UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[ ] X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014March 31, 2015
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________________
COMMISSION FILE NUMBER 0-54669
BLUE EARTH, INC.
(Exact Name of small business issuer as specified in its charter)
Nevada |
| 98-0531496 |
(State or other jurisdiction of |
| (I.R.S. Employer |
incorporation or organization) |
| Identification No.) |
2298 Horizon Ridge Parkway, Suite 205, Henderson, NV 89052
(Address of principal executive offices) (Zip Code)
Registrant’s telephone Number: (702) 263-1808
N/A
(former name, former address and former fiscal year if changed since last report)
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large“large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] |
| Accelerated filer |
| Non-accelerated filer [ ] |
| Smaller reporting company [ ] |
|
|
|
| (Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of August 13, 2014May 6, 2015 the issuer had 73,559,99593,836,058 outstanding shares of Common Stock
TABLE OF CONTENTS
Items | Page | |
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Condensed Consolidated Balance Sheets | ||
December 31, | 3-4 | |
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Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 and | ||
| 5 | |
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Condensed Consolidated Statements of Cash Flows for the | ||
March 31, 2015 and 2014 | 6-7 | |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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PART I
ITEM 1. FINANCIAL STATEMENTS
BLUE EARTH, INC. AND SUBSIDIARIES | |||||||
Consolidated Balance Sheets | |||||||
| |||||||
ASSETS | |||||||
| |||||||
|
|
| June 30, |
| December 31, | ||
|
|
| 2014 |
| 2013 | ||
|
|
| (unaudited) |
|
| ||
CURRENT ASSETS |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| Cash | $ | 4,414,394 |
| $ | 8,403,731 | |
| Accounts receivable, net |
| 4,027,867 |
|
| 5,844,119 | |
| Costs and revenues in excess of billings |
| 2,471,833 |
|
| 395,442 | |
| Inventory, net |
| 609,704 |
|
| 383,799 | |
| Construction in progress |
| 2,426,128 |
|
| 2,254,902 | |
| Other receivables |
| 2,223,759 |
|
| 2,195,554 | |
| Prepaid expenses and deposits |
| 1,612,608 |
|
| 1,936,743 | |
|
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|
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|
|
|
|
| Total Current Assets |
| 17,786,293 |
|
| 21,414,290 |
|
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|
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|
PROPERTY AND EQUIPMENT, net |
| 47,653,535 |
|
| 858,212 | ||
|
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|
OTHER ASSETS |
|
|
|
|
| ||
| Deposits |
| 55,331 |
|
| 50,692 | |
| Long term receivables |
| 913,741 |
|
| - | |
| Construction in progress |
| - |
|
| 44,035,500 | |
| Contracts and technology, net |
| 22,207,010 |
|
| 19,820,580 | |
| Assets of discontinued operations |
| - |
|
| 251,492 | |
|
|
|
|
|
|
|
|
|
| Total Other Assets |
| 23,176,082 |
|
| 64,158,264 |
|
|
|
|
|
|
|
|
|
| TOTAL ASSETS | $ | 88,615,910 |
| $ | 86,430,766 |
BLUE EARTH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS | |||||||
| |||||||
| March 31, |
| December 31, | ||||
| 2015 |
| 2014 | ||||
| (unaudited) |
|
| ||||
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| ||
CURRENT ASSETS |
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| ||
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| ||
| Cash and cash equivalents | $ | 6,303,094 |
| $ | 2,967,408 | |
| Restricted cash |
| 632,258 |
|
| 632,102 | |
| Accounts receivable, net |
| 4,119,522 |
|
| 2,515,772 | |
| Costs and revenues in excess of billings |
| 552,930 |
|
| 3,967,207 | |
| Inventory, net |
| 718,275 |
|
| 569,888 | |
| Construction in progress |
| 71,128 |
|
| 68,212 | |
| Other receivables |
| 76,194 |
|
| 78,926 | |
| Prepaid expenses and deposits |
| 1,745,896 |
|
| 1,646,301 | |
|
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| ||
|
| Total Current Assets |
| 14,219,297 |
|
| 12,445,816 |
|
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|
| ||
PROPERTY AND EQUIPMENT, net |
| 64,038,057 |
|
| 56,982,778 | ||
|
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| ||
OTHER ASSETS |
|
|
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| ||
| Deposits |
| 76,974 |
|
| 80,455 | |
| Natural gas futures |
| 2,259,995 |
|
| 2,426,266 | |
| Long term receivables |
| 1,417,901 |
|
| 1,587,548 | |
| Equity method investment |
| 9,525,841 |
|
| 9,353,402 | |
| Contracts and technology, net |
| 18,691,137 |
|
| 19,863,096 | |
|
|
|
|
|
| ||
|
| Total Other Assets |
| 31,971,848 |
|
| 33,310,767 |
|
|
|
|
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| ||
|
| TOTAL ASSETS | $ | 110,229,202 |
| $ | 102,739,361 |
The accompanying notes are an integral part of these consolidated financial statements.
BLUE EARTH, INC. AND SUBSIDIARIES
BLUE EARTH, INC. AND SUBSIDIARIES | |||||||
Consolidated Balance Sheets | |||||||
| |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| |||||||
| June 30, |
| December 31, | ||||
| 2014 |
| 2013 | ||||
| (unaudited) |
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| ||||
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CURRENT LIABILITIES |
|
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| Accounts payable | $ | 2,303,446 |
| $ | 2,658,368 | |
| Current portion of notes payable |
| 555,537 |
|
| 1,504,476 | |
| Related party payables |
| 1,333,147 |
|
| 1,337,151 | |
| Billings in excess of revenues |
| - |
|
| 438,952 | |
| Deferred revenues |
| 9,584 |
|
| 11,993 | |
| Accrued expenses |
| 362,876 |
|
| 422,456 | |
| Payroll expenses payable |
| 53,504 |
|
| 125,052 | |
| Preferred dividends payable |
| 9,298 |
|
| 403,690 | |
| Liabilities of discontinued operations |
| - |
|
| 190,609 | |
|
| Total Current Liabilities |
| 4,627,392 |
|
| 7,092,747 |
|
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|
LONG TERM LIABILITIES |
|
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| Long term portion of notes payable |
| - |
|
| - | |
|
| Total Liabilities |
| 4,627,392 |
|
| 7,092,747 |
|
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Commitments and contingencies |
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STOCKHOLDERS' EQUITY |
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| Preferred stock; 25,000,000 shares authorized |
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| at $0.001 par value, 7,000 and 570,000 |
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| |
| shares issued and outstanding, respectively |
| 7 |
|
| 570 | |
| Common stock; 500,000,000 shares authorized |
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| at $0.001 par value, 72,725,555 and 60,205,843 |
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| shares issued and outstanding, respectively |
| 72,726 |
|
| 60,206 | |
| Additional paid-in capital |
| 159,655,802 |
|
| 143,605,036 | |
| Stock subscription receivable |
| (1,124,220) |
|
| (1,600,000) | |
| Accumulated deficit |
| (74,615,797) |
|
| (62,727,793) | |
|
| Total Stockholders' Equity |
| 83,988,518 |
|
| 79,338,019 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 88,615,910 |
| $ | 86,430,766 |
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| |||||||
| March 31, |
| December 31, | ||||
| 2015 |
| 2014 | ||||
| (unaudited) |
|
| ||||
|
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| ||
CURRENT LIABILITIES |
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| Accounts payable | $ | 4,512,801 |
| $ | 4,071,164 | |
| Current portion of notes payable, net |
| 63,484 |
|
| 162,445 | |
| Related party payables |
| 1,333,147 |
|
| 1,333,147 | |
| Line of credit payable |
| 3,000,000 |
|
| - | |
| Convertible note payable |
| 8,026,072 |
|
| - | |
| Accrued expenses |
| 167,192 |
|
| 480,502 | |
| Payroll expenses payable |
| 326,652 |
|
| 217,359 | |
|
|
|
|
|
| ||
|
| Total Current Liabilities |
| 17,429,348 |
|
| 6,264,617 |
|
|
|
|
|
| ||
LONG TERM LIABILITIES |
|
|
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| ||
|
|
|
|
|
| ||
| Long term portion of notes payable |
| 61,477 |
|
| 66,387 | |
|
|
|
|
|
| ||
|
| Total Liabilities |
| 17,490,825 |
|
| 6,331,004 |
|
|
|
|
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| ||
Commitments and contingencies |
|
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|
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STOCKHOLDERS' EQUITY |
|
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| Preferred stock; 25,000,000 shares authorized |
|
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| |
| at $0.001 par value, 400,000 and -0- shares issued |
|
|
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| |
| and -0- and -0- shares outstanding, respectively |
| 400 |
|
| - | |
| Common stock; 500,000,000 shares authorized |
|
|
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|
| |
| at $0.001 par value, 93,404,858 and 94,258,713 |
|
|
|
|
| |
| shares issued and outstanding, respectively |
| 93,405 |
|
| 94,259 | |
| Additional paid-in capital |
| 190,797,290 |
|
| 188,159,932 | |
| Accumulated deficit |
| (98,152,718) |
|
| (91,845,834) | |
|
|
|
|
|
| ||
|
| Total Stockholders' Equity |
| 92,738,377 |
|
| 96,408,357 |
|
|
|
|
|
| ||
|
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 110,229,202 |
| $ | 102,739,361 |
The accompanying notes are an integral part of these consolidated financial statements.
BLUE EARTH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
BLUE EARTH, INC. AND SUBSIDIARIES | ||||||||||||||||||||
Consolidated Statements of Operations | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||
|
|
| For the Three Months Ended | |||||||||||||||||
|
| For the Three Months Ended June 30, |
| For the Six Months Ended June 30, |
| March 31, | ||||||||||||||
|
| 2014 |
| 2013 |
| 2014 |
| 2013 |
| 2015 |
| 2014 | ||||||||
|
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| ||
REVENUES | REVENUES | $ | 3,560,572 |
| $ | 2,534,967 |
| $ | 6,794,789 |
| $ | 4,698,297 | REVENUES | $ | 5,132,664 |
| $ | 3,234,217 | ||
COST OF SALES | COST OF SALES |
| 2,127,049 |
|
| 1,698,314 |
|
| 3,915,358 |
|
| 3,141,921 | COST OF SALES |
| 3,976,307 |
|
| 1,788,309 | ||
GROSS PROFIT | GROSS PROFIT |
| 1,433,523 |
|
| 836,653 |
|
| 2,879,431 |
|
| 1,556,376 | GROSS PROFIT |
| 1,156,357 |
|
| 1,445,908 | ||
|
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| ||||||||||||||
OPERATNG EXPENSES | OPERATNG EXPENSES |
|
|
|
|
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|
|
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| OPERATNG EXPENSES |
|
|
|
|
| ||
| Depreciation and amortization |
| 1,206,360 |
|
| 600,822 |
|
| 2,282,386 |
|
| 1,198,682 | Depreciation and amortization |
| 1,215,068 |
|
| 1,076,026 | ||
| General and administrative |
| 4,840,865 |
|
| 5,996,465 |
|
| 10,673,798 |
|
| 7,869,302 | General and administrative |
| 6,422,527 |
|
| 5,832,933 | ||
|
| Total Operating Expenses |
| 6,047,225 |
|
| 6,597,287 |
|
| 12,956,184 |
|
| 9,067,984 |
|
|
|
|
|
| |
|
| Total Operating Expenses |
| 7,637,595 |
|
| 6,908,959 | |||||||||||||
|
|
|
|
|
|
| ||||||||||||||
LOSS FROM OPERATIONS | LOSS FROM OPERATIONS |
| (4,613,702) |
|
| (5,760,634) |
|
| (10,076,753) |
|
| (7,511,608) | LOSS FROM OPERATIONS |
| (6,481,238) |
|
| (5,463,051) | ||
|
|
|
|
|
|
| ||||||||||||||
OTHER INCOME (EXPENSE) | OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
| OTHER INCOME (EXPENSE) |
|
|
|
|
| ||
| Other income |
| 4,158 |
|
| - |
|
| 5,098 |
|
| - | Other income |
| 940 |
|
| 940 | ||
| Interest expense |
| (102,297) |
|
| (224,700) |
|
| (337,881) |
|
| (296,074) | Loss from equity investment |
| (227,560) |
|
| - | ||
| Loss on settlement of debt |
| - |
|
| 648,245 |
|
| - |
|
| 637,097 | Interest expense |
| (430,520) |
|
| (235,584) | ||
| Gain on sale of assets |
| - |
|
| - |
|
| 11,235 |
|
| - | Mark futures to market |
| (166,271) |
|
| - | ||
| TOTAL OTHER INCOME (EXPENSE) |
| (98,139) |
|
| 423,545 |
|
| (321,548) |
|
| 341,023 | Gain on sale of assets |
| 7,987 |
|
| 11,235 | ||
| Gain on settlement of litigation |
| 989,778 |
|
| - | ||||||||||||||
|
|
|
|
|
|
| ||||||||||||||
| TOTAL OTHER INCOME (EXPENSE) |
| 174,354 |
|
| (223,409) | ||||||||||||||
|
|
|
|
|
|
| ||||||||||||||
LOSS BEFORE INCOME TAXES | LOSS BEFORE INCOME TAXES |
| (4,711,841) |
|
| (5,337,089) |
|
| (10,398,301) |
|
| (7,170,585) | LOSS BEFORE INCOME TAXES |
| (6,306,884) |
|
| (5,686,460) | ||
|
|
|
|
|
|
| ||||||||||||||
INCOME TAX EXPENSE | INCOME TAX EXPENSE |
| - |
|
| - |
|
| - |
|
| - | INCOME TAX EXPENSE |
| - |
|
| - | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
LOSS FROM CONTINUING OPERATIONS |
| (4,711,841) |
|
| (5,337,089) |
|
| (10,398,301) |
|
| (7,170,585) | |||||||||
LOSS FROM DISCONTINUED OPERATIONS, net of income taxes of $0 |
| - |
|
| (3,054) |
|
| - |
|
| (46,975) | |||||||||
NET LOSS | NET LOSS |
| (4,711,841) |
|
| (5,340,143) |
|
| (10,398,301) |
|
| (7,217,560) | NET LOSS |
| (6,306,884) |
|
| (5,686,460) | ||
|
|
|
|
|
|
| ||||||||||||||
PREFERRED DIVIDENDS | PREFERRED DIVIDENDS |
| (1,096,815) |
|
| (509,175) |
|
| (1,489,703) |
|
| (658,341) | PREFERRED DIVIDENDS |
| - |
|
| (392,888) | ||
|
|
|
|
|
|
| ||||||||||||||
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (5,808,656) |
| $ | (5,849,318) |
| $ | (11,888,004) |
| $ | (7,875,901) | NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (6,306,884) |
| $ | (6,079,348) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
BASIC AND DILUTED LOSS PER SHARE | BASIC AND DILUTED LOSS PER SHARE |
|
|
|
|
|
|
|
|
|
|
| BASIC AND DILUTED LOSS PER SHARE | $ | (0.07) |
| $ | (0.09) | ||
|
| Continuing Operations | $ | (0.07) |
| $ | (0.23) |
| $ | (0.17) |
| $ | (0.32) |
|
|
|
|
|
| |
|
| Discontinued Operations |
| - |
|
| (0.00) |
|
| - |
|
| (0.00) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Net Loss Per Share | $ | (0.07) |
| $ | (0.23) |
| $ | (0.17) |
| $ | (0.32) | |||||||
|
|
|
|
|
|
|
|
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|
|
|
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| |||||||
WEIGHTED AVERAGE NUMBER OF COMMON | WEIGHTED AVERAGE NUMBER OF COMMON |
|
|
|
|
|
|
|
|
|
|
| WEIGHTED AVERAGE NUMBER OF COMMON |
|
|
|
|
| ||
SHARES OUTSTANDING BASIC AND DILUTED | SHARES OUTSTANDING BASIC AND DILUTED |
| 65,782,587 |
|
| 23,665,659 |
|
| 63,866,054 |
|
| 22,469,825 | SHARES OUTSTANDING BASIC AND DILUTED |
| 94,311,979 |
|
| 61,928,226 |
The accompanying notes are an integral part of these consolidated financial statements.
