UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
Form 10-Q/A10-Q
(Mark One) |
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended |
OR |
|
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to _________
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 |
|
|
(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 accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer [X] | |||||
Non-accelerated filer [ ] |
| |||||
| 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 May 6,November 5, 2015 the issuer had 93,836,05894,960,586 outstanding shares of Common StockStock.
i
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-QA amends the Quarterly Report on Form 10-Q for the three months ended March 31, 2015 (the “Original Report”) of Blue Earth, Inc. (the “Company”), which was filed with the Securities and Exchange Commission on May 11, 2015. The Company is filing this amended Form 10-Q/A to present on a retroactive basis the effect of several Type 1 subsequent events including the resolution of certain litigation and the discontinuance of a significant component of its operations. This amendment is filed in accordance with Topic 13 of the Financial Reporting Manual of the Securities and Exchange Commission. The amended Form 10-Q/A also incorporates revisions to the notes and Management’s Discussion and Analysis as the result of the response to review comments from the Securities and Exchange Commission staff. The filing of this Form 10-Q/A shall not be deemed an admission that the Original Report, when made, included any untrue statement of a material fact or omitted to state a material fact necessary to make a statement not misleading.
ii
TABLE OF CONTENTS
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3 | |
3 | |
4 | |
5 | |
7 | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
|
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
|
| |
| |
| |
| |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
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| |
| |
| |
|
iii2
PART I
ITEM 1. FINANCIAL STATEMENTS
BLUE EARTH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
| March 31, |
| December 31, | ||||
| 2015 |
| 2014 | ||||
ASSETS | (restated) |
|
| ||||
| (unaudited) |
|
|
| |||
CURRENT ASSETS |
|
|
|
| |||
| Cash and cash equivalents | $ | 6,090,154 |
| $ | 2,883,621 | |
| Restricted cash |
| 632,258 |
|
| 632,102 | |
| Accounts receivable, net |
| 3,438,804 |
|
| 1,739,822 | |
| Costs and revenues in excess of billings |
| 552,930 |
|
| 3,967,207 | |
| Inventory, net |
| 521,858 |
|
| 352,862 | |
| Construction in progress |
| 71,128 |
|
| 68,213 | |
| Other receivables |
| 76,194 |
|
| 78,926 | |
| Prepaid expenses and deposits |
| 1,742,954 |
|
| 1,639,531 | |
|
| Total Current Assets |
| 13,126,280 |
|
| 11,362,284 |
|
|
|
|
|
| ||
PROPERTY AND EQUIPMENT, net |
| 63,881,481 |
|
| 56,815,626 | ||
|
|
|
|
|
| ||
OTHER ASSETS |
|
|
|
|
| ||
| Deposits |
| 71,544 |
|
| 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 | |
| Assets of discontinued operations |
| 1,103,059 |
|
| 1,221,631 | |
| Contracts and technology, net |
| 18,247,487 |
|
| 19,296,534 | |
|
| Total Other Assets |
| 32,625,827 |
|
| 33,965,836 |
|
| TOTAL ASSETS | $ | 109,633,588 |
| $ | 102,143,746 |
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
CURRENT LIABILITIES |
|
|
|
|
| ||
| Accounts payable | $ | 4,243,128 |
| $ | 3,933,969 | |
| Current portion of notes payable, net |
| 22,505 |
|
| 121,466 | |
| Related party payables |
| 1,333,147 |
|
| 1,333,147 | |
| Line of credit payable |
| 3,000,000 |
|
| - | |
| Convertible note payable |
| 8,026,072 |
|
| - | |
| Accrued expenses |
| 2,546,721 |
|
| 2,857,597 | |
| Payroll expenses payable |
| 261,243 |
|
| 167,780 | |
| Liabilities of discontinued operations |
| 495,629 |
|
| 354,665 | |
|
| Total Current Liabilities |
| 19,928,445 |
|
| 8,768,624 |
|
|
|
|
|
| ||
LONG TERM LIABILITIES |
|
|
|
|
| ||
| Long term portion of notes payable |
| - |
|
| - | |
|
| Total Liabilities |
| 19,928,445 |
|
| 8,768,624 |
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
|
|
| ||
|
|
|
|
|
| ||
STOCKHOLDERS' EQUITY |
|
|
|
|
| ||
| Preferred stock; 25,000,000 shares authorized |
|
|
|
|
| |
| at $0.001 par value, 400,000 and -0- shares issued |
|
|
|
|
| |
| and -0- and -0- shares outstanding, respectively |
| 400 |
|
| - | |
| Common stock; 500,000,000 shares authorized |
|
|
|
|
| |
| 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 |
| (101,185,952) |
|
| (94,879,069) | |
|
| Total Stockholders' Equity |
| 89,705,143 |
|
| 93,375,122 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 109,633,588 |
| $ | 102,143,746 |
The accompanying notes are an integral part of these consolidated financial statements.
1
BLUE EARTH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
| For the Three Months Ended | ||||||
| March 31, | ||||||
| 2015 |
| 2014 | ||||
| (restated) |
| (restated) | ||||
REVENUES | $ | 3,752,014 |
| $ | 1,879,168 | ||
COST OF SALES |
| 3,422,344 |
|
| 1,251,626 | ||
GROSS PROFIT |
| 329,670 |
|
| 627,542 | ||
|
|
|
|
|
| ||
OPERATNG EXPENSES |
|
|
|
|
| ||
| Depreciation and amortization |
| 1,081,579 |
|
| 948,820 | |
| General and administrative |
| 5,076,380 |
|
| 5,024,908 | |
|
|
|
|
|
| ||
|
| Total Operating Expenses |
| 6,157,959 |
|
| 5,973,728 |
|
|
|
|
|
| ||
LOSS FROM OPERATIONS |
| (5,828,289) |
|
| (5,346,186) | ||
|
|
|
|
|
| ||
OTHER INCOME (EXPENSE) |
|
|
|
|
| ||
| Other income |
| 940 |
|
| 940 | |
| Loss from equity investment |
| (227,560) |
|
| - | |
| Interest expense |
| (421,341) |
|
| (230,007) | |
| Mark futures to market |
| (166,271) |
|
| - | |
| Gain on sale of assets |
| 7,987 |
|
| 11,235 | |
| Gain on settlement of litigation |
| 989,778 |
|
| - | |
|
|
|
|
|
| ||
| TOTAL OTHER INCOME (EXPENSE) |
| 183,533 |
|
| (217,832) | |
|
|
|
|
|
| ||
LOSS BEFORE INCOME TAXES |
| (5,644,756) |
|
| (5,564,018) | ||
|
|
|
|
|
| ||
INCOME TAX EXPENSE |
| - |
|
| - | ||
|
|
|
|
|
| ||
LOSS FROM CONTINUING OPERATIONS |
| (5,644,756) |
|
| (5,564,018) | ||
|
|
|
|
|
| ||
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS, net of income taxes of $0 |
| - |
|
| - | ||
GAIN (LOSS) FROM DISCONTINUED OPERATIONS, net of income taxes of $0 |
| (662,127) |
|
| (122,442) | ||
|
|
|
|
|
| ||
NET LOSS |
| (6,306,883) |
|
| (5,686,460) | ||
|
|
|
|
|
| ||
PREFERRED DIVIDENDS |
| - |
|
| (392,888) | ||
|
|
|
|
|
| ||
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (6,306,883) |
| $ | (6,079,348) | ||
|
|
|
|
|
| ||
BASIC AND DILUTED LOSS PER SHARE | $ | (0.06) |
| $ | (0.09) | ||
|
| Continuing Operations |
|
|
|
|
|
|
| Discontinued Operations |
| (0.01) |
|
| (0.00) |
|
|
|
|
|
| ||
|
| Net Loss Per Share | $ | (0.07) |
| $ | (0.10) |
|
|
|
|
|
| ||
WEIGHTED AVERAGE NUMBER OF COMMON |
|
|
|
|
| ||
SHARES OUTSTANDING BASIC AND DILUTED |
| 94,311,979 |
|
| 61,928,226 |
The accompanying notes are an integral part of these consolidated financial statements.
2
BLUE EARTH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
| For the Three Months Ended | |||||||
| March 31, | |||||||
| 2015 |
| 2014 | |||||
| (restated) |
| (restated) | |||||
OPERATING ACTIVITIES |
|
|
|
|
| |||
| Net loss | $ | (6,306,883) |
| $ | (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 |
| 1,081,579 |
|
| 948,820 | |
|
| Amortization of debt discount |
| 279,254 |
|
| - | |
| Changes in operating assets and liabilities: |
|
|
|
|
| ||
|
| Accounts receivable and billings in excess |
| 1,884,942 |
|
| 427,138 | |
|
| Inventory |
| (168,996) |
|
| (9,689) | |
|
| Restricted cash |
| (156) |
|
| - | |
|
| Construction in progress |
| (371,955) |
|
| 184,302 | |
|
| Prepaid expenses and deposits |
| (291,770) |
|
| 162,507 | |
|
| Accounts payable and accrued expenses |
| 91,747 |
|
| 444,207 | |
|
|
|
|
|
| |||
|
|
| Net Cash Used in Operating Activities |
| (2,331,142) |
|
| (1,680,141) |
|
|
| Net Cash Provided by Discontinued Operating Activities |
| 264,448 |
|
| (1,072,270) |
|
|
|
|
|
| |||
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 |
| 2,911,700 |
|
| - | |
|
| Proceeds from notes payable |
| 9,953,068 |
|
| - | |
|
| Repayment of notes payable and line of credit |
| (98,962) |
|
| (435,498) | |
|
| Repayment of related party loans |
| - |
|
| (4,004) | |
|
|
|
|
|
| |||
|
|
| Net Cash Provided by Financing Activities |
| 12,765,806 |
|
| 661,355 |
|
|
| Net Cash (Used in) Discontinued Financing Activities |
| (4,910) |
|
| (3,212) |
|
|
|
|
|
| |||
NET INCREASE (DECREASE) IN CASH |
| 3,206,533 |
|
| (3,466,625) | |||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 2,883,621 |
|
| 8,373,380 | |||
|
|
|
|
|
| |||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 6,090,154 |
| $ | 4,906,755 |
| September 30, |
| December 31, | ||||
| 2015 |
| 2014 | ||||
ASSETS | (unaudited) |
|
| ||||
CURRENT ASSETS |
|
|
|
|
| ||
| Cash and cash equivalents | $ | 616,790 |
| $ | 2,883,621 | |
| Restricted cash |
| 20,032 |
|
| 632,102 | |
| Accounts receivable, net |
| 1,786,618 |
|
| 1,739,822 | |
| Revenues in excess of billings |
| 1,941,685 |
|
| 3,967,207 | |
| Inventory, net |
| 480,292 |
|
| 352,862 | |
| Construction in progress |
| 71,128 |
|
| 68,212 | |
| Other receivables, net |
| 91,273 |
|
| 78,926 | |
| Prepaid expenses and deposits |
| 1,601,349 |
|
| 1,639,531 | |
|
| Total Current Assets |
| 6,609,167 |
|
| 11,362,283 |
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, net |
| 67,231,291 |
|
| 56,815,626 | ||
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
| ||
| Deposits |
| 64,661 |
|
| 80,455 | |
| Natural gas futures |
| 1,323,123 |
|
| 2,426,266 | |
| Long term receivables |
| 1,264,433 |
|
| 1,587,548 | |
| Equity method investment |
| 7,777,435 |
|
| 9,353,402 | |
| Assets of discontinued operations |
| - |
|
| 1,221,632 | |
| Contracts and technology, net |
| 16,149,395 |
|
| 19,296,534 | |
|
| Total Other Assets |
| 26,579,047 |
|
| 33,965,837 |
|
|
|
|
|
| ||
|
| TOTAL ASSETS | $ | 100,419,505 |
| $ | 102,143,746 |
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
CURRENT LIABILITIES |
|
|
|
|
| ||
| Accounts payable | $ | 2,693,329 |
| $ | 3,933,969 | |
| Current portion of notes payable, net |
| 280,481 |
|
| 121,466 | |
| Related party payables |
| 1,333,147 |
|
| 1,333,147 | |
| Costs in Excess of Billings |
| 226,995 |
|
|
| |
| Line of credit payable |
| 2,368,280 |
|
| - | |
| Note payable |
| 10,600,000 |
|
| - | |
| Accrued expenses |
| 3,323,768 |
|
| 2,857,597 | |
| Payroll expenses payable |
| 202,706 |
|
| 167,780 | |
| Liabilities of discontinued operations |
| 402,992 |
|
| 354,665 | |
|
| Total Current Liabilities |
| 21,431,698 |
|
| 8,768,624 |
|
|
|
|
|
| ||
LONG TERM LIABILITIES |
|
|
|
|
| ||
| Long term portion of notes payable |
| - |
|
| - | |
|
| Total Liabilities |
| 21,431,698 |
|
| 8,768,624 |
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
|
|
| ||
|
|
|
|
|
| ||
STOCKHOLDERS' EQUITY |
|
|
|
|
| ||
| Preferred stock; 25,000,000 shares authorized at $0.001 par value, 400,000 and -0- shares issued and -0- and -0- shares outstanding, respectively |
| 400 |
|
| - | |
| Common stock; 500,000,000 shares authorized at $0.001 par value, 94,590,666 and 94,258,713 shares issued and outstanding, respectively |
| 94,593 |
|
| 94,259 | |
| Additional paid-in capital |
| 193,819,139 |
|
| 188,159,932 | |
| Minority Interest |
| 7,364 |
|
| - | |
| Accumulated deficit |
| (114,933,689) |
|
| (94,879,069) | |
|
| Total Stockholders' Equity |
| 78,987,807 |
|
| 93,375,122 |
|
|
|
|
|
| ||
|
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 100,419,505 |
| $ | 102,143,746 |
The accompanying notes are an integral part of these consolidated financial statements.
