets, liabilities, sales and expenses, and the
disclosure of contingent assets and liabilities. Note 2 to our consolidated
financial statements for the years ending December 31, 2008 and 2007 as filed in
this Annual Report on Form 10-K provides a summary of our significant accounting
policies, which are all in accordance with generally accepted accounting
policies in the United
States. Certain of our
accounting policies are critical to understanding our consolidated financial
statements, because their application requires management to make assumptions
about future results and depends to a large extent on management’s judgment,
because past results have fluctuated and are expected to continue to do so in
the future.
We believe that the application of the
accounting policies described in the following paragraphs is highly dependent on
critical estimates and assumptions that are inherently uncertain and highly
susceptible to change. For all these policies, we caution that future events
rarely develop exactly as estimated, and the best estimates routinely require
adjustment. On an ongoing basis, we evaluate our estimates and assumptions,
including those discussed below.
Revenue
recognition. Revenue from
sales of products is recognized when: (1) persuasive evidence of an
arrangement exists, (2) delivery has occurred or services have been
rendered, (3) the sale price is fixed or determinable, and (4) collection
of the related receivable is reasonably assured. We recognize revenue upon
completion of a system installation for residential installations and we
recognize revenue under the percentage-of-completion method for commercial
installations.
Inventory. Inventory is stated at the
lower of cost (on an average basis) or market value. We determine cost based on
our weighted-average purchase price and include both the costs of acquisition
and the shipping costs in our inventory. We regularly review the cost of
inventory against its estimated market value and record a lower of cost or
market write-down to cost of goods sold, if any inventory has a cost in excess
of estimated market value. Our inventory generally has a long life cycle and
obsolescence has not historically been a significant factor in its
valuation.
Long-lived
assets. We periodically
review our property and equipment and identifiable intangible assets for
possible impairment whenever facts and circumstances indicate that the carrying
amount may not be fully recoverable. Assumptions and estimates used in the
evaluation of impairment may affect the carrying value of long-lived assets,
which could result in impairment charges in future periods. Significant
assumptions and estimates include the projected cash flows based upon estimated
revenue and expense growth rates and the discount rate applied to expected cash
flows. In addition, our depreciation and amortization policies reflect judgments
on the estimated useful lives of assets.
Goodwill and other
intangible assets. We do
not amortize goodwill, but rather test goodwill for impairment at least
annually. A customer list is being amortized over the estimated useful life of
the list, which was determined to be eighteen months.
Stock-based
compensation. We measure
the cost of services received in exchange for equity-based awards based on the
grant date fair value. Pre-vesting forfeitures are estimated at the time of
grant and we periodically revise those estimates in subsequent period if actual
forfeitures differ from those estimates. Equity-based compensation is recognized
for equity-based awards expected to vest.
Warranty
Provision. We warrant
our products for various periods against defects in material or installation
workmanship. The manufacturer warranty on solar panels and the inverters have a
warranty period range of 5-25 years. We assist the customer in the event that
the manufacturer warranty needs to be used to replace a defective panel or
inverter. We provide for 5-year and 10-year warranties on the installation of a
system and all equipment and incidental supplies other than solar panels and
inverters that are covered under the manufacturer warranty. We record a
provision for the installation warranty, within cost of sales, based on
historical experience and future expectations of the probable cost to be
incurred in honoring its warranty commitment.
26
Recent
Accounting Pronouncements
In
February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS
No. 159 permits entities to choose to measure many financial instruments
and certain other items at fair value that are not currently required to be
measured at fair value, and establishes presentation and disclosure requirements
designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. SFAS
No. 159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007. We adopted the provisions of SFAS
No. 159 on January 1, 2008, and have elected not to measure any of our
current eligible financial assets or liabilities at fair value.
In
September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS No. 157), and in February 2008, the FASB amended
SFAS No. 157 by issuing FSP FAS 157-1, Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13, and FSP FAS 157-2, Effective Date of FASB
Statement No. 157 (collectively SFAS No. 157). SFAS
No. 157 defines fair value, establishes a framework for measuring fair
value and expands disclosure of fair value measurements. SFAS No. 157 is
applicable to other accounting pronouncements that require or permit fair value
measurements, except those relating to lease accounting, and accordingly does
not require any new fair value measurements. SFAS No. 157 was effective for
financial assets and liabilities in fiscal years beginning after
November 15, 2007, and for non-financial assets and liabilities in fiscal
years beginning after November 15, 2008 except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis. Our adoption of the provisions of SFAS No. 157 on January 1,
2008, with respect to financial assets and liabilities measured at fair value,
did not have an effect on our financial statements for the year ended
December 31, 2008. In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair
Value of a Financial Asset When the Market for That Asset is Not Active
(FSP FAS 157-3). FSP FAS
157-3 clarifies the application of SFAS No. 157 in a market that is not
active and provides an example to illustrate key considerations in determining
the fair value of a financial asset when the market for that financial asset is
not active. FSP FAS 157-3 became effective immediately upon issuance, and its
adoption did not have an effect on our financial statements. We currently
determine the fair value of our property and equipment when assessing long-lived
asset impairments and SFAS No. 157 will be effective for these fair value
assessments as of January 1, 2009.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment of Accounting
Research Bulletin ARB No. 51, Consolidated Financial Statements (SFAS
No. 160). SFAS No. 160 requires (i) that non-controlling
(minority) interests be reported as a component of stockholders’ equity,
(ii) that net income attributable to the parent and to the non-controlling
interest be separately identified in the consolidated statement of operations,
(iii) that changes in a parent’s ownership interest while the parent
retains its controlling interest be accounted for as equity transactions,
(iv) that any retained non-controlling equity investment upon the
deconsolidation of a subsidiary be initially measured at fair value and,
(v) that sufficient disclosures are provided that clearly identify and
distinguish between the interests of the parent and the interests of the
non-controlling owners. SFAS No. 160 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. We have not completed our evaluation of the
potential impact, if any, of the adoption of SFAS No. 160 on our
consolidated financial position, results of operations and cash
flows.
In
December 2007, the FASB issued SFAS No. 141(R), Business
Combinations (SFAS No. 141(R)). SFAS No. 141(R) will
significantly change the accounting for business combinations. Under SFAS
141(R), an acquiring entity will be required to recognize all the assets
acquired and liabilities assumed in a transaction at the acquisition-date fair
value with limited exceptions. SFAS No. 141(R) will change the accounting
treatment for certain specific acquisition related items including:
(i) expensing acquisition related costs as incurred; (ii) valuing
noncontrolling interests at fair value at the acquisition date of a controlling
interest; and (iii) expensing restructuring costs associated with an
acquired business. SFAS No. 141(R) also includes a substantial number of
new disclosure requirements. SFAS No. 141(R) is to be applied prospectively
to business combinations for which the acquisition date is on or after
January 1, 2009. SFAS No. 141(R) will have an impact on our accounting
for any future business combinations once adopted.
In March
2008, the FASB issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities —
an amendment of FASB Statement No. 133 (SFAS No. 161). SFAS
No. 161 requires qualitative disclosures about objectives and strategies
for using derivatives, quantitative disclosures about fair value amounts and
gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. SFAS
No. 161 is effective for fiscal years beginning after November 15,
2008. As of December 31, 2008, we have not entered into any derivative
transactions.
In April
2008, the FASB issued FASB
Staff Position (FSP) No. FAS 142-3, Determination of the Useful Life of
Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other
Intangible Asset (SFAS 142). More specifically, FSP FAS 142-3 removes the
requirement under paragraph 11 of SFAS 142 to consider whether an intangible
asset can be renewed without substantial cost or material modifications to the
existing terms and conditions and instead, requires an entity to consider its
own historical experience in renewing similar arrangements. FSP FAS 142-3 also
requires expanded disclosure related to the determination of intangible asset
useful lives. The FSP is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and may impact any intangible
assets we acquire in future transactions.
In April
2008, the FASB issued Emerging Issues Task Force (EITF) EITF 07-05, Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock, (EITF
07-05”). EITF 07-05 provides guidance on determining what types of
instruments or embedded features in an instrument held by
a reporting entity can be considered indexed to its own stock for the purpose of
evaluating the first criteria of the scope exception in
paragraph 11(a) of FAS 133. EITF 07-05 is effective for financial statements
issued for fiscal years beginning after December 15, 2008,
and early application is not permitted. Management is evaluating what effect
EITF 07-05 will have on the Company's financial
position and operating results.
27
In May
2008, the FASB issued SFAS
No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS
No. 162). This statement identifies the sources of accounting principles
and the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with U.S. Generally Accepted Accounting Principles (GAAP) in the
United States (the GAAP hierarchy). SFAS 162 is effective November 15,
2008. The adoption of the Statement did not result in a change in our current
practices.
In
November 2008, the Emerging Issues Task Force (EITF) reached consensus on EITF Issue No. 08-7, Accounting
for Defensive Intangible Assets (EITF 08-7). A defensive asset is an
acquired intangible asset where the acquirer has no intention of using, or
intends to discontinue use of, the intangible asset but holds it to prevent
competitors from obtaining any benefit from it. The acquired defensive asset
will be treated as a separate unit of accounting and the useful life assigned
will be based on the period during which the asset would diminish in value. This
EITF is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and may impact any intangible assets we acquire in
future transactions.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements (as defined in the applicable
regulations) that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources.
Inflation
We
believe that inflation has not had a material impact on our historical results
of operations; however, there can be no assurance that our business will not be
affected by inflation in the future.
Seasonality
Our quarterly installation and operating
results may vary significantly from quarter to quarter as a result of seasonal
changes in weather as well as state or Federal subsidies. Historically, sales
are highest during the third and fourth quarters as a result of good weather and
robust bookings in the second quarter.
Market
risk represents the risk of changes in the value of market risk sensitive
instruments caused by fluctuations in interest rates, foreign exchange rates and
commodity prices. Changes in these factors could cause fluctuations in our
results of operations and cash flows. In the ordinary course of business, we are
exposed to interest rate risk. Fluctuations in interest rates could adversely
affect our financial results.
Interest
Rate Risk
Our
exposure to interest rate risk at December 31, 2008 is related to the
investment of our cash into highly liquid financial investments. As of
December 31, 2008, we held $17.5 million in a money market account.
Based upon our balance of cash, a decrease in interest rates of 100 basis points
would cause a corresponding decrease in our annual interest income of
approximately $175,000. A change in interest rates would not materially change
the fair market value of our money market investments.
Foreign
Currency Exchange Risk
We do not
have any foreign currency exchange risk as the purchase of our solar panels from
manufacturers outside the United States is denominated in U.S.
currency.
28
Item 8. Financial Statements
and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and
Stockholders of
Akeena Solar, Inc.
We have audited the accompanying
consolidated balance sheets of Akeena Solar, Inc. and its subsidiaries (the
“Company”) as of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2008. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of Akeena Solar, Inc. and its subsidiaries as of
December 31, 2008 and 2007, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2008, in
conformity with accounting principles generally accepted in the United States of
America.
We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States),
the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2008,
based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 12, 2009 expressed an unqualified opinion
thereon.
/s/ Burr,
Pilger & Mayer LLP
Burr, Pilger & Mayer
LLP
San Francisco, California
March 12,
2009
29
AKEENA SOLAR, INC.
Consolidated Balance
Sheets
December 31, 2008 and
2007
|
2008
|
2007
|
|||||||
|
Assets
|
||||||||
|
Current
assets
|
||||||||
|
Cash and cash
equivalents
|
$ | 148,230 | $ | 22,313,717 | ||||
|
Restricted
cash
|
17,500,000 | — | ||||||
|
Accounts receivable,
net
|
7,660,039 | 9,465,055 | ||||||
|
Other
receivables
|
331,057 | 278,636 | ||||||
|
Inventory,
net
|
10,495,572 | 8,848,467 | ||||||
|
Prepaid expenses and other current
assets, net
|
3,704,375 | 3,055,787 | ||||||
|
Total current
assets
|
39,839,273 | 43,961,662 | ||||||
|
Property and equipment,
net
|
1,806,269 | 1,796,567 | ||||||
|
Customer list,
net
|
— | 84,698 | ||||||
|
Goodwill
|
298,500 | 318,500 | ||||||
|
Other assets, net
|
194,346 | 162,880 | ||||||
|
Total
assets
|
$ | 42,138,388 | $ | 46,324,307 | ||||
|
Liabilities and Stockholders’
Equity
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable
|
$ | 1,922,480 | $ | 6,716,475 | ||||
|
Customer rebate
payable
|
271,121 | 346,097 | ||||||
|
Accrued
liabilities
|
2,410,332 | 1,431,880 | ||||||
|
Accrued
warranty
|
1,056,655 | 647,706 | ||||||
|
Deferred purchase price
payable
|
— | 20,000 | ||||||
|
Deferred
revenue
|
1,057,941 | 1,442,834 | ||||||
|
Credit
facility
|
18,746,439 | — | ||||||
|
Current portion of capital lease
obligations
|
23,292 | 24,130 | ||||||
|
Current portion of long-term
debt
|
219,876 | 191,845 | ||||||
|
Total current
liabilities
|
25,708,136 | 10,820,967 | ||||||
|
Capital lease obligations, less
current portion
|
20,617 | 46,669 | ||||||
|
Long-term debt, less current
portion
|
535,302 | 644,595 | ||||||
|
Total
liabilities
|
26,264,055 | 11,512,231 | ||||||
|
Commitments, contingencies and
subsequent events (Notes 17 and 21)
|
||||||||
|
Stockholders’
equity:
|
||||||||
|
Common stock, $0.001 par value;
50,000,000 shares authorized; 28,460,837 and 27,410,684 shares issued and
outstanding at December 31, 2008 and December 31, 2007,
respectively
|
28,460 | 27,411 | ||||||
|
Additional paid-in
capital
|
52,821,104 | 47,412,518 | ||||||
|
Accumulated
deficit
|
(36,975,231 | ) | (12,627,853 | ) | ||||
|
Total stockholders’
equity
|
15,874,333 | 34,812,076 | ||||||
|
Total liabilities and
stockholders’ equity
|
$ | 42,138,388 | $ | 46,324,307 | ||||
The accompanying notes are an integral
part of these consolidated financial statements.