BLUE EARTH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
BLUE EARTH, INC. AND SUBSIDIARIES | ||||||||
Consolidated Statements of Cash Flows | ||||||||
(unaudited) | ||||||||
| ||||||||
| For the Six Months Ended | |||||||
| June 30, | |||||||
| 2014 |
| 2013 | |||||
|
|
|
|
|
| |||
OPERATING ACTIVITIES |
|
|
|
|
| |||
| Net loss | $ | (10,398,301) |
| $ | (7,217,560) | ||
| Adjustments to reconcile net loss to net cash |
|
|
|
|
| ||
| used in operating activities: |
|
|
|
|
| ||
|
| Stock options and stock warrants issued for services |
| 1,936,357 |
|
| 3,782,658 | |
|
| (Gain) loss on derivative valuation |
| - |
|
| - | |
|
| Derivative attached to preferred stock |
| - |
|
| - | |
|
| Gain on settlement of debt |
| - |
|
| (637,097) | |
|
| Gain on sale of assets |
| (11,235) |
|
| - | |
|
| Stock issued for services |
| 1,400,714 |
|
| 257,388 | |
|
| Depreciation and amortization |
| 2,282,386 |
|
| 1,197,853 | |
|
| Amortization of debt discount |
| - |
|
| 58,366 | |
| Changes in operating assets and liabilities: |
|
|
|
|
| ||
|
| Accounts receivable and billings in excess |
| (1,173,880) |
|
| (868,672) | |
|
| Inventory |
| (225,905) |
|
| (20,331) | |
|
| Construction in progress |
| (171,226) |
|
| (2,313,905) | |
|
| Prepaid expenses and deposits |
| 319,496 |
|
| 384,982 | |
|
| Accounts payable and accrued expenses |
| (927,411) |
|
| (1,301,776) | |
|
|
| Net Cash Used in Operating Activities |
| (6,969,005) |
|
| (6,678,094) |
|
|
| Net Cash Used in Discontinued Operating Activities |
| - |
|
| (64,672) |
INVESTING ACTIVITIES |
|
|
|
|
| |||
|
| Other receivables |
| 61,795 |
|
| - | |
|
| Purchase of property and equipment |
| (2,688,446) |
|
| (12,460) | |
|
|
| Net Cash Used in Investing Activities |
| (2,626,651) |
|
| (12,460) |
|
|
| Net Cash Used in Discontinued Investing Activities |
| (17,882) |
|
| - |
FINANCING ACTIVITIES |
|
|
|
|
| |||
|
| Proceeds from common stock warrants and options exercised |
| 5,568,957 |
|
| 1,872,088 | |
|
| Repayment of line of credit |
| (1,324,336) |
|
| (1,500,000) | |
|
| Proceeds from related party loans |
| - |
|
| 420,000 | |
|
| Proceeds from notes payable |
| 183,622 |
|
| - | |
|
| Proceeds from preferred stock |
| - |
|
| 8,832,200 | |
|
| Cash received on stock subscriptions |
| 1,145,880 |
|
| - | |
|
| Proceeds from line of credit |
| 96,884 |
|
| 1,500,000 | |
|
| Repayment of notes payable |
| (42,802) |
|
| (512,253) | |
|
| Repayment of related party loans |
| (4,004) |
|
| (691,853) | |
|
|
| Net Cash Provided by Financing Activities |
| 5,624,201 |
|
| 9,920,182 |
|
|
| Net Cash Used in Discontinued Financing Activities |
| - |
|
| (10,647) |
NET INCREASE (DECREASE) IN CASH |
| (3,989,337) |
|
| 3,154,309 | |||
CASH AT BEGINNING OF PERIOD |
| 8,403,731 |
|
| 659,009 | |||
CASH AT END OF PERIOD | $ | 4,414,394 |
| $ | 3,813,318 |
| For the Three Months Ended | |||||||
| March 31, | |||||||
| 2015 |
| 2014 | |||||
|
|
|
|
|
| |||
OPERATING ACTIVITIES |
|
|
|
|
| |||
| Net loss | $ | (6,306,884) |
| $ | (5,686,460) | ||
| Adjustments to reconcile net loss to net cash |
|
|
|
|
| ||
| used in operating activities: |
|
|
|
|
| ||
|
| Stock options and stock warrants issued for services |
| 1,385,338 |
|
| 1,189,727 | |
|
| Loss on equity subsidiary |
| 227,560 |
|
| - | |
|
| Impairment of construction in progress |
| 369,039 |
|
| - | |
|
| Mark gas futures to market |
| 166,271 |
|
| - | |
|
| (Gain) on settlement of litigation |
| (989,778) |
|
| - | |
|
| (Gain) on sale of assets |
| (7,987) |
|
| (11,235) | |
|
| Stock issued for services |
| 320,653 |
|
| 670,542 | |
|
| Depreciation and amortization |
| 1,215,068 |
|
| 1,076,026 | |
|
| Amortization of debt discount |
| 279,254 |
|
| - | |
| Changes in operating assets and liabilities: |
|
|
|
|
| ||
|
| Accounts receivable and billings in excess |
| 1,980,174 |
|
| (731,331) | |
|
| Inventory |
| (148,387) |
|
| 35,498 | |
|
| Restricted cash |
| (156) |
|
| - | |
|
| Construction in progress |
| (371,955) |
|
| 184,302 | |
|
| Prepaid expenses and deposits |
| (293,372) |
|
| 162,405 | |
|
| Accounts payable and accrued expenses |
| 237,621 |
|
| 406,480 | |
|
|
| Net Cash Used in Operating Activities |
| (1,937,541) |
|
| (2,704,046) |
INVESTING ACTIVITIES |
|
|
|
|
| |||
|
| Collection of other receivables |
| 2,732 |
|
| - | |
|
| Proceeds from sale of equipment |
| 7,987 |
|
| - | |
|
| Purchase of equity method investment |
| (400,000) |
|
| - | |
|
| Lending of other receivables |
| - |
|
| (887) | |
|
| Purchase of property and equipment |
| (7,098,388) |
|
| (1,353,588) | |
|
|
| Net Cash Used in Investing Activities |
| (7,487,669) |
|
| (1,354,475) |
|
|
| Net Cash Used in Discontinued Investing Activities |
| - |
|
| (17,882) |
FINANCING ACTIVITIES |
|
|
|
|
| |||
|
| Proceeds from common stock warrants and options exercised |
| - |
|
| 100,857 | |
|
| Cash received on stock subscriptions |
| - |
|
| 1,000,000 | |
|
| Proceeds from line of credit, net of closing costs |
| 2,911,700 |
|
| - | |
|
| Proceeds from notes payable, net of closing costs |
| 9,953,068 |
|
| - | |
|
| Repayment of notes payable and line of credit |
| (103,872) |
|
| (438,710) | |
|
| Repayment of related party loans |
| - |
|
| (4,004) | |
|
|
| Net Cash Provided by Financing Activities |
| 12,760,896 |
|
| 658,143 |
NET INCREASE (DECREASE) IN CASH |
| 3,335,686 |
|
| (3,418,260) | |||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 2,967,408 |
|
| 8,403,731 | |||
|
|
|
|
|
| |||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 6,303,094 |
| $ | 4,985,471 |
The accompanying notes are an integral part of these consolidated financial statements.
BLUE EARTH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(unaudited)
BLUE EARTH, INC. AND SUBSIDIARIES | |||||||
Consolidated Statements of Cash Flows (Continued) | |||||||
(unaudited) | |||||||
| For the Six Months Ended | ||||||
| June 30, | ||||||
| 2014 |
| 2013 | ||||
|
|
|
|
|
| ||
SUPPLEMENTAL DISCLOSURES OF |
|
|
|
|
| ||
| CASH FLOW INFORMATION |
|
|
|
|
| |
|
|
|
|
|
| ||
| CASH PAID FOR: |
|
|
|
|
| |
|
| Interest | $ | 136,447 |
| $ | 232,809 |
|
| Income taxes |
| - |
|
| - |
|
|
|
|
|
| ||
| NON CASH FINANCING ACTIVITIES: |
|
|
|
|
| |
|
| Common stock issued upon conversion of debt | $ | - |
| $ | 201,822 |
|
| Common stock issued upon conversion of preferred stock |
| 1,884,095 |
|
| 540,399 |
|
| Common stock issued for equipment |
| - |
|
| 195,360 |
|
| Common stock issued for acquisition of subsidiaries |
| 4,602,500 |
|
| - |
|
| Common stock issued for debt discount |
| - |
|
| 24,500 |
|
| Common stock issued for line of credit fee |
| - |
|
| 100,000 |
|
| Common stock cancelled for assets |
| - |
|
| (1,291,746) |
|
| Debt issued for equipment |
| 137,693 |
|
| - |
| For the Three Months Ended | ||||||
| March 31, | ||||||
| 2015 |
| 2014 | ||||
|
|
|
|
|
| ||
SUPPLEMENTAL DISCLOSURES OF |
|
|
|
|
| ||
| CASH FLOW INFORMATION |
|
|
|
|
| |
|
|
|
|
|
| ||
| CASH PAID FOR: |
|
|
|
|
| |
|
| Interest | $ | 68,871 |
| $ | 97,292 |
|
| Income taxes |
| - |
|
| - |
|
|
|
|
|
| ||
| NON CASH FINANCING ACTIVITIES: |
|
|
|
|
| |
|
| Common stock issued upon conversion of preferred stock | $ | - |
| $ | 333,128 |
|
| Common stock cancelled for settlement of litigation |
| (989,778) |
|
| - |
|
| Common stock issued for acquisition of subsidiaries |
| - |
|
| 4,602,500 |
|
| Preferred stock issued as collateral for loan |
| 400 |
|
| - |
|
| Debt discount and conversion feature |
| 1,385,338 |
|
| - |
The accompanying notes are an integral part of these consolidated financial statements.
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30,March 31, 2015 and 2014, and 2013, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 20132014 audited financial statements. The results of operations for the periods ended June 30,March 31, 2015 and 2014 and 2013 are not necessarily indicative of the operating results for the full year.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Inventory
Inventory is recorded at the lower of cost or market (net realizable value) using the average cost method. The inventory on hand as of June 30, 2014March 31, 2015 consists of solar panels, battery components, motors, controllers, miscellaneous refrigeration parts and raw gasket material at costs of $609,704.$718,275. The inventory is valued net of an allowance of $6,188 as of March 31, 2015. The Company does not have any work in progress.
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 at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements and their adoption has not had, nor is expected to have a material impact on the Company’s financial position, or statements.
NOTE 3 - SIGNIFICANT EVENTS
IssuancesSettlement of Common StockLitigation
During the six months ended June 30, 2014, theThe Company issued 6,308,329received 1,127,742 shares of its common stock uponin settlement of litigation valued at $0.922 per share. As part of the conversionsettlement the Company forgave a $50,000 note receivable resulting in a gain on settlement of 563,000 shareslitigation of preferred stock and accrued dividends of $1,321,095. On February 12, 2014$989,778.