3
BLUE EARTH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)Operations
(unaudited)(Unaudited)
| 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 issued for debt | $ | 400 |
| $ | - |
|
| Debt discount and conversion feature attached to convertible debt | $ | 1,385,338 |
| $ | - |
| For the Three Months Ended |
| For the Nine Months Ended | ||||||||||
| September 30, |
| September 30, | ||||||||||
| 2015 |
| 2014 |
| 2015 |
| 2014 | ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||
REVENUES | $ | 3,285,997 |
| $ | 1,183,357 |
| $ | 10,614,411 |
| $ | 4,951,709 | ||
COST OF SALES |
| 2,412,262 |
|
| 1,497,395 |
|
| 9,043,473 |
|
| 4,318,637 | ||
GROSS PROFIT |
| 873,735 |
|
| (314,038) |
|
| 1,570,938 |
|
| 633,072 | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
OPERATNG EXPENSES |
|
|
|
|
|
|
|
|
|
|
| ||
| Depreciation and amortization |
| 1,233,939 |
|
| 1,077,187 |
|
| 3,390,664 |
|
| 3,102,945 | |
| General and administrative |
| 4,895,341 |
|
| 6,157,699 |
|
| 15,191,585 |
|
| 14,951,720 | |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Total Operating Expenses |
| 6,129,280 |
|
| 7,234,886 |
|
| 18,582,249 |
|
| 18,054,665 |
|
|
|
|
|
|
|
|
|
|
|
| ||
LOSS FROM OPERATIONS |
| (5,255,545) |
|
| (7,548,924) |
|
| (17,011,311) |
|
| (17,421,593) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
| ||
| Interest Income |
| 2,891 |
|
| 3,435 |
|
| 6,029 |
|
| 5,732 | |
| Other income |
| 13,723 |
|
| 1,278 |
|
| 26,076 |
|
| 15,315 | |
| Loss from equity investment |
| (683,917) |
|
| - |
|
| (1,975,967) |
|
| - | |
| Interest expense |
| (725,629) |
|
| (62,532) |
|
| (1,394,963) |
|
| (388,002) | |
| Mark futures to market |
| (925,704) |
|
| - |
|
| (1,103,143) |
|
| - | |
| Loss on Minority Interest |
| 136 |
|
| - |
|
| 136 |
|
| - | |
| Gain on Contract Settlements |
| 614,250 |
|
| - |
|
| 2,592,910 |
|
| - | |
|
|
|
|
|
|
|
|
|
|
|
| ||
| TOTAL OTHER INCOME (EXPENSE) |
| (1,704,250) |
|
| (57,819) |
|
| (1,848,922) |
|
| (366,955) | |
|
|
|
|
|
|
|
|
|
|
|
| ||
LOSS BEFORE INCOME TAXES |
| (6,959,795) |
|
| (7,606,743) |
|
| (18,860,233) |
|
| (17,788,548) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
INCOME TAX EXPENSE |
| - |
|
| - |
|
| - |
|
| - | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
LOSS FROM CONTINUING OPERATIONS |
| (6,959,795) |
|
| (7,606,743) |
|
| (18,860,233) |
|
| (17,788,548) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
LOSS FROM DISCONTINUED OPERATIONS, net of income taxes of $0 |
| (282,560) |
|
| (235,733) |
|
| (1,194,387) |
|
| (452,230) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
NET LOSS |
| (7,242,355) |
|
| (7,842,476) |
|
| (20,054,620) |
|
| (18,240,778) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
PREFERRED DIVIDENDS |
| - |
|
| (13,870) |
|
| - |
|
| (1,503,582) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (7,242,355) |
| $ | (7,856,346) |
| $ | (20,054,620) |
| $ | (19,744,360) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
BASIC AND DILUTED LOSS PER SHARE |
|
|
|
|
|
|
|
|
|
|
| ||
|
| Continuing Operations | $ | (0.07) |
| $ | (0.11) |
| $ | (0.20) |
| $ | (0.23) |
|
| Discontinued Operations |
| (0.00) |
|
| (0.00) |
|
| (0.01) |
|
| (0.01) |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Net Loss Per Share | $ | (0.08) |
| $ | (0.12) |
| $ | (0.21) |
| $ | (0.24) |
|
|
|
|
|
|
|
|
|
|
|
| ||
WEIGHTED AVERAGE NUMBER OF COMMON |
|
|
|
|
|
|
|
|
|
|
| ||
SHARES OUTSTANDING BASIC AND DILUTED |
| 94,311,454 |
|
| 67,806,050 |
|
| 93,954,010 |
|
| 75,557,564 |
The accompanying notes are an integral part of these consolidated financial statements.
4
BLUE EARTH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
| For the Nine Months Ended | |||||||
| September 30, | |||||||
| 2015 |
| 2014 | |||||
|
|
|
|
|
| |||
OPERATING ACTIVITIES |
|
|
|
|
| |||
| Net loss | $ | (20,054,620) |
| $ | (18,240,778) | ||
| Adjustments to reconcile net loss to net cash |
|
|
|
|
| ||
| used in operating activities: |
|
|
|
|
| ||
|
| Stock options and stock warrants issued for services |
| 3,063,082 |
|
| 2,682,987 | |
|
| Impairment of Inventory |
| - |
|
| 299,573 | |
|
| Loss on equity subsidiary |
| 1,975,967 |
|
| - | |
|
| Impairment of construction in progress |
| 369,039 |
|
| - | |
|
| Loss on Minority Interest |
| (136) |
|
| - | |
|
| Mark gas futures to market |
| 1,103,143 |
|
| - | |
|
| (Gain) on settlement of litigation |
| (2,592,910) |
|
| - | |
|
| (Gain) on sale of assets |
| (9,470) |
|
| (15,315) | |
|
| Stock issued for services |
| 1,175,243 |
|
| 1,400,714 | |
|
| Depreciation and amortization |
| 3,390,664 |
|
| 3,102,945 | |
|
| Amortization of debt discount |
| 2,512,653 |
|
| - | |
| Changes in operating assets and liabilities: |
|
|
|
|
| ||
|
| Accounts receivable and billings in excess |
| 2,866,846 |
|
| 1,687,672 | |
|
| Inventory |
| (37,655) |
|
| 10,739 | |
|
| Restricted cash |
| 612,071 |
|
| (881,942) | |
|
| Construction in progress |
| (371,955) |
|
| 2,175,452 | |
|
| Prepaid expenses and deposits |
| (100,609) |
|
| 170,314 | |
|
| Accounts payable and accrued expenses |
| (386,840) |
|
| (380,559) | |
|
|
|
|
|
| |||
|
|
| Net Cash Used in Operating Activities |
| (6,485,487) |
|
| (7,988,198) |
|
|
| Net Cash Provided by Discontinued Operating Activities |
| 457,694 |
|
| (58,159) |
|
|
|
|
|
| |||
INVESTING ACTIVITIES |
|
|
|
|
| |||
|
| Collection of other receivables |
| (12,347) |
|
| - | |
|
| Proceeds from sale of equipment |
| 9,470 |
|
| - | |
|
| Purchase of equity method investment |
| (400,000) |
|
| (422,993) | |
|
| Lending of other receivables |
| - |
|
| 90,548 | |
|
| Purchase of property and equipment |
| (10,737,867) |
|
| (7,314,299) | |
|
|
|
|
|
| |||
|
|
| Net Cash Used in Investing Activities |
| (11,140,744) |
|
| (7,646,744) |
|
|
| Net Cash Used in Discontinued Investing Activities |
| 812,391 |
|
| 175,647 |
|
|
|
|
|
| |||
FINANCING ACTIVITIES |
|
|
|
|
| |||
|
| Proceeds from common stock warrants and options exercised |
| - |
|
| 12,565,876 | |
|
| Cash received on stock subscriptions |
| 2,037,835 |
|
| - | |
|
| Proceeds from Minority Interest |
| 7,500 |
|
| 1,600,119 | |
|
| Stock Offering Costs |
| (170,000) |
|
| - | |
|
| Proceeds from line of credit |
| 2,911,700 |
|
| 96,884 | |
|
| Proceeds from notes payable |
| 9,953,068 |
|
| 311,407 | |
|
| Repayment of notes payable and line of credit |
| (543,420) |
|
| (1,846,706) | |
|
| Repayment of related party loans |
| - |
|
| (4,004) | |
|
|
|
|
|
| |||
|
|
| Net Cash Provided by Financing Activities |
| 14,196,683 |
|
| 12,723,576 |
|
|
| Net Cash (Used in) Discontinued Financing Activities |
| (107,368) |
|
| (118,180) |
|
|
|
|
|
| |||
NET INCREASE (DECREASE) IN CASH |
| (2,266,831) |
|
| (2,912,058) | |||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 2,883,621 |
|
| 8,403,731 | |||
|
|
|
|
|
| |||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 616,790 |
| $ | 5,491,673 |
The accompanying notes are an integral part of these consolidated financial statements.