30
AKEENA SOLAR, INC.
Consolidated Statements of
Operations
Years Ended December 31, 2008, 2007 and
2006
|
2008
|
2007
|
2006
|
||||||||||
|
Net sales
|
$ | 40,761,302 | $ | 32,211,761 | $ | 13,390,139 | ||||||
|
Cost of
sales
|
34,796,546 | 25,372,691 | 10,444,539 | |||||||||
|
Gross profit
before revaluation of inventory
|
5,964,756 | 6,839,070 | 2,945,600 | |||||||||
|
Revaluation of
inventory
|
2,646,292 | — | — | |||||||||
|
Gross
profit
|
3,318,464 | 6,839,070 | 2,945,600 | |||||||||
|
Operating
expenses
|
||||||||||||
|
Sales and
marketing
|
8,618,139 | 5,978,799 | 1,562,732 | |||||||||
|
General and
administrative
|
19,052,489 | 11,941,700 | 3,124,454 | |||||||||
|
Total operating
expenses
|
27,670,628 | 17,920,499 | 4,687,186 | |||||||||
|
Loss from
operations
|
(24,352,164 | ) | (11,081,429 | ) | (1,741,586 | ) | ||||||
|
Other income
(expense)
|
||||||||||||
|
Interest income (expense),
net
|
4,786 | 34,650 | (67,655 | ) | ||||||||
|
Total other income
(expense)
|
4,786 | 34,650 | (67,655 | ) | ||||||||
|
Loss income before provision for
income taxes
|
(24,347,378 | ) | (11,046,779 | ) | (1,809,241 | ) | ||||||
|
Provision for income
taxes
|
— | — | — | |||||||||
|
Net loss
|
$ | (24,347,378 | ) | $ | (11,046,779 | ) | $ | (1,809,241 | ) | |||
|
Loss per common and common
equivalent share:
|
||||||||||||
|
Basic
|
$ | (0.87 | ) | $ | (0.52 | ) | $ | (0.16 | ) | |||
|
Diluted
|
$ | (0.87 | ) | $ | (0.52 | ) | $ | (0.16 | ) | |||
|
Weighted average shares used in
computing loss per common and common equivalent
share:
|
||||||||||||
|
Basic
|
28,124,047 | 21,117,399 | 11,193,143 | |||||||||
|
Diluted
|
28,124,047 | 21,117,399 | 11,193,143 | |||||||||
The accompanying notes are an integral
part of these consolidated financial statements.
31
AKEENA SOLAR, INC.
Consolidated Statements of Changes in
Stockholders’ Equity
|
Common
Stock
|
Additional
|
|||||||||||||||||||
|
Number
of Shares
|
Amount
|
Paid-in
Capital
|
Accumulated
Deficit
|
Stockholders’
Equity
|
||||||||||||||||
|
Balance at January 1,
2006
|
8,000,000 | $ | 8,000 | $ | (7,000 | ) | $ | (519 | ) | $ | 481 | |||||||||
|
Net equity of Fairview Energy
Corporation, Inc. at date of reverse merger
|
3,656,466 | 3,656 | 3,015 | — | 6,671 | |||||||||||||||
|
Proceeds from issuance of common
stock at $1.00 under private placement, $0.001 par
value
|
3,217,500 | 3,218 | 3,214,282 | — | 3,217,500 | |||||||||||||||
|
Total placement agent
fees
|
— | — | (131,539 | ) | — | (131,539 | ) | |||||||||||||
|
Warrants issued to placement
agent
|
— | — | 70,039 | — | 70,039 | |||||||||||||||
|
Stock-based compensation
expense
|
3,785 | 4 | 37,815 | — | 37,819 | |||||||||||||||
|
Distribution to
stockholder
|
— | — | — | (11,000 | ) | (11,000 | ) | |||||||||||||
|
Reclassification of S corporation
accumulated deficit to additional paid-in capital
|
— | — | (239,686 | ) | 239,686 | — | ||||||||||||||
|
Exercise of warrants for common
shares at an exercise price of $0.01, $0.001 par
value
|
1,000,000 | 1,000 | 9,000 | — | 10,000 | |||||||||||||||
|
Net loss
|
— | — | — | (1,809,241 | ) | (1,809,241 | ) | |||||||||||||
|
Balance at December 31,
2006
|
15,877,751 | 15,878 | 2,955,926 | (1,581,074 | ) | 1,390,730 | ||||||||||||||
|
Proceeds from issuance of common
stock at $1.97 under private placement, $0.001 par
value
|
2,062,304 | 2,062 | 4,060,677 | — | 4,062,739 | |||||||||||||||
|
Proceeds from issuance of common
stock at $2.75 under private placement, $0.001 par
value
|
4,567,270 | 4,567 | 12,555,426 | — | 12,559,993 | |||||||||||||||
|
Proceeds from issuance of common
stock at $7.00 under private placement, $0.001 par
value
|
3,728,572 | 3,729 | 26,096,275 | — | 26,100,004 | |||||||||||||||
|
Total placement agent fees and
registration fees
|
— | — | (5,462,376 | ) | — | (5,462,376 | ) | |||||||||||||
|
Warrants issued to placement agent
and warrants issued for finder’s fees
|
— | — | 2,436,330 | — | 2,436,330 | |||||||||||||||
|
Issuance of common shares at
$3.21, as per an account purchase agreement, $0.001 par
value
|
54,621 | 55 | 175,513 | — | 175,568 | |||||||||||||||
|
Issuance of common shares at
$3.14, as per an asset purchase agreement, $0.001 par
value
|
100,000 | 100 | 313,900 | — | 314,000 | |||||||||||||||
|
Exercise of warrants for common
shares, $0.001 par value
|
641,967 | 642 | 2,033,129 | — | 2,033,771 | |||||||||||||||
|
Release of restricted common
shares, $0.001 par value, and stock-based compensation
expense
|
378,199 | 378 | 2,247,718 | — | 2,248,096 | |||||||||||||||
|
Net loss
|
— | — | — | (11,046,779 | ) | (11,046,779 | ) | |||||||||||||
|
Balance at December 31,
2007
|
27,410,684 | $ | 27,411 | $ | 47,412,518 | $ | (12,627,853 | ) | $ | 34,812,076 | ||||||||||
|
Total placement agent fees and
registration fees
|
— | — | (182,944 | ) | — | (182,944 | ) | |||||||||||||
|
Release of restricted common
shares, $0.001 par value, and stock-based compensation
expense
|
397,294 | 397 | 3,298,424 | — | 3,298,821 | |||||||||||||||
|
Exercise of warrants for common
shares, $0.001 par value
|
623,378 | 623 | 2,293,135 | — | 2,293,758 | |||||||||||||||
|
Issuance of common shares as per
an account purchase agreement, $0.001 par value
|
29,481 | 29 | (29 | ) | — | — | ||||||||||||||
|
Net loss
|
— | — | — | (24,347,378 | ) | (24,347,378 | ) | |||||||||||||
|
Balance at December 31,
2008
|
28,460,837 | $ | 28,460 | $ | 52,821,104 | $ | (36,975,231 | ) | $ | 15,874,333 | ||||||||||
The accompanying notes are an integral
part of these consolidated financial statements.
32
AKEENA SOLAR, INC.
Consolidated Statements of Cash
Flows
Years Ended December 31, 2008, 2007 and
2006
|
2008
|
2007
|
2006
|
||||||||||
|
Cash flows from operating
activities
|
||||||||||||
|
Net loss
|
$ | (24,347,378 | ) | $ | (11,046,779 | ) | $ | (1,809,241 | ) | |||
|
Adjustments to reconcile net loss
to net cash used in operations
|
||||||||||||
|
Depreciation
|
601,450 | 201,245 | 36,953 | |||||||||
|
Amortization
of intangibles
|
144,302 | 319,233 | 101,391 | |||||||||
|
Bad debt
expense
|
1,070,245 | 53,677 | 41,743 | |||||||||
|
Non cash stock-based compensation
expense
|
3,298,821 | 2,248,096 | 37,819 | |||||||||
|
Inventory
revaluation
|
2,646,292 | — | — | |||||||||
|
Loss on asset
disposal
|
— | 1,388 | — | |||||||||
|
Changes in assets and
liabilities:
|
||||||||||||
|
Accounts
receivable
|
734,771 | (6,084,163 | ) | (1,798,123 | ) | |||||||
|
Other
receivables
|
(52,421 | ) | (273,636 | ) | (4,249 | ) | ||||||
|
Inventory
|
(4,293,397 | ) | (7,056,651 | ) | (1,251,948 | ) | ||||||
|
Prepaid expenses and other current
assets
|
(703,452 | ) | (2,221,538 | ) | (452,681 | ) | ||||||
|
Other
assets
|
(36,206 | ) | (138,129 | ) | (20,824 | ) | ||||||
|
Accounts
payable
|
(4,793,995 | ) | 4,662,908 | 914,584 | ||||||||
|
Customer rebate
payable
|
(74,976 | ) | (850,266 | ) | 878,178 | |||||||
|
Accrued liabilities and accrued
warranty
|
1,387,401 | 939,747 | 560,243 | |||||||||
|
Deferred
revenue
|
(384,893 | ) | 461,380 | 507,422 | ||||||||
|
Net cash used in operating
activities
|
(24,803,436 | ) | (18,783,488 | ) | (2,258,733 | ) | ||||||
|
Cash flows from investing
activities
|
||||||||||||
|
Acquisition of property and
equipment
|
(611,152 | ) | (1,680,661 | ) | (88,585 | ) | ||||||
|
Acquisition of customer
list
|
— | (77,000 | ) | (101,618 | ) | |||||||
|
Cash acquired in reverse merger
transaction
|
— | — | 16,871 | |||||||||
|
Increase (decrease) in amount due
from related party
|
— | 21,825 | (800 | ) | ||||||||
|
Acquisition of Alternative Energy,
Inc.
|
— | (80,000 | ) | — | ||||||||
|
Net cash used in investing
activities
|
(611,152 | ) | (1,815,836 | ) | (174,132 | ) | ||||||
|
Cash flows from financing
activities
|
||||||||||||
|
Borrowing on long-term
debt
|
122,975 | 819,468 | 21,084 | |||||||||
|
Repayment of long-term
debt
|
(204,237 | ) | (90,542 | ) | (17,661 | ) | ||||||
|
Borrowings (repayments) on line of credit,
net
|
18,746,439 | (500,000 | ) | — | ||||||||
|
Distributions to
stockholder
|
— | — | (11,000 | ) | ||||||||
|
Payment of capital lease
obligations
|
(26,890 | ) | (38,722 | ) | (3,228 | ) | ||||||
|
Restricted
cash
|
(17,500,000 | ) | — | — | ||||||||
|
Issuance of common stock under
private placement
|
— | 42,722,736 | 3,217,500 | |||||||||
|
Proceeds from exercise of
warrants
|
2,293,758 | 2,033,771 | 10,000 | |||||||||
|
Payment of placement agent fees
and registration fees
|
(182,944 | ) | (3,026,046 | ) | (61,500 | ) | ||||||
|
Net cash provided by financing
activities
|
3,249,101 | 41,920,665 | 3,155,195 | |||||||||
|
Net (decrease) increase in cash and cash
equivalents
|
(22,165,487 | ) | 21,321,341 | 722,330 | ||||||||
|
Cash and cash
equivalents
|
||||||||||||
|
Beginning of
year
|
22,313,717 | 992,376 | 270,046 | |||||||||
|
End of year
|
$ | 148,230 | $ | 22,313,717 | $ | 992,376 | ||||||
|
Supplemental cash flows
disclosures:
|
||||||||||||
|
Cash paid during the year for
Interest
|
$ | 287,160 | $ | 112,474 | $ | 59,129 | ||||||
|
Non cash investing and financing
activities
|
||||||||||||
|
Issuance of common stock warrants
for placement agent fees and finder’s fees
|
$ | — | $ | 2,436,330 | $ | 70,039 | ||||||
|
Issuance of common stock under
account purchase agreements and settlement
agreements
|
$ | 213,555 | $ | 175,568 | $ | — | ||||||
|
Issuance of common stock for
purchase of net assets under an asset purchase
agreement
|
$ | — | $ | 314,000 | $ | — | ||||||
|
Common stock issuable pursuant to
an account purchase agreement
|
$ | — | $ | — | $ | 175,568 | ||||||
|
Assets acquired under capital
lease
|
$ | — | $ | 54,638 | $ | 58,111 | ||||||
|
Vehicle loans assumed under asset
purchase agreement
|
$ | — | $ | 61,534 | $ | — | ||||||
The accompanying notes are an integral
part of these consolidated financial statements.
33
AKEENA SOLAR, INC.
Notes to Consolidated Financial
Statements
December 31, 2008, 2007 and
2006
1. Description of
Business
Akeena Solar, Inc. (the “Company” or
“Akeena Solar”) was incorporated in February 2001 in the State of
California and elected at that time to be taxed as an S Corporation. During
June 2006, the Company reincorporated in the State of Delaware and became a
C Corporation. On August 11, 2006, the Company entered into a reverse
merger transaction (the “Merger”) with Fairview Energy Corporation, Inc.
