Exhibit 99.2
EnerPath Acquisition
On March 24, 2015 (the “Closing Date”), Lime Energy Co. (the “Company”) entered into and consummated the transactions contemplated by an Agreement and Plan of Merger (the “Merger Agreement”) by and among EIHC MergerSub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), EnerPath International Holding Company, a Delaware corporation (“EnerPath”), Janina Guthrie, as the Stockholder Representative, and all of the stockholders of EnerPath (the “Stockholders”) (the transactions contemplated by the Merger Agreement, collectively, the “EnerPath Acquisition”) pursuant to which Merger Sub merged with and into EnerPath with EnerPath being the surviving corporation of the merger. EnerPath is a California-based provider of software solutions and program administration for utility energy efficiency programs.
The consideration paid in connection with the EnerPath Acquisition was approximately $11.0 million in cash which was financed through the issuance of a subordinated convertible note payable to Bison Capital Partners IV, L.P. (the “Note”).
The unaudited pro forma condensed consolidated combined statements of operations for the year ended December 31, 2014 and the three months ended March 31, 2015 are presented as if the EnerPath Acquisition had occurred on January 1, 2014.
The unaudited pro forma condensed consolidated combined financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated financial position or result of operations that would have actually been reported had the acquisition occurred as of the dates indicated, nor is it necessarily indicative of future consolidated financial position or results of operations. The unaudited pro forma condensed consolidated combined financial information does not include, nor does it assume, any benefits from cost savings or synergies of the combined operations or the costs necessary to achieve these cost savings, or synergies, and such differences may be material.
The unaudited pro forma condensed consolidated combined financial information was prepared using the acquisition method of accounting and was based on the audited consolidated financial statements of the Company and EnerPath as of and for the year ended December 31, 2014. The preliminary estimates of the fair values of the assets acquired and liabilities assumed and assumptions could change significantly during the purchase price measurement period as we finalize the valuations of the assets acquired and liabilities assumed, and the related tax balances. Such changes could result in material variances between the Company’s future financial results and the amounts presented in the unaudited pro forma information, including variances in the estimated purchase price, fair values recorded and expenses associated with these items.
The unaudited pro forma condensed consolidated combined financial information should be read in conjunction with the Company’s historical consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2014, its Quarterly Report on Form 10-Q for the three months ended March 31, 2015 and with EnerPath’s historical consolidated financial statements and notes thereto included in the Company’s Current Report on Form 8-K/A to which this document is filed as an exhibit. The acquisition of EnerPath and a preliminary purchase price allocation are reflected in the Balance Sheet in the Form 10-Q as of March 31, 2015.
Lime Energy Co.
Unaudited Pro Forma Condensed Consolidated Combined Statement of Operations
Year ended December 31, 2014
($ in thousands, except share data)
| | Historical
Lime Energy
Co. | | Historical
EnerPath
International
Holding
Company | | Pro Forma
Adjustments | | Notes | | Pro Forma
Condensed
Combined | |
| | | | | | | | | | | |
Revenue | | $ | 58,816 | | $ | 40,625 | | $ | — | | | | $ | 99,441 | |
| | | | | | | | | | | |
Cost of sales | | 41,162 | | 33,450 | | (7,416 | ) | D | | 67,196 | |
| | | | | | | | | | | |
Gross Profit | | 17,654 | | 7,175 | | 7,416 | | | | 32,245 | |
| | | | | | | | | | | |
Selling, general and administrative expense | | 20,195 | | 6,759 | | 7,416 | | D | | 34,370 | |
Amortization of intangibles | | — | | — | | 1,306 | | A | | 1,306 | |
| | | | | | | | | | | |
Operating (loss) income | | (2,541 | ) | 416 | | (1,306 | ) | | | (3,431 | ) |
| | | | | | | | | | | |
Other Income (Expense) | | | | | | | | | | | |
Interest income | | 100 | | 58 | | — | | | | 158 | |
Interest expense | | (189 | ) | (235 | ) | (1,524 | ) | B, C | | (1,948 | ) |
| | | | | | | | | | | |
Total other expense | | (89 | ) | (177 | ) | (1,524 | ) | | | (1,790 | ) |
| | | | | | | | | | | |
(Loss) income from continuing operations before income taxes | | (2,630 | ) | 239 | | (2,830 | ) | | | (5,221 | ) |
| | | | | | | | | | | |
Provision for income taxes | | — | | 133 | | (133 | ) | E | | — | |
| | | | | | | | | | | |
(Loss) income from continuing operations | | (2,630 | ) | 106 | | (2,697 | ) | | | (5,221 | ) |
| | | | | | | | | | | |
Discontinued Operations: | | | | | | | | | | | |
Income from operation of discontinued business | | 7 | | — | | — | | | | 7 | |
| | | | | | | | | | | |
Net (loss) income | | $ | (2,623 | ) | $ | 106 | | $ | (2,830 | ) | | | $ | (5,347 | ) |
| | | | | | | | | | | |
Preferred dividend | | (2,979 | ) | — | | — | | | | (2,979 | ) |
| | | | | | | | | | | |
Net (loss) income available to common stockholders | | $ | (5,602 | ) | $ | (27 | ) | $ | (2,697 | ) | | | $ | (8,326 | ) |
| | | | | | | | | | | |
Basic and diluted loss per common share from | | | | | | | | | | | |
Continuing operations | | $ | (1.44 | ) | $ | (0.01 | ) | $ | (0.69 | ) | | | $ | (2.14 | ) |
| | | | | | | | | | | |
Discontinued operations | | — | | — | | — | | | | — | |
| | | | | | | | | | | |
Basic and Diluted Loss Per Common Share | | $ | (1.44 | ) | $ | (0.01 | ) | $ | (0.69 | ) | | | $ | (2.14 | ) |
| | | | | | | | | | | |
Weighted Average Common Shares Outstanding | | 3,884,826 | | — | | — | | | | 3,884,826 | |
Lime Energy Co.