Common Stock Transactions
During the three months ended March 31, 2015, the Company issued an aggregate of 1,750,000 shares of its common stock (including 1,725,000 shares for personal goodwill) to acquire all of the outstanding shares of Kenmont Solutions Capital GP, LLC a company owned by Donald Kendall, Jr. Thereupon the Company formed Blue Earth Capital, Inc. to operate as its finance raising subsidiary. The shares were valued at $2.63 per share. (See Note 5). The Company issued 3,898,422 common shares upon the exercise of warrants and options for cash and net subscriptions receivable of $6,239,056. The Company issued 562,96173,887 common shares for services valued at $1,400,714.$94,653. The Company also issued 200,000 common shares for debt issuance costs valued at $226,000. The Company cancelled the 1,127,742 shares of its common stock it received in settlement of litigation.
Credit Line Payable
During the sixthree months ended June 30, 2014,March 31, 2015, the Company repaid $1,324,336borrowed $3,000,000 on the line of credit. The line of credit is for up to $10,000,000$4,000,000 subject to approval of the use of proceeds by the lender. The line of credit accrues interest at 12% per annum and is secured by one of the Company’s assets.CHP projects and one solar project. The Company received net proceeds of $2,911,700 after closing costs. The Company has issued 400,000 shares of Class D convertible preferred stock as tertiary collateral for the line of credit. The $88,300 of fees withheld from the proceeds of the line of credit are included in prepaid expenses and are being amortized over the term of the line of credit.
Related Party Notes Payable
During the six months ended June 30, 2014, the Company also repaid $4,004 of principal on related party notes payable. The related party notes payable are due on demand, accrue interest at 12% per annum and are unsecured.8
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 3 - SIGNIFICANT EVENTS (continued)
Loan ReceivableRelated Party Notes Payable
The related party notes payable, totaling $1,333,147, are due on demand, accrue interest at 12% per annum and are unsecured.
CHP Plant Energized
On AugustMarch 30, 20132015 the Company entered intoenergized its initial combined heat and power (“CHP”) energy plant at a Strategic Partnership Agreement with Talesun Solar USA, Ltd. (“Talesun”)poultry processing facility in Sumter, South Carolina. The Company owns and New Generation Power LLC (“NGP”), as amended on October 23, 2013operates the energy plant which includes a commitmentprovides combined heat and power (CHP) solutions. Electricity is generated and the thermal heat from Talesun to grantthe generator is captured and utilized for processes in the poultry facility, lowering energy costs, reducing greenhouse gas emissions and improving energy efficiency.
Convertible Note Payable
During the three months ended March 31, 2015, the Company engineering, procurementborrowed $10,000,000 on a convertible note payable. The note payable is convertible to shares of the Company’s common stock at $1 per share. The convertible note payable accrues interest at 12% per annum and construction contracts (“EPC”)is due on September 10, 2015. The convertible note payable is secured by one of the Company’s CHP projects and the Company’s assets. The Company received net proceeds of $9,953,068 after closing costs. The $46,932 in legal fees withheld from the loan proceeds are included in prepaid expenses and are being amortized over the 6 month term of the convertible note payable.
The lender received 200,000 shares of common stock as consideration for 18 MWmaking the loan valued at $226,000. The lender also received 2,000,000 warrants to purchase shares of Talesun Solar PV projects. NGP grantedthe Company’s common stock at $1.00 per share. The value of the warrants measured by The Company was $1,321,600. The value was computed using the Black-Scholes formula with a 5 year maturity, 1.62% risk free rate and a 94.46% volatility. The lender also received the right to purchase shares of the Company’s common stock at $1.00 per share upon the Company’s repayment of all or part of the convertible note payable. The value of the right to purchase common shares measured by the Company EPC contracts forwas $649,091. The value was computed using the Black-Scholes formula with a minimum1 year maturity, .25% risk free rate, a 87.06% volatility and a 5% probability of 147 MWexercise. The total discount on the convertible note payable of projects$2,196,691 is being amortized over the next 20 months. In addition,6 month term of the debt. The Company recorded $222,763 of interest expense from the amortization of the discount during the quarter ended March 31, 2015.
The following is a summary of convertible note payable the period ended March 31, 2015:
Balance at December 31, 2014 | $ | -- |
Borrowing of convertible note payable |
| 10,000,000 |
Discount on convertible note payable |
| (2,196,691) |
Amortization of discount |
| 222,763 |
Balance at March 31, 2015 | $ | 8,026,072 |
Series D Preferred Stock
The Company has issued 400,000 shares of its $10.00 per share Series D preferred stock as tertiary collateral against the line of credit. The Series D preferred shares are issued, but not presently outstanding. The Series D preferred shares certificate is held by a third party and the lender does not have access to the certificate without the consent and cooperation of the Company.
Solely in the event of a default by the Company had agreed to makeof its payment obligations under the terms of the line of credit, a $6.5 million loanblock of the Series D preferred shares would be released and converted into common shares in solar projects. $2,000,000 was loaned asaccordance the formula provided in the line of December 31, 2013 and the balance was due by March 31, 2014, unless extendedcredit agreement. The sufficient common shares would be sold by the parties. The loan is collateralized by safe harbored solar panelslender to cure the default. Upon the repayment of the line of credit the Series D preferred stock will be utilized on NGP’s solar projects. NGP contracts withreturned to the Company and cancelled.
9
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to build the solar projects on a cost plus basis. The loan is to be repaid during the construction phase of the projects. On June 30, 2014 the Company agreed to accept solar panels in satisfaction of the loan receivable.Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 4 - STOCK PURCHASE WARRANTS AND OPTIONS
A summary of the Company’s warrant activity during the periods ended March 31, 2015 and December 31, 2013 and June 30, 2014 is presented below:
|
|
|
| Weighted |
|
|
|
|
|
| Weighted |
|
| |||||||
|
| Weighted |
| Average |
|
|
|
| Weighted |
| Average |
|
| |||||||
|
| Average |
| Remaining |
| Aggregate |
|
| Average |
| Remaining |
| Aggregate | |||||||
| No. of |
| Exercise |
| Contractual |
| Intrinsic | No. of |
| Exercise |
| Contractual |
| Intrinsic | ||||||
| Warrants |
| Price |
| Term |
| Value | Warrants |
| Price |
| Term |
| Value | ||||||
Balance Outstanding, December 31, 2012 | 19,807,876 |
| $ | 1.63 |
| 7.04 |
| $ | 32,194,216 | |||||||||||
Balance Outstanding, December 31, 2013 | 22,660,668 |
| $ | 1.90 |
|
| 6.52 |
| $ | 43,055,269 | ||||||||||
Granted | 3,600,000 |
| 1.18 |
| 10.00 |
| 200,000 |
| $ | 0.00 |
|
| 10.00 |
|
|
| ||||
Granted | 3,000,000 |
| 0.01 |
| 10.00 |
| 100,000 |
| $ | 1.00 |
|
| 10.00 |
|
|
| ||||
Granted | 2,400,000 |
| 1.18 |
| 10.00 |
| 8,521,654 |
| $ | 6.00 |
|
| 3.00 |
|
|
| ||||
Granted | 1,400,000 |
| 0.01 |
| 10.00 |
| ||||||||||||||
Granted | 1,000,000 |
| 1.00 |
| 10.00 |
| ||||||||||||||
Granted | 200,000 |
| 0.01 |
| 10.00 |
| ||||||||||||||
Granted | 200,000 |
| 2.00 |
| 5.00 |
| ||||||||||||||
Granted | 250,000 |
| 0.01 |
| 5.00 |
| ||||||||||||||
Granted | 2,300,000 |
| 0.01 |
| 10.00 |
| ||||||||||||||
Granted | 4,292,500 |
| 3.00 |
| 3.00 |
| ||||||||||||||
Granted | 4,029,154 |
| 6.00 |
| 3.00 |
| ||||||||||||||
Granted | 430,902 |
| 1.75 |
| 5.00 |
| ||||||||||||||
Cancelled | (3,600,000) |
| $ | (1.18) |
|
| -- |
|
|
| ||||||||||
Forfeited | (9,276,906) |
| (2.40) |
| -- |
| (1,472,060) |
| $ | (1.90) |
|
| -- |
|
|
| ||||
Exercised | (8,001,119) |
| (1.60) |
| -- |
| (9,778,344) |
| $ | (1.60) |
|
| -- |
|
|
| ||||
Balance Outstanding, December 31, 2013 | 25,632,407 |
| 1.69 |
| 6.52 |
| $ | 40,983,200 | ||||||||||||
Exercised | (4,476,429) |
| (1.75) |
| -- |
| ||||||||||||||
Forfeited | (1,200,00) |
| (2.50) |
| -- |
| ||||||||||||||
Balance Outstanding June 30, 2014 | 19,955,978 |
| $ | 1.59 |
| 6.02 |
| $ | 33,673,669 | |||||||||||
Exercisable, June 30, 2014 | 14,280,978 |
| $ | 2.36 |
| 4.90 |
| $ | 31,728,169 | |||||||||||
Balance Outstanding, December 31, 2014 | 16,631,918 |
| $ | 3.80 |
|
| 5.29 |
| $ | 53,353,862 | ||||||||||
Granted | 2,000,000 |
| $ | 1.00 |
|
| 5.00 |
|
|
| ||||||||||
Balance Outstanding, March 31, 2015 | 18,631,918 |
| $ | 3.26 |
|
| 4.66 |
| $ | 60,727,862 | ||||||||||
Exercisable, March 31, 2015 | 16,474,775 |
| $ | 3.41 |
|
| 4.19 |
| $ | 56,203,004 |
A summary of the Company’s option activity during the periods ended March 31, 2015 and December 31, 2014 is presented below:
|
|
|
|
|
| Weighted |
|
| |||
|
|
|
| Weighted |
| Average |
|
| |||
|
|
|
| Average |
| Remaining |
| Aggregate | |||
|
| No. of |
| Exercise |
| Contractual |
| Intrinsic | |||
|
| Options |
| Price |
| Term |
| Value | |||
Balance Outstanding, December 31, 2013 |
| 1,011,290 |
| $ | 1.85 |
|
| 8.22 |
| $ | 1,851,695 |
Granted |
| 1,500,000 |
| $ | 2.00 |
|
| 10 |
|
|
|
Granted |
| 150,000 |
| $ | 3.00 |
|
| 10 |
|
|
|
Granted |
| 120,000 |
| $ | 2.45 |
|
| 10 |
|
|
|
Granted |
| 60,000 |
| $ | 2.27 |
|
| 10 |
|
|
|
Granted |
| 105,000 |
| $ | 3.10 |
|
| 10 |
|
|
|
Granted |
| 60,000 |
| $ | 2.45 |
|
| 10 |
|
|
|
Granted |
| 100,000 |
| $ | 2.54 |
|
| 10 |
|
|
|
Granted |
| 10,000 |
| $ | 1.29 |
|
| 10 |
|
|
|
Granted |
| 52,720 |
| $ | 1.37 |
|
| 10 |
|
|
|
Granted |
| 5,000 |
| $ | 0.75 |
|
| 10 |
|
|
|
Forfeited |
| (492,119) |
| $ | 3.37 |
|
| -- |
|
|
|
Exercised |
| (85,024) |
| $ | 1.36 |
|
| -- |
|
|
|
Balance Outstanding, December 31, 2014 |
| 2,596,867 |
| $ | 2.54 |
|
| 8.82 |
|
| 6,596,037 |
Granted |
| 30,000 |
| $ | 1.20 |
|
| 10 |
|
|
|
Granted |
| 100,000 |
| $ | 1.01 |
|
| 10 |
|
|
|
Granted |
| 12,500 |
| $ | 1.21 |
|
| 10 |
|
|
|
Forfeited |
| (53,513) |
| $ | 2.56 |
|
| -- |
|
|
|
Balance Outstanding, March 31, 2015 |
| 2,685,854 |
| $ | 2.07 |
|
| 8.66 |
| $ | 5,562,931 |
Exercisable, March 31, 2015 |
| 1,377,944 |
| $ | 1.96 |
|
| 8.26 |
| $ | 2,606,233 |
10
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 45 - STOCK PURCHASE WARRANTS AND OPTIONS (continued)FAIR VALUE OF FINANCIAL INSTRUMENTS
A summaryThe Company follows the provisions of ASC 820 for fair value measurements of all nonfinancial assets and nonfinancial liabilities not recognized or disclosed at fair value in the financial statements on a recurring basis. The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The accounting standard established a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s option activityown assumptions used to measure assets and liabilities at fair value. An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
There were no changes in the valuation techniques during the periods ended March 31, 2015 and December 31, 20132014. The estimated fair value of certain financial instruments, including cash and June 30, 2014 is presented below:
|
|
|
|
|
| Weighted |
|
| ||||
|
|
|
| Weighted |
| Average |
|
| ||||
|
|
|
| Average |
| Remaining |
| Aggregate | ||||
|
| No. of |
| Exercise |
| Contractual |
| Intrinsic | ||||
|
| Options |
| Price |
| Term |
| Value | ||||
Balance Outstanding, December 31, 2012 |
|
| 960,761 |
| $ | 1.58 |
|
| 8.2 |
|
| $ 1,520,695 |
Granted |
|
| 10,000 |
|
| 2.30 |
|
| 10 |
|
|
|
Granted |
|
| 100,000 |
|
| 2.90 |
|
| 10 |
|
|
|
Expired |
|
| (52,720) |
|
| 1.37 |
|
| -- |
|
|
|
Exercised |
|
| (6,751) |
|
| 1.57 |
|
| -- |
|
|
|
Balance Outstanding, December 31, 2013 |
|
| 1,011,290 |
|
| 1.85 |
|
| 8.22 |
|
| $1,851,695 |
Granted |
|
| 1,500,000 |
|
| 2.00 |
|
| 10 |
|
|
|
Granted |
|
| 150,000 |
|
| 3.00 |
|
| 10 |
|
|
|
Granted |
|
| 52,720 |
|
| 1.37 |
|
| 10 |
|
|
|
Forfeited |
|
| (90,002) |
|
| 1.57 |
|
| 10 |
|
|
|
Exercised |
|
| (77,720) |
|
| 1.34 |
|
| 10 |
|
|
|
Balance Outstanding, June 30, 2014 |
|
| 2,546,288 |
| $ | 2.08 |
|
| 9.28 |
|
| $ 5,301,605 |
Exercisable, June 30, 2014 |
|
| 750,051 |
| $ | 2.06 |
|
| 7.47 |
|
| $ 1,544,885 |
NOTE 5 - ACQUISITIONScash equivalents and current liabilities, are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
EffectiveAssets:
On December 15, 2014, the Company purchased 639.25 natural gas option contracts for $2,429,150, to mitigate its exposure to fluctuations in natural gas price in connection with its CHP facility in Alberta, Canada. The gas delivery dates range from January 1, 2016 to December 31, 2022. At each reporting date the Company revalues the options to the NYMEX-NG last trade value. The Company recorded a loss of $166,271 and $-0- for the three months ended March 31, 2015 and 2014, Blue Earth Capital. Inc., “BEC”,respectively, on the value of contracts.