(“Fairview”). Pursuant to the merger agreement, the stockholders of Akeena Solar
received one share of Fairview common stock for each issued and outstanding
share of Akeena Solar common stock. Akeena Solar’s common shares were also
adjusted from $0.01 par value to $0.001 par value at the time of the Merger.
Subsequent to the closing of the Merger, the former stockholders of Akeena Solar
held a majority of Fairview’s outstanding common stock. Since the stockholders
of Akeena Solar owned a majority of the outstanding shares of Fairview common
stock immediately following the Merger, and the management and board of Akeena
Solar became the management and board of Fairview immediately following the
Merger, the Merger was accounted for as a reverse merger transaction and Akeena
Solar was deemed to be the acquirer. The assets, liabilities and the historical
operations prior to the Merger are those of Akeena Solar. Subsequent to the
Merger, the consolidated financial statements include the assets, liabilities
and the historical operations of Akeena Solar and Fairview from the closing date
of the Merger.
The
Company is engaged in a single business segment, the design and installation of
solar power systems for residential and commercial customers.
2. Summary of Significant Accounting
Policies
Liquidity
and Financial Condition
For each
of the three years in the period ending December 31, 2008, the Company has
incurred net losses and negative cash flows from operations. Subsequent to the
March 3, 2009 stock offering (see Note 21), the Company is in a positive cash
position. In addition to the proceeds from this offering, the Company is
benefiting from a lower cost structure as a result of a November 2008 reduction
in force and the utilization of existing panel inventory levels. The Company is
projecting positive cash flow during 2009 due to the continued utilization of
existing inventory, the collection of receivables, a reduction in force
in February 2009, a 10% salary reduction for all employees as well as other
expense reductions implemented in during the first quarter of 2009 (see Note
21).
The Company believes the combination of
improved gross margins (as a result of lower panel prices), a more streamlined
cost structure and tight expense control will allow the Company to achieve cash
flow breakeven in the second half of 2009. In the event that revenue is
lower, further staffing reductions and expense cuts could
occur.
The Company continues to evaluate other
potential financing options, including: the terms of the March stock offering
provide the ability to receive additional amounts upon the exercise of warrants
over the next several months, depending on market conditions; the Company has an
effective shelf registration and therefore the ability to raise funds in the
public markets; there are
approximately 2.6 million
warrants outstanding with an exercise price of $0.86 per share that may
provide additional funding; and the Company continues discussions with
banks for an asset-backed credit line.
The Company believes its current cash
and cash equivalent balances, projected financial results and other potential
financing options provide sufficient resources and operating flexibility through
at least the next 12 months.
Cash and Cash
Equivalents
The Company considers all highly liquid
investments with maturities of three months or less, when purchased, to be cash
equivalents. The Company maintains cash and cash equivalents which consist
principally of demand deposits with high credit quality financial institutions.
At certain times, such amounts exceed FDIC insurance limits. The Company has not
experienced any losses on these investments.
Accounts Receivable
The Company regularly evaluates the
collectability of its accounts receivable. An allowance for doubtful accounts is
maintained for estimated credit losses, and such losses have historically been
minimal and within management’s expectations. When estimating credit losses, the
Company considers a number of factors including the aging of a customer’s
account, creditworthiness of specific customers, historical trends and other
information. During the fourth quarter of 2008, the Company recorded a $1.0
million provision for bad debts, primarily related to a customer who lost
project funding. Accounts receivable consist of trade receivables and
amounts due from state agencies for rebates on state-approved solar systems
installed. These rebate amounts are passed on to the customer, usually at the
time the customer is billed, or in certain instances, when the money is received
from the states by the Company. Included within customer rebates payable at
December 31, 2008 and 2007 is approximately $271,000 and approximately $346,000,
respectively, of rebates payable to customers. Usually, the various states remit
the rebate amounts to the Company within 90-120 days.
34
Inventory
Inventory is stated at the lower of cost
(on an average basis) or market value. The Company determines cost based on the
weighted-average purchase price and includes both the costs of acquisition and
the shipping costs in inventory. The Company regularly reviews the cost of
inventory against its estimated market value and records a lower of cost or
market write-down to cost of goods sold, if any inventory has a cost in excess
of estimated market value. The Company’s inventory generally has a long life
cycle and obsolescence has not historically been a significant factor in its
valuation.
Prepaid Expenses and Other Current
Assets, net
Prepaid expenses and other current
assets, net, include approximately $625,000 and $101,000 as of December 31, 2008
and 2007, respectively, of contract costs that are not currently billable for
percentage-of-completion projects.
Property and
Equipment
Property and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation and
amortization are provided for using the straight-line method over the estimated
useful lives of the respective assets.
Estimated useful lives are as
follows:
|
Category
|
Useful
Lives
|
|
|
Furniture and
Fixtures
|
7-10
years
|
|
|
Office
Equipment
|
3-10
years
|
|
|
Vehicles
|
5 years
|
|
|
Leasehold
Improvements
|
5
years
|
Maintenance and repairs are expensed as
incurred. Expenditures for significant renewals or betterments are capitalized.
Upon disposition, the cost and related accumulated depreciation are removed from
the accounts and the resulting gain or loss is reflected in current
operations.
Long-Lived Assets
The Company reviews long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying value of a long-lived asset may not be recoverable. The Company
periodically evaluates whether events and circumstances have occurred that may
warrant revision of the estimated useful lives of its long-lived assets or
whether the remaining balance of long-lived assets should be evaluated for
possible impairment. The Company does not believe that there were any indicators
of impairment that would require an adjustment to such assets or their estimated
periods of recovery at December 31, 2008 and 2007.
Goodwill and Other
Intangible Assets
The Company does not amortize goodwill,
but rather tests goodwill for impairment at least annually. The Company
evaluated the goodwill for impairment during the year ended December 31, 2008
and determined that there were no indicators of impairment that would require an
adjustment at December 31, 2008. A customer list was amortized over the
estimated useful life of the list, which was determined to be eighteen months
and was fully amortized as of December 31, 2008. Patents of $76,000, net of $4,800 of
accumulated amortization, are included in Other assets, net as of December 31,
2008, and are being amortized over the estimated useful life, which was
determined to be seventeen years.
Manufacturer and Installation
Warranties
The
Company warrants its products for various periods against defects in material or
installation workmanship. The Company provides for a 5-year or a 10-year
warranty on the installation of a system and all equipment and incidental
supplies other than solar panels and inverters that are covered under the
manufacturer warranty. The manufacturer warranty on the solar panels and the
inverters range from 5 to 25 years. The Company assists its customers in
the event that the manufacturer warranty needs to be used to replace a defected
panel or inverter. The Company records a provision for the installation
warranty, within cost of sales, based on its historical experience and
management’s expectations of the probable future cost to be incurred in honoring
its warranty commitment. The liability for the installation warranty of
approximately $1.1 million and approximately $648,000 at December 31, 2008 and
December 31, 2007, respectively, is included within “Accrued warranty” in the
accompanying consolidated balance sheets.
35
The liability for the installation warranty consists of the following:
|
December 31,
2008
|
December 31,
2007
|
|||||||
|
Beginning
accrued warranty balance
|
$ | 647,706 | $ | 508,655 | ||||
|
Reduction
for labor payments and claims made under the warranty
|
(397,381 | ) | (47,577 | ) | ||||
|
Accruals
related to warranties issued during the period
|
975,601 | 386,628 | ||||||
|
Adjustments
relating to changes in warranty estimates
|
(169,270 | ) | (200,000 | ) | ||||
|
Ending
accrued warranty balance
|
$ | 1,056,656 | $ | 647,706 | ||||
Fair Value of Financial
Instruments
The carrying values reported for cash
equivalents, accounts receivable, accounts payable and accrued liabilities
approximated their respective fair values at each balance sheet date due to the
short-term maturity of these financial instruments.
Revenue Recognition and Deferred
Revenue
Revenue from installation of a system is
recognized when (1) persuasive evidence of an arrangement exists, (2) delivery
has occurred or services have been rendered, (3) the sales price is fixed or
determinable, and (4) collection of the related receivable is reasonably
assured. In general, the Company recognizes revenue upon completion of a system
installation for residential installations and the Company recognizes revenue
under the percentage-of-completion method for commercial installations. Revenue
recognition methods for revenue streams that fall under other categories are
determined based on facts and circumstances.
Defective solar panels or inverters are
covered under the manufacturer warranty. In the event that a panel or inverter
needs to be replaced, the Company will replace the defective item within the
manufacturer’s warranty period (between 5-25 years). See the “Manufacturer and
installation warranties” discussion above.
Deferred revenue consists of
installations initiated but not completed within the reporting
period.
Stock-based
Compensation
The Company applies the fair value
method under Statement of Financial Accounting Standards (“SFAS”) No. 123
(revised 2004), “Share-Based Payment” (“SFAS 123R”) in accounting for its 2001
Stock Option Plan and its 2006 Stock Incentive Plan. Under SFAS 123R,
compensation cost is measured at the grant date based on the fair value of the
equity instruments awarded and is recognized over the period during which an
employee is required to provide service in exchange for the award, or the
requisite service period, which is usually the vesting period. The fair value of
the equity award granted is estimated on the date of the
grant.
Advertising
The Company expenses advertising costs
as incurred. Advertising expense, included in “Sales and marketing expenses,”
for the years ended December 31, 2008, 2007 and 2006 was approximately $1.2
million, $1.0 million and $150,000, respectively.
Shipping and Handling
Costs
Shipping and handling costs associated
with inbound freight are included in cost of inventory and expensed as cost of
sales when the related inventory is sold. Amounts billed to customers for
shipping and handling is recorded as revenue and are not significant for the
years ended December 31, 2008, 2007 and 2006.
Income Taxes
As the Company was a Subchapter S
corporation until June 2006, any taxable income or loss of the S corporation
through June 2006 was included within the sole stockholder’s income for federal
and state income tax purposes.
Deferred income taxes arise from timing
differences resulting from income and expense items reported for financial
accounting and tax purposes in different periods. A deferred tax asset valuation
allowance is recorded when it is more likely than not that deferred tax assets
will not be realized. Utilization of net operating loss carryforwards may be
subject to a substantial annual limitation due to ownership change limitations
provided by the Internal Revenue Code. The annual limitation may result in the
expiration of net operating loss carryforwards before
utilization.
The Company adopted the provisions of
FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes
(“FIN 48”), on January 1, 2007. Previously, the Company had accounted for
tax contingencies in accordance with SFAS No. 5, Accounting for
Contingencies. As required
by Interpretation 48, which clarifies SFAS No. 109, Accounting
for Income Taxes , the
Company recognizes the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain
the position following an audit. For tax positions meeting this standard, the
amount recognized in the financial statements is the largest benefit that has a
greater than 50 percent likelihood of being realized upon ultimate settlement
with the relevant tax authority. At the adoption date, the Company applied
Interpretation 48 to all tax positions for which the statute of limitations
remained open. The adoption of FIN 48 did not have a material impact in the
consolidated financial statements during the years ended December 31, 2008 and
2007.
36
Earnings Per Share
Basic earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding
during the period presented. Diluted earnings per share is computed using the
weighted average number of common shares outstanding during the periods plus the
effect of dilutive securities outstanding during the periods. For the years
ended December 31, 2008, 2007 and 2006, basic earnings per share is the same as
diluted earnings per share as a result of the Company’s common stock equivalents
(non-vested restricted shares, stock options and warrants) being anti-dilutive
due to the Company’s net loss.
At December 31, 2008, warrants to purchase 1,614,655 shares of
the Company’s common stock, 879,581 non-vested restricted shares, net of
forfeitures, and 1,366,931 options outstanding (see Notes 13 and 14), are dilutive
securities that may dilute future earnings per share. At December 31, 2007,
warrants to purchase 2,238,033 shares of the Company’s common stock, 623,166
non-vested restricted shares, net of forfeitures, and 2,065,000 options
outstanding (see Notes 13
and 14), are dilutive securities that may dilute future earnings per share. At
December 31, 2006, warrants to purchase 61,500 shares of the Company’s common
stock and 354,622 non-vested restricted shares, net of forfeitures (see Notes 13
and 14), are dilutive securities that may dilute future earnings per
share.
The weighted-average number of common
shares outstanding were 28,124,047, 21,117,399 and 11,193,143 for the years
ended December 31, 2008, 2007 and 2006, respectively. The weighted-average
number of common shares used to calculate basic earnings per share for the year
ended December 31, 2006 includes 1,000,000 contingently issuable warrants to
purchase shares of the Company’s common stock in accordance with SFAS No. 128,
“Earnings Per Share.” The 1,000,000 warrants were exercised for 1,000,000 common
shares during 2006.
Segment Reporting
The Company has determined it operates
in one operating segment. Operating segments are components of an enterprise for
which separate financial information is available and is evaluated regularly by
the Company in deciding how to allocate resources and in assessing performance.
The Company’s chief operating decision maker assesses the Company’s performance,
and allocates its resources as a single operating segment.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Principles of
Consolidation
The accompanying consolidated financial
statements include the accounts of Akeena Solar and Fairview, pursuant to the Merger as described in
Note 1. The Company also has two wholly-owned subsidiaries as of December 31,
2008 and 2007. Akeena Corp. is a wholly-owned subsidiary of Akeena Solar and
Andalay Solar, Inc. is a wholly-owned subsidiary of Akeena Solar. All
inter-company accounts have been eliminated in
consolidation.