Unaudited Pro Forma Condensed Consolidated Combined Statement of Operations
Three months ended March 31, 2015
($ in thousands, except share data)
| | Historical
Lime Energy
Co.
Three months
ended March
31, 2015 | | Historical
EnerPath
International
Holding
Company
January 1, 2015
to March 23,
2015 | | Pro Forma
Adjustments | | Notes | | Pro Forma
Condensed
Combined | |
| | | | | | | | | | | |
Revenue | | $ | 18,299 | | $ | 10,412 | | $ | — | | | | $ | 28,711 | |
| | | | | | | | | | | |
Cost of sales | | 12,800 | | 8,731 | | (1,750 | ) | D | | 19,781 | |
| | | | | | | | | | | |
Gross Profit | | 5,499 | | 1,681 | | 1,750 | | | | 8,930 | |
| | | | | | | | | | | |
Selling, general and administrative expense | | 5,806 | | 1,451 | | 1,750 | | D | | 9,007 | |
Acquisition costs | | 694 | | — | | (694 | ) | G | | — | |
Amortization of intangibles | | 31 | | — | | 295 | | A | | 326 | |
| | | | | | | | | | | |
Operating (loss) income | | (1,032 | ) | 230 | | 399 | | | | (403 | ) |
| | | | | | | | | | | |
Other Income (Expense) | | | | | | | | | | | |
Interest income | | 35 | | — | | — | | | | 35 | |
Interest expense | | (60 | ) | (52 | ) | (342 | ) | B, C, F | | (454 | ) |
Extinguishment of debt | | (1,420 | ) | — | | — | | | | (1,420 | ) |
Loss from change in derivative liability | | (805 | ) | — | | — | | | | (805 | ) |
| | | | | | | | | | | |
Total other expense | | (2,250 | ) | (52 | ) | (342 | ) | | | (2,644 | ) |
| | | | | | | | | | | |
(Loss) income from continuing operations before income taxes | | (3,282 | ) | 178 | | 57 | | | | (3,047 | ) |
| | | | | | | | | | | |
Income tax benefit | | 1,246 | | — | | — | | | | 1,246 | |
| | | | | | | | | | | |
(Loss) income from continuing operations | | (2,036 | ) | 178 | | 57 | | | | (1,801 | ) |
| | | | | | | | | | | |
Discontinued Operations: | | | | | | | | | | | |
Loss from operation of discontinued business | | (63 | ) | — | | — | | | | (63 | ) |
| | | | | | | | | | | |
Net (loss) income | | $ | (2,099 | ) | $ | 178 | | $ | 57 | | | | $ | (1,864 | ) |
| | | | | | | | | | | |
Preferred dividend | | (308 | ) | — | | — | | | | (308 | ) |
| | | | | | | | | | | |
Net (loss) income available to common stockholders | | $ | (2,407 | ) | $ | 178 | | $ | 57 | | | | $ | (2,172 | ) |
| | | | | | | | | | | |
Basic and diluted loss per common share from | | | | | | | | | | | |
Continuing operations | | $ | (0.24 | ) | $ | 0.02 | | $ | 0.01 | | | | $ | (0.22 | ) |
| | | | | | | | | | | |
Discontinued operations | | (0.01 | ) | — | | — | | | | (0.01 | ) |
| | | | | | | | | | | |
Basic and Diluted Loss Per Common Share | | $ | (0.25 | ) | $ | 0.02 | | $ | 0.01 | | | | $ | (0.23 | ) |
| | | | | | | | | | | |
Weighted Average Common Shares Outstanding | | 9,502,906 | | — | | — | | | | 9,502,906 | |
Notes to Unaudited Pro Forma Condensed Consolidated Combined Financial Information
(amounts in thousands, except share data)
1. Description of Transaction
On March 24, 2015 (the “Closing Date”), Lime Energy Co. (the “Company”) entered into and consummated the transactions contemplated by an Agreement and Plan of Merger (the “Merger Agreement”) by and among EIHC MergerSub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), EnerPath International Holding Company, a Delaware corporation (“EnerPath”), Janina Guthrie, as the Stockholder Representative, and all of the stockholders of EnerPath (the “Stockholders”) (the transactions contemplated by the Merger Agreement, collectively, the “EnerPath Acquisition”) pursuant to which Merger Sub merged with and into EnerPath with EnerPath being the surviving corporation of the merger. EnerPath is a California-based provider of software solutions and program administration for utility energy efficiency programs.