5
BLUE EARTH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(unaudited)
| For the Nine Months Ended | ||||||
| September 30, | ||||||
| 2015 |
| 2014 | ||||
|
|
|
|
|
| ||
SUPPLEMENTAL DISCLOSURES OF |
|
|
|
|
| ||
| CASH FLOW INFORMATION |
|
|
|
|
| |
|
|
|
|
|
| ||
| CASH PAID FOR: |
|
|
|
|
| |
|
| Interest | $ | 157,277 |
| $ | 124,584 |
|
| Income taxes |
| - |
|
| - |
|
|
|
|
|
| ||
| NON CASH FINANCING ACTIVITIES: |
|
|
|
|
| |
|
| Common stock issued upon conversion of preferred stock | $ | - |
| $ | 333,128 |
|
| Common stock cancelled for settlement of litigation | $ | (2,028,658) |
| $ | - |
|
| Common stock issued for acquisition of subsidiaries | $ | - |
| $ | 4,602,500 |
|
| Common stock issued for equity method investment | $ | - |
| $ | - |
|
| Common stock issued for equipment | $ | - |
| $ | 137,693 |
|
| Interest reclassification to notes payable | $ | 600,000 |
| $ | - |
|
| Preferred issued for debt | $ | 400 |
| $ | - |
|
| Debt discount and conversion feature attached to convertible debt | $ | 1,970,691 |
| $ | - |
|
| Debt issuance costs paid by stock | $ | 226,000 |
| $ | - |
The accompanying notes are an integral part of these consolidated financial statements.
46
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 March 31,September 30, 2015 and 2014, 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, 2014 audited financial statements, as amended. The results of operations for the periods ended March 31,September 30, 2015 and 2014 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 March 31,September 30, 2015 consists of battery andbatteries, battery components, at costsand refrigeration components of $521,858.$480,292. The inventory is valued net of an allowance of $6,188$9,798 as of March 31,September 30, 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.
Revenue Recognition
Construction Revenues: Revenue from certain long-term, integrated project management contracts to provide solar and CHP construction and completion services is reported on the percentage-of-completion method of accounting. Progress is generally based upon physical progress related to contractually defined units of work. At the outset of each contract, we prepare a detailed analysis of our estimated cost to complete the project. Risks related to service delivery, usage, productivity, and other factors are considered in the estimation process. The recording of profits and losses on long-term contracts requires an estimate of the total profit or loss over the life of each contract. This estimate requires consideration of total contract value, change orders, and claims, less costs incurred and estimated costs to complete. Anticipated losses on contracts are recorded in full in the period in which they become evident. Profits are recorded based upon the total estimated contract profit times the current percentage complete for the contract.
Service Contracts: Revenue from service contracts is recognized once the Company has established that (i) there is evidence of an arrangement, (ii) delivery has occurred and the performance obligation is substantially complete; (iii) the fee is fixed or determinable and (iv) collection is probable.
Product Sales: Product sales revenues are recognized revenues when: (i) persuasive evidence of a sales arrangement exists, (ii) the sales terms are fixed and determinable, (iii) title and risk of loss have transferred, and (iv) collectability is reasonably assured . Generally customers are invoiced upon delivery, installation and acceptance of the product by the customer.
Power Generation Sales: Power Generation sales from the Company’s CHP projects will commence and be recognized when the CHP facility is substantially ready for its intended use and will be recognized using the Long-term Power Sales Contract method. The Company is not a ultility, but provides many of the same services as entities with regulated operations. The Company will recognize revenue in each period using a formula-based pricing arrangement described in its contracts based on power delivered.
7
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Capitalization of Construction Period Interest
The Company capitalizes construction period interest as required under ASC 835-20. Both directly attributable borrowing costs and borrowing costs from a general fund are required to be capitalized. Until March 2015, the Company had no material interest expense. During March 2015, the Company borrowed $13,000,000, in part, to fund the construction of its CHP projects. The $13,000,000 consisted of a $10,000,000 Senior Convertible note and a $3,000,000 line of credit. The convertible note payable and the credit line payable accrue interest at 12% per annum. . In September 2015, the Company refinanced the $10,000,000 Senior Convertible note with a $10,600,000 Note Purchase Agreement. The Note Purchase Agreement accrues interest at 15% per annum. The Company will capitalize the appropriate interest cost in accordance with ASC 835-20-25-8 through the completion of the construction of each project. The Company capitalized interest of $2,175,792 during the nine months ended September 30, 2015.
NOTE 3 - SIGNIFICANT EVENTS
Settlement of Litigation and Contract Disputes
The Company received 1,127,7422,190,484 shares of its common stock in settlement of litigation and other disputes valued at $0.922$0.926 per share. As part of the settlement the Company forgave a $50,000 note receivable resultingreceivable. . The Company also received 675,000 shares in asettlement of contract disputes valued at $0.91 per share. The total gain on settlement of litigationdisputes was $2,592,910. On August 8, 2015, the Company and two consultants received the award from the arbitrator in the Company's arbitration with two of $989,778.its consultants/former employees, who had voluntarily resigned. The arbitrator awarded the two consultants damages of $1,270,000; $101,243 for breach of contract; certain declaratory relief upholding the validity of the consulting agreement; and reimbursement of the consultants' attorney's fees and costs incurred in the arbitration of $341,375. On August 30, 2015, the Company and Hawaii Solar, LLC and National Energy Partners, LLC entered into a settlement agreement. The Company will pay NEP $826,000 to settle and compromise the claims and controversies between the Company and NEP and to terminate the Xnergy Action, the DOE Action and the DPR Arbitration. Of the $826,000, 369,318 shares of common stock were issued for $325,000.
Common Stock Transactions
During the threenine months ended March 31,September 30, 2015, the Company issued 73,887605,770 common shares for services valued at $94,653.$560,990. The Company also issued 200,000 common shares for debt issuance costs valued at $226,000. The Company cancelled the 1,127,7422,190,484 shares of its common stock it received in settlement of litigation. The Company issued a stock subscription of $2,000,000 for 1,666,667 shares of its common stock and for warrants to purchase an additional 833,334 shares of common stock for $1.60 per share, subsequently reduced to $0.20 per share. The warrants are exercisable beginning six months from the issuance date and ending 5 years after they become exercisable. The Company issued a stock subscription of $37,785 for 50,000 shares of its common stock for $0.75 per share to its CEO.
Credit Line Payable
During the threenine months ended March 31,September 30, 2015, the Company borrowed $3,000,000 on the line of credit. The line of credit is for up to $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 the Sumter Heat and Power CHP plant and the Melga 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
The related party notes payable, totaling $1,333,147, are due on demand, accrue interest at 12% per annum and are unsecured.
58
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 3 - SIGNIFICANT EVENTS (continued)(CONTINUED)
CHP Plant EnergizedSumter SC
On March 30, 2015 the Company energized its initial combinedElectricity and thermal heat and power (“CHP”) energy plant at a poultry processing facility in Sumter, South Carolina. The Company owns and operates the energy plant which provides combined heat and power (CHP) solutions. Electricity is being generated and the thermal heatrevenue from the 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 borrowed $10,000,000 on a convertible note payable. The note payable was convertible into shares of the Company’s common stock at $1.02 per share, as amended. The convertible note payable accrued interest at 12% per annum and was due on September 10, 2015. The convertible note payable is secured by all the assets of the company except for the Sumter Heat and Power CHP plant and the Melga Solar Project and is also guaranteed by each of the Company’s Subsidiaries, other than the two just mentioned. The Company received net proceeds of $9,953,068 after closing costs. The $46,932 in legal fees withheldrealized the first revenues 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 making the loan valued at $226,000. The lender also received 2,000,000 warrants to purchase shares of the Company’s common stock at $1.02 per share, as amended. 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 $1.02 per share, as amended, 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 was $649,091. The value was computed using the Black-Scholes formula with a 1 year maturity, .25% risk free rate, a 87.06% volatility and a 5% probability of exercise. The total discount on the convertible note payable of $2,196,691 is being amortized over the 6 month term of the debt. The Company recorded $222,763 of interest expense from the amortization of the discountCHP during the quarter ended March 31,June 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 of its payment obligations under the terms of the line of credit, a block of the Series D preferred shares would be released and converted into common shares in accordance the formula provided in the line of credit agreement. The sufficient common shares would be sold by the lender to cure the default. Upon the repayment of the line of credit the Series D preferred stock will be returned to the Company and cancelledcancelled. The Series D preferred shares are convertible into the Company’s common stock by dividing the amount of any payment under a monetary default by the average closing price of the Company’s common stock for 10 business days immediately prior to a conversion, but in no event to exceed 2,500,000 shares until first obtaining shareholder approval.
Related Party Notes Payable
The related party notes payable, totaling $1,333,147, are due on demand, accrue interest at 12% per annum and secured by the proceeds of the Company’s Sun Valley projects.
Convertible Note Payable and Note Payable
During the nine months ended September 30, 2015, the Company borrowed $10,000,000 on a Senior Convertible note payable to Jackson Investment Group, LLC (“Jackson”.) The note payable was convertible into shares of the Company’s common stock at $1.00 per share. However, on May 13, 2015, the convertible note payable was amended to increase the conversion price to $1.02 per share. The convertible note payable accrued interest at 12% per annum and was due on September 10, 2015. The convertible note payable was secured by all the assets of the Company except for the Sumter Heat and Power CHP plant and the Melga Solar Project and is also guaranteed by each of the Company’s Subsidiaries, other than the two just mentioned. 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 were amortized over the 6 month term of the convertible note payable.
The lender received 200,000 shares of common stock valued at $226,000 as consideration for making the loan. The lender also received 2,000,000 warrants to purchase shares of the Company’s common stock at $1.02 per share (amended from $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 option (‘the Option”) to purchase shares of the Company’s common stock at $1.02 per share (amended from $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 was $649,091. The value was computed using the Black-Scholes formula with a 1 year maturity, .25% risk free rate, a 87.06% volatility and a 5% probability of exercise. The total discount on the convertible note payable of $2,196,691 is being amortized over the 6 month term of the debt.
The $10 million Senior Convertible note was paid on September 10, 2015. On September 10, 2015, the Company entered into a Note Purchase Agreement (the “Purchase Agreement”) pursuant to which a 15% senior secured note (the “September Note”) in the principal amount of $10,600,000 was issued, due February 29, 2016 to Jackson. The September Note was issued to repay and refinance in full the 12% senior secured convertible note due September 10, 2015 and issued on March 10, 2015 (the “March Note”), including $600,000 of accrued interest under the March Note. The September Note was issued solely as a result of unexpected construction delays outside of the parties' control at the Brooks Heat & Power CHP facility being constructed and is still collateralized by all of the assets of the Company and guaranteed by the Company's Subsidiaries, except as noted above.