Reclassifications
Certain prior year amounts have been
reclassified to conform with the current year presentation.
Recent
Accounting Pronouncements
In
February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS
No. 159 permits entities to choose to measure many financial instruments
and certain other items at fair value that are not currently required to be
measured at fair value, and establishes presentation and disclosure requirements
designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. SFAS
No. 159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007. We adopted the provisions of SFAS
No. 159 on January 1, 2008, and have elected not to measure any of our
current eligible financial assets or liabilities at fair value.
In
September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS No. 157), and in February 2008, the FASB amended
SFAS No. 157 by issuing FSP FAS 157-1, Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13, and FSP FAS 157-2, Effective Date of FASB
Statement No. 157 (collectively SFAS No. 157). SFAS
No. 157 defines fair value, establishes a framework for measuring fair
value and expands disclosure of fair value measurements. SFAS No. 157 is
applicable to other accounting pronouncements that require or permit fair value
measurements, except those relating to lease accounting, and accordingly does
not require any new fair value measurements. SFAS No. 157 was effective for
financial assets and liabilities in fiscal years beginning after
November 15, 2007, and for non-financial assets and liabilities in fiscal
years beginning after November 15, 2008 except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis. Our adoption of the provisions of SFAS No. 157 on January 1,
2008, with respect to financial assets and liabilities measured at fair value,
did not have an effect on our financial statements for the year ended
December 31, 2008. In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair
Value of a Financial Asset When the Market for That Asset is Not Active
(FSP FAS 157-3). FSP FAS
157-3 clarifies the application of SFAS No. 157 in a market that is not
active and provides an example to illustrate key considerations in determining
the fair value of a financial asset when the market for that financial asset is
not active. FSP FAS 157-3 became effective immediately upon issuance, and its
adoption did not have an effect on our financial statements. We currently
determine the fair value of our property and equipment when assessing long-lived
asset impairments and SFAS No. 157 will be effective for these fair value
assessments as of January 1, 2009.
37
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment of Accounting
Research Bulletin ARB No. 51, Consolidated Financial Statements (SFAS
No. 160). SFAS No. 160 requires (i) that non-controlling
(minority) interests be reported as a component of stockholders’ equity,
(ii) that net income attributable to the parent and to the non-controlling
interest be separately identified in the consolidated statement of operations,
(iii) that changes in a parent’s ownership interest while the parent
retains its controlling interest be accounted for as equity transactions,
(iv) that any retained non-controlling equity investment upon the
deconsolidation of a subsidiary be initially measured at fair value and,
(v) that sufficient disclosures are provided that clearly identify and
distinguish between the interests of the parent and the interests of the
non-controlling owners. SFAS No. 160 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. We have not completed our evaluation of the
potential impact, if any, of the adoption of SFAS No. 160 on our
consolidated financial position, results of operations and cash
flows.
In
December 2007, the FASB issued SFAS No. 141(R), Business
Combinations (SFAS No. 141(R)). SFAS No. 141(R) will
significantly change the accounting for business combinations. Under SFAS
141(R), an acquiring entity will be required to recognize all the assets
acquired and liabilities assumed in a transaction at the acquisition-date fair
value with limited exceptions. SFAS No. 141(R) will change the accounting
treatment for certain specific acquisition related items including:
(i) expensing acquisition related costs as incurred; (ii) valuing
noncontrolling interests at fair value at the acquisition date of a controlling
interest; and (iii) expensing restructuring costs associated with an
acquired business. SFAS No. 141(R) also includes a substantial number of
new disclosure requirements. SFAS No. 141(R) is to be applied prospectively
to business combinations for which the acquisition date is on or after
January 1, 2009. SFAS No. 141(R) will have an impact on our accounting
for any future business combinations once adopted.
In March
2008, the FASB issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities —
an amendment of FASB Statement No. 133 (SFAS No. 161). SFAS
No. 161 requires qualitative disclosures about objectives and strategies
for using derivatives, quantitative disclosures about fair value amounts and
gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. SFAS
No. 161 is effective for fiscal years beginning after November 15,
2008. As of December 31, 2008, we have not entered into any derivative
transactions.
In April
2008, the FASB issued FASB
Staff Position (FSP) No. FAS 142-3, Determination of the Useful Life of
Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other
Intangible Asset (SFAS 142). More specifically, FSP FAS 142-3 removes the
requirement under paragraph 11 of SFAS 142 to consider whether an intangible
asset can be renewed without substantial cost or material modifications to the
existing terms and conditions and instead, requires an entity to consider its
own historical experience in renewing similar arrangements. FSP FAS 142-3 also
requires expanded disclosure related to the determination of intangible asset
useful lives. The FSP is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and may impact any intangible
assets we acquire in future transactions.
In April
2008, the FASB issued Emerging Issues Task Force (EITF) EITF 07-05, Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock, (EITF
07-05”). EITF 07-05 provides guidance on determining what types of
instruments or embedded features in an instrument held by
a reporting entity can be considered indexed to its own stock for the purpose of
evaluating the first criteria of the scope exception in
paragraph 11(a) of FAS 133. EITF 07-05 is effective for financial statements
issued for fiscal years beginning after December 15, 2008,
and early application is not permitted. Management is evaluating what effect
EITF 07-05 will have on the Company's financial
position and operating results.
In May
2008, the FASB issued SFAS
No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS
No. 162). This statement identifies the sources of accounting principles
and the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with U.S. Generally Accepted Accounting Principles (GAAP) in the
United States (the GAAP hierarchy). SFAS 162 is effective November 15,
2008. The adoption of the Statement did not result in a change in our current
practices.
In
November 2008, the Emerging Issues Task Force (EITF) reached consensus on EITF Issue No. 08-7, Accounting
for Defensive Intangible Assets (EITF 08-7). A defensive asset is an
acquired intangible asset where the acquirer has no intention of using, or
intends to discontinue use of, the intangible asset but holds it to prevent
competitors from obtaining any benefit from it. The acquired defensive asset
will be treated as a separate unit of accounting and the useful life assigned
will be based on the period during which the asset would diminish in value. This
EITF is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and may impact any intangible assets we acquire in
future transactions.
38
3. Accounts
Receivable
Accounts receivable consists of the
following:
|
December 31,
2008
|
December 31,
2007
|
|||||||
|
State rebates
receivable
|
$ | 4,894,943 | $ | 5,121,754 | ||||
|
Trade
accounts
|
3,909,690 | 4,389,425 | ||||||
|
Rebate receivable assigned to
vendor
|
2,144 | 30,135 | ||||||
|
Other accounts
receivable
|
— | 21,000 | ||||||
|
Less: Allowance for doubtful
accounts
|
(1,146,738 | ) | (97,259 | ) | ||||
| $ | 7,660,039 | $ | 9,465,055 | |||||
During the fourth quarter of 2008, the
Company recorded a $1.0 million provision for bad debts, primarily related to a
customer who lost project funding.
The following table summarizes the
allowance for doubtful accounts as of December 31, 2008, 2007 and
2006:
|
Allowance
for doubtful accounts:
|
Balance
at Beginning of Period
|
Charged
to Costs and Expenses
|
Write-Offs
|
Balance
at End of Period
|
||||||||||||
|
Year
ended December 31, 2008
|
$ |
97,259
|
1,069,205
|
19,726
|
1,146,738
|
|||||||||||
|
Year
ended December 31, 2007
|
43,582
|
53,677
|
—
|
97,259
|
||||||||||||
|
Year
ended December 31, 2006
|
—
|
43,582
|
—
|
43,582
|
||||||||||||
4. Inventory
Inventory consists of the
following:
|
December 31,
2008
|
December 31,
2007
|
|||||||
|
Work in
process
|
$ | 1,554,604 | $ | 394,280 | ||||
|
Finished
goods
|
8,992,781 | 8,464,519 | ||||||
|
Less: provision for obsolete
inventory
|
(51,813 | ) | (10,332 | ) | ||||
| $ | 10,495,572 | $ | 8,848,467 | |||||
During the fourth quarter of 2008, the
Company reported a $2.6
million inventory
write-down. This non-cash
charge was an adjustment to
the carrying value of its
solar panel inventory to reflect the sharp decline in world-wide panel prices
since the end of the third quarter of 2008. Inventory at year end was $10.5 million, 86% of which
were solar
panels. Andalay solar panels accounted for
approximately 75% of total
inventory. The valuation
adjustment reflects both the decline in the year end market price of solar
panels compared to original cost as well as the lower year end cost for
Andalay’s integrated wiring, grounding and mounting
technology.
39
5. Property and
Equipment, Net
Property and equipment, net consist of
the following:
|
December 31,
2008
|
December 31,
2007
|
|||||||
|
Vehicles
|
$ | 1,407,916 | $ | 1,278,507 | ||||
|
Office
equipment
|
977,752 | 519,750 | ||||||
|
Leasehold
improvements
|
224,247 | 224,247 | ||||||
|
Furniture and
fixtures
|
96,186 | 74,191 | ||||||
| 2,706,101 | 2,096,695 | |||||||
|
Less: Accumulated depreciation and
amortization
|
(899,832 | ) | (300,128 | ) | ||||
| $ | 1,806,269 | $ | 1,796,567 | |||||
Depreciation expense for the years ended
December 31, 2008, 2007 and 2006 was approximately $601,000, $201,000 and
$37,000, respectively. Accumulated depreciation related to approximately
$94,000 of assets under capital leases was
approximately $35,000 at December 31, 2008. Accumulated
depreciation related to approximately $94,000 of assets under capital leases was
approximately $16,000 at December 31, 2007.
6. Assets
Acquired
On
September 29, 2006, the Company executed an Account Purchase Agreement (the
“Purchase Agreement”), whereby the Company purchased customer contracts, fixed
assets and a customer listing from an individual (the “Seller”). Concurrent with
the execution of the Purchase Agreement, the Company entered into an employment
agreement with the Seller to expand the Company’s operations into Fresno,
California. The employment agreement provided for, among other things, an annual
base salary of $120,000. Under the terms of the employment agreement, the Seller
agreed not to compete with the Company in Fresno, California, in the solar
installation business for one year upon termination of employment.
The total
assets purchased under the Purchase Agreement were approximately $500,000 which
consisted of customer contracts valued at approximately $109,000, property and
equipment of approximately $37,000, and a customer list valued at approximately
$354,000. Customer deposit liabilities of approximately $51,000 were assumed by
the Company at the time of the purchase of the customer contracts, fixed assets
and customer list. The customer contracts were amortized over the period during
which the respective installations were completed and were fully amortized at
December 31, 2007. Fixed assets purchased of approximately $37,000 are included
within “Property and equipment, net” at December 31, 2008 and December 31, 2007.
The customer list valued at approximately $354,000 is included within “Customer
list, net” in the accompanying consolidated balance sheets at December 31, 2008
and December 31, 2007. The customer list was amortized over an eighteen month
period and was fully amortized at December 31, 2008 and was net of amortization
of approximately $269,000 at December 31, 2007.
Upon
execution of the Purchase Agreement, the Seller received cash of approximately
$196,000 and received 54,621 shares of the Company’s common stock valued at
approximately $176,000 based on the weighted-average closing price of the shares
during January 2007. Additionally, under the terms of the Purchase Agreement,
the Seller received cash of $77,000 during April 2007. Certain revenue
milestone amounts were attained during 2007 and the Seller received 29,481
shares of the Company’s common stock in January 2008, which was treated as
compensation expense for the year ended December 31, 2007.
During
September 2008, the Company terminated the employment agreement with the Seller.
The Company released the Seller from the employment agreement and granted 32,333
shares of the Company’s common stock to the Seller based terms of the
agreement, which was treated as stock-based compensation expense for the year
ended December 31, 2008.
7. Acquisitions
On
May 3, 2007, the Company purchased customer contracts and fixed assets, and
assumed certain liabilities, from Alternative Energy, Inc. (“AEI”), a California
corporation, pursuant to an asset purchase agreement with AEI and its principal
shareholders (the “Asset Purchase Agreement”) for approximately $100,000 and
100,000 shares of the Company’s common stock.
The
assets acquired were determined to have all inputs and processes necessary for
the transferred assets to continue to conduct normal operations after
acquisition; accordingly, the purchase was treated as a business combination
pursuant to SFAS No. 141, “Business Combinations.” The Company recorded
approximately $319,000 of goodwill acquired in connection with the AEI
transaction, which was subsequently adjusted to approximately $299,000 after a
deferred purchase price payable amount was not remitted pursuant to the terms of
the Asset Purchase Agreement. The Company assumed an operating lease for AEI’s
offices located in Santa Rosa, California, which expired in September 2008, is
currently being paid on a month-to-month basis and provides for monthly rent
payments of approximately $2,600. The Company assumed approximately $94,000 in
vehicle loans and leases, which includes approximately $31,000 for a capital
lease, and also assumed customer deposit liabilities of approximately $9,000
relating to the customer contracts purchased. Fixed assets purchased of
approximately $102,000 are included within “Property and equipment, net” in the
accompanying consolidated balance sheets at December 31, 2008 and December 31,
2007. Customer contracts of approximately $97,000 are included within “Prepaid
expenses and other current assets, net” in the accompanying consolidated balance
sheets. The customer contracts were fully amortized at December 31, 2008 and net
of accumulated amortization of approximately $42,000 at December 31, 2007. The
customer contracts were amortized over the period during which the respective
installations were completed, which ranged from 3-12 months from the
purchase date of these contracts.