Assets measured at fair value on a newly formed subsidiaryrecurring and non-recurring basis consisted of the Company, entered into a merger agreement with Kenmont Solutions Capital GP, LLC “KSC” wherein BEC purchased all of the issued and outstanding shares of KSC for 1,750,000 shares of restricted common stock of the Company issued to Donald R. Kendall, Jr. the founder of KSC. These shares were valued based on the quoted market price on the effective date of the transaction,following at $2.63 per share, or $4,602,500. The cost of assets acquired was capitalized and is to be amortized over the estimated useful life of 3 years. The Company purchased KSC to gain access to the knowledge and lending base accumulated over the years by the founder of KSC.March 31, 2015:
Purchase Price |
| Shares |
| Price |
| Total | |
Kenmont Solutions Capital GP, LLC |
| 1,750,000 |
| $2.63 |
| $ | 4,602,500 |
|
|
|
|
|
|
|
|
Total Purchase Price |
|
|
|
|
|
| 4,602,500 |
Tangible Assets Acquired |
|
|
|
|
|
| - |
Total Liabilities Assumed |
|
|
|
|
|
| - |
Lender base |
|
|
|
|
| $ | 4,602,500 |
Liabilities: |
|
| Total Carrying Value at March 31, 2015 |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
Natural gas futures |
| $ | 2,259,995 |
| $ | 2,259,995 |
| $ | - |
| $ | - |
The pro forma, consolidated balance sheetsfollowing is a summary of activity of Level 1 assets for the periods ended March 31, 2015 and statements of operations of Blue Earth, Inc. and Kenmont Solutions Capital GP, LLC are omitted because KSC had no operations prior to the acquisition by BEC.December 31, 2014:
Balance at December 31, 2013 |
|
| -- |
Purchases of futures contracts |
|
| 2,429,150 |
Change in fair value 2014 |
|
| (2,884) |
Balance at December 31, 2014 |
| $ | 2,426,266 |
Purchases of futures contracts |
|
| -- |
Change in fair value 2015 |
|
| (166,271) |
Balance at March 31, 2015 |
| $ | 2,259,995 |
11
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 6 - DISCONTINUED OPERATIONS
On January 24, 2014, the Company entered into an Acquisition Agreement (the Agreement). Pursuant to the Agreement, the buyers purchased from the Company, all of the issued and outstanding common stock of HVAC Controls Specialties, Inc. (HVAC), its wholly-owned subsidiary. The purchase price for HVAC was $160,000 to be paid as follows: $40,000 for the release of accrued compensation, $30,000 for the assumption of the debts of HVAC and $90,000 in the form of a promissory note. Accordingly, the Company’s financial statements have been retroactively restated for all periods presented to reflect the assets, liabilities and operations of HVAC as discontinued.
NOTE 76 - PROPERTY AND EQUIPMENT
The major classes of assets as of June 30, 2014March 31, 2015 and December 31, 20132014 are as follows:
|
| 2014 |
|
| 2013 |
| March 31, 2015 |
|
| December 31, 2014 | |||
Office and computer equipment |
| $ | 344,459 |
| $ | 323,185 |
|
| $ | 343,915 |
| $ | 327,023 |
Software |
|
| 96,727 |
|
| 95,831 |
|
|
| 91,256 |
|
| 91,256 |
Manufacturing and installation equipment |
|
| 412,601 |
|
| 402,063 |
|
|
| 455,150 |
|
| 442,450 |
Leasehold improvements |
|
| 759,304 |
|
| 759,304 |
|
|
| 759,304 |
|
| 759,304 |
Cogeneration plants (under construction) |
|
| 46,658,436 |
|
| - |
|
|
| 63,091,360 |
|
| 56,022,580 |
Vehicles |
|
| 423,205 |
|
| 262,011 |
|
|
| 480,455 |
|
| 480,455 |
Sub Total |
|
| 48,694,732 |
|
| 1,842,493 |
|
|
| 65,221,440 |
|
| 58,123,068 |
Accumulated Depreciation |
|
| (1,041,197) |
|
| (984,282) |
|
|
| (1,183,383) |
|
| (1,140,290) |
Net |
| $ | 47,653,535 |
| $ | 858,212 |
|
| $ | 64,038,057 |
| $ | 56,982,778 |
Depreciation expense was $66,316$43,093 and $39,134,$31,915, for the sixthree months ended June 30,March 31, 2015 and 2014, and 2013, respectively. Approximately $423,205$858,212 of the Company’s property and equipment serves as security against its long-term debt. Depreciation of the cogeneration plants will commence when the plants are placed in service during the latter partsecond quarter of 2014 and early 2015.
NOTE 87 - COMMITMENTS AND CONTINGENCIES
Equipment Purchase Commitments
The Company has entered into equipment purchase agreements whereby it has committed to paying approximately $19,356,424$19,629,081 for electrical co-generation equipment. The Company has made deposits of approximately 7% ($1,383,672)$8,079,699 (41% of the total commitment) toward the purchase of the equipment which is included in construction in progress-short term) toward the purchase of theprogress-property and equipment. The balance of the purchase price will be due upon acceptance of the equipment by the Company in accordance with progress payments as set out in the purchase contracts.
Pending Arbitrations
The Company and two consultants, have filed demands for arbitration with the American Arbitration Association.Association (“AAA”). Consultants allege that the Company, specifically Johnny R. Thomas, CEO, have violated the "no disparagement" clause of their Consulting Agreement dated February 17, 2014 with the Company. They alleged that the Company interfered with the ability of the Consultants to perform their consulting duties. The Company alleges that the Consultants failed to perform consulting work as required and never intended to perform under the consulting agreement.Consulting Agreement. The proceedings are in the discovery stage with an arbitration hearing scheduled for May 2015. The Company expects to prevail in this arbitration proceeding and does not expect said action to have any material adverse consequences to the Company.
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 8 - COMMITMENTS AND CONTINGENCIES (continued)
The Company has filed a demand for arbitration with the AAA and National Energy Partners and its subsidiary, Hawaii Solar, LLC, (“NEP”) hashave counter-claimed. The Company allegesalleged that NEP is in arrears on the payment of EPC services performed by the Company for construction work on the 24 schools in Hawaii contracted for between the parties. The Company further allegesalleged that NEP provided deficient design drawings and interfered with the construction of the projects and engaged in negligence, fraud and/or willful misconduct. NEP allegesalleged that the Company has failed to perform the contracted EPC services in a timely, proper manner and desires to validate termination of the contract in the arbitration process. The Company expects to prevail in this dispute, which would result in no material adverse consequences to the Company, other than legal costs and a delay in the recognition of revenue. However, if NEP prevails, the Company is likely to lose about $1.6$1.9 million on the work performed to date, as well as a possibility of limited damage payments also.payments. The Company is defending against counter claims raised in the arbitration. On August 6, 2014, the Company commenced a civil action in Hawaii for declaratory and injunctive relief and damages against NEP. NEP in the circuit court of the First Circuit of Hawaii (CIV No. 14-1-1694-08).
12
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (continued)
Subsequent to the Company commencing the above-described arbitration, it learned that NEP did not possess a Hawaii contractor license. The Company then withdrew its demand for arbitration without prejudice. The Company is seeking damages in excess of $1,300,000 and a declaratory judgment and injunctive relief that the subcontracts are invalid, void and unenforceable, the arbitration provision in the subcontracts is unenforceable and the pending arbitration should be terminated.
Pending Litigation
On October 24, 2014, a purported class action lawsuit was filed against the Company, two executive officers, and one non-executive officer in the U.S. District Court for the Central District of California (Case No:2:14-cv-08263). On January 21, 2015, the court appointed a Lead Plaintiff and Lead Plaintiff's Counsel. The Court also re-captioned the case In re Blue Earth, Inc. Securities Litigation, File No. CV 14-8263 DSF (JEMx). On March 13, 2015, plaintiff filed a First Amended Complaint ("FAC"). The FAC alleges claims under Sections 10(b) and 20(a) of the Exchange Act, and a purported class of purchasers of the Company's stock during the period from October 7, 2013 through October 21, 2014. Defendants responded to the FAC and filed a motion to dismiss the FAC. Plaintiff's opposition to the motion to dismiss will be due on or before June 1, 2015. Defendants' reply will be due on or before June 22, 2015. The Company believes the claims contained in the complaint are without merit and is vigorously defending this matter.
NOTE 98 - OPERATING SEGMENTS
Operating segments are defined as components of an enterprise about which separate and discreet financial information is available and is evaluated regularly by the chief operating decision-maker in assessing performance and determining how to best allocate Company resources. The Company’s chief operating decision makers direct the allocation of resources to operating segments based on the business plan, budgets, profitability and cash flows of each respective segment.
The Company has two principal operating segments: (1) energy efficiency and technology and (2) construction of energy facilities owned by third parties. Later this year,During the second quarter of 2015, a third segment will be introduced when powerenergy is produced from facilities built and owned by the Company. These operating segments were delineated based on the nature of the products and services offered.
13
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 8 - OPERATING SEGMENTS (continued)
The Company evaluates the financial performance of the respective segments based on several factors, of which the primary measure is business segment income before taxes. All significant intercompany transactions and balances have been eliminated. The following tables show the operations of the Company’s reportable segments for the sixthree months ended June 30, 2014March 31, 2015 and 2013:2014:
|
| Energy |
|
|
|
|
| ||||
|
| Efficiency and Technology |
| Construction | Corporate |
| Consolidated | ||||
June 30, 2014 |
|
|
|
|
|
|
| ||||
Revenues |
| $ | 3,307,672 |
| $ | 3,487,117 | $ | -- |
| $ | 6,794,789 |
Cost of sales |
|
| 1,234,039 |
|
| 2,681,319 |
|
|
| 3,915,358 | |
Depreciation and amortization |
|
| 696,665 |
|
| 943,686 |
| 642,035 |
|
| 2,282,386 |
General and administrative |
|
| 3,205,392 |
|
| 1,961,396 |
| 5,507,011 |
|
| 10,673,798 |
Other income (expense) |
|
| (39,212) |
|
| 158,059 |
| (440,395) |
|
| (321,548) |
Net income (loss) |
| $ | (1,867,636) |
| $ | (1,941,225) | $ | (6,589,441) |
| $ | (10,398,302) |
Total assets |
| $ | 1,923,552 |
| $ | 7,619,491 | $ | 79,072,866 |
| $ | 88,615,909 |
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 9 - OPERATING SEGMENTS (continued)
|
| Energy |
|
|
|
|
|
| Energy Efficiency |
|
|
|
|
|
| ||||||||
|
| Efficiency and Technology |
| Construction | Corporate |
| Consolidated |
| and Technology |
| Construction |
| Corporate |
| Consolidated | ||||||||
June 30, 2013 |
|
|
|
|
|
|
| ||||||||||||||||
March 31, 2015 |
|
|
|
|
|
|
|
| |||||||||||||||
Revenues |
| $ | 1,434,503 |
| $ | 3,698,161 |
| $ | -- |
| $ | 5,132,664 | |||||||||||
Cost of sales |
|
| 597,723 |
| 3,378,584 |
|
| -- |
|
| 3,976,307 | ||||||||||||
Depreciation and amortization |
|
| 358,162 |
| 472,079 |
|
| 384,827 |
|
| 1,215,068 | ||||||||||||
General and administrative |
|
| 2,009,783 |
| 1,504,472 |
|
| 2,908,272 |
|
| 6,422,527 | ||||||||||||
Other income (expense) |
|
| (8,428) |
| 7,537 |
|
| 175,245 |
|
| 174,354 | ||||||||||||
Net income (loss) |
| $ | (1,539,593) |
| $ | (1,649,437) |
| $ | (3,117,854) |
| $ | (6,306,884) | |||||||||||
Total assets |
| $ | 2,278,206 |
| $ | 93,966,137 |
| $ | 13,984,861 |
| $ | 110,229,204 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
| Energy Efficiency |
|
|
|
|
|
| |||||||||||||||
|
| and Technology |
| Construction |
| Corporate |
| Consolidated | |||||||||||||||
March 31, 2014 |
|
|
|
|
|
|
|
| |||||||||||||||
Revenues |
| $ | 1,538,188 |
| $ | 3,160,109 | $ | - |
| $ | 4,698,297 |
| $ | 1,407,251 |
| $ | 1,826,966 |
| $ | -- |
| $ | 3,234,217 |
Cost of sales |
|
| 621,999 |
|
| 2,519,922 |
| - |
|
| 3,141,921 |
|
| 586,901 |
| 1,201,408 |
|
| -- |
|
| 1,788,309 | |
Depreciation and amortization |
| 257,726 |
|
| 930,235 |
| 10,721 |
|
| 1,198,682 |
|
| 127,206 |
| 469,065 |
|
| 479,755 |
|
| 1,076,026 | ||
General and administrative |
|
| 1,349,120 |
|
| 1,195,919 |
| 5,324,263 |
|
| 7,869,302 |
|
| 1,103,074 |
| 972,515 |
|
| 3,757,344 |
|
| 5,832,933 | |
Other (expense) |
|
| (15,868) |
|
| - |
| 356,891 |
|
| 341,023 |
|
| 2,710 |
| 61,309 |
|
| (287,428) |
|
| (223,409) | |
Net income (loss) |
| $ | (706,525) |
| $ | (1,485,967) | $ | (4,978,093) |
| $ | (7,170,585) |
| $ | (407,220) |
| $ | (754,713) |
| $ | (4,524,527) |
| $ | (5,686,460) |
Total assets |
| $ | 1,059,816 |
| $ | 5,087,734 | $ | 13,236,612 |
| $ | 19,384,162 |
| $ | 1,033,867 |
| $ | 7,216,209 |
| $ | 79,942,616 |
| $ | 88,192,692 |
NOTE 109 - SUBSEQUENT EVENTS
InOn April 2014 the Company signed a binding asset purchase agreement to sell the Waianae Solar project in Hawaii for $2,070,000. The closing is scheduled to occur in or about August 2014. Company had impaired the cost of the project as included in construction in progress at June 30, 2014 to the net realizable value of $2,070,000 accordingly the sale will result in no gain or loss.