69
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 3 - SIGNIFICANT EVENTS (CONTINUED)
Neither the September Note, nor interest accrued thereon, is convertible into shares of the common stock of the Company. The 2,000,000 stock purchase warrants granted to Jackson by the Company on March 10, 2015 remain unchanged and are exercisable until March 10, 2020. The Option granted to Jackson on March 10, 2015 remains unchanged and is exercisable until March 10, 2016
NOTE 4 - STOCK PURCHASE WARRANTS AND OPTIONS
A summary of the Company’s warrant activity during the periods ended March 31,September 30, 2015 and December 31, 2014 is presented below:
|
|
|
|
| Weighted |
|
| |||||||||||||
|
|
| Weighted |
| Average |
|
| |||||||||||||
|
|
| 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, 2013 | 22,660,668 |
| $ | 1.90 |
|
| 6.52 |
| $ | 43,055,269 | 22,660,668 |
| $ | 1.9 |
| 6.52 |
| $ | 43,055,269 | |
Granted | 200,000 |
| $ | 0.00 |
|
| 10.00 |
|
| 200,000 |
| $ | 0 |
| 10 |
| ||||
Granted | 100,000 |
| $ | 1.00 |
|
| 10.00 |
|
| 100,000 |
| $ | 1 |
| 10 |
| ||||
Granted | 8,521,654 |
| $ | 6.00 |
|
| 3.00 |
|
| 8,521,654 |
| $ | 6 |
| 3 |
| ||||
Cancelled | (3,600,000) |
| $ | (1.18) |
|
| -- |
|
| (3,600,000) |
| $ | (1.18) |
| -- |
| ||||
Forfeited | (1,472,060) |
| $ | (1.90) |
|
| -- |
|
| (1,472,060) |
| $ | (1.90) |
| -- |
| ||||
Exercised | (9,778,344) |
| $ | (1.60) |
|
| -- |
|
| (9,778,344) |
| $ | (1.60) |
| -- |
| ||||
Balance Outstanding, December 31, 2014 | 16,631,918 |
| $ | 3.80 |
|
| 5.29 |
| $ | 53,353,862 | 16,631,918 |
| $ | 3.8 |
| 5.29 |
| $ | 53,353,862 | |
Granted | 2,000,000 |
| $ | 1.00 |
|
| 5.00 |
|
| 2,000,000 |
| $ | 1 |
| 5 |
| ||||
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 | ||||||||||
Granted | 300,000 |
| $ | 1.08 |
| 5 |
| |||||||||||||
Granted | 833,334 |
| $ | 1.6 |
| 5 |
| |||||||||||||
Granted | 250,000 |
| $ | 1.02 |
| 10 |
| |||||||||||||
Forfeited | (1,200,000) |
| $ | (2.15) |
| -- |
| |||||||||||||
Balance Outstanding, September 30, 2015 | 18,815,252 |
| $ | 3.12 |
| 4.41 |
| $ | 62,425,196 | |||||||||||
Exercisable, September 30, 2015 | 16,553,347 |
| $ | 3.39 |
| 3.94 |
| $ | 56,138,433 |
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 |
710
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 4 - STOCK PURCHASE WARRANTS AND OPTIONS (CONTINUED)
A summary of the Company’s option activity during the periods ended September 30, 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 |
|
| 10 |
|
|
|
Granted |
| 150,000 |
| $ | 3 |
|
| 10 |
|
|
|
Granted |
| 120,000 |
| $ | 2.45 |
|
| 10 |
|
|
|
Granted |
| 60,000 |
| $ | 2.27 |
|
| 10 |
|
|
|
Granted |
| 105,000 |
| $ | 3.1 |
|
| 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 |
| $ | 1.2 |
|
| 10 |
|
|
|
Granted |
| 100,000 |
| $ | 1.01 |
|
| 10 |
|
|
|
Granted |
| 12,500 |
| $ | 1.21 |
|
| 10 |
|
|
|
Granted |
| 5,000 |
| $ | 0.98 |
|
| 10 |
|
|
|
Granted |
| 15,000 |
| $ | 0.97 |
|
| 10 |
|
|
|
Granted |
| 7,500 |
| $ | 0.9 |
|
| 10 |
|
|
|
Granted |
| 5,000 |
| $ | 0.92 |
|
| 10 |
|
|
|
Granted |
| 35,000 |
| $ | 1.11 |
|
| 10 |
|
|
|
Granted |
| 74,000 |
| $ | 1.15 |
|
| 10 |
|
|
|
Granted |
| 440,000 |
| $ | 0.87 |
|
| 10 |
|
|
|
Granted |
| 240,000 |
| $ | 0.76 |
|
| 10 |
|
|
|
Granted |
| 500,000 |
| $ | 1.00 |
|
| 10 |
|
|
|
Granted |
| 1,000,000 |
| $ | 2.00 |
|
| 10 |
|
|
|
Granted |
| 1,000,000 |
| $ | 3.00 |
|
| 10 |
|
|
|
Granted |
| 1,000,000 |
| $ | 4.00 |
|
| 10 |
|
|
|
Granted |
| 400,000 |
| $ | 3.00 |
|
| 10 |
|
|
|
Forfeited |
| (959,061) |
| $ | 2.24 |
|
| -- |
|
|
|
Balance Outstanding, September 30, 2015 |
| 6,501,806 |
| $ | 2.59 |
|
| 8.41 |
| $ | 16,869,339 |
Exercisable, September 30, 2015 |
| 1,678,065 |
| $ | 1.93 |
|
| 8.01 |
|
| $3,240,631 |
11
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The 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 own 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,September 30, 2015 and December 31, 2014. The estimated fair value of certain financial instruments, including cash and cash equivalents and current liabilities, are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
Assets:
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$1,103,143and $-0- for the threenine months ended March 31,September 30, 2015 and 2014, respectively, on the value of contracts.
Assets measured at fair value on a recurring and non-recurring basis consisted of the following at March 31,September 30, 2015:
Liabilities: |
|
| Total Carrying Value at March 31, 2015 |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) | ||||||||||||
Assets: |
|
| Total Carrying Value at September 30, 2015 |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) | ||||||||||||
Natural gas futures |
| $ | 2,259,995 |
| $ | 2,259,995 |
| $ | - |
| $ | - |
| $ | 1,323,123 |
| $ | 1,312,123 |
| $ | - |
| $ | - |
The following is a summary of activity of Level 1 assets for the periods ended March 31,September 30, 2015 and 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 |
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 |
|
| 1,103,143 |
Balance at September 30, 2015 |
| $ | 1,323,123 |
812
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 6 - PROPERTY AND EQUIPMENT
The major classes of assets as of March 31,September 30, 2015 and December 31, 2014 are as follows:
|
| March 31, 2015 |
|
| December 31, 2014 |
|
| September 30, 2015 |
|
| December 31, 2014 | |
Office and computer equipment |
| $ | 343,915 |
| $ | 327,023 |
| $ | 360,369 |
| $ | 327,023 |
Software |
|
| 91,256 |
|
| 91,256 |
|
| 99,877 |
|
| 91,256 |
Manufacturing and installation equipment |
|
| 455,150 |
|
| 442,450 |
|
| 456,164 |
|
| 442,450 |
Leasehold improvements |
|
| 759,304 |
|
| 759,304 |
|
| - |
|
| 759,304 |
Cogeneration plants (under construction) |
|
| 63,091,360 |
|
| 56,022,580 | ||||||
Cogeneration plants |
|
| 67,076,627 |
|
| 56,022,580 | ||||||
Vehicles |
|
| - |
|
| - | ||||||
Sub Total |
|
| 64,740,985 |
|
| 57,642,613 |
|
| 67,993,037 |
|
| 57,642,613 |
Accumulated Depreciation |
|
| (859,504) |
|
| (826,987) | ||||||
Accumulated depreciation |
|
| (761,746 |
|
| (826,987 | ||||||
Net |
| $ | 63,881,481 |
| $ | 56,815,626 |
| $ | 67,231,291 |
| $ | 56,815,626 |
Depreciation expense was $32,543$243,527 and $27,622,$83,655, for the threenine months ended March 31,September 30, 2015 and 2014, respectively. Approximately $64,740,985$67,652,331 of the Company’s property and equipment serves as security against its long-term debt. Depreciation of the cogeneration plants will commencecommenced when the plants areSumter plant was placed in service during the second quarter of 2015. Depreciation on additional plants will commence when they are placed in service.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Equipment Purchase Commitments
The Company has entered into equipment purchase agreements whereby it has committed to paying approximately $19,629,081 for electrical co-generation equipment. The Company has made deposits of approximately $8,079,699 (41% of the total commitment) toward the purchase of the equipment which is included in construction in progress-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.
Arbitrations
During 2014, the Company and two consultants filed demands for arbitration with the American Arbitration Association. On August 8, 2015, the Company and two consultants received the award from the arbitrator in the Company's arbitration with two of its consultants/former employees, who had voluntarily resigned. The arbitrator awarded the two consultants damages of $1,270,000; $101,243 for breach of contract; certain declaratory relief upholding the validity of the consulting agreement; and reimbursement of the consultants' attorney's fees and costs incurred in the arbitration of $341,375. The award is a Type 1 subsequent event accordingly the Company’s financial statements are restated to reflect the award on a retroactive basis.
During 2014 the Company filed a demand for arbitration with the American Arbitration Association and National Energy Partners LLC (“NEP”) and its subsidiary, Hawaii Solar LLC (“HS”) counterclaimed. The Company subsequently initiated two actions in the First Circuit Court of the State of Hawaii, the first titled Xnergy and Blue Earth, Inc. vs. Hawaii Solar, LLC. National Energy Partners, LLC, et al., Civil No. M-1-1694-08 (JHC) (the “Xnergy Action’) and the second titled Blue Earth Solar, Inc. vs. State of Hawaii, Department of Education, et al.(the (the “DOE Action”.). The parties agreed to attempt to resolve their dispute through arbitration administered by Dispute Prevention and Resolution (“DPR Arbitration”). On August 30, 2015, the parties to the above Xnergy Action, DOE Action and DPR Arbitration entered into a Settlement Agreement and Release and a Lock-Up/Leak-Out Agreement conditioned upon subsequent Board of Directors approval by the Company which was obtained on September 3, 2015. The Settlement Agreement provides for the Company to: (a) pay $500,000 to HS (a portion of which will be paid by the Company’s insurance carrier), and (b) issue shares valued at $325,000 at a price of $0.88 per share to be registered with the SEC within sixty (60) days of the issuance of the shares.shares, and (c) pay $1000 in attorney fees. Pursuant to the terms and conditions of the Lock-Up/Leak-Out Agreement, all shares will be restricted for six (6) months, unless registered sooner and upon registration or expiration of the six-month period, seller may sell up to 10,000 shares per day and 50,000 shares per week on a non-cumulative basis.
9
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (continued)
The parties exchanged mutual releases and will dismiss all claims upon payment to HS. The settlement is a Type 1 subsequent event accordingly the Company’s financial statements are restated to reflect the award on a retroactive basis.