40
Concurrent
with the execution of the business combination under the Asset Purchase
Agreement, the Company entered into a two-year employment agreement with one of
the principal shareholders of AEI, as regional sales manager of its Santa Rosa,
California office. The employment agreement provided for an annual base salary
of $120,000, performance-based bonus compensation if certain sales goals were
achieved, payable in shares of Company common stock, and severance payments.
This Santa Rosa regional sales manager had also agreed not to compete with the
Company in the solar installation business for four years in Marin, Lake and
Sonoma counties, and parts of Napa and Mendocino counties, in the State of
California. As this transaction with AEI did not
meet the significant asset test, pro forma financial information is not being
provided within this Form 10-K.
During
July 2008, the Company terminated the employment agreement with the
former AEI shareholder. The Company released the shareholder from the
employment agreement, granted 20,000 shares of the Company’s common stock based
on the terms of the agreement, and transferred certain other assets. The
grant of 20,000 shares was treated as stock-based compensation expense for the
year ended December 31, 2008.
8. Accrued
Liabilities
Accrued liabilities consist of the
following:
|
December 31,
2008
|
December 31,
2007
|
|||||||
|
Accrued
percentage completion costs
|
$ | 690,810 | $ | — | ||||
|
Accrued salaries, wages and
benefits
|
634,044 | 600,742 | ||||||
|
Customer
deposits
|
385,846 | 362,390 | ||||||
|
Use
tax payable
|
201,239 | 3,699 | ||||||
|
Accrued accounting and legal
fees
|
143,090 | 146,000 | ||||||
|
Other accrued
liabilities
|
355,303 | 319,049 | ||||||
| $ | 2,410,332 | $ | 1,431,880 | |||||
9. Credit
Facility
On
December 19, 2006, the Company entered into a master revolving note with
Comerica Bank (the “2006 Credit Facility”), with a maturity date of
January 1, 2008, to replace the Company’s previous credit facility with
Citibank West FSB dated August 31, 2005. On January 29, 2007, the
Company entered into a Loan and Security Agreement (the “Loan Agreement”) with
Comerica Bank for a $2.0 million line of credit (the “2007 Credit
Facility”) to replace the Company’s 2006 Credit Facility dated December 19,
2006. On June 26, 2007, the 2007 Credit Facility was amended to, among other
things, (i) increase the line of credit from $2.0 million to $7.5 million, (ii)
reduce the interest rate to the prime rate (“Prime”) minus 0.5% and (iii) change
the maturity date of the 2007 Credit Facility from January 1, 2008 to August 1,
2008. Effective December 31, 2007, the Second Modification to Loan and Security
Agreement (the “Second Modification”) to the Credit Facility (i) increased the
Company’s line of credit from $7.5 million to $25.0 million and (ii) changed the
maturity date of the 2007 Credit Facility to July 1, 2009. The Third
Modification to Loan and Security Agreement to the Credit Facility changed the
maturity date of the 2007 Credit Facility to October 1, 2009. Pursuant to the
amended terms, the first $17.5 million borrowed under the 2007 Credit Facility
will not be governed by any formula restrictions but is subject to satisfaction
by the Company of a cash collateral balance requirement which is reflected as
restricted cash to the extent of the amount borrowed in the accompanying
consolidated balance sheet at December 31, 2008. Borrowing above $17.5 million
is limited to 80% of Eligible Accounts Receivable (including 80% of the
Company’s Prefiling Rebates (as such term is defined in the Second
Modification)) plus 55% of Inventory Availability (as such terms are defined in
the monthly borrowing base report provided to Comerica Bank as per the terms of
the 2007 Credit Facility), up to a maximum amount of $7.5 million that is
governed by the borrowing formula. Additional borrowing above $17.5 million will
be subject to the same borrowing formula as set forth in the Loan Agreement,
except that 80% of the Company’s Prefiling Rebates (as such term is defined in
the Second Modification) are now eligible under the borrowing
formula.
As of December 31, 2008, approximately
$18.7 million was outstanding under the 2007 Credit Facility, letters of
credit of approximately $515,000 were outstanding under the 2007 Credit
Facility and approximately $5.4
million of additional borrowing capacity was available. All of the
existing property and assets of the Company are pledged as collateral for the
2007 Credit Facility. Interest was calculated based on Prime minus 0.5% (2.75%)
at December 31, 2008. As of
December 31, 2008, 80% of the Company’s Eligible Accounts Receivable was
approximately $3.7 million, and 55% of Inventory Availability was
approximately
$5.8 million.
The
Company is required to achieve or maintain certain financial ratios and
covenants under the 2007 Credit Facility. The Company was not in compliance with
the Tangible Net Worth covenant (as such term is defined in the Second
Modification) at December 31, 2008. The Company amended its 2007 Credit Facility
with Comerica Bank during March 2009 (see Note 21) eliminating all financial
covenants and reducing the line of credit to $1 million subject to a cash
collateral balance requirement.
41
10. Capital Lease
Obligations
The Company’s capital lease obligations
consist of three forklifts and two vehicles under capital leases. The Company’s
scheduled principal maturities relating to capital lease obligations at December
31, 2008 are as follows:
|
2009
|
$
|
23,292
|
||
|
2010
|
18,476
|
|||
|
2011
|
2,141
|
|||
|
2012
|
—
|
|||
|
2013
|
—
|
|||
|
$
|
43,909
|
|||
|
Less: current
portion
|
(23,292
|
)
|
||
|
$
|
20,617
|
Included
in the Company’s $43,909 capital lease obligations is $2,610 in
interest.
11. Long-Term
Debt
The Company’s long-term debt consists of
forty vehicle loans. The interest rates on these vehicle loans range from
0.0% to 10.5%. The scheduled principal maturities of
long-term debt at December 31, 2008 are as follows:
|
2009
|
$
|
219,876
|
||
|
2010
|
221,827
|
|||
|
2011
|
189,449
|
|||
|
2012
|
111,733
|
|||
|
2013
|
12,293
|
|||
|
2014
|
—
|
|||
|
$
|
755,178
|
|||
|
Less: current
portion
|
(219,876
|
)
|
||
|
$
|
535,302
|
42
12. Stockholders’
Equity
The
Company was incorporated in 2001 and elected at that time to be taxed as an S
corporation. During June 2006, the Company reincorporated in the State of
Delaware and became a C corporation. On August 11, 2006, the Company entered
into a reverse merger transaction with Fairview as discussed in Note 1. Pursuant
to the Merger, the stockholders of Akeena Solar received one share of Fairview
common stock for each issued and outstanding share of Akeena Solar common stock.
Akeena Solar’s common shares were also adjusted from $0.01 par value to $0.001
par value at the time of the Merger. Since the stockholders of Akeena Solar
owned a majority of the outstanding shares of Fairview common stock immediately
following the Merger, and the management and board of Akeena Solar became the
management and board of Fairview immediately following the Merger, the Merger is
being accounted for as a reverse merger transaction and Akeena Solar was deemed
to be the acquirer. The assets, liabilities and the historical operations prior
to the Merger are those of Akeena Solar. Subsequent to the Merger, the
consolidated financial statements include the assets, and the historical
operations of Akeena Solar and Fairview from the closing date of the
Merger.
The
Company closed one private placement offering to accredited investors during
2006 (the “2006 Private Placement”) and three private placement offerings to
accredited investors during 2007 (the “2007 Private Placements”). If the
registration statements covering the private placements cease for any reason to
remain continuously effective for up to two years, or if the holders of the
securities covered by the registration statements are otherwise not permitted to
utilize the prospectus’ included in the registration statements to resell any
securities covered by the registration statements for more than 15 consecutive
calendar days or more than 20 calendar days during any 12-month period (which
need not be consecutive calendar days), then an investor could be entitled to
liquidated damages. The Company believes it is unlikely to incur any liquidated
damages and has not made an accrual for such damages.
During January 2007, 54,621 shares
of the Company’s common stock were issued at a value of approximately $176,000
in accordance with the terms of the Purchase Agreement as described in Note 6.
During May 2007, 100,000 shares of the Company’s common stock were issued at a
value of approximately $314,000 in accordance with the terms of the business
combination under the Asset Purchase Agreement as described in Note
7.
13. Stock Option Plan and Stock
Incentive Plan
The Company’s 2001 Stock Option Plan
(the “2001 Plan”) provides for the issuance of incentive stock options and
non-statutory stock options. The Company’s Board of Directors determines to whom
grants are made and the vesting, timing, amounts and other terms of such grants,
subject to the terms of the 2001 Plan. Incentive stock options may be granted
only to employees of the Company, while non-statutory stock options may be
granted to the Company’s employees, officers, directors, consultants and
advisors. Options under the Plan vest as determined by the Board of Directors,
but in no event at a rate less than 20% per year. The term of the options
granted under the 2001 Plan may not exceed 10 years and the maximum aggregate
shares that may be issued upon exercise of such options is 4,000,000 shares of
common stock. No options were granted under the 2001 Plan as of December 31,
2008 and 2007.
On August 8, 2006, Akeena Solar
adopted the Akeena Solar, Inc. 2006 Stock Incentive Plan (the “Stock Plan”)
pursuant to which 450,000 shares of common stock were available for issuance to
employees, directors and consultants under the Stock Plan as restricted stock
and/or options to purchase common stock. On December 20, 2006, the Stock
Plan was amended to increase the number of shares available for issuance under
the Stock Plan from 450,000 shares to 1,000,000 shares. On August 24, 2007, the
Stock Plan was amended to increase the number of shares available for issuance
under the Stock Plan from 1,000,000 shares to 4,000,000 shares. On October 21, 2008, the Stock Plan was amended to increase
the number of shares available for issuance to 5,000,000
shares.
Restricted stock and options to purchase
common stock may be issued under the Stock Plan. The restriction period on the
restricted shares granted generally expire at a rate of 25% a year over four
years, unless decided otherwise by the Company’s Compensation Committee. Upon
the lapse of the restriction period, the restricted stock grantee becomes
entitled to receive a stock certificate evidencing the common shares, and the
restrictions cease. The options to purchase common stock
shall generally vest and become exercisable as to one-third of the total amount
of shares subject to the option on each of the first, second and third
anniversaries from the date of grant. The options to purchase common
stock have 5-year contractual terms.
The Company recognized stock-based
compensation expense of approximately $3.3 million, $2.2 million and $38,000
during the years ended December 31, 2008, 2007 and 2006, respectively, relating
to compensation expense calculated in accordance with SFAS 123R for restricted
stock and stock options granted under the Stock Plan.
43
The following table sets forth a summary
of restricted stock activity for the years ended December 31, 2008 and
2007:
|
Number of
Restricted
Shares 2008
|
Weighted-
Average Grant
Date
Fair Value
|
Number of
Restricted
Shares 2007
|
||||||||||
|
Outstanding and not vested
beginning balance
|
623,166 | $ | 4.08 | 354,622 | ||||||||
|
Granted during the
year
|
886,597 | $ | 4.46 | 761,488 | ||||||||
|
Forfeited/cancelled during the
year
|
(232,888 | ) | $ | 4.43 | (114,745 | ) | ||||||
|
Released/vested during the
year
|
(397,294 | ) | $ | 4.04 | (378,199 | ) | ||||||
|
Outstanding and not vested at
December 31, 2008 and 2007
|
879,581 | $ | 4.39 | 623,166 | ||||||||
The restricted stock is valued at the
grant date fair value of the common stock and expensed over the requisite
service period or vesting period. SFAS 123R requires the estimation of
forfeitures when recognizing compensation expense and that this estimate of
forfeitures be adjusted over the requisite service period should actual
forfeitures differ from such estimates. At December 31, 2008 and 2007, there was
approximately $3.5 million and $1.5 million of unrecognized stock-based
compensation expense associated with the non-vested restricted shares granted,
respectively. Stock-based compensation expense relating to these restricted
shares is being recognized over a weighted-average period of 3.3 years. The
total fair value of shares vested during the years ended December 31, 2008 and
December 31, 2007 was approximately $1.6 million and $1.5 million,
respectively. SFAS 123R requires the cash flows as a result of the
tax benefits resulting from tax deductions in excess of the compensation cost
recognized (excess tax benefits) to be classified as financing cash flows. There
are no excess tax benefits relating to restricted stock for the years ended
December 31, 2008 and 2007, respectively, and therefore, there is no impact on
the accompanying consolidated statements of cash flows.
The following table sets forth a summary
of stock option activity for the years ended December 31, 2008 and
2007:
|
Number of
Shares
Subject To
Option 2008
|
Weighted-Average
Exercise
Price
|
Number of
Shares
Subject To
Option 2007
|
Weighted-Average
Exercise
Price
|
|||||||||||||
|
Outstanding beginning
balance
|
2,065,000 | $ | 5.40 | — | — | |||||||||||
|
Granted during the
year
|
436,871 | $ | 4.87 | 2,065,000 | $ | 5.31 | ||||||||||
|
Forfeited/cancelled/expired during the
year
|
(1,134,940 | ) | $ | 5.55 | — | — | ||||||||||
|
Exercised during the
year
|
— | — | — | — | ||||||||||||
|
Outstanding at December 31, 2008 and 2007
|
1,366,931 | $ | 5.14 | 2,065,000 | $ | 5.31 | ||||||||||
|
Exercisable at December 31,
2008 and
2007
|
432,330 | $ | 5.39 | — | — | |||||||||||
The stock options are valued at the
grant date fair value of the common stock and expensed over the requisite
service period or vesting period. Expected volatility is based upon the
historical volatility of the Company’s various industry competitors. The fair
value of stock option grants during the year ended December 31, 2008 was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:
|
December 31,
2008
|
December 31,
2007
|
|||||||
|
Expected
volatility
|
63.1% - 103.3 | % | 88.8% - 110.0 | % | ||||
|
Weighted-average
volatility
|
92.6 | % | 96.9 | % | ||||
|
Expected
dividends
|
0.0 | % | 0.0 | % | ||||
|
Expected
life
|
3.1 years
|
3.5 years
|
||||||
|
Risk-free interest
rate
|
0.4% - 2.8 | % | 3.4% - 4.2 | % | ||||
The weighted-average fair value per
share of the stock options as determined on the date of grant was $2.78 for
the 1,366,931 stock options outstanding as of December 31, 2008. The
weighted-average fair value per share of the stock options as determined on the
date of grant was $3.51 for the 2,065,000 stock options outstanding as of
December 31, 2007. The weighted-average remaining contractual term
for the stock options outstanding (vested and expected to vest) and the options
exercisable as of December 31, 2008 was 3.9 years and 3.7 years, respectively.