Subsequent to June 30, 20149, 2015, the Company issued 78,400 common12,500 shares upon the conversion of 7,000 Series C preferred stock and the related accrued dividends. The Company also issued 25,050 common shares upon the exercise of 25,060 warrants for cash at $2.50 per share.
On July 17, 2014 the Company’s Board of Directors granted 180,000 stock purchase options to various employees. The options have a term of 10 years, an exercise price of $2.27 to $2.45 per share and various vesting periods.
At a shareholder meeting held on July 18, 2014, the Company’s shareholders approved an increase in the authorizedits common stock to 500,000,000 shares.
for director fees. On July 28, 2014,April 20, 2015, the Company entered intoissued 168,700 shares of its common stock under a definitive asset purchase agreement to purchase certain assets in a partially completed solar project in Indianapolis, Indiana for $1,000,000. $250,000 was deposited into escrowMutual and $750,000 is due uponGeneral Release Agreement with the salelandlord of the completed project.former offices of Blue Earth Solar, Inc. On April 22, 2015 the Company issued 250,000 shares of its common stock for consulting services.
In accordance with ASC 855-10, the Company’s management has reviewed all material events and there are no additional material subsequent events to report.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances canAll statements other than statements of historical facts included in this report are forward-looking statements. These statements relate to future events or to the Company’s future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be given that thematerially different from any future results, anticipatedlevels of activity, performance or achievements expressed or implied by these forward-looking statements. Readers should not place any undue reliance on forward-looking statements since they involve known and unknown, uncertainties and other factors which are, in some cases, beyond the Company’s control which could, and likely will, materially affect actual results, levels of activity, performance or achievements. Any forward-looking statement reflects the Company’s current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to operations, results of operations, growth strategy and liquidity. Such risks, uncertainties and other factors, which could impact the Company and the forward-looking statements contained herein are included in the Company’s filings with the Securities and Exchange Commission. The Company assumes no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
LITIGATION DISCLOSURE STATEMENT
False allegations have been made against the Company by an anonymous blogger that stated he has a short position in the Company’s common stock, which has resulted in a class action lawsuit. The Company has hired professionals to assist in communications and defense against the false allegations. Management has been advised by counsel to continue to announce significant developments and milestones as they occur. However, management has also been cautioned to avoid forecasts and detailed forward-looking statements for all of our solar, energy efficiency, technology and CHP business units. Our general policy will be achieved. Forward-looking statements reflect management’s current expectationsto release information as appropriate when significant events occur that define the event in the context of our business model. Management continues to have confidence in our business model and are inherently uncertain. Our actual results may differ significantly from management’s expectations.in our ability to create shareholder value over time.
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.
Company Overview
Blue Earth, Inc. and subsidiaries (the “Company”) is a comprehensive provider of energy efficiency and alternative/renewable energy solutions for small and medium sized commercial facilities and industrial facilities. The Company also owns, manages and operates independent powerenergy generation systems constructed in conjunction with these services. The Company built and owned a 500,000 watt solar powered facility on the Island of Oahu, Hawaii, which it recently sold and has also built, operates and manages seven solar powered facilities in California and is designing and permitting numerous other projects. Our turnkey energy solutions enable our customers to reduce or stabilize their energy related expenditures and lessen the impact of their energy use on the environment. Our services offered include the development, engineering, construction, operation and maintenance and in some cases, financing of small and medium scale alternative/renewable energy power plants including solar photovoltaic (PV), Combined Heat and Power (“CHP”) or on-site cogeneration and fuel cells. Although the Company has a limited operating history and limited revenues in comparison to the size of the projects it has undertaken, as a result of the Company’s acquisitions, it is fully staffed with experienced personnel who have previously built many larger complex power plants. Our first CHP plant is expected to be completed in September 2014 with power revenues commencing thereafter.
We will build, own, operate and/or sell the power plants or build them for the customer to own. As we continue to expand our core energy services business as an independent power producer we intend to sell the electricity, hot water, heat and cooling generated by the power plants that we own under long-term power purchase agreements to utilities, and long-term take or pay contracts to our industrial customers. The Company also finances alternative and renewable energy projects through industry relationships.
We provide our customers with a variety of measures to improve the efficiency of their facilities’ energy consumption by designing, developing, engineering, installing, operating, maintaining and monitoring their major building systems, including refrigeration, lighting and heating, ventilation and air-conditioning.
We offer our utility customers, energy efficiency programs, such as our proprietary Keep Your Cool™ refrigeration program, adopted by 19 utilities, targeted to their small and medium-sized commercial customers. Our utility based, rate- payer incentive programs, are designed to help commercial businesses use less energy through the upgrade of existing equipment with new, more efficient equipment that helps reduce demand for electricity, lower energy bills and also enable utilities to satisfy state-mandated energy reduction goals. In addition to designing and administering the utility program, we perform the technical audits, sell the program to the commercial customer and in most instances, provide the installation of the equipment.
We have continued to expand ourThe Company has expanded its comprehensive energy solutions businessofferings through strategic acquisitions of companies that have been providing energy solutions to an established customer base or have developed a proprietary technology that can be utilized by our customers to improve equipment reliability, reduce maintenance costs and provide a better overall operating environment. The acquired companies’ operational activities are being conducted through the following six business units: Blue Earth Solar; Blue Earth CHP; Blue Earth EMS; Blue Earth PPS, Blue Earth Capital and Blue Earth EPS. Blue Earth EMS, Blue Earth EPS and Blue Earth PPS are part of the Energy Efficiency and Technology operating segments. Blue Earth Solar and Blue Earth CHP are part of the Construction operating segments. As powerenergy sales come online from facilities owned and built by the Company’s Blue Earth Solar or Blue Earth CHP business units, a third operating segment will be introduced. The primary strategic objective for the respective business units is to provide services which establish and build brand awareness about the comprehensive energy efficiency and alternative/renewable solutions provided by the Company to its existing and future customers.
The Blue Earth Solar unit of the Company has built and owned a 500,000 watt solar powered facility on the Island of Oahu, Hawaii, which it sold in 2014. It has also built, operates and manages seven solar powered facilities in California and is designing and permitting numerous other projects. Our turnkey energy solutions enable our customers to reduce or stabilize their energy related expenditures and lessen the impact of their energy use on the environment. Our services offered include the development, engineering, construction, operation and periodic warranty maintenance and in certain cases, financing of small and medium scale alternative/renewable energy plants including solar photovoltaic (PV), Combined Heat and Power (“CHP”) or on-site cogeneration and fuel cells. Although the Company has a limited operating history and limited revenues in comparison to the size of the projects it has undertaken, as a result of the Company’s acquisitions, it is staffed with experienced CHP personnel.
The Blue Earth CHP unit builds, owns, operates and/or sells the energy plants or build them for the customer to own. As we continue to expand our core energy services business as an independent energy producer, we intend to sell the electricity, hot water, heat and cooling generated by the power plants that we own under long-term energy purchase agreements to utilities and long-term take or pay contracts to our industrial customers. The Company also intends to finance alternative and renewable energy projects through industry relationships. Blue Earth CHP recently added personnel and facilities enabling it to develop, construct and maintain backup generators and cogeneration systems in the New York metropolitan area. It plans to grow the segment into other East Coast and Mid-West metropolitan markets. This broadens BE CHP’s offerings to include co-generation systems and back-up generators for large commercial buildings in addition to the large industrial manufacturing facilities already served by BE CHP.
The Blue Earth EMS unit provides our customers with a variety of measures to improve the efficiency of their facilities’ energy consumption by designing, developing, engineering, installing, operating, maintaining and monitoring their major building systems, including refrigeration, lighting and heating, ventilation and air-conditioning. We offer our utility customers, energy efficiency programs, such as our proprietary Keep Your Cool™ refrigeration program, adopted by many utilities in California, targeted to their small and medium-sized commercial customers. Our utility based, rate-payer incentive programs, are designed to help commercial businesses use less energy through the upgrade of existing equipment with new, more efficient equipment that helps reduce demand for electricity, lower energy bills and also enable utilities to satisfy state-mandated energy reduction goals. In addition to designing and administering the utility program, we perform the technical audits, sell the program to the commercial customer and in most instances, provide the installation of the equipment.
Proprietary technologies owned by the Company are the PeakPower® System (PPS)(Blue Earth PPS unit) and the UPStealth™ System.UPStealth®System (Blue Earth EPS unit). The PeakPower® System is a patented demand response, cloud based technology, that allows remote, wireless monitoring of refrigeration units, lighting and heating, ventilation and air conditioning inwith a potential market of thousands of facilities, such as super markets and food processing, restaurants and C-stores, drug and discount stores. Blue Earth EPS currently has several energy management systems operational in grocery stores. Revenues are expected to ramp up in 2015, as the Company is making some system changes before a major commercial roll out later in 2015. The technology enables the Company’s business unit, Blue Earth PPS, to provide energy monitoring and control solutions with real-time decision support to protect our customers’ assets by preventing costly equipment failures and food product losses. Our PeakPower® System also serves as a platform to enter into long-term services agreements that allow most types of refrigeration equipment failures to be predicted, thereby enabling preventive servicing based on need rather than periodic, scheduledunscheduled and costly service calls. The primary purpose of the acquisition of Intelligent Power on July 24, 2013 was to acquire the patent and other intellectual property rights in the above-described energy saving technology.
The patent pending UPStealth™ energy power solution (EPS)
Management believes based on its knowledge of the industry, that the patent pending UPStealth® System is the only energy efficient, intelligent Nickel Zinc digital battery backup management system that was designed to power signalized traffic intersections during loss of utility power. This system has been tested, approved and installed in several cities and municipalities throughout the United States. UPStealth™The UPStealth® System is designed as an alternative to lead-acid battery backup systems, enabling the Company’s business unit, Blue Earth EPS, to provide its customers with an environmentally friendly product that is completely recyclable with no issues of hazardous out-gassing, corrosion, flammable or explosive characteristics. The UPStealth™innovative UPStealth® battery backup management system can be formed in various configurations that allow the intelligent battery to bend around corners and fit into spaces that cannot be accessed by traditional battery backup systems. Compared to lead-acid battery backup systems, our innovative UPStealth™ energy power solution’sthe total cost of ownership for the UPStealth® is typically less, requires less maintenance, performs several years longer, and eliminates costly hazardous disposal issues. We also offer a finance program, which allows cities and municipalities to replace existing systems without capital expenditures.
There are several other market verticals where we believe both of our proprietary technologies can be applied, separately, or in combination, as a viable, cost effective solution. Examples include: servicesback-up energy storage systems for data centers, oil and natural gas wells, remote cell towers, risk management services, and demand response systems to decrease energy usage during peak load pricing periods charged by utilities.
Actual Results of Operations
Our revenues are derived from professional service contracts to provide energy efficient solutions and technology, and the construction of energy facilities owned by third parties. By the endsecond quarter of 20142015 we expect to add a third revenue stream from powerenergy sales generated from facilities built and owned by the Company.