13
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Equipment Purchase Commitments
The Company has entered into equipment purchase agreements whereby it has committed to paying approximately $20,928,229 for electrical co-generation equipment. The Company has made deposits of approximately $14,659,149 (70% of the total commitment) toward the purchase of the equipment which is included in construction in progress-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 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’sPlaintiff'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, 2105,2015, plaintiff filed a First Amended Complaint (“FAC”("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’sCompany's stock during the period from October 7, 2013 through October 21, 2014. Defendants responded and filed a motion to dismiss FAC. Plaintiff’s oppositionFAC on May 4, 2015. On November 4, 2015, the Court dismissed all of the claims in the complaint. The Court has given plaintiff leave to amend the motion has been submitted and Defendants have submitted a reply to the opposition. Oral arguments regarding the motion to dismiss are scheduled for Octobercomplaint by November 30, 2015. The Company believes the claims contained in the FACcomplaint are without merit and is vigorously defending thethis matter.
On August 31, 2015, a derivative lawsuit was filed in Nevada state court, captioned Powell v. Cagan, et al., No. A-15-723839-C (8th Judicial District Court, Clark County, Nevada). The named plaintiff in the case is not related to G. Robert Powell, the Company’s current CEO. It names as defendants Brett Woodard, Johnny R. Thomas, John C. Francis, and the entire Board of Directors. It also names the Company as a nominal defendant. The complaint brings claims for breaches of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets, from October 2013 to the present based on directors and management allegedly allowing the companyCompany to make false and misleading statements to the public, thereby resulting in a class action lawsuit and exposing the Companycompany to damages. The defendants have not yet been served. The Company believes the claims contained in the complaint are without merit and will vigorously defend this matter.
NOTE 8 - DISCONTINUED OPERATIONS
During April 2015, the Company’s Board of Directors determined to focus the Company’s financial resources on its business units that are scalable. Accordingly the Board of Directors decided to discontinue the Blue Earth Energy Management Services, Inc. (BEEMS) subsidiary. The decision was to sell any parts of BEEMS for which a buyer could be found and to shut down those parts that were not salable. On May 22, 2015, the Company entered into an Asset Purchase Agreement (the Agreement) for the website component of BEEMS. Pursuant to the Agreement, the buyers purchased from the Company, the website, the related inventory and certain intangible assets for cash of $450,000 and $125,000 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 BEEMS as discontinued. On July 31, 2015, the Company entered into an Asset Purchase Agreement (APA) for the service component of BEEMS. Pursuant to the APA, the buyers purchased the service vehicles, service assets and contracts and related inventory for cash of $216,711 plus a two-year earn-out agreement for up to an additional $250,000.
14
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 8 - DISCONTINUED OPERATIONS (CONTINUED)
The following is a summary of the Discontinued Operations:
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | |||||||||
|
| 2015 |
| 2014 |
| 2015 |
|
| 2014 | ||||
Revenues |
| $ | 274,435 |
| $ | 1,494,822 |
| $ | 3,501,974 |
|
| $ | 4,521,258 |
Cost of Sale |
|
| (204,007) |
|
| (478,004) |
|
| (1,539,811) |
|
|
| (1,572,119) |
Depreciation & Amortization |
|
| (3,677) |
|
| (7,018) |
|
| (24,829) |
|
|
| (17,820) |
General & Admin |
|
| (346,643) |
|
| (1,239,390) |
|
| (3,115,330) |
|
|
| (3,364,995) |
Other Income |
|
| (2,668) |
|
| (6,143) |
|
| (16,391) |
|
|
| (18,554) |
Discontinued Operations |
| $ | (282,560) |
| $ | (235,733) |
| $ | (1,194,387) |
|
| $ | (452,230) |
NOTE 89 - 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 principalsegmented its business into three operating segments: (1) Technology which includes sales of the battery technology and the RTI edge device; (2) Construction which includes the sales of projects for which the Company performs the engineering, procurement, construction and/or management of energythe projects; and (3) Power Generation which includes power revenue generated from facilities owned and operated by third parties. During the second quarter of 2015, a third segment will be introduced when energy is produced fromCompany and O&M maintenance and service on both facilities builtowned and not owned by the Company. These operating segments were delineated based on the nature of the products and services offered.
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. No restatement of prior period operating segments is necessary. The following tables show the operations of the Company’s reportable segments for the threenine months ended March 31,September 30, 2015 and 2014:
|
| Technology |
| Construction |
| Corporate |
| Consolidated | ||||
March 31, 2015 |
|
|
|
|
|
|
|
|
| |||
Revenues |
| $ | 53,853 |
| $ | 3,698,161 |
| $ | -- |
| $ | 3,752,014 |
Cost of sales |
|
| 43,760 |
|
| 3,378,584 |
|
| -- |
|
| 3,422,334 |
Depreciation and amortization |
|
| 347,587 |
|
| 472,079 |
|
| 261,913 |
|
| 1,081,579 |
General and administrative |
|
| 662,887 |
|
| 1,504,472 |
|
| 2,909,020 |
|
| 5,076,380 |
Other income (expense) |
|
| -- |
|
| 7,537 |
|
| 175,996 |
|
| 183,533 |
(Loss) continued operations |
| $ | (1,000,381) |
| $ | (1,649,438) |
| $ | (2,994,937) |
| $ | (5,644,756) |
Total assets |
| $ | 2,278,206 |
| $ | 93,966,137 |
| $ | 13,984,245 |
| $ | 109,633,588 |
|
|
|
|
|
|
|
|
| Power |
|
|
|
|
|
| Technology |
|
| Construction |
|
| Generation |
|
| Consolidated |
September 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 699,591 |
| $ | 8,940,319 |
| $ | 974,501 |
| $ | 10,614,411 |
Cost of Sales |
|
| 441,901 |
|
| 8,189,652 |
|
| 411,920 |
|
| 9,043,473 |
Gross Profit |
| $ | 257,690 |
| $ | 750,667 |
| $ | 562,581 |
| $ | 1,570,938 |
Total assets |
| $ | 1,676,821 |
| $ | 29,626,921 |
| $ | 24,180,332 |
| $ | 100,419,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Power |
|
|
|
|
|
| Technology |
|
| Construction |
|
| Generation |
|
| Consolidated |
September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 749,985 |
| $ | 4,201,724 |
| $ |
|
| $ | 4,951,709 |
Cost of Sales |
|
| 511,624 |
|
| 3,807,013 |
|
|
|
|
| 4,318,637 |
Gross Profit |
| $ | 238,361 |
| $ | 394,711 |
| $ | - |
| $ | 633,072 |
Total assets |
| $ | 2,024,754 |
| $ | 12,203,487 |
| $ | - |
| $ | 89,166,292 |
1015
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 810 - OPERATING SEGMENTS (continued)INVESTMENT IN EQUITY SUBSIDIARY
|
| Technology |
| Construction |
| Corporate |
| Consolidated | ||||
March 31, 2014 |
|
|
|
|
|
|
|
|
| |||
Revenues |
| $ | 52,859 |
| $ | 1,826,309 |
| $ | -- |
| $ | 1,879,168 |
Cost of sales |
|
| 50,218 |
|
| 1,201,408 |
|
| -- |
|
| 1,251,626 |
Depreciation and amortization |
|
| 127,206 |
|
| 469,065 |
|
| 352,549 |
|
| 948,820 |
General and administrative |
|
| 295,049 |
|
| 972,515 |
|
| 3,757,344 |
|
| 5,024,908 |
Other income (expense) |
|
| (53,563) |
|
| 61,309 |
|
| (225,578) |
|
| (217,832) |
(Loss) continued operations |
| $ | (473,177) |
| $ | (755,370) |
| $ | (4,335,471) |
| $ | (5,564,018) |
Total assets |
| $ | 1,033,867 |
| $ | 7,216,209 |
| $ | 79,942,616 |
| $ | 88,192,692 |
NOTE 9 - RESTATED FINANCIAL STATEMENTSOn October 30, 2014, the Company closed on an agreement to acquire shares of PowerGenix common stock for $10 million payable through a combination of cash ($2 million) and Company restricted common shares (3,729,604) valued at $2.145 per share. The restricted shares are subject to a lock up/leak out agreement. Reciprocal equity ownership is designed to fund PowerGenix and maximize the working relationship between the two companies. The Company’s ownership constitutes 24.4% of the equity of PowerGenix.
The Company has restated its financial statementsbeen granted exclusive marketing rights to present onuse the proprietary PowerGenix Nickel-Zinc (“NiZn”) batteries to produce intelligent digital NiZn energy storage systems using the Company’s proprietary intellectual property for a retroactive basisnumber of market verticals including: Stationary UPS Systems in the effectData Center, Military, Telecom, Utility, Renewable Energy, Motor Start-Up, Frequency Regulation, Peak Shaving/Shifting and Demand Shifting market segments. The marketing rights are global for most market verticals.
During the nine months ended September 30, 2015, PowerGenix realized a net loss of several Type 1 subsequent events including$8,098,224. Accordingly, the resolution of certain litigation and the discontinuance of a significant component of its operations. This restatement is prepared in accordance with Topic 13Company recognized 24.4% of the Financial Reporting Manualnet loss in the amount of $1,975,966. During the Securities and Exchange Commission due to Company’s outstanding Form S-3. nine months ended September 30, 2015, the Company completed its cash obligation by investing an additional $400,000 into PowerGenix.