The total fair value of stock options vested during the year ended December 31,
2008 was approximately $1.6 million. No stock options vested during the year
ended December 31, 2007.
SFAS 123R requires the estimation of
forfeitures when recognizing compensation expense and that this estimate of
forfeitures be adjusted over the requisite service period should actual
forfeitures differ from such estimates. At December 31, 2008 and 2007, there was
approximately $2.5 million and $4.5 million of
unrecognized stock-based compensation expense associated with stock options
granted, respectively. Stock-based compensation expense relating to these stock
options is being recognized over a weighted-average period of 1.9 years. SFAS
123R requires the cash flows as a result of the tax benefits resulting from tax
deductions in excess of the compensation cost recognized (excess tax benefits)
to be classified as financing cash flows. There are no excess tax benefits for
years ended December 31, 2008 and 2007, respectively, and therefore, there is no
impact on the accompanying consolidated statements of cash
flows.
44
14. Stock
Warrants
In March 2001, the Company issued a
warrant to purchase 1,000,000 shares of the Company’s common stock at an
exercise price per share of $0.01 in exchange for the purchase of assets from
Akeena Wireless, Inc. (“AWI”), (see Note 16). The warrants to purchase 1,000,000
shares of the Company’s common stock were exercised and 1,000,000 shares of
common stock were issued during 2006 at the exercise price of $0.01, for
approximately $10,000.
During August and September 2006,
the Company issued warrants to purchase 61,500 shares of the Company’s common
stock at an exercise price per share of $1.00 to the placement agent that sold
41 units under the Private Placement. The fair value of these warrants was
estimated using the Black-Scholes pricing model with the following weighted
average assumptions: a risk-free interest rate of 4.9%, an expected life of
three years, an expected volatility factor or 103.3% and a dividend yield of
0.0%. The value assigned to these warrants under the Black-Scholes estimate is
approximately $70,000.
During March 2007, the Company
issued warrants to purchase 79,976 shares of the Company’s common stock at
exercise prices ranging from $1.97 - $2.75 per share in connection
with placement agent fees relating to the
March 2007 Private Placement. The fair value of these warrants was
estimated using the Black-Scholes pricing model with the following weighted
average assumptions: a risk-free interest rate of 4.5%, an expected life of
three years, an expected volatility factor or 103.3% and a dividend yield of
0.0%. The value assigned to these warrants under the Black-Scholes estimate is
approximately $122,000. In connection with the $4.1 million raised under
the March 2007 Private Placement and the issuance of 2,062,304 shares of
common stock to the investors, the Company also issued to the investors in the
March 2007 Private Placement warrants to purchase 412,460 shares of the
Company’s common stock, with exercise prices ranging from $2.75 - 3.00 per
share. Using the Black-Scholes pricing model, the relative fair value of the
warrants issued to the investors under the March 2007 Private Placement was
approximately $779,000. The total relative fair value of the common stock and
the warrants issued to investors under the March 2007 Private Placement was
approximately $4.7 million.
During June 2007, the Company
issued warrants to purchase 385,964 shares of the Company’s common stock at
exercise prices ranging from $2.75 - $3.95 per share in connection
with placement agent fees relating to the
June 2007 Private Placement. The fair value of these warrants was estimated
using the Black-Scholes pricing model with the following weighted average
assumptions: a risk-free interest rate of 4.9%, an expected life of three years,
an expected volatility factor of 96.9% and a dividend yield of 0.0%. The value
assigned to these warrants under the Black-Scholes estimate is approximately
$880,000. In connection with the $12.6 million raised under the
June 2007 Private Placement and the issuance of 4,567,270 shares of common
stock to the investors, the Company also issued to the investors in the
June 2007 Private Placement warrants to purchase 913,455 shares of the
Company’s common stock, with an exercise price of $3.95 per share. Using the
Black-Scholes pricing model, the relative fair value of the warrants issued to
the investors under the June 2007 Private Placement was approximately $2.4
million. The total relative fair value of the common stock and the warrants
issued to investors under the June 2007 Private Placement was approximately
$14.6 million.
During November 2007, the Company
issued warrants to purchase 280,929 shares of the Company’s common stock at an
exercise price of $10.08 per share in connection with the November 2007
Private Placement. Cowen and Company, LLC acted as the sole placement agent with
respect to the November 2007 Private Placement and received a three-year warrant
to purchase 83,679 shares of common stock at an exercise price of $10.08 per
share. Empire Financial Group, Inc. received a five-year warrant to purchase
197,250 shares of common stock at an exercise price of $10.08 per share as a
finder’s fee in connection with the November 2007 Private Placement. The fair
value of the warrants to purchase 280,929 shares of the Company’s common stock
was estimated using the Black-Scholes pricing model with the following weighted
average assumptions: risk-free interest rates ranging from 3.7% to 4.0%,
expected lives ranging from three to five years, an expected volatility factor
of 96.9% and a dividend yield of 0.0%. The value assigned to these warrants
under the Black-Scholes estimate is approximately $1.4 million. In connection
with the $26.1 million raised under the November 2007 Private
Placement and the issuance of 3,728,572 shares of common stock to the investors,
the Company also issued to the investors in the November 2007 Private
Placement warrants to purchase 745,716 shares of the Company’s common stock,
with an exercise price of $10.08 per share. Using the Black-Scholes pricing
model, the relative fair value of the warrants issued to the investors under the
November 2007 Private Placement was approximately $5.0 million. The total
relative fair value of the common stock and the warrants issued to investors
under the November 2007 Private Placement was approximately
$30.2 million.
During the years ended December 31, 2008
and 2007, warrants to purchase 623,378 and 641,967 shares of the Company’s
common stock were exercised, respectively. As of December 31, 2008, warrants to
purchase 1,614,655 shares of the Company’s common stock were outstanding and
exercisable. As of December 31, 2007, warrants to purchase 2,238,033 shares of
the Company’s common stock were outstanding and exercisable.
45
15. Income Taxes
As the Company was a Subchapter S
corporation until June 2006, any taxable income or loss of the S corporation
through June 2006 was included within the sole stockholder’s income for federal
and state income tax purposes. During the years ended December 31, 2008, 2007
and 2006, respectively, there was no income tax expense or benefit for federal
and state income taxes in the accompanying consolidated statements of operations
due to the Company’s net loss and a valuation allowance on the resulting
deferred tax asset.
The actual tax expense differs from the
“expected” tax expense for the years ended December 31, 2008, 2007 and 2006
(computed by applying the U.S. Federal Corporate tax rate of 34% to income
before taxes) as follows:
|
December 31,
2008
|
December 31,
2007
|
December 31,
2006
|
||||||||||
|
Tax at Federal statutory
rate
|
$ | (8,276,808 | ) | $ | (3,755,905 | ) | $ | (553,376 | ) | |||
|
State taxes, net of Federal
benefit
|
(1,294,493 | ) | (679,239 | ) | (86,959 | ) | ||||||
|
Research
credits
|
(42,371 | ) | (44,919 | ) | — | |||||||
|
Other permanent
items
|
4,932 | 24,195 | — | |||||||||
|
Valuation
allowance
|
9,608,740 | 4,455,868 | 640,335 | |||||||||
|
Income tax
provision
|
$ | — | $ | — | $ | — | ||||||
The tax effects of temporary differences
that give rise to significant portions of deferred tax assets and liabilities at
December 31, 2007 are as follows:
|
December 31,
2008
|
December 31,
2007
|
|||||||
|
Deferred tax
assets:
|
||||||||
|
Net operating loss and credit
carryforwards
|
$ | 11,054,005 | $ | 3,306,347 | ||||
|
Stock-based
compensation
|
2,235,150 | 921,085 | ||||||
|
Accruals
|
1,241,596 | 727,116 | ||||||
|
Basis difference for fixed assets
and intangibles
|
174,193 | 141,655 | ||||||
|
Total gross deferred tax
assets
|
14,704,944 | 5,096,203 | ||||||
|
Valuation
allowance
|
(14,704,944 | ) | (5,096,203 | ) | ||||
|
Net deferred tax
assets
|
$ | — | $ | — | ||||
A valuation allowance is provided when
it is more likely than not that some portion of the deferred tax assets will not
be realized. The Company established a 100% valuation allowance due to the
uncertainty of realizing future tax benefits from its net operating loss
carryforwards and other deferred tax assets. At December 31, 2008, the Company
had useable net operating loss carryforwards of approximately $27.4 million for
federal and $24.8 million for state income tax purposes, available to offset
future taxable income expiring through 2028 and 2029, respectively. At December
31, 2007, the Company had useable net operating loss carryforwards of
approximately $8.1 million for federal and state income tax purposes, available
to offset future taxable income expiring through 2026 and 2018, respectively. The net change in the
valuation allowance during the years ended December 31, 2008 and 2007 was an
increase of approximately $9.6 million and approximately $4.5 million,
respectively, due primarily to current year losses. The Company also has cumulative federal
and state research and development credits of approximately $234,000 as of December 31, 2008. The federal
credits expire through 2028 and the state credits have no
expiration.
Internal Revenue Code Section 382 places
a limitation (the “Section 382 Limitation”) on the amount of taxable income
which can be offset by net operating loss carryforwards after a change in
control (generally greater than a 50% change in ownership) of a loss
corporation. Generally, after a control change, a loss corporation cannot deduct
operating loss carryforwards in excess of the Section 382 Limitation. Due to
these “change in ownership” provisions, utilization of the net operating loss
and tax credit carryforwards may be subject to an annual limitation regarding
their utilization against taxable income in future periods. The Company has not
concluded its analysis of Section 382 through December 31, 2008 and 2007, but
believes that these provisions will not limit the availability of losses to
offset future income.
46
16. Related Party
Transactions
The Chief Executive Officer of the
Company is a director of AWI and is currently a custodian for AWI. The Company
previously issued a warrant to purchase 1,000,000 shares of the Company’s common
stock at an exercise price per share of $0.01 in exchange for the purchase of
assets from AWI. This warrant was exercised as of December 31,
2006. The Company did not enter into any transactions with AWI during
2008 or 2007.
During September 2006, the Company
entered into the Purchase Agreement as described in Note 6. After the Purchase
Agreement was executed, the Seller transferred ownership of Solahart All Valley
Energy Systems (“Solahart”), a Fresno-based installer of solar energy systems,
solar hot water systems and solar pool heaters, to a family member and became an
employee of the Company. Solahart no longer installs solar energy systems, but
continues to operate focusing on solar water heating installations used in
swimming pool and residential water heating. From time to time, the Company
utilizes subcontractor labor provided by Solahart. Related party expenses
between the Company and Solahart were approximately $70,000, $22,000 and $159,000, respectively,
for the years ended December 31, 2008, 2007 and 2006 relating primarily
to subcontracted installation services that Solahart provided to the Company. On
September 29, 2008, the Company terminated the employment agreement with the
Seller of Solahart. The Company released the Seller from the employment
agreement and granted to the Seller 32,333 shares of the Company’s common
stock based on terms of the agreement, which was treated as stock-based
compensation expense for the year ended December 31, 2008.
17. Commitments and
Contingencies
Non-Cancelable Operating
Leases
The Company’s operating lease for its
Los Gatos, California corporate office facility expires
during November 2009. Total rent expense amounted to approximately $1.1 million,
$528,000 and $87,000 for the years ended December 31, 2008, 2007 and 2006,
respectively. Total rent expense for the year ended December 31, 2008 includes
approximately $201,000 of accelerated rent expense relating to the Company’s
Bakersfield location, Manteca location and a warehouse location. The
Company also has operating leases relating to its Fresno (Clovis), Orange County (Lake Forest), Bakersfield, Manteca, Santa Rosa, Palm Springs, and San Diego, California offices, its Littleton, Colorado office and its Milford, Connecticut office. The Company rented office and
warehouse space in New Jersey on a month-to-month basis during 2008 and also
rents office and warehouse space in Thousand Oaks (Westlake Village), California
on a month-to-month basis. During the year ended December 31, 2008, the Company
took a non-cash charge of approximately $201,000 for future lease payments for
office space in Bakersfield, Manteca and a warehouse location. The Company
does not occupy the Bakersfield and Manteca locations as a result of the
consolidation of the California Central Valley operations into the Clovis/Fresno
area.
Future minimum lease payments on
operating leases at December 31, 2008 are as follows:
|
2009
|
$
|
767,203
|
||
|
2010
|
291,062
|
|||
|
2011
|
159,811
|
|||
|
2012
|
77,051
|
|||
|
2013
|
—
|
|||
|
Thereafter
|
—
|
|||
|
Total minimum lease
payments
|
$
|
1,295,127
|
Litigation
The Company is involved in certain legal
proceedings arising in the ordinary course of business. In the opinion of
management, the outcome of such proceedings will not materially affect the
Company’s financial position, results of operations or cash
flows.