Three Months Ended June 30, 2014March 31, 2015 Compared with Three Months Ended June 30, 2013 (Actual)March 31, 2014
Revenues
The Company recognized $3,560,572$5,132,664 of revenue for the three months ended June 30, 2014,March 31, 2015, as compared to $2,534,967$3,234,217 for the three months ended June 30, 2013,March 31, 2014, an increase of $1,025,605$1,898,447 or 40.5%58.7%. The current year’s revenues represent sales from the Company’s divisions Energy Efficiency and Technology ($1,899,764)1,434,503) and Construction ($1,660,808)3,698,161). The prior year’s revenues represent sales from the Company’s divisions Energy Efficiency and Technology ($1,678,193)1,407,251) and Construction ($856,774)1,826,966). Energy Efficiency and Technology sales include energy efficiency retrofits through the Keep Your Cool programs, website sales, refrigeration/HVAC services and the UPStealth™UPStealth® battery backup management systems. Construction sales are from installation of renewablealternative energy systems and installation and maintenance of HVAC systems. Energy Efficiency and Technology’s revenues were affected by a new contract with a national chain of convenience stores, increase in website sales, and sales of UPStealth™UPStealth® battery backup management systems. Construction's revenues increased due to work on the acquisition of EPC contracts for solar generation projectsproject in Hawaii.Indiana.
|
| Three Months Ended June 30, |
| Change |
|
| Three Months Ended March 31, |
| Change |
| ||||||||||||||||||||||
|
| 2014 |
|
| 2013 |
| $ |
| % |
|
| 2015 |
| 2014 |
| $ |
| % |
| |||||||||||||
Energy Efficiency and Technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Battery backup systems |
| $ | 228,376 |
|
| $ | - |
| 228,376 |
| 100 |
|
| $ | 53,853 |
| $ | 52,201 |
| 1,652 |
| 3 |
| |||||||||
Energy efficiency |
|
| 1,671,388 |
|
|
| 1,678,193 |
| (6,805) |
| - |
|
|
| 1,380,650 |
|
|
| 1,355,050 |
| 25,600 |
| 2 |
| ||||||||
Total Energy Efficiency and Technology |
|
| 1,899,764 |
|
|
| 1,678,193 |
| 221,571 |
| 13 |
|
|
| 1,434,503 |
|
|
| 1,407,251 |
| 27,252 |
| 2 |
| ||||||||
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Solar construction |
|
| 1,660,808 |
|
|
| 856,774 |
| 804,034 |
| 100 |
|
|
| 3,698,161 |
|
| 1,826,966 |
| 1,871,195 |
| 102 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total revenue |
| $ | 3,560,572 |
|
| $ | 2,534,967 |
| 1,025,605 |
| 40 |
|
| $ | 5,132,664 |
| $ | 3,234,217 |
| 1,898,447 |
| 59 |
|
Cost of Sales and Gross Profit
CostCosts of sales for the three months ended June 30, 2014March 31, 2015 were $2,127,049$3,976,307 resulting in a gross profit of $1,433,523$1,156,357 or 40.3%22.5% of revenues. Energy Efficiency and Technology had a gross profit of $1,252,625$836,780 or 65.9%58.3% compared to $180,898a profit of $319,577 or 10.9%8.6% for Construction. By comparison, during 20132014 we had a cost of sales of $1,698,314$1,788,309 with a gross profit of $836,653$1,445,908 or 33.0%44.7%. Energy Efficiency and Technology had a gross profit of $521,530$820,350 or 60.9%58.3% compared to $315,124$625,558 or 18.8%34.2% for Construction.
Operating Expenses
General and Administrative Expenses and Depreciation and Amortization Expense
Operating expenses were $6,047,225$7,637,595 for the three months ended June 30, 2014March 31, 2015 as compared to $6,597,287$6,908,959 for the three months ended June 30, 2013, a decreaseMarch 31, 2014, an increase of $550,062$728,636 or 8.3%10.5%. In 20142015, approximately $3,089,739 (51.1%) of the expenses were from Energy Efficiency and Technology and $1,920,363 (31.7%) were from Construction. The balance of $1,037,123 (17.2%) for 2014 was corporate administrative expense. Approximately $2,043,029 (33.8%) of the general and administrative expenses was for payroll costs and $886,938 (18.3%) was for consulting and professional fees in 2014.
In 2013 approximately $948,715 (14.4%$2,367,945 (31.0%) of the operating expenses were from Energy Efficiency and Technology and $1,596,543 (24.2%$1,976,552 (25.9%) were from Construction. The balance of $4,052,029 (61.4%$3,293,098 (43.1%) for 20132015 was corporate administrative expense. Approximately $1,149,439 (19.2%$2,566,142 (33.6%) of the general and administrativeoperating expenses was for payroll costs and $805,488 (13.4%$982,354 (12.9%) was for consulting and professional fees in 2015. The increase in operating expenses for 2015 was primarily due an increase in payroll costs.
In 2014 approximately $1,230,280 (17.8%) of the operating expenses were from Energy Efficiency and Technology and $1,441,580 (20.9%) were from Construction. The balance of $4,237,099 (61.3%) for 2014 was corporate administrative expense. Approximately $1,960,697 (28.4%) of the operating expenses was for payroll costs and $1,562,807 (22.6%) was for professional fees in 2013.
2014.
In 2014, general and administrative2015, operating expenses include stock compensation expense of $1,476,802 (24.4%$1,705,991 (22.3%) compared to $3,989,628 (60.5%$1,860,269 (26.9%) in 2013.2014. We recorded depreciation and amortization expense of $1,206,360$1,215,068 in 20142015 compared to $600,822$1,076,026 in 2013.2014. The increase was due to the amortization of the purchase price of Millennium Power Solutions and Intelligent Power which were purchased during 2013 and Blue Earth Capital, Inc. which was purchased in 2014.
We expect our costs for personnel, consultants and other operating expenses to increase as we implement our business plan. Thus, our general and administrative expenses are likely to increase significantly in future reporting periods.
Other Income (Expense)
Total other income (expense) for the three months ended June 30, 2014March 31, 2015 was $(98,139)$174,354 compared to $423,545$(223,409) for the three months ended June 30, 2013.March 31, 2014. The decreaseincrease was primarily attributable to a gain onof $989,778 from the settlement of debt which decreasedlitigation in the first quarter of 2015 compared to $-0- in the secondfirst quarter of 2014 compared to $648,245 in the second quarter of 2013 and a decrease2014. The change in interest expense from $224,700$235,584 in 20132014 to $102,297$430,520 in 2014. The changes were2015 was due to the conversionborrowing of debt to equity in 2013a $10,000,000 convertible note payable and the repayment of a line of credit of $3,000,000 in 2014.the first quarter of 2015.
Net Loss
Net loss was $4,711,841$6,306,884 for the three months ended June 30, 2014March 31, 2015 as compared with a net loss of $5,340,143$5,686,460 for the three months ended June 30, 2013, a decreaseMarch 31, 2014, an increase of $628,302.$620,424. Excluding the non cash expenses of common stock for services and amortization of intangible assets acquired for stock and stock options/warrants issued for services, the loss would have been $2,112,549$3,106,571 and $789,664$2,750,165 for 20142015 and 2013,2014, respectively. The increase is attributable primarily by interest expense related to the warrantsborrowing of $10,000,000 in convertible debt and options issued to management personnel issued$3,000,000 on the line of credit and a loss from an equity investment of $227,560, offset in part by the previous year, however vesting ingain of $989,778 from the current year. It also increased due to amortizationsettlement of the assets acquired in the purchase of our new subsidiaries.litigation. The net loss attributed to common shareholders was $5,808,656$6,306,884 in 20142015 compared to $5,849,318$6,079,348 in 20132014 due to the dividends accrued on the Series C preferred stock and paid in common shares. The Series C preferred shares were all converted into common shares by June 30, 2014 so no additional dividends will be incurred in the succeeding periods. The net loss translates to $0.07 per share in 20142015 compared to $0.23$0.09 in 2013.
Six Months Ended June 30, 2014 Compared with Six Months Ended June 30, 2013 (Actual)
Revenues
The Company recognized $6,794,789 of revenue for the six months ended June 30, 2014, as compared to $4,698,297 for the six months ended June 30, 2013, an increase of $2,096,492 or 44.6%. The current revenues represent sales from the Company’s divisions Energy Efficiency and Technology ($3,307,672) and Construction ($3,487,117). The prior year revenues represent sales from the Company’s divisions Energy Efficiency and Technology ($1,538,188) and Construction ($3,160,109). Energy Efficiency and Technology sales include energy efficiency retrofits through the Keep Your Cool programs, website sales, refrigeration/HVAC services and the UPStealth™ battery backup management systems. Construction sales are from installation of renewable energy systems and installation and maintenance of HVAC systems. Energy Efficiency and Technology’s revenues were affected by a new contract with a national chain of convenience stores, increase in website sales, and sales of UPStealth™ battery backup management systems. Construction's revenues increased due to the acquisition of EPC contracts for solar generation projects in Hawaii.
2014.
|
| Six Months Ended June 30, |
|
| Change |
| ||||||||||
|
| 2014 |
|
| 2013 |
|
| $ |
|
| % |
| ||||
Energy Efficiency and Technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Battery backup systems |
| $ | 280,577 |
|
| $ | - |
|
|
| 280,577 |
|
|
| 100 |
|
Energy efficiency |
|
| 3,027,095 |
|
|
| 1,538,188 |
|
|
| 1,488,907 |
|
|
| 97 |
|
Total Energy Efficiency and Technology |
|
| 3,307,672 |
|
|
| 1,538,188 |
|
|
| 1,769,484 |
|
|
| 115 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar construction |
|
| 3,487,117 |
|
|
| 3,160,109 |
|
|
| 327,008 |
|
|
| 10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
| $ | 6,794,789 |
|
| $ | 4,698,297 |
|
|
| 2,096,492 |
|
|
| 45 |
|
Cost of Sales and Gross Profit
Cost of sales for the six months ended June 30, 2014 were $3,915,358 resulting in a gross profit of $2,879,431 or 42.4% of revenues. Energy Efficiency and Technology had a gross profit of $2,073,633 or 62.7% compared to $805,798 or 23.1% for Construction. By comparison, during 2013 we had a cost of sales of $3,141,921 with a gross profit of $1,556,376 or 33.1%. Energy Efficiency and Technology had a gross profit of $916,190 or 59.6% compared to $640,187 or 20.2% for Construction.
Operating Expenses
General and Administrative Expenses and Depreciation and Amortization Expense
Operating expenses were $12,956,184 for the six months ended June 30, 2014 as compared to $9,067,984 for the six months ended June 30, 2013, an increase of $3,888,200 or 42.9%. In 2014 approximately $3,902,057 (30.1%) of the expenses were from Energy Efficiency and Technology and $2,905,082 (22.4%) were from Construction. The balance of $6,149,045 (47.5%) for 2014 was corporate administrative expense. Approximately $4,003,726 (37.5%) of the general and administrative expenses was for payroll costs and $2,489,745 (23.3%) was for consulting and professional fees in 2014.
In 2013 approximately $1,606,846 (17.7%) of the operating expenses were from Energy Efficiency and Technology and $2,126,154 (23.5%) were from Construction. The balance of $5,334,984 (58.8%) for 2013 was corporate administrative expense. Approximately $1,907,233 (24.2%) of the general and administrative expenses was for payroll costs and $1,126,040 (14.3%) was for professional fees in 2013.
In 2014, general and administrative expenses include stock compensation expense of $3,337,071 (25.8%) compared to $4,040,046 (44.6%) in 2013. We recorded depreciation and amortization expense of $2,282,386 in 2014 compared to $1,198,682 in 2013. The increase was due to the amortization of the purchase price of Millennium Power Solutions and Intelligent Power which were purchased during 2013 and Blue Earth Capital, Inc. which was purchased in 2014.
We expect our costs for personnel, consultants and other operating expenses to increase as we implement our business plan. Thus, our general and administrative expenses are likely to increase significantly in future reporting periods.
Other Income (Expense)
Total other income (expense) for the six months ended June 30, 2014 was $(321,548) compared to $341,023 for the six months ended June 30, 2013. The decrease was primarily attributable to gain on settlement of debt which decreased to $-0- in the second quarter of 2014 compared to $637,097 in the second quarter of 2013 and an increase in interest expense from $296,074 in 2013 to $337,881 in 2014. The changes were due to the conversion of debt into equity in 2013 and borrowing of a line of credit in the second quarter of 2013.
Net Loss
Net loss was $10,398,301 for the six months ended June 30, 2014 as compared with a net loss of $7,217,560 for the six months ended June 30, 2013, an increase of $3,180,741. Excluding the non cash expenses of common stock for services, amortization of intangible assets acquired for stock and stock options/warrants issued for services the loss would have been $4,845,161 and $2,018,356 for 2014 and 2013, respectively. The increase is attributable primarily to the warrants and options issued to management personnel issued in the previous year however vesting in the current year. It also increased due to amortization of the assets acquired in the purchase of our new subsidiaries. The net loss attributed to common shareholders was $11,888,004 in 2014 compared to $7,875,901 in 2013 due to the dividends accrued on the Series C preferred stock and paid in common shares. The Series C preferred shares were all converted to common shares by June 30, 2014 so no additional dividends will be incurred in the succeeding periods. The net loss translates to $0.17 per share in 2014 compared to $0.32 in 2013.