The restatedSummarized financial statements reflect the accrualinformation as of $2,437,618 of losses associated with the settlement of litigation subsequent to December 31, 2014 on a retroactive basis as ofSeptember 30, 2015 and for the yearnine months then ended December 31, 2014. The restated financials also reflect the reclassification of the assets, liabilities and operations of BEEMS to discontinued operations.PowerGenix is presented as follows:
The following table presents a summarized comparison of the original consolidated balance sheets to the restated balance sheets:
BLUE EARTH, INC. AND SUBSIDIARIES | |||||||||||||
Consolidated Balance Sheets | |||||||||||||
| |||||||||||||
| March 31, |
| March 31, |
| December 31, |
| December 31, | ||||||
| 2015 |
| 2015 |
| 2014 |
| 2014 | ||||||
ASSETS | (restated) |
| (original) |
| (restated) |
| (original) | ||||||
| (unaudited) |
| (unaudited) |
|
|
|
|
|
| ||||
CURRENT ASSETS | $ | 13,126,280 |
| $ | 14,219,297 |
| $ | 11,362,284 |
| $ | 12,445,816 | ||
|
| Total Current Assets |
| 14,229,339 |
|
| 14,229,339 |
|
| 12,583,915 |
|
| 12,583,915 |
|
|
|
|
|
|
|
|
|
|
|
| ||
PROPERTY AND EQUIPMENT, net |
| 63,881,481 |
|
| 64,038,057 |
|
| 56,815,626 |
|
| 56,982,778 | ||
ASSETS OF DISCONTINUED OPERATIONS |
| 1,103,059 |
|
| - |
|
| 1,221,631 |
|
| - | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
OTHER ASSETS |
| 31,522,768 |
|
| 31,971,848 |
|
| 32,744,205 |
|
| 33,310,767 | ||
|
| Total Other Assets |
| 31,522,768 |
|
| 31,522,768 |
|
| 32,744,205 |
|
| 32,744,205 |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| TOTAL ASSETS | $ | 109,633,588 |
| $ | 110,229,202 |
| $ | 102,143,746 |
| $ | 102,739,361 |
| |||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
CURRENT LIABILITIES | $ | 19,928,445 |
| $ | 17,429,348 |
| $ | 8,768,624 |
| $ | 6,264,617 | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
LONG TERM LIABILITIES |
| - |
|
| 61,477 |
|
| - |
|
| 66,387 | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
| ||
| Preferred stock; 25,000,000 shares authorized |
|
|
|
|
|
|
|
|
|
|
| |
| at $0.001 par value, 400,000 and -0- shares issued |
|
|
|
|
|
|
|
|
|
|
| |
| and -0- and -0- shares outstanding, respectively |
| 400 |
|
| 400 |
|
| - |
|
| - | |
| Common stock; 500,000,000 shares authorized |
|
|
|
|
|
|
|
|
|
|
| |
| at $0.001 par value, 93,404,858 and 94,258,713 |
|
|
|
|
|
|
|
|
|
|
| |
| shares issued and outstanding, respectively |
| 93,405 |
|
| 93,405 |
|
| 94,259 |
|
| 94,259 | |
| Additional paid-in capital |
| 190,797,290 |
|
| 190,797,290 |
|
| 188,159,932 |
|
| 188,159,932 | |
| Accumulated deficit |
| (101,185,952) |
|
| (98,152,718) |
|
| (94,879,069) |
|
| (91,845,834) | |
|
| Total Stockholders' Equity |
| 89,705,143 |
|
| 92,738,377 |
|
| 93,375,122 |
|
| 96,408,357 |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 109,633,588 |
| $ | 110,229,202 |
| $ | 102,143,746 |
| $ | 102,739,361 |
11
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 9 - RESTATED FINANCIAL STATEMENTS (continued)
The following table presents a summarized comparison of the original consolidated balance sheets to the restated statements of Operations:
BLUE EARTH, INC. AND SUBSIDIARIES | |||||||||||||
Consolidated Statements of Operations | |||||||||||||
(Unaudited) | |||||||||||||
| |||||||||||||
| For the Three Months Ended | ||||||||||||
| March 31, | ||||||||||||
| 2015 |
| 2015 |
| 2014 |
| 2014 | ||||||
| (restated) |
| (original) |
| (restated) |
| (original) | ||||||
REVENUES | $ | 3,752,014 |
| $ | 5,132,664 |
| $ | 1,879,168 |
| $ | 3,234,217 | ||
COST OF SALES |
| 3,422,344 |
|
| 3,976,307 |
|
| 1,251,626 |
|
| 1,788,309 | ||
GROSS PROFIT |
| 329,670 |
|
| 1,156,357 |
|
| 627,542 |
|
| 1,445,908 | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
OPERATNG EXPENSES |
| 6,157,959 |
|
| 7,637,595 |
|
| 5,973,728 |
|
| 6,908,959 | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
LOSS FROM OPERATIONS |
| (5,828,289) |
|
| (6,481,238) |
|
| (5,346,186) |
|
| (5,463,051) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
OTHER INCOME (EXPENSE) |
| 183,533 |
|
| 174,354 |
|
| (217,832) |
|
| (223,409) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
LOSS BEFORE INCOME TAXES |
| (5,644,756) |
|
| (6,306,884) |
|
| (5,564,018) |
|
| (5,686,460) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
INCOME TAX EXPENSE |
| - |
|
| - |
|
| - |
|
| - | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
LOSS FROM CONTINUING OPERATIONS |
| (5,644,756) |
|
| (6,306,884) |
|
| (5,564,018) |
|
| (5,686,460) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS, net of income taxes of $0 |
| - |
|
| - |
|
| - |
|
| - | ||
GAIN (LOSS) FROM DISCONTINUED OPERATIONS, net of income taxes of $0 |
| (662,127) |
|
|
|
|
| (122,442) |
|
| - | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
NET LOSS |
| (6,306,883) |
|
| (6,306,884) |
|
| (5,686,460) |
|
| (5,686,460) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
PREFERRED DIVIDENDS |
| - |
|
| - |
|
| (392,888) |
|
| (392,888) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (6,306,883) |
| $ | (6,306,884) |
| $ | (6,079,348) |
| $ | (6,079,348) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
BASIC AND DILUTED LOSS PER SHARE |
|
|
|
|
|
|
|
|
|
|
| ||
|
| Continuing Operations | $ | (0.06) |
| $ | (0.07) |
| $ | (0.09) |
| $ | (0.09) |
|
| Discontinued Operations |
| (0.01) |
|
| - |
|
| (0.00) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Net Loss Per Share | $ | (0.07) |
| $ | (0.07) |
| $ | (0.10) |
| $ | (0.10) |
|
|
|
|
|
|
|
|
|
|
|
| ||
WEIGHTED AVERAGE NUMBER OF COMMON |
|
|
|
|
|
|
|
|
|
|
| ||
SHARES OUTSTANDING BASIC AND DILUTED |
| 94,311,979 |
|
| 94,311,979 |
|
| 61,928,226 |
|
| 61,928,226 |
Total Assets | $ 2,013,482 |
Total Liabilities | $ 4,367,398 |
Net Loss | $ 8,098,224 |
NOTE 1011 - SUBSEQUENT EVENTS
On April 9,November 4, 2015, the Court dismissed all of the claims in the complaint of the purported class action lawsuit that 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). The Court has given plaintiff leave to amend the complaint by November 30, 2015. The Company believes the claims contained in the complaint are without merit and is vigorously defending this matter.
On October 23, 2015, the Company granted 149,673 Stock options to employees at $1.10 per share. The shares vest over 3 years and expire in 10 years. On October 27, 2015, the Company granted 15,813 Stock Options to employees at $1.03 per share. The shares vest over 3 years and expire in 10 years. On October 27, 2015, the Company granted 12,500 Stock Options to employees at $0.82 per share. The shares vest over 3 years and expire in 10 years. On October 27, 2015, the Company granted 15,000 Stock Options to employees at $0.83 per share. The shares vest over 3 years and expire in 10 years.
On October 20, 2015, the Company collected $4,000,000 in stock subscriptions for 8 million shares of common stock, with an over-allotment option to purchase 7,967,822 shares (Series B Warrants) for 6 months after closing, and ability to purchase up to 8 Million shares of common stock at $0.83 per share for a five year period commencing 6 months after closing (Series A Warrants), and ability to purchase an additional 2,000,000 shares of common stock (Series C Warrants) at $0.65 per share. Net proceeds were $3,655,000.
16
BLUE EARTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
NOTE 11 - SUBSEQUENT EVENTS (CONTINUED)
On October 27, 2015, the Company amended the October 20, 2015 Agreement to exchange 7,642,580 shares of common stock; Series B Warrants to purchase 7,967,822 shares of common stock; Series A Warrants to purchase 8,000,000 shares of Common Stock; and Series C Warrants to purchase 2,000,000 shares of common stock for $4,203,419, which is $0.55 per share, and 3,000,000 purchase warrants exercisable at $0.55 per share.
On October 23, 2015, the Company entered into a 9% Senior Secured Note for a principal amount of $5,154,507. Net Proceeds to the Company were $4,940,000. The 9% Senior Secured Note is due December 23, 2015.
On October 11, 2015, the Company signed a Promissory Note for $310,000 with its CEO. The note accrued interest at 9%. The Note and the accrued interest were subsequently repaid on October 20, 2015.
On October 30, 2015, the Company’s subsidiary EnSite Power, Inc. received a securities purchase agreement and $1,000,000 in an escrow account for 100,000 preferred shares of EnSite Power, Inc., which was subsequently released from escrow. The official record date for the spinoff of EnSite Power, Inc. is December 1, 2015, subject to certain regulatory notifications, approvals and other customary conditions.
On October 30, 2015, the Company issued 12,500 shares of its common stockto Alan Krusi, as independent director, for director fees. On April 20, 2015, the Company issued 168,700 shares of its common stock under a Mutual and General Release Agreement with the landlord of the former offices of Blue Earth Solar, Inc. On April 22, 2015 the Company issued 250,000 shares of its common stock for consulting services.services rendered.
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.
1217
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. All 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 materially different from any future results, levels 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, technologyConstruction, Technology and CHP business units.Power Generation operating segments. Our general policy will be to 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 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 alternative/renewable energypower generation solutions for small and medium sized commercial facilities and industrial facilities. The Company also owns, manages and operates independent energypower generation systems constructed in conjunction with these services.
The Company has expanded its comprehensive energypower generation solutions offerings 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 fivesix business units: Blue Earth Solar,Solar; Blue Earth CHP,CHP; Blue Earth PPS, Blue Earth Capital, Blue Earth Generator and Blue Earth EPS. Blue Earth EPS and Blue Earth PPS are part of the Technology operating segment.segments. Blue Earth Solar is part of the Construction operating segments. Blue Earth Generator and Blue Earth CHP are part of the Construction operating segments. As energy sales come online from facilities owned and built byPower Generation, the Company’s Blue Earth Solar or Blue Earth CHP business units, a third operating segment will be introduced.segment. 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 power generation 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 energypower solutions enable our customers to reduce or stabilize their energypower related expenditures and lessen the impact of their energypower 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 energypower plants includingprimarily 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 CHPsolar personnel.
The Blue Earth CHP unit builds, owns, operates and/or sells the energypower plants or buildbuilds them for the customer to own. As we continue to expand our core energy servicespower generation business as an independent energypower producer (IPP), 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 energypower projects through industry relationships. Electricity and thermal heat is being generated and revenue from the generator is captured for processes in the poultry facility, lowering energy costs, reducing greenhouse gas emissions and improving energy efficiency. The Company realized the first revenues from CHP during June 2015. 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.
Proprietary technologies owned by the Company are the PeakPower® System (Blue Earth PPS unit) and the 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 with a potential market of thousands of facilities, such as super markets and food processing, restaurants and C-stores, drug and discount stores. Revenues are expected to ramp up in 2015, as the Company is making some system changes before a 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, unscheduled and costly service calls.
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. 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 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, the 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: back-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,power generation, construction services and the constructionsale of energy facilities owned by third parties. Byour proprietary technologies.
During the second quarter of 2015 we expectthe Company discontinued the Blue Earth Energy Management, Inc. (BEEMS) business unit as the Company is focusing its efforts and resources on its core energy generation business units. All of the operating results as presented below have been restated to add a third revenue stream from energy sales generated from facilities built and owned byreflect the Company.
operations as discontinued.