The consideration paid in connection with the EnerPath Acquisition was approximately $11.0 million in cash which was financed through the issuance of a subordinated convertible note payable to Bison Capital Partners IV, L.P. (the “Note”).
2. Basis of Presentation
The unaudited pro forma condensed consolidated combined financial information was prepared using the acquisition method of accounting and was based on the audited financial statement of the Company and EnerPath as of and for the year ended December 31, 2014. Certain reclassifications were made to the overall presentation of the historical EnerPath consolidated financial statements to conform to the Company’s presentation. The unaudited pro forma condensed consolidated combined statement of operations for the year ended December 31, 2014 and the three months ended March 31, 2015 are presented as if the EnerPath acquisition had occurred on January 1, 2014.
The unaudited pro forma condensed consolidated combined financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated financial position or results of operations. The unaudited pro forma condensed consolidated combined financial information does not include, nor does it assume, any benefits from cost savings or synergies of the combined operations or the costs necessary to achieve these cost savings, or synergies, and such differences may be material.
The estimated fair values of the assets acquired and liabilities assumed, and the related tax balances, are based on preliminary estimates and assumptions. These preliminary estimates and assumptions could change significantly during the purchase price measurement period as we finalize the valuations of the assets acquired and liabilities assumed, and the related tax balances. Such changes could result in material variances between the Company’s future financial results and the amounts presented in the unaudited pro forma information, including variances in the estimated purchase price, fair values recorded and expenses associated with these items.
The unaudited pro forma condensed consolidated combined financial information should be read in conjunction with the Company’s historical consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2014, its Quarterly Report on Form 10-Q for the three months ended March 31, 2015 and with EnerPath’s historical consolidated financial statements and notes thereto included in the Company’s Current Report on Form 8-K/A to which this
document is filed as an exhibit. The acquisition of EnerPath and a preliminary purchase price allocation are reflected in the Balance Sheet in the Form 10-Q as of March 31, 2015.
Acquisition-related transaction costs are not included as a component of consideration transferred but are accounted for as expenses in the periods in which such costs are incurred. The unaudited pro forma condensed consolidated combined statements of operations do not include EnerPath acquisition-related transaction costs.
3. Assets Acquired and Liabilities Assumed
A summary of the total purchase price consideration to be allocated by Lime in the acquisition of EnerPath is provided below (in thousands).
Total purchase price consideration to be allocated $11,000
The preliminary estimated assets acquired and liabilities assumed by Lime in the acquisition of EnerPath, reconciled to the consideration transferred, are provided below and are presented at the date of closing of the acquisition (in thousands).
Current assets | | $ | 9,107 | |
Property and equipment | | 153 | |
Other assets | | 41 | |
Intangible assets - finite life | | 5,595 | |
Goodwill | | 1,987 | |
Total assets acquired | | 16,883 | |
Current Liabilities assumed | | (4,637 | ) |
Deferred income tax liability | | (1,246 | ) |
Total purchase price consideration to be allocated | | $ | 11,000 | |
4. Pro Forma Adjustments
This note should be read in conjunction with Note 1. Description of Transaction and Note 2 Basis of Presentation.
Adjustments under the heading “Pro Forma Adjustments” represent the following:
A. To record the preliminary estimated amortization expense of the intangible assets acquired from EnerPath. The preliminary assessment of the acquired intangible asset categories, fair value and average amortization periods are as follows:
| | Fair Value | | Average
Amortization
Period | | Estimated
Annual
Amortization
Exense | |
Trade name | | $ | 825 | | 3 years | | $ | 275 | |
Enerworks System Software | | 3,265 | | 4 years | | 816 | |
Customer relationships | | 1,505 | | Cash flow/7 years | | 215 | |
| | $ | 5,595 | | | | $ | 1,306 | |
B. To record amortization of the Note discount over the life of the Note. That discount is to be amortized to interest expense over the term of the Note using the effective interest method.
C. To record interest on the convertible Note issued in connection with the EnerPath acquisition at a rate of 10.0%.
D. To adjust EnerPath’s classifications to align with the Company’s presentation. This includes the reclassification of EnerPath sales and program management labor from Cost of sales to Selling, general and administrative expense.
E. To eliminate EnerPath’s provision for income tax as of the date of the acquisition as the Company has sufficient net operating losses to cover EnerPath’s provision for federal income taxes.
F. To eliminate interest on historical EnerPath debt.
G. To eliminate costs incurred related to the acquisition of EnerPath that were incurred during the three months ended March 31, 2015 as these costs are non-recurring.