Pro Forma Results of Operations
Our revenues are derived from professional service contracts to provide energy efficient solutions and technology, and the construction of energy facilities owned by third parties. By the end of 2014 we expect to add a third revenue stream from power sales generated from facilities built and owned by the Company. The following pro forma results of operations are presented as though the acquisitions of IPS, MPS and IP took place on January 1, 2013.
Three Months Ended June 30, 2014 Compared with Three Months Ended June 30, 2013 (Pro Forma)
Pro Forma Revenues
The Company recognized $3,560,572 of revenue for the three months ended June 30, 2014, as compared to $2,605,340 an increase of $955,232 or 36.7%. The current revenues represent sales from the Company’s divisions Energy Efficiency and Technology ($1,899,764) and Construction ($1,660,808). The prior year revenues represent sales from the Company’s divisions Energy Efficiency and Technology ($924,647) and Construction ($1,680,693). Energy Efficiency and Technology sales include energy efficiency retrofits through the Keep Your Cool programs, website sales, refrigeration/HVAC services and the UPStealth™ battery backup management systems. Construction sales are from installation of renewable energy systems and installation and maintenance of HVAC systems. Energy Efficiency and Technology’s revenues were affected by a new contract with a national chain of convenience stores, increase in website sales, and sales of UPStealth™ battery backup management systems. Construction's revenues increased due to the acquisition of EPC contracts for solar generation projects in Hawaii.
Pro Forma Cost of Sales and Gross Profit
Cost of sales for the three months ended June 30, 2014 were $2,127,049 resulting in a gross profit of $1,433,523, or 40.3% of revenues. Energy Efficiency and Technology had a gross profit of $1,252,625 or 65.9% compared to $180,898 or 10.9% for Construction. By comparison, during 2013 we had a cost of sales of $1,724,503 with a gross profit of $880,838 or 33.8%. Energy Efficiency and Technology had a gross profit of $563,214 or 60.9% compared to $317,624 or 18.9% for Construction.
Pro Forma Operating Expenses
General and Administrative Expenses and Depreciation and Amortization Expense
Operating expenses were $6,047,225 for the three months ended June 30, 2014 as compared to $7,972,761 for the three months ended June 30, 2013, a decrease of $1,925,536 or 24.2%. In 2014 approximately $3,089,739 (51.1%) of the expenses were from Energy Efficiency and Technology and $1,920,363 (31.7%) were from Construction. The balance of $1,037,123 (17.2%) for 2014 was corporate administrative expense. Approximately $2,043,029 (41.9%) of the general and administrative expenses was for payroll costs and $886,938 (18.3%) was for consulting and professional fees in 2014.
In 2013 approximately $1,918,995 (24.7%) of the expenses were from Energy Efficiency and Technology and $2,001,737 (25.1%) were from Construction. The balance of $4,052,029 (50.8%) for 2013 was corporate administrative expense. Approximately $1,815,764 (22.8%) of the general and administrative expenses was for payroll costs and $805,488 (10.1%) was for professional fees in 2013.
In 2014, general and administrative expenses include stock compensation expense of $1,476,802 (24.4%) compared to $3,989,628 (60.5%) in 2013. We recorded depreciation and amortization expense of $1,206,360 in 2014 compared to $600,822 in 2013. The increase was due to the amortization of the purchase price of Millennium Power Solutions and Intelligent Power which were purchased during 2013 and Blue Earth Capital, Inc. which was purchased in 2014.
We expect our costs for personnel, consultants and other operating expenses to increase as we implement our business plan. Thus, our general and administrative expenses are likely to increase significantly in future reporting periods.
Pro Forma Other Income (Expense)
Total other income (expense) for the three months ended June 30, 2014 was $(98,139) compared to $341,151 for the three months ended June 30, 2013. The decrease was primarily attributable to gain on settlement of debt which decreased to $-0- in the second quarter of 2014 compared to $637,097 in the second quarter of 2013 and a decrease in interest expense from $280,207 in 2013 to $102,297 in 2014. The changes were due to the conversion of debt into equity in 2013 and the repayment of a line of credit in 2014.
Pro Forma Net Loss
Net loss was $4,711,841 for the three months ended June 30, 2014 as compared with a net loss of $6,750,772 for the three months ended June 30, 2013, a decrease of $2,038,931. Excluding the non cash expenses of common stock for services, amortization of intangible assets acquired for stock and stock options/warrants issued for services the loss would have been $2,112,549 and $2,200,293 for 2014 and 2013, respectively. The increase is attributable primarily to the warrants and options issued to management personnel issued in the previous year, however vesting in the current year. It also increased due to amortization of the assets acquired in the purchase of our new subsidiaries. The net loss attributed to common shareholders was $5,808,656 in 2014 compared to $7,259,947 in 2013 due to the dividends accrued on the Series C preferred stock and paid in common shares. The Series C preferred shares were all converted into common shares by June 30, 2014, so no additional dividends will be incurred in the succeeding periods. The net loss translates to $0.07 per share in 2014 compared to $0.31 in 2013.
Six Months Ended June 30, 2014 Compared with Six Months Ended June 30, 2013 (Pro Forma)
Pro Forma Revenues
The Company recognized $6,794,789 of revenue for the six months ended June 30, 2014, as compared to $4,851,426 an increase of $1,943,363 or 40.1%. The current revenues represent sales from the Company’s divisions Energy Efficiency and Technology ($3,307,672) and Construction ($3,487,117). The prior year revenues represent sales from the Company’s divisions Energy Efficiency and Technology ($1,688,817) and Maintenance ($3,162,609). Energy Efficiency and Technology sales include energy efficiency retrofits through the Keep Your Cool programs, website sales, refrigeration/HVAC services and the UPStealth™ battery backup management systems. Construction sales are from installation of renewable energy systems and installation and maintenance of HVAC systems. Energy Efficiency and Technology’s revenues were affected by a new contract with a national chain of convenience stores, increase in website sales, and sales of UPStealth™ battery backup management systems. Construction's revenues increased due to the acquisition of EPC contracts for solar generation projects in Hawaii.
Pro Forma Cost of Sales and Gross Profit
Cost of sales for the six months ended June 30, 2014 were $2,879,431 resulting in a gross profit of $1,433,523 or 42.4% of revenues. Energy Efficiency and Technology had a gross profit of $2,073,633 or 62.7% compared to $805,798 or 23.1% for Construction. By comparison, during 2013 we had a cost of sales of $3,248,882 with a gross profit of $1,602,545 or 33.0%. Energy Efficiency and Technology had a gross profit of $959,858 or 56.8% compared to $642,687 or 20.3% for Construction.
Pro Forma Operating Expenses
General and Administrative Expenses and Depreciation and Amortization Expense
Operating expenses were $12,956,184 for the six months ended June 30, 2014 as compared to $10,443,458 for the six months ended June 30, 2013, an increase of $2,512,726 or 24.1%. In 2014 approximately $3,902,057 (30.1%) of the expenses were from Energy Efficiency and Technology and $2,905,082 (22.4%) were from Construction. The balance of $6,149,045 (47.5%) for 2014 was corporate administrative expense. Approximately $4,003,726 (37.5%) of the general and administrative expenses was for payroll costs and $2,489,745 (23.3%) was for consulting and professional fees in 2014.
In 2013 approximately $2,577,126 (24.7%) of the expenses were from Energy Efficiency and Technology and $2,531,348 (24.2%) were from Construction. The balance of $5,334,984 (51.1%) for 2013 was corporate administrative expense. Approximately $2,573,558 (29.1%) of the general and administrative expenses was for payroll costs and $1,126,040 (12.8%) was for professional fees in 2013.
In 2014, general and administrative expenses include stock compensation expense of $3,337,071 (36.8%) compared to $4,040,046 (44.6%) in 2013. We recorded depreciation and amortization expense of $2,282,386 in 2014 compared to $1,616,878 in 2013. The increase was due to the amortization of the purchase price of Millennium Power Solutions and Intelligent Power which were purchased during 2013 and Blue Earth Capital, Inc. which was purchased in 2014.
We expect our costs for personnel, consultants and other operating expenses to increase as we implement our business plan. Thus, our general and administrative expenses are likely to increase significantly in future reporting periods.
Pro Forma Other Income (Expense)
Total other income (expense) for the six months ended June 30, 2014 was $(321,548) compared to $294,176 for the six months ended June 30, 2013. The decrease was primarily attributable to gain on settlement of debt which decreased to $-0- in the second quarter of 2014 compared to $637,097 in the second quarter of 2013 and an increase in interest expense from $296,074 in 2013 to $337,881 in 2014. The changes were due to the conversion of debt into equity in 2013 and borrowing of a line of credit in the second quarter of 2013.
Pro Forma Net Loss
Net loss was $10,398,301 for the six months ended June 30, 2014 as compared with a net loss of $8,546,737 for the six months ended June 30, 2013, an increase of $1,851,564. Excluding the non cash expenses of common stock for services, amortization of intangible assets acquired for stock and stock options/warrants issued for services the loss would have been $4,845,161 and $3,397,951 for 2014 and 2013, respectively. The increase is attributable primarily to the warrants and options issued to management personnel issued in the previous year, however vesting in the current year. It also increased due to amortization of the assets acquired in the purchase of our new subsidiaries. The net loss attributed to common shareholders was $11,888,004, in 2014 compared to $9,205,078 in 2013 due to the dividends accrued on the Series C preferred stock and paid in common shares. The Series C preferred shares were all converted into common shares by June 30, 2014 so no additional dividends will be incurred in the succeeding periods. The net loss translates to $0.17 per share in 2014 compared to $0.41 in 2013.
Liquidity and Capital Resources as of June 30, 2014March 31, 2015 compared with December 31, 20132014
Net cash used in operating activities during the sixthree months ended June 30, 2014March 31, 2015 totaled $6,969,005$1,937,541 and resulted primarily from the operating expenses associated with the activities of the parent company related to carrying out our business plan. In addition to a net loss of $10,398,301,$6,306,884, we incurred an increase in accounts receivableconstruction in progress of $371,955 and billings in excessprepaid expenses of $1,173,880$293,372 that was partially offset by common stock options and warrants granted for services expensed at $1,936,357,$1,385,338, common stock issued for services valued at $1,400,714$320,653 and depreciation and amortization of $2,282,386.$1,215,068. We also decreased our accounts payablereceivable by $1,980,174 and accrued expenses by $927,411 due to costs paid on construction in progress.
Net cash used in operating activities during the six months ended June 30, 2013 totaled $6,678,094 and resulted primarily from the operating expenses associated with the parent company related to carrying out our business plan. In addition to a net loss of $7,217,560, we incurred an increase in accounts receivable and billings in excess of $868,672 and an increase in construction in progress of $2,313,905. These outflows were partially offset by common stock warrants and options granted for services expensed at $3,782,658, common stock issued for services valued at $257,388, and depreciation and amortization of $1,197,853. We also decreased ourincreased accounts payable and accrued expenses by $1,301,776 due to costs paid on construction in progress.$237,621. We expect to continue with a negative cash flow from operations for the foreseeable future as we continue to build our business.
Net cash used in investingoperating activities during the sixthree months ended June 30,March 31, 2014 totaled $2,626,651 which included $2,688,446 for purchases$2,704,046 and resulted primarily from the operating expenses associated with the activities of equipmentthe parent company related to carrying out our business plan. In addition to a net loss of $5,686,460, we incurred an increase in accounts receivable and billings in excess of $731,331. These outflows were partially offset by collectionscommon stock warrants and options granted for services expensed at $1,189,727, common stock issued for services valued at $670,542, and depreciation and amortization of notes receivable of $61,795. $1,076,026. We also increased our accounts payable and accrued expenses by $406,480 due to costs incurred on construction in progress.
Net cash used in investing activities during the sixthree months ended June 30, 2013March 31, 2015 totaled $12,460.$7,487,669 which included $7,098,388 for purchases of equipment and $400,000 invested in an equity subsidiary. Net cash used in continuing investing activities during the three months ended March 31, 2014 totaled $1,354,475, of which $1,353,588 was used for purchases of equipment.
Net cash provided by financing activities during the sixthree months ended June 30, 2014March 31, 2015 totaled $5,624,201$12,760,896 and resulted from $1,145,880$2,911,700 of collections on stock subscriptions receivable and $5,568,957proceeds from the exerciseline of optionscredit and warrants.$9,953,068 of proceeds from the convertible note payable. The cash inflows were partially offset by principal payments on notes payable and line of credit $1,398,039 and notes payable to related parties of $4,004.$103,872. Net cash provided by financing activities during the sixthree months ended June 30, 2013March 31, 2014 totaled $9,920,182.$658,143. These inflows primarily came from $1,872,088$1,000,000 from common stock subscriptions and $100,857 of gross proceeds from the exercise of options and warrants, the issuance of preferred stock of $8,832,200, related party loans of $420,000 and proceeds of the line of credit of $1,500,000.warrants. The inflows were offset by payments on notes payable of $512,253$438,710 and notes payable to related parties of $691,853 and repayment of $1,500,000 on the line of credit.$4,004.
At June 30, 2014,March 31, 2015, we had a working capital deficit of $13,158,901$3,210,051 including $4,414,394$6,303,094 in cash and cash equivalents compared with working capital of $14,321,543$6,181,199 at December 31, 2013. 2014. We anticipate our revenue generating activities to continue and even increase as we execute on our alternative/renewable energy and energy efficiency initiatives as well as from future acquisitions. The Company expects that it has sufficient cash and borrowing capacity to meet its working capital needs for at least the next 12 months. The increasedecrease in working capital was the result of our positive cash flow from financing activities.increase of short term debt used for our investment in CHP projects.