19
Three Months Ended March 31,September 30, 2015 Compared with Three Months Ended March 31,September 30, 2014
Revenues (Continuing Operations)
The Company recognized $3,752,014$3,285,997 of revenue for the three months ended March 31,September 30, 2015, as compared to $1,879,168$1,183,357 for the three months ended March 31,September 30, 2014, an increase of $1,872,846$2,102,640 or 99.7%177%. The current year’s revenues represent sales from the Company’s divisions Technology ($53,853)451,321), Construction ($2,523,152) and ConstructionPower Generation ($3,698,161)311,524). The prior year’s revenues represent sales from the Company’s divisions Energy Efficiency and Technology ($52,859)468,750) and Construction ($1,826,309)714,607). Technology sales include the UPStealth® battery backup management systems. Construction sales are from installation of alternative energy systemssystems. Power Generation sales are from revenue generated from facilities owned and installationoperated by the Company and maintenance of HVAC systems. Technology’s revenues were affectedO&M and service contracts are from facilities both owned and not owned by a new contract with a national chain of convenience stores, increase in website sales, and sales of UPStealth® battery backup management systems.the Company... Construction's revenues increased due to work on the solar generation project in Indiana.
|
| Three Months Ended March 31, |
| Change |
| Three Months Ended September 30, |
| Change | ||||||||||||||||
|
| 2015 |
| 2014 |
| $ |
| % |
| 2015 |
| 2014 |
| $ |
| % | ||||||||
Technology |
|
|
|
|
|
|
|
|
|
|
| $ | 451,321 |
| $ | 468,750 |
| (17,429) |
| (4) | ||||
Battery backup systems |
| $ | 53,853 |
| $ | 52,859 |
| 994 |
| 3 | ||||||||||||||
Construction |
|
|
|
|
|
|
|
|
|
|
|
| 2,523,152 |
|
| 714,607 |
| 1,808,545 |
| 253 | ||||
Solar construction |
|
| 3,698,161 |
|
| 1,826,309 |
| 1,871,852 |
| 102 | ||||||||||||||
Power generation |
|
| 311,524 |
|
| - |
| 311,524 |
| 100 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total revenue |
| $ | 3,752,014 |
| $ | 1,879,168 |
| 1,872,847 |
| 100 |
| $ | 3,285,997 |
| $ | 1,183,357 |
|
| 2,102,640 |
|
| 177 |
Cost of Sales and Gross Profit
Costs of sales for the three months ended March 31,September 30, 2015 were $3,422,344$2,412,262 resulting in a gross profit of $329,670$873,735 or 8.8%27% of revenues. Technology had a gross profit of $10,093$242,012 or 18.7%54% compared to a profit of $319,577$622,888 or 8.6%25% for Construction. Power Generation had a gross profit of $8,835 or 3%. By comparison, during 2014 we had a cost of sales of $1,251,626$1,497,395 with a gross profit of $627,542($314,038) or 33.4%(27%). Technology had a gross profit of $2,641$97,048 or 5.0%21% compared to $624,901($411,087) or 34.2%(58%) for Construction.Construction and Power Generation had a gross profit $-0- in 2014.
Operating Expenses
General and Administrative Expenses and Depreciation and Amortization Expense
Operating expenses were $6,157,959$6,129,280 for the three months ended March 31,September 30, 2015 as compared to $5,973,728$7,234,886 for the three months ended March 31,September 30, 2014, an increasea decrease of $184,231$1,105,606 or 3.1%(15%.) In 2015, approximately $1,010,473 (16.4%$660,466 (11%) of the operating expenses were from Technology, and $1,976,552 (32.1%$798,214 (13%) were from Construction.Construction and $665,806 (11%) from Power Generation. The balance of $3,170,934 (51.5%$4,004,794 (65%) for 2015 was corporate administrative expense. Approximately $507,159 (8.2%$1,493,618 (24%) of the operating expenses was for payroll costs and $695,448 (11.3%$1,280,975 (21%) was for consulting and professional fees in 2015. The increase in operating expenses for 2015 was primarily due to an increase in payroll costs and professional fees as a result of higher stock based compensation costs.the ongoing litigation and fees paid to employment agencies.
In 2014 approximately $422,255 (7.1%$895,864 (12%) of the operating expenses were from Technology and $1,441,580 (24.1%$3,896,936 (54%) were from Construction. The balance of $4109,893 (68.8%$2,442,086 (34%) for 2014 was corporate administrative expense. Approximately $1,381,467 (23.4%$1,286,950 (18%) of the operating expenses was for payroll costs and $1,539,497 (26.0%$641,625 (9%) was for professional fees in 2014.
In 2015, operating expenses include stock compensation expense of $1,705,991 (27.7%$910,582 (15%) compared to $1,860,269 (31.5%$1,233,939 (17%) in 2014. We recorded depreciation and amortization expense of $1,081,579$1,479,766 in 2015 compared to $948,820$1,077,187in 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.
20
Other Income (Expense)
Total other income (expense) for the three months ended September 30, 2015 was $(1,704,250) compared to $(57,819) for the three months ended September 30, 2014. The increase was dueprimarily attributable to interest expense of $725,628, loss on natural gas futures $925,704 and a loss from the equity investment in PowerGenix of $683,916 offset by a gain on settlement of litigation of $614,280 compared to $62,532, $-0- and $-0-, respectively, during 2014.
Net Loss Attributable to Common Shareholders
Net loss was $7,242,355 for the three months ended September 30, 2015 as compared with a net loss of $7,842,476 for the three months ended September 30, 2014, a decrease of $600,121. Excluding the non cash expenses of common stock issued for services and from the amortization of intangible assets acquired for stock and stock options/warrants issued for services, the purchase priceloss would have been $3,770,859 and $2,973,118 for 2015 and 2014, respectively.
The net loss attributed to common shareholders was $7,242,355in 2015 compared to $7,856,346 in 2014.The net loss translates to $0.07 per share in 2015 ($0.00 per share from discontinued operations) compared to $0.11 ($0.00 per share from discontinued operations) in 2014.
Nine Months Ended September 30, 2015 Compared with Nine Months Ended September 30, 2014
Revenues
The Company recognized $10,614,411 of Blue Earth Capital,revenue for the nine months ended September 30, 2015, as compared to $4,951,709 for the nine months ended September 30, 2014, an increase of $5,662,702 or 114%. The current year’s revenues represent sales from the Company’s divisions Technology ($699,591), Construction ($8,940,319) and Power Generation ($974,501). The prior year’s revenues represent sales from the Company’s divisions Technology ($749,985) and Construction ($4,201,724). Technology sales include the UPStealth® battery backup management systems. Construction sales are from installation of alternative energy systems and maintenance of CHP systems. Construction's revenues increased due to work on the solar generation project in Indiana. Power Generation sales are from revenue generated from facilities owned and operated by the Company and O&M and service contracts are from facilities both owned and not owned by the Company.
Construction revenues increased due to ongoing construction of major solar projects in the US Midwest.Power Generation revenues are the result of the addition of new business operations in the fourth quarter of 2014 providing CHP and power backup systems operation and maintenance services and the addition of power generation revenues from our CHP facility in Sumter, SC. The reported revenues for the Technology division include sales of the UPStealth® battery backup management systems and RtiEdge® device.
|
| Nine Months Ended September 30, |
| Change | |||||||||
|
| 2015 |
| 2014 |
| $ |
|
| % | ||||
Technology |
| $ | 699,591 |
| $ | 749,985 |
|
| (50,394) |
|
|
| (7) |
Construction |
|
| 8,940,319 |
|
| 4,201,724 |
|
| 4,738,595 |
|
|
| 135 |
Power generation |
|
| 974,501 |
|
| - |
|
| 974,501 |
|
|
| 100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
| $ | 10,614,411 |
| $ | 4,951,709 |
|
| 5,662,702 |
|
|
| 114 |
Cost of Sales and Gross Profit
Costs of sales for the nine months ended September 30, 2015 were $9,043,473 resulting in a gross profit of $1,570,938 or 15% of revenues. Technology had a gross profit of $257,689 or 37% compared to a profit of $750,667 or 8% for Construction. Power Generation had a gross profit of $562,582 or 58%. By comparison, during 2014 we had a cost of sales of $4,318,637 with a gross profit of $633,072 or 13%. Technology had a gross profit of $238,361 or 32% compared to $394,711 or 9% for Construction. The Power Generation division had not started operations in 2014. The Technology division gross profits rebounded due as the group corrected its quality issues from a major supplier. Construction division gross profits more than doubled on marginally lower year on year gross profit percentages.
Operating Expenses
General and Administrative Expenses and Depreciation and Amortization Expense
Operating expenses were $18,582,249 for the nine months ended September 30, 2015 as compared to $18,054,665 for the nine months ended September 30, 2014, an increase of $527,584 or 3%. In 2015, approximately $2,377,948 (13%) of the operating expenses were from Technology, $4,558,699 (25%) were from Construction and $1,336,360 (7%) from Power Generation. The balance of $10,309,272 (55%) for 2015 was corporate administrative expense. Approximately $4,331,012 (23%) of the operating expenses was for payroll costs and $3,713,622 (20%) was for consulting and professional fees in 2015. The increase in operating expenses for 2015 was primarily due to an increase in professional fees as a result of the ongoing litigation and fees paid to employment agencies.
The current year to date operating expenses reflect abnormally large professional fees relating to ongoing itigation, including the recently dismissed class action suit, and are not expected to continue. Discontinuance of the Energy Management Services business and spinoff of EnSite Power, Inc. are expected to further significantly reduce operating expenses and will be additive to reductions in operating expenses associated with the Construction segment which have already been recognized to date.In 2014 approximately $3,071,578 (17%) of the operating expenses were from Technology and $6,809,550 (38%) were from Construction. The balance of $8,173,537 (45%) for 2014 was purchasedcorporate administrative expense. Approximately $3,929,055 (22%) of the operating expenses was for payroll costs and $3,072,670 (17%) was for professional fees in 2014.
In 2015, operating expenses include stock compensation expense of $3,063,082 (16%) compared to $2,682,987 (15%) in 2014. We recorded depreciation and amortization expense of $3,390,664 in 2015 compared to $3,102,945 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 threenine months ended March 31,September 30, 2015 was $183,533$(1,848,922) compared to $(217,832)$(366,955) for the threenine months ended March 31,September 30, 2014. The increase was primarily attributable to a gain of $989,778$2,592,910 from the settlement of threatened and actual litigation in the first quarterhalf of 2015 compared to $-0- in the first quarter ofnine months ended September 30, 2014. The changegain on the settlement of the litigation was offset by a loss from the equity investment in PowerGenix of $1,975,967, loss on gas futures of $1,100,260 and interest expense from $230,007of $1,394,963 in 2014 to $421,341 in 2015 was due to the borrowing of a $10,000,000 convertible note payable and a line of credit of $3,000,000 in the first quarter of 2015.
Net Loss Attributable to Common Shareholders
Net loss was $6,306,883$20,054,620 for the threenine months ended March 31,September 30, 2015 as compared with a net loss of $5,686,460$18,240,778 for the threenine months ended March 31,September 30, 2014, an increase of $620,423.$1,813,842. Excluding the non cash expenses of common stock issued for services and from the amortization of intangible assets acquired for stock and stock options/warrants issued for services, the loss would have been $3,106,571 and $2,750,165$12,425,631and $11,054,132 for 2015 and 2014, respectively. The increase is attributablein operating expenses for 2015 was primarily by interest expense relateddue an increase in professional fees as a result of the ongoing litigation and fees paid to the borrowing of $10,000,000 in convertible debt and $3,000,000 on the line of credit and a loss from an equity investment of $227,560, offset in part by the gain of $989,778 from the settlement of litigation. employment agencies.
The net loss attributed to common shareholders was $6,306,883$20,054,620 in 2015 compared to $6,079,348$19,744,360 in 2014 due to the dividends of $1,503,582 accrued on the Series C preferred stock and paid in common shares.shares during the nine months ended September 30, 2014. The Series C preferred shares were all converted into common shares by June 30, 2014 so no additional dividends will bewere incurred in the succeeding periods. The net loss translates to $0.07$0.20 per share in 2015 ($0.01 per share from discontinued operations) compared to $0.09$0.23 ($0.01 per share from discontinued operations) in 2014.