Employment Agreement
The Company has an employment agreement
with one employee. This employment agreement provides for an annual base salary
of $120,000 and expires October 1,
2009.
47
18. Significant
Concentrations of Business and Credit Risk
Financial instruments that potentially
subject the Company to credit risk are comprised of cash and cash equivalents,
and restricted cash, which are maintained at high quality financial
institutions. At December 31, 2008 and 2007, there was approximately $17.3
million and $21.5 million, respectively, in excess of the Federal Deposit
Insurance Corporation limit of $250,000 in 2008 and $100,000 in
2007.
The Company maintains reserves for
potential credit losses and such losses, in the aggregate, have generally not
exceeded management’s estimates. During the fourth quarter of 2008, the Company
recorded a $1.0 million provision for bad debts, primarily related to a customer
who lost project funding. The Company’s top three vendors during the years ended December 31, 2008
and 2007, respectively, accounted for approximately 52.0% and
71.9% of materials purchases during 2008 and 2007. At December 31, 2008, accounts payable included amounts owed
to the 2008 top three vendors of approximately
$83,000. At December 31, 2007, accounts payable
included amounts owed to the 2007 top three vendors of approximately $5.1
million.
19. Employee Benefit
Plan
On December 14, 2007, the Board of
Directors approved the 401(k) profit sharing plan (the “401(k) Plan”) effective
January 1, 2008. Employees began deferring a portion of their compensation into
the 401(k) Plan commencing on January 1, 2008 and the Company is not matching
employee deferrals.
20. Quarterly Information
(unaudited)
The
following table sets forth the Company’s unaudited quarterly summary
consolidated statements of operations for each of the quarters for the years
ended December 31, 2008 and 2007. The information for each of these
quarters is unaudited and has been prepared on the same basis as the Company’s
audited consolidated financial statements. This data should be read in
conjunction with the Company’s consolidated financial statements and related
notes. These operating results may not be indicative of results to be expected
for any future period.
|
For
the Quarter Ended
|
||||||||||||||||
|
March
31,
|
June
30,
|
September
30,
|
December
31,*
|
|||||||||||||
|
2008
|
||||||||||||||||
|
Net sales
|
$ | 12,248,372 | $ | 7,061,699 | $ | 10,595,632 | $ | 10,855,599 | ||||||||
|
Gross profit before inventory
revaluation
|
2,415,555 | 1,042,389 | 1,346,032 | 1,160,780 | ||||||||||||
|
Inventory
revaluation
|
— | — | — | 2,646,292 | ||||||||||||
|
Gross
profit
|
2,415,555 | 1,042,389 | 1,346,032 | (1,485,512 | ) | |||||||||||
|
Total operating
expenses
|
7,128,651 | 6,168,872 | 6,824,823 | 7,548,282 | ||||||||||||
|
Loss from
operations
|
(4,713,096 | ) | (5,126,483 | ) | (5,478,791 | ) | (9,033,794 | ) | ||||||||
|
Other income
(expense)
|
134,939 | 27,000 | (13,767 | ) | (143,386 | ) | ||||||||||
|
Net loss
|
(4,578,157 | ) | (5,099,483 | ) | (5,492,558 | ) | (9,177,180 | ) | ||||||||
|
Net loss per
share:
|
||||||||||||||||
|
Basic
|
$ | (0.16 | ) | $ | (0.18 | ) | $ | (0.19 | ) | $ | (0.32 | ) | ||||
|
Diluted
|
$ | (0.16 | ) | $ | (0.18 | ) | $ | (0.19 | ) | $ | (0.32 | ) | ||||
|
2007
|
||||||||||||||||
|
Net sales
|
$ | 6,292,430 | $ | 7,510,861 | $ | 8,088,320 | $ | 10,320,150 | ||||||||
|
Gross
profit
|
1,499,566 | 1,769,764 | 1,695,470 | 1,874,270 | ||||||||||||
|
Total operating
expenses
|
2,405,992 | 3,672,659 | 5,387,022 | 6,454,826 | ||||||||||||
|
Loss from
operations
|
(906,426 | ) | (1,902,895 | ) | (3,691,552 | ) | (4,580,556 | ) | ||||||||
|
Other income
(expense)
|
(26,978 | ) | (21,417 | ) | (31,620 | ) | 114,665 | |||||||||
|
Net loss
|
(933,404 | ) | (1,924,312 | ) | (3,723,172 | ) | (4,465,891 | ) | ||||||||
|
Net loss per
share:
|
||||||||||||||||
|
Basic
|
$ | (0.06 | ) | $ | (0.10 | ) | $ | (0.16 | ) | $ | (0.18 | ) | ||||
|
Diluted
|
$ | (0.06 | ) | $ | (0.10 | ) | $ | (0.16 | ) | $ | (0.18 | ) | ||||
|
*
|
In
the fourth quarter of 2008, we recorded the following expenses, (i) a
revaluation of inventory in the amount of $2.6 million, (ii) a reserve for
future lease payments in the amount of $201,000 and, (iii) a reserve for
bad debts in the amount of $1.0
million.
|
48
21. Subsequent
Events
On
February 2, 2009, the Company and Enphase Energy, a leading manufacturer of
microinverter products, announced a strategic partnership to develop and market
Andalay solar panel systems with ordinary AC house current output instead of
high voltage DC output. Andalay AC panels are expected to cost less to install
and provide higher efficiency than ordinary DC panels. Under the agreement, the
Company will purchase a minimum of 5,000 microinverters in each of 2009 and
2010, and Enphase will supply up to 100,000 microinverters to Akeena during this
same timeframe. These microinverters will be built into the Company’s Andalay
solar panels.
On
February 26, 2009, the Company announced cost reduction measures, including a
reduction in force and the closure of our Connecticut office. The Company
eliminated approximately 45 positions, or approximately 25% of its current
workforce, and reduced the regular hours and salaries of the remaining workforce
by 10%. The Company believes these measures will adjust its capacity to a level
that reflects its current customer demand and improve sales, design and
installation efficiency. In 2008, the Company derived less than 8% of our
revenue from the region supported by the Connecticut office. The Company
believes it can address the Northeastern market more cost effectively by
distributing its Andalay product to other systems integrators in the region, and
without continuing to have an office location that provides installation
services in that region. The Company expects these changes to result in a
significant reduction in its monthly operating expenses, as well as a
corresponding reduction in the level of revenue needed to become break-even on
the basis of its continuing operations. However even after these changes, the
Company anticipates that it will continue to sustain losses in the near term,
and cannot assure investors that it will be successful in reaching
break-even.
During February 2009, the Company’s
Board of Directors approved the granting of an aggregate of 72,726 restricted
common stock and an aggregate of 819,000 stock options to employees and
consultants under the Company’s Stock Plan.
On March
3, 2009, the Company entered into a Loan and Security Agreement (Cash Collateral
Account) with Comerica Bank (the “2009 Bank Facility”). The 2009 Bank Facility
has a termination date of January 1, 2011, and replaces and entirely amends and
restates the Loan and Security Agreement (Accounts and Inventory) between the
Company and Comerica Bank dated January 29, 2007, as modified by the First
Modification to Loan and Security Agreement dated as of June 26, 2007, the
Second Modification to Loan and Security Agreement dated as of December 31, 2007
and the Third Modification to Loan and Security Agreement dated as of August 4,
2008 (together, the “2007 Credit Facility”). The Company repaid the $17.2
million outstanding principal balance as of March 3, 2009 on the 2007 Credit
Facility by using its restricted cash balance that was on deposit with Comerica.
The 2009 Bank Facility with Comerica has a limit of $1 million, subject to the
Company’s obligation to maintain at all times cash collateral in an amount of $1
million as security for any borrowings incurred or any letters of credit issued
on the Company’s behalf. Outstanding loans under the 2009 Bank Facility will
accrue interest at the rate of the reserve adjusted LIBOR Rate plus a margin of
2.15%. Unused amounts of the commitments are subject to an unused commitment fee
of 0.25% based on the unused amount. The 2009 Bank Facility no longer includes
an asset-based line of credit, and Comerica Bank has released its security
interest in the Company’s inventory, accounts receivable, and other assets
(other than the cash collateral account as provided in the 2009 Bank Facility).
The 2009 Bank Facility does not include any ongoing minimum net worth or other
financial covenants with regard to the Company, and the Company is in compliance
with the terms of the 2009 Bank Facility as of March 12, 2009. The Company is
currently in discussions with lending institutions regarding a replacement
asset-based line of credit facility.
On March
3, 2009, the Company closed an offering of securities (the “Closing”) pursuant to a
securities purchase agreement with certain investors, dated February 26, 2009.
Net proceeds from the offering are estimated to be approximately $1.6
million, after deducting the placement agents’ fees and estimated
expenses.
In
accordance with the securities purchase agreement, the Company sold units
consisting of an aggregate of (i) 1,785,714 shares of common stock at a
price of $1.12 per share; (ii) 2,000 shares of Series A Preferred Stock which
are convertible into a maximum aggregate of 539,867 shares of common stock,
depending upon the volume weighted average trading price of Akeena common stock
for a specified period following the Closing; (iii) Series E Warrants to
purchase up to 1,339,286 shares of common stock at a strike price of $1.34 per
share, which warrants are not exercisable until six months after the Closing and
have a term of seven years from the date of first exercisability; (iv) Series F
Warrants to purchase up to an aggregate of 540,000 shares of common stock
(subject to reduction share for share to the extent shares of common stock are
issued upon conversion of the Series A Preferred Stock) at a strike price of
$1.12 per share, which warrants are immediately exercisable and have a term of
150 trading days from the Closing; and (v) Series G Warrants to purchase up to
an aggregate of 2,196,400 shares of common stock at a strike price of $1.12 per
share, which warrants are immediately exercisable and have a term of 67 trading
days from the Closing.
49
None.
Item
9A. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2008. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective at the reasonable assurance level as of
the end of the period covered by this report. In designing and
evaluating our disclosure controls and procedures, we and our management
recognize that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and our management necessarily was required to apply its judgment in
evaluating and implementing possible controls and procedures. In
addition, the design of any control system is based in part upon certain
assumptions about the likelihood of future events.
The term
“disclosure controls and procedures,” as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the company’s
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required
disclosure.
Quarterly Evaluation of Changes in
Internal Control Over Financial Reporting
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, also conducted an evaluation of our internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)
to determine whether any change occurred during the fourth quarter of 2008 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. Based on that evaluation,
our management concluded that there was no such change during the fiscal quarter
ended December 31, 2008.
Management’s
Annual Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Exchange Act
Rule 13a-15(f). Our system of internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation and fair presentation of financial statements for
external purposes in accordance with generally accepted accounting
principles.
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework established by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) as set forth in Internal Control — Integrated
Framework. Based on our evaluation under the framework in
Internal Control — Integrated
Framework, our management concluded that our internal control over
financial reporting was effective as of December 31, 2008.
Our
internal control over financial reporting as of December 31, 2008 has also been
audited by Burr, Pilger and Mayer LLP, an independent registered public
accounting firm, and their opinion as to the effectiveness of our internal
control over financial reporting is stated in their report, dated March 13,
2009, which is included below.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. It should be noted that any system
of controls, however well designed and operated, can provide only reasonable,
and not absolute, assurance that the objectives of the system will be
met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of future events. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
50
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and
Stockholders of
Akeena Solar,
Inc.
We have audited the internal control
over financial reporting of Akeena Solar, Inc. and its subsidiaries (the
“Company”) as of December 31, 2008, based on criteria established in
Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the
effectiveness of the Company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over
financial reporting is a process designed 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. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, Akeena Solar, Inc. and
its subsidiaries maintained effective internal control over financial reporting
as of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Akeena Solar, Inc. and its subsidiaries as of
December 31, 2008 and 2007 and the related consolidated statements of
operations, stockholders’ equity and cash flows for each of the three years in
the period ended December
31, 2008 and our report dated March 12, 2009 expressed an unqualified opinion
on those consolidated financial statements.
/s/ Burr,
Pilger & Mayer LLP
Burr, Pilger & Mayer LLP
San Francisco, California
March 12, 2009
51
None.
PART III
Item
10. Directors, Executive Officers and Corporate
Governance.
Information
required by Part III under Item 10 will be included in either our Proxy
Statement for the 2009 Annual Meeting of Stockholders or an amendment to this
Annual Report on Form 10-K, one of which will be filed with the SEC within
120 days after December 31, 2008, and is incorporated herein by
reference.
Item
11. Executive Compensation.
Information
required by Part III under Item 11 will be included in either our Proxy
Statement for the 2009 Annual Meeting of Stockholders or an amendment to this
Annual Report on Form 10-K, one of which will be filed with the SEC within
120 days after December 31, 2008, and is incorporated herein by
reference.
Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Information
required by Part III under Item 12 will be included in either our Proxy
Statement for the 2009 Annual Meeting of Stockholders or an amendment to this
Annual Report on Form 10-K, one of which will be filed with the SEC within
120 days after December 31, 2008, and is incorporated herein by
reference.
Item
13. Certain Relationships and Related Transactions and Director
Independence
Information
required by Part III under Item 13 will be included in either our Proxy
Statement for the 2009 Annual Meeting of Stockholders or an amendment to this
Annual Report on Form 10-K, one of which will be filed with the SEC within
120 days after December 31, 2008, and is incorporated herein by
reference.