We anticipate our revenue generating activities to continue and even increase as we execute on our alternative/renewable energy and energy efficiency initiatives as well as from future acquisitions. Our ability to execute our business plan is subject to our ability to generate profits and/or obtain necessary funding from outside sources, including by the sale of our securities, or obtaining loans from lenders, where possible. Our continued net operating losses increase the difficulty of our meeting these goals. Nonetheless, the Company expects that it has sufficient cash and borrowing capacity to meet its working capital needs for at least the next 12 months. The Company’s project financing requirements are separate and apart from our working capital needs.
On February 22, 2013, we entered into a credit agreement with a $10 million line of credit of which $1,500,000 was funded and repaid during 2013.2013 and $3,000,000 was funded and repaid in 2014. $4,000,000 is currently available upon our meeting the terms and conditions of the credit facility andof which a second draw of $1,500,000$3,000,000 was subsequently borrowed by the Company. This outstanding loan of $1,500,000 is being paid monthly with interest at 12% per annum, primarily from tax grant proceeds from five completed solar projects. The balance is expected to be fully paid during the third quarter ending September 30, 2014.taken on February 24, 2015. Additional draws are subject to approval of the planned use of proceeds by the lender in order to borrow against the facility. The Company has elected to not draw down any additional funds at this time The line of credit is secured by one CHP projects and expects to replace this credit facility with larger debt agreements that meetby one solar project and accrues interest at 12% per annum.
On March 9, 2015, we issued a 6 month convertible note payable for $10,000,000. The note payable is convertible into shares of our ongoingcommon stock at $1.00 per share at the noteholder’s option. We granted 2,000,000 $1.00 stock purchase warrants as consideration for the convertible note payable. The convertible note payable is secured by all of our assets except one CHP project finance requirements.and one solar project and accrues interest at 12% per annum.
Historically, we have financed our working capital and capital expenditure requirements primarily from the sales of our equity securities. We mayintend to seek additional equity and/or debt financing in order to implement our business plan. In 2013, we completed a private placement of preferred stock of $8,517,315 and of options and warrants of $12,396,321. We raised an additional $5,568,957 as of June 30,$22,710,411 from equity financing during the year ended December 31, 2014. We have a line of credit for $10,000,000 of which $4,000,000 is available and we are currently using $272,548$3,000,000 to meet our cash needs. Furthermore, any additional equity or convertible debt financing will be dilutive to existing shareholders and may involve preferential rights over common shareholders. Debt financing, with or without equity conversion features, may involve restrictive covenants.
On August 30, 2013 we entered into a Strategic Partnership Agreement, as amended on October 10, 2013, with Talesun Solar USA, Ltd. (“Talesun”) and New Generation Power LLC (“NGP”), as amended on October 10, 2013, which includes a commitment from Talesun to grant us engineering, procurement and construction contracts (“EPC”) for 18 MW of Talesun Solar PV projects. NGP granted us EPC contracts for approximately 150 MW of projects over the next 20 months. EPC contracts have been signed for several projects, but project financing has not occurred; therefore, they are still considered pipeline. We loaned NGP $2,000,000, which was collateralized by safe harbored solar panels to be utilized on NGP’s solar projects. Our commitment to lend up to an additional $4,500,000, as verbally extended, expired on March 31, 2014, unless extended by the parties. We are negotiating a possible extension of the commitment.NGP will contract with us to build the solar projects on a cost plus basis. We have agreed to accept $2,000,000 worth of the solar panels to be sold in satisfaction of the loan receivable.
Related Party Transactions
The Company had no significant related party transactions during the three months ended June 30, 2014.March 31, 2015. The Company owes $1,333,147 plus accrued interest to a director for funds borrowed in prior periods.
New Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements for a discussion of recently issued accounting pronouncements.
Critical Accounting Estimates
Management’s discussion and analysis of financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including, but not limited to valuation of accounts receivable and allowance for doubtful accounts, those related to the estimates of depreciable lives and valuation of property and equipment, valuation of derivatives, valuation of payroll tax contingencies, valuation of share-based payments, and the valuation allowance on deferred tax assets.
Off-Balance Sheet Arrangements
Since our inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
N/A
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow time decisions regarding required disclosure. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that material information we are required to disclose in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Changes in Internal Control Over Financial Reporting. During the most recent quarter ended June 30, 2014,March 31, 2015, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
ITEM 1. LEGAL PROCEEDINGS.
From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. There have been no substantive changes in any legal proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2013;2014; and we are not involved in any other material pending legal proceeding or litigation, except as set forth below, and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on the Company.
On October 24, 2014, a purported class action lawsuit was filed against the Company, two executive officers, and one non-executive officer in the U.S. District Court for the Central District of California (Case No:2:14-cv-08263). On January 21, 2015, the court appointed a Lead Plaintiff and Lead Plaintiff's Counsel. The Court also re-captioned the case In re Blue Earth, Inc. Securities Litigation, File No. CV 14-8263 DSF (JEMx). On March 13, 2015, plaintiff filed a First Amended Complaint ("FAC"). The FAC alleges claims under Sections 10(b) and 20(a) of the Exchange Act, and a purported class of purchasers of the Company's stock during the period from October 7, 2013 through October 21, 2014. Defendants' responded and filed a motion to dismiss FAC. Plaintiff's opposition to the motion to dismiss will be due on or before June 1, 2015. Defendants' reply will be due on or before June 22, 2015. The Company believes the claims contained in the complaint are without merit and is vigorously defending this matter.
The Company and two consultants, have filed demands for arbitration with the American Arbitration Association.Association (“AAA”). Consultants allege that the Company, specifically Johnny R. Thomas, CEO, have violated the "no disparagement" clause of their Consulting Agreement dated February 17, 2014 with the Company. They alleged that the Company interfered with the ability of the Consultants to perform their consulting duties. The Company alleges that the Consultants failed to perform consulting work as required and never intended to perform under the consulting agreement.Consulting Agreement.The proceedings are in the discovery stage. The Company expects to prevail in this arbitration proceeding and does not expect said action to have any material adverse consequences to the Company.
The Company has filed a demand for arbitration with the AAA and National Energy Partners and its subsidiary, Hawaii Solar, LLC, (“NEP”) have counter-claimed. The Company allegedthat NEP is in arrears on the payment of EPC services performed by the Company for construction work on the 24 schools in Hawaii contracted for between the parties. The Company further alleged that NEP provided deficient design drawings and interfered with the construction of the projects and engaged in negligence, fraud and/or willful misconduct. NEP alleged that the Company failed to perform the contracted EPC services in a timely, proper manner and desires to validate termination of the contract in the arbitration process. The Company expects to prevail in this dispute, which would result in no material adverse consequences to the Company, other than legal costs and a delay in the recognition of revenue. However, if NEP prevails, the Company is likely to lose about $1.9 million on the work performed to date, as well as a possibility of limited damage payments. The Company is definitely against counter claims raised in the arbitration. On August 6, 2014, Blue Earth, Inc. and its wholly-owned subsidiary, Xnergy,the Company commenced a civil action in Hawaii for declaratory and injunctive relief and damages against NEP in the Circuit Courtcircuit court of the First Circuit of Hawaii (CIV No. 14-1-1694-08). Subsequent to the Company commencing the above-described arbitration, it learned that Hawaii SolarNEP did not possess a Hawaii contractor license and a Hawaii construction contractor license at any time.license. The Company then withdrew its demand for arbitration without prejudice. The Company is seeking damages in excess of $1,300,000 and a declaratory judgment and injunctive relief that the subcontracts are invalid, void and unenforceable,unenforceable.
On March 27, 2015, Blue Earth, Inc. (the “Company”) entered into a Settlement Agreement with the arbitration provisionBroadway Family Group, LLC (“Broadway”) to settle all claims brought by Broadway, as well as certain other matters (the “Settlement Agreement”). As previously disclosed in the subcontracts is unenforceableCompany’s filings with the Securities and Exchange Commission, Broadway commenced an action in the 8th Judicial District of Nevada (Case No.: A-14-709424-C) (the “Action”) whereby it alleged the Company’s wrongful termination of the Contractor and Services Agreement dated as of July 15, 2013 and Amended and Restated Contractor and Services Agreement, dated as of April 21, 2014 (collectively the “Consulting Agreements”). On July 15, 2013, Broadway and the pending arbitration should be terminated.Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), whereby Broadway acquired 3,030,000 shares of the Company’s common stock in exchange for its equity interests in Global Renewable Energy Group, Inc. Pursuant to the Consulting Agreements Broadway received 84,000 restricted shares of the Company’s common stock and warrants to purchase 1,200,000 additional shares of the Company’s common stock.
As of the date of the Settlement Agreement, Broadway owned 2,973,000 shares of the Company’s common stock and was seeking re-issuance of warrants to purchase 1,200,000 shares of common stock, which had been cancelled when the Company terminated the Consulting Agreements. Pursuant to the terms of the Settlement Agreement, Broadway returned to the Company a total of 1,127,742 shares of the Company’s common stock and relinquished any claim on the previously cancelled 1,200,000 warrants. The return of these shares to the Company, paid a $50,000 promissory note, settled lock up violations and resolved any issues on the original issuance of the Company’s shares to Broadway. Broadway retained ownership of 1,845,258 shares of the Company’s common stock, all of which are subject to lock-up/leak-out provisions that prohibit Broadway from selling more than 2,600 Lock-Up Shares in any single day during the next 18 months (the “Lock-Up Period”) or more than 13,000 Lock-Up Shares in any single week during the Lock-Up Period. Broadway is required to submit weekly confirmations from the applicable financial institution verifying compliance with the lock-up and leak-out restrictions. In the event of any violation of the lock-up and leak out restrictions, Broadway has agreed to forfeit shares of common stock held in escrow on a one for one basis in the amount of Lock-Up Shares sold in violation of such restrictions. There are no restrictions on future share sales beyond the Lock-Up Period.
The Settlement Agreement provides the following additional terms:
·
A mutual release of all claims by the Company and Broadway against each other.
·
Broadway agreed that any obligations of the Company pursuant to the Consulting Agreement were terminated in all respects, including, but not limited to, the issuance of any warrants issued pursuant to the Consulting Agreements; provided, however, Broadway agreed that certain work for hire and other related obligations under the Consulting Agreements would survive.
·
Broadway agreed to return certain proprietary information of the Company and to certain confidentiality obligations regarding the Settlement Agreement and the Action, including Broadway and the Company’s agreement not to make any public statements that imply wrongdoing on the part of the other, although the Company may make statements when required under the Federal securities laws or where required by a court of competent jurisdiction.
·
Broadway also agreed to indemnify the Company for any claims relating to its ownership of the Company’s common stock and the Merger Agreement.
·
The Action was dismissed with prejudice.
In addition, in connection with this settlement, Anthony M. Santos, Esq., the attorney who wrote a previously disclosed demand letter to the Board of Directors on or about November 17, 2014, alleging certain breaches of fiduciary duties by the Company’s principals, has advised the Board of Directors in writing that the alleged issues are no longer a concern or have been otherwise addressed or resolved to the shareholders’ satisfaction. The letter served as a formal notice that a response is no longer necessary.
ITEM 1A. RISK FACTORSFACTORS.
N/AThere have been no material changes from risk factors previously reported in the Company's Form 10-K for December 31, 2014, as amended.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On May 1, 2014, 16,014February 24, 2015, the Company issued: (i) 10,000 restricted shares of Common Stock were issued to Davidoff Hutcher & Citron LLP, Company counsel,Larry Eggleston pursuant to an offer letter dated September 18, 2014 for legal services rendered.
On June 17, 2014, 96,000rendered, (ii) 63,887 restricted shares of Common Stock were issued to Alex Partners underDonald R. Kendall, Jr. as payment of expenses incurred from February through April 2015, and (iii) 400,000 shares of Series D Convertible Preferred Stock held by a Consulting Agreement dated June 10, 2014.third party and convertible solely in the event of a monetary default to TCA Global Credit Master Fund LP.
On June 17, 2014, 144,000March 9, 2015, the Company issued 200,000 restricted shares of Common Stock were issued to The Del Mar ConsultingJackson Investment Group LLC (“Jackson”) as a commitment fee under a Consultingloan made pursuant to a Note and Warrant Purchase Agreement dated JuneMarch 10, 2014.2015.
On June 17, 2014, 26,857 restricted shares of Common Stock were issued to Donald R. Kendall, Jr. under his employment contract in satisfaction of business expenses incurred.
All of theThe above shares were issued in transactions that were exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act based on the representations and warranties contained in their investment intent letters.letter and/or subscription agreements. No commissions were paid and no underwriter or placement agent was involved in these transactions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. MINE SAFETY DISCLOSURES
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS.
Exhibit |
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Number |
| Description of Exhibit | ||
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| 31.1 |
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| Section 302 Certification of Principal Executive Officer |
| 31.2 |
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| Section 302 Certification of Principal Financial Officer |
| 32.1 |
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| Section 906 Certification of Principal Executive Officer and Principal Financial Officer |
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.
| BLUE EARTH, INC. | ||||
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Date: | By: | /s/ Dr. Johnny R. Thomas | |||
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| Dr. Johnny R. Thomas | |||
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| Chief Executive Officer (Principal Executive Officer) | |||
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Date: | By: | /s/ Brett Woodard | |||
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| Brett Woodard | |||
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| Chief Financial Officer (Principal Financial and Accounting Officer) |
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