22
Liquidity and Capital Resources as of March 31,September 30, 2015 compared with December 31, 2014
Net cash used in continuing operating activities during the threenine months ended March 31,September 30, 2015 totaled $2,331,142$6,485,487 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 $6,306,883,$20,054,620, we incurred an increase in construction in progress of $371,955 and prepaid expenses of $291,770$100,609 that was partially offset by common stock options and warrants granted for services expensed at $1,385,338,$3,063,082, common stock issued for services valued at $320,653 and$560,991, depreciation and amortization of $1,081,579.$3,390,664, and gas futures losses of $1,103,143. We also decreased our accounts receivable by $1,884,942$2,866,846, restricted cash by $612,070 and increased accounts payable by $91,747.$386,840. 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 continuing operating activities during the threenine months ended March 31,September 30, 2014 totaled $1,680,141$7,988,198 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 $5,686,460,$18,240,778, we incurred a decreasean increase in accounts receivable and billings in excess of $427,138.$1,687,672 and a decrease in accounts payable of $380,559. These outflows were partially offset by common stock warrants and options granted for services expensed at $1,189,727,$2,682,987, common stock issued for services valued at $670,542,$1,400,714, and depreciation and amortization of $948,820. We also increased our accounts payable and accrued expenses by $444,207 due to costs incurred on construction in progress.$3,102,945.
Net cash used in continuing investing activities during the threenine months ended March 31,September 30, 2015 totaled $7,487,669$11,140,744 which included $7,098,388$10,737,867 for purchases of equipment and $400,000 invested in an equity subsidiary. Net cash used in continuing investing activities during the threenine months ended March 31,September 30, 2014 totaled $1,354,475,$7,646,744, of which $1,353,588$7,314,299 was used for purchases of equipment.
Net cash provided by continuing financing activities during the threenine months ended March 31,September 30, 2015 totaled $12,765,806$14,196,683 and resulted from $2,911,700 of proceeds from the line of credit and $9,953,068 of proceeds from the convertible note payable. The cash inflows were partially offset by principal payments on notes payable of $98,962.$543,420. Net cash provided by financing activities during the threenine months ended March 31,September 30, 2014 totaled $661,355.$12,723,576. These inflows primarily came from $1,000,000$12,565,876 from common stock subscriptions and $100,857$1,600,119 of gross proceeds from the exercise of options and warrants. The inflows were offset by payments on notes payable and line of $435,498credit of $1,846,706 and notes payable to related parties of $4,004.
At March 31,September 30, 2015, we had a working capital deficit of $5,699,106$14,822,531 including $6,090,154$616,790 in cash and cash equivalents compared with working capital of $3,815,291$2,593,659 at December 31, 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 decrease in working capital was the result of our investment in CHP projects.
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 borrowingfund raising 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 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 of which a draw of $3,000,000 was takendrawn down 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 timetime. The line of credit is secured by one CHP projects and by one solar project and accrues interest at 12% per annum.
On March 9,10, 2015, we issued aan 6 month convertible note payable for $10,000,000.$10,000,000 to Jackson Investment Group, LLC (“Jackson”). The note payable iswas convertible into shares of our common stock at $1.00 per share at the noteholder’s option. We granted 2,000,000 $1.00 stock purchase warrants exercisable at $1.00 per share as consideration for the convertible note payable. On May 13, 2015, the convertible note payable and warrants were amended changing the conversion and exercise price to $1.02 per share at the direction of NASDAQ in order for the Company to maintain its listing. The convertible note payable is secured by all of our assets except one CHP project and one solar project and accrues interest at 12% per annum.
23
The $10 million Senior Convertible Note was paid on September 10, 2015. On September 10, 2015, the Company entered into a Note Purchase Agreement (the “Purchase Agreement”) pursuant to which a 15% senior secured note (the “September Note”) in the principal amount of $10,600,000 was issued, due February 29, 2016 to Jackson Investment Group, LLC (“Jackson”).Jackson.. The September Note was issued to repay and refinance in full the 12% senior secured convertible note due September 10, 2015 and issued on March 10, 2015 (the “March Note”), including $600,000 of accrued interest under the March Note. The September Note was issued solely as a result of unexpected construction delays outside of the parties’ control at the Brooks Heat & Power CHP facility being constructed and now collateralized by the September Note.
Neither the September Note, nor interest accrued thereon, is convertible into shares of the common stock of the Company. The 2,000,000 stock purchase warrants granted to Jackson by the Company on March 10, 2015 remain unchanged and are exercisable until March 10, 2020. The Option granted to Jackson on March 10, 2015 remains unchanged and is exercisable until March 10, 2016.
Historically, we have financed our working capital and capital expenditure requirements primarily from the sales of our equity securities. We intend to seek additional equity and/or debt financing in order to implement our business plan. We raised $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 $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.
Related Party Transactions
The Company had no significant related party transactions during the threenine months ended March 31,September 30, 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, warranty reserves 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
24
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 Interim 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 Interim Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were ineffectivenot 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. Reporting. During the most recent quarter ended March 31,September 30, 2015, there were nohave been 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.
During the most recent quarter, the Company implemented a more thorough review process of the financial statements, notes to the financial statements, and the MD&A section by increasing the number of individuals reviewing the documents. The Company has also added personnel with significantly more experience and knowledge that has oversight over the financial reporting.
18
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 anyto legal proceedings described in our Annual Report on Form 10-K for the year ended December 31, 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’sPlaintiff'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, 2105,2015, plaintiff filed a First Amended Complaint (“FAC”("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’sCompany's stock during the period from October 7, 2013 through October 21, 2014. Defendants responded and filed a motion to dismiss FAC. Plaintiff’s oppositionFAC on May 4, 2015. On November 4, 2015, the Court dismissed all of the claims in the complaint. The Court has given plaintiff leave to amend the motion has been submitted and Defendants have submitted a reply to the opposition. Oral arguments regarding the motion to dismiss are scheduled for Octobercomplaint by November 30, 2015. The Company believes the claims contained in the FACcomplaint are without merit and is vigorously defending thethis matter.
On August 31, 2015, a derivative lawsuit was filed in Nevada state court, captioned Powell v. Cagan, et al., No. A-15-723839-C (8th(8th Judicial District Court, Clark County, Nevada). The named plaintiff in the case is not related to G. Robert Powell, the Company’s current CEO. It names as defendants Brett Woodard, Johnny R. Thomas, John C. Francis, and the entire Board of Directors. It also names the Company as a nominal defendant. The complaint brings claims for breaches of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets, from October 2013 to the present based on directors and management allegedly allowing the company to make false and misleading statements to the public, thereby resulting in a class action lawsuit and exposing the Companycompany to damages. The defendants have not yet been served. The Company believes the claims contained in the complaint are without merit and will vigorously defend this matter.
25
During 2014, the Company and two consultants filed demands for arbitration with the American Arbitration Association. On August 8, 2015, the Company and two consultants received the award from the arbitrator in the Company's arbitration with two of its consultants/former employees, who had voluntarily resigned. The arbitrator awarded the two consultants damages of $1,270,000; $101,243 for breach of contract; certain declaratory relief upholding the validity of the consulting agreement; and reimbursement of the consultants' attorney's fees and costs incurred in the arbitration of $341,375. The award is a Type 1 subsequent event accordingly the Company’s financial statements are restated to reflect the award on a retroactive basis.
During 2014 the Company filed a demand for arbitration with the American Arbitration Association and National Energy Partners LLC (“NEP”) and its subsidiary, Hawaii Solar LLC (“HS”) counterclaimed. The Company subsequently initiated two actions in the First Circuit Court of the State of Hawaii, the first titled Xnergy and Blue Earth, Inc. vs. Hawaii Solar, LLC. National Energy Partners, LLC, et al., Civil No. M-1-1694-08 (JHC) (the “Xnergy Action’Action”) and the second titled Blue Earth Solar, Inc. vs. State of Hawaii, Department of Education, et al.(the (the “DOE Action”). The parties agreed to attempt to resolve their dispute through arbitration administered by Dispute Prevention and Resolution (“DPR Arbitration”). On August 30, 2015, the parties to the above Xnergy Action, DOE Action and DPR Arbitration entered into a Settlement Agreement and Release and a Lock-Up/Leak-Out Agreement conditioned upon subsequent Board of Directors approval by the Company which was obtained on September 3, 2015. The Settlement Agreement provides for the Company to: (a) pay $500,000 to HS (a portion of which will be paid by the Company’s insurance carrier), and (b) issue shares valued at $325,000 at a price of $0.88 per share to be registered with the SEC within sixty (60) days of the issuance of the shares.shares, and (c) pay $1000 in attorney fees. Pursuant to the terms and conditions of the Lock-Up/Leak-Out Agreement, all shares will be restricted for six (6) months, unless registered sooner and upon registration or expiration of the six-month period, seller may sell up to 10,000 shares per day and 50,000 shares per week on a non-cumulative basis. The parties exchanged mutual releases and will dismiss all claims upon payment to HS. The settlement is a Type 1 subsequent event accordingly the Company’s financial statements are restated to reflect the award on a retroactiveretro-active basis.
On March 27, 2015, Blue Earth, Inc. (the “Company”) entered into a Settlement Agreement with the Broadway 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 Company’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 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:
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A mutual release of all claims by the Company and Broadway against each other.
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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.
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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.
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Broadway also agreed to indemnify the Company for any claims relating to its ownership of the Company’s common stock and the Merger Agreement.
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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 FACTORS.
There 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 February 24,July 10, 2015, the Company issued: (i)issued 10,000 restricted shares of Common Stock to Larry Eggleston, pursuant to an offer letter dated September 18, 2014 for services rendered, (ii) 63,887 restrictedrendered. On July 13, 2015, the Company issued 13,158 shares to Hobbs & Towne for services rendered. On July 28, 2015, the Company issued 12,500 shares to Alan Krusi, as independent director, for services rendered. On September 17, 2015, the Company issued 369,318 shares to DOE Hawaii Solar 2014, LLC in settlement of Common Stocklitigation. On September 21, 2015, the Company issued 92,425 shares to Donald R. Kendall, Jr., an officer of the Company, as payment of expenses incurred from February through April 2015, and 400,000 sharespursuant to the terms of Series D Convertible Preferred Stock held by a third party and convertible solely in the event of a monetary default to TCA Global Credit Master Fund LP.
his employment agreement. On March 9,September 22, 2015, the Company issued 200,000 restricted99,883 shares of Common Stock to Jackson Investment Group LLC (“Jackson”) as a commitment fee under a loan made pursuantEdward L. Davis for consulting services rendered. On September 22, 2015, the Company issued 50,000 shares to a Note and Warrant Purchase Agreement dated March 10, 2015.G. Robert Powell, the Company’s Chief Executive Officer, for $37,835 cash.
The 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 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 Interim Principal Financial Officer |
| 32.1 |
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| Section 906 Certification of Principal Executive Officer and |
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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.
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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. | ||
Date: November 9, 2015 | By: | /s/ G. Robert Powell |
G. Robert Powell | ||
Chief Executive Officer (Principal Executive Officer) | ||
Date: November 9, 2015 | By: | /s/ G. Robert Powell |
G. Robert Powell | ||
Interim Chief Financial Officer (Interim Principal Financial and Accounting Officer) |
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