Item
14. Principal Accountant Fees and Services
Information
required by Part III under Item 14 will be included in either our Proxy
Statement for the 2009 Annual Meeting of Stockholders or an amendment to this
Annual Report on Form 10-K, one of which will be filed with the SEC within
120 days after December 31, 2008, and is incorporated herein by
reference.
52
Item 15. Exhibits, Financial
Statement Schedules
|
Exhibit
Number
|
Description
|
|
|
2.1
|
Agreement of Merger and Plan of
Reorganization, dated August 11, 2006, by and among Fairview Energy
Corporation, Inc., ASI Acquisition Sub, Inc. and Akeena Solar, Inc.
(incorporated herein by reference to Exhibit 2.1 to our Current Report on
Form 8-K, dated August 11, 2006 (the “August 2006
8-K”))
|
|
|
3.1
|
Certificate of Incorporation
(incorporated herein by reference to Exhibit 3.1 to our Current Report on
Form 8-K, dated August 3, 2006)
|
|
|
3.2
|
By-laws (incorporated herein by
reference to Exhibit 3.2 to our Current Report on Form 8-K, dated August
3, 2006)
|
|
|
3.3
|
Certificate of Amendment to the
Certificate of Incorporation (incorporated herein by reference to Exhibit
3.3 to the August 2006 8-K)
|
|
|
4.1
|
Form of Class B Common Stock
Purchase Warrant, dated March 8, 2007 (incorporated herein by reference to
Exhibit 10.3 to our Current Report on Form 8-K, dated March 8, 2007
(“March 8, 2007 8-K”))
|
|
|
4.2
|
Form of Class A Common Stock
Purchase Warrant, dated March 8, 2007 (incorporated herein by reference to
Exhibit 10.4 to the March 8, 2007 8-K)
|
|
|
4.3
|
Registration Rights Agreement
(incorporated herein by reference to Exhibit 10.2 to the March 8, 2007
8-K)
|
|
|
4.4
|
Form of Class C Common Stock
Purchase Warrant, dated May 25, 2007 (incorporated herein by reference to
Exhibit 10.3 to our Current Report on Form 8-K, dated June 4,
2007)
|
|
|
4.5
|
Form of Warrant to Purchase Common
Stock, dated November 2007 (incorporated herein by reference to Exhibit
4.1 to our Current Report on Form 8-K, dated November 1,
2007)
|
|
|
10.1‡
|
Akeena Solar, Inc. 2006 Stock
Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the
August 14,
2006
8-K)
|
|
|
10.2‡
|
Akeena Solar, Inc. 2006 Stock
Incentive Plan Form
of Restricted Stock Agreement (incorporated herein by reference
to Exhibit 4.1 to our Annual Report on Form 10-KSB filed with the SEC on
March 29, 2007)
|
|
|
10.3*‡
|
Akeena Solar, Inc. 2006 Stock
Incentive Plan Form
of Nonqualified Stock Option Agreement
|
|
|
10.4‡
|
First Amendment to the Akeena
Solar, Inc. 2006 Incentive Stock Plan (incorporated herein by reference to
Exhibit 10.1 to our Current Report on Form 8-K, dated December 20,
2006)
|
|
|
10.5
|
Form of Registration Rights
Agreement (incorporated herein by reference to Exhibit 10.3 to the August
2006 8-K)
|
|
|
10.6
|
Loan and Security Agreement, dated
January 29, 2007, between the Company and Comerica Bank (incorporated
herein by reference to Exhibit 10.1 to our Current Report on Form 8-K,
dated January 29, 2007)
|
|
|
10.7
|
First Modification to Loan and
Security Agreement, dated June 26, 2007, between the Company and Comerica
Bank (incorporated herein by reference to Exhibit 10.1 to our Current
Report on Form 8-K, dated June 26,
2007.
|
53
|
10.8
|
Second Modification to Loan and
Security Agreement, dated January 11, 2008 and effective as of December
31, 2007, between the Company and Comerica Bank (incorporated herein by
reference to Exhibit 10.1 to our Current Report on
Form 8-K, dated
January 11, 2008)
|
|
|
10.9‡
|
Restricted Stock Agreement, dated
December 29, 2006, between the Company and Edward Roffman (incorporated
herein by reference to Exhibit 10.8 to our Annual Report on Form 10-KSB
filed with the SEC on March 29,
2007)
|
|
10.10‡
|
Form of Director and Officer
Indemnification Agreement (incorporated herein by reference to Exhibit
10.9 to the August 2006 8-K)
|
|
|
10.11‡
|
Second Amendment to the Akeena
Solar, Inc. 2006 Incentive Stock Plan (incorporated herein by reference
to Exhibit 10.11 to our Quarterly Report on Form 10-KSB filed with the SEC
on March 19, 2008)
|
|
|
10.12
|
Standard Industrial/Commercial
Single-Tenant Lease - Net, dated September 30, 2002, between Mattiuz
Children’s Trust and the Company, as amended by First Addendum to Standard
Industrial/Commercial Single-Tenant Lease — Net, dated April 26, 2004,
Second Addendum Standard Industrial/Commercial Single-Tenant Lease — Net,
dated April 30, 2005 and Third Addendum to Standard Industrial/Commercial
Single-Tenant Lease, dated July 7, 2006 (incorporated herein by reference
to Exhibit 10.11 to our Current Report on Form 8-K/A, dated August 11,
2006 (the “August 2006 8-K/A”))
|
|
|
10.13
|
Securities Purchase Agreement,
dated March 8, 2007, between the Company and the purchasers signatory
thereto (incorporated herein by reference to Exhibit 10.1 to the March 8,
2007 8-K)
|
|
10.14
|
Securities Purchase Agreement,
dated May 25, 2007, between the Company and the purchasers signatory
thereto (incorporated herein by reference to Exhibit 10.1 to our Current
Report on Form 8-K, dated June 4, 2007)
|
|
|
10.15
|
Registration Rights Agreement
(incorporated herein by reference to Exhibit 10.2 to our Current Report
on Form 8-K, dated June 4,
2007)
|
|
|
10.16
|
Securities Purchase Agreement,
dated November 1, 2007, between the Company and the investors
signatory thereto (incorporated herein by reference to Exhibit 10.1 to our
Current Report on Form 8-K, dated November 1,
2007)
|
|
|
10.17*‡
|
Third Amendment to the Akeena Solar,
Inc. 2006 Incentive Stock Plan
|
|
|
21.1*
|
List of
Subsidiaries
|
|
|
23.1*
|
Consent of Independent Registered
Accounting Firm Burr, Pilger & Mayer LLP
|
|
|
31.1*
|
Section 302 Certification of
Principal Executive Officer
|
|
|
31.2*
|
Section 302 Certification of
Principal Financial Officer
|
|
|
32.1*
|
Section 906 Certification of
Principal Executive Officer
|
|
|
32.2*
|
Section 906 Certification of
Principal Financial Officer
|
‡ management
contract, compensatory plan or arrangement
* filed
herewith
54
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) 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.
Dated: March 12,
2009
|
AKEENA SOLAR,
INC.
|
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/s/ Barry
Cinnamon
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Barry
Cinnamon
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President and Chief Executive
Officer
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(Principal Executive
Officer)
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Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on March
12, 2009.
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Signature
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Title
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/s/ Barry
Cinnamon
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President, Chief Executive Officer
and Director
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Barry
Cinnamon
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(Principal Executive
Officer)
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/s/ Gary
Effren
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Chief Financial
Officer
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Gary Effren
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(Principal Financial and
Accounting Officer)
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/s/ Ed
Roffman
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Director
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Ed Roffman
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/s/ Jon
Witkin
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Director
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Jon Witkin
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55
Exhibit
Index
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Exhibit
Number
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Description
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2.1
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Agreement of Merger and Plan of
Reorganization, dated August 11, 2006, by and among Fairview Energy
Corporation, Inc., ASI Acquisition Sub, Inc. and Akeena Solar, Inc.
(incorporated herein by reference to Exhibit 2.1 to our Current Report on
Form 8-K, dated August 11, 2006 (the “August 2006
8-K”))
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3.1
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Certificate of Incorporation
(incorporated herein by reference to Exhibit 3.1 to our Current Report on
Form 8-K, dated August 3, 2006)
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3.2
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By-laws (incorporated herein by
reference to Exhibit 3.2 to our Current Report on Form 8-K, dated August
3, 2006)
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3.3
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Certificate of Amendment to the
Certificate of Incorporation (incorporated herein by reference to Exhibit
3.3 to the August 2006 8-K)
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4.1
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Form of Class B Common Stock
Purchase Warrant, dated March 8, 2007 (incorporated herein by reference to
Exhibit 10.3 to our Current Report on Form 8-K, dated March 8, 2007
(“March 8, 2007 8-K”))
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4.2
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Form of Class A Common Stock
Purchase Warrant, dated March 8, 2007 (incorporated herein by reference to
Exhibit 10.4 to the March 8, 2007 8-K)
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4.3
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Registration Rights Agreement
(incorporated herein by reference to Exhibit 10.2 to the March 8, 2007
8-K)
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4.4
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Form of Class C Common Stock
Purchase Warrant, dated May 25, 2007 (incorporated herein by reference to
Exhibit 10.3 to our Current Report on Form 8-K, dated June 4,
2007)
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4.5
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Form of Warrant to Purchase Common
Stock, dated November 2007 (incorporated herein by reference to Exhibit
4.1 to our Current Report on Form 8-K, dated November 1,
2007)
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10.1‡
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Akeena Solar, Inc. 2006 Stock
Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the
August 14,
2006
8-K)
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10.2‡
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Akeena Solar, Inc. 2006 Stock
Incentive Plan Form
of Restricted Stock Agreement (incorporated herein by reference
to Exhibit 4.1 to our Annual Report on Form 10-KSB filed with the SEC on
March 29, 2007)
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10.3*‡
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Akeena Solar, Inc. 2006 Stock
Incentive Plan Form
of Nonqualified Stock Option Agreement
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10.4‡
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First Amendment to the Akeena
Solar, Inc. 2006 Incentive Stock Plan (incorporated herein by reference to
Exhibit 10.1 to our Current Report on Form 8-K, dated December 20,
2006)
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10.5
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Form of Registration Rights
Agreement (incorporated herein by reference to Exhibit 10.3 to the August
2006 8-K)
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10.6
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Loan and Security Agreement, dated
January 29, 2007, between the Company and Comerica Bank (incorporated
herein by reference to Exhibit 10.1 to our Current Report on Form 8-K,
dated January 29, 2007)
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10.7
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First Modification to Loan and
Security Agreement, dated June 26, 2007, between the Company and Comerica
Bank (incorporated herein by reference to Exhibit 10.1 to our Current
Report on Form 8-K, dated June 26,
2007.
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56
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10.8
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Second Modification to Loan and
Security Agreement, dated January 11, 2008 and effective as of December
31, 2007, between the Company and Comerica Bank (incorporated herein by
reference to Exhibit 10.1 to our Current Report on
Form 8-K, dated
January 11, 2008)
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10.9‡
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Restricted Stock Agreement, dated
December 29, 2006, between the Company and Edward Roffman (incorporated
herein by reference to Exhibit 10.8 to our Annual Report on Form 10-KSB
filed with the SEC on March 29,
2007)
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10.10‡
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Form of Director and Officer
Indemnification Agreement (incorporated herein by reference to Exhibit
10.9 to the August 2006 8-K)
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10.11‡
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Second Amendment to the Akeena
Solar, Inc. 2006 Incentive Stock Plan (incorporated herein by reference
to Exhibit 10.11 to our Quarterly Report on Form 10-KSB filed with the SEC
on March 19, 2008)
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10.12
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Standard Industrial/Commercial
Single-Tenant Lease - Net, dated September 30, 2002, between Mattiuz
Children’s Trust and the Company, as amended by First Addendum to Standard
Industrial/Commercial Single-Tenant Lease — Net, dated April 26, 2004,
Second Addendum Standard Industrial/Commercial Single-Tenant Lease — Net,
dated April 30, 2005 and Third Addendum to Standard Industrial/Commercial
Single-Tenant Lease, dated July 7, 2006 (incorporated herein by reference
to Exhibit 10.11 to our Current Report on Form 8-K/A, dated August 11,
2006 (the “August 2006 8-K/A”))
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10.13
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Securities Purchase Agreement,
dated March 8, 2007, between the Company and the purchasers signatory
thereto (incorporated herein by reference to Exhibit 10.1 to the March 8,
2007 8-K)
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10.14
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Securities Purchase Agreement,
dated May 25, 2007, between the Company and the purchasers signatory
thereto (incorporated herein by reference to Exhibit 10.1 to our Current
Report on Form 8-K, dated June 4, 2007)
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10.15
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Registration Rights Agreement
(incorporated herein by reference to Exhibit 10.2 to our Current Report
on Form 8-K, dated June 4,
2007)
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10.16
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Securities Purchase Agreement,
dated November 1, 2007, between the Company and the investors
signatory thereto (incorporated herein by reference to Exhibit 10.1 to our
Current Report on Form 8-K, dated November 1,
2007)
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10.17*‡
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Third Amendment to the Akeena Solar,
Inc. 2006 Incentive Stock Plan
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21.1*
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List of
Subsidiaries
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23.1*
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Consent of Independent Registered
Accounting Firm Burr, Pilger & Mayer LLP
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31.1*
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Section 302 Certification of
Principal Executive Officer
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31.2*
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Section 302 Certification of
Principal Financial Officer
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32.1*
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Section 906 Certification of
Principal Executive Officer
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32.2*
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Section 906 Certification of
Principal Financial Officer
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‡ management
contract, compensatory plan or arrangement
* filed
herewith
57