Depreciation expense for the periods ended June 30, 2006 and 2005 was approximately $14,000 and $13,000, respectively.
The Company has a revolving line of credit (the ‘‘Credit Facility’’), which provides for borrowings of up to $500,000. The Company entered into this agreement on August 31, 2005 and the Company is planning to renew this Credit Facility on August 31, 2006. The total available amount of $500,000 is outstanding at June 30, 2006.
Interest on the outstanding balance under the Credit Facility is calculated on the prime rate (‘‘Prime’’) plus 1.25%. Interest was calculated based on Prime plus 1.25% (9.5%) at June 30, 2006.
All of the existing property and assets of the Company are pledged as collateral for the Credit Facility. In addition, the Company’s obligations are collateralized by a guaranty from the President of the Company, which includes as collateral all personal property and assets.
The Company’s long-term debt consists of four vehicle loans with a total outstanding balance of approximately $30,000 at June 30, 2006, less the current portion due of approximately $16,000 at June 30, 2006.
8. Stockholder’s equity
Akeena, Inc. was incorporated in 2001 as a Subchapter S corporation. During 2006, a new entity named Akeena Solar, Inc. (the ‘‘Company’’, ‘‘Akeena Solar’’ or the ‘‘Surviving Corporation’’) was incorporated as a C Corporation in the State of Delaware, and Akeena, Inc. was merged with Akeena Solar during June 2006 as approved by the Board of Directors. At the time of this transaction, each share of Akeena, Inc.’s no par value common stock was converted into one ten-thousandth (1/10,000) of a share of the Surviving Corporation’s common stock with a par value of $0.01 per share and the sole stockholder of the Company’s outstanding common shares became a holder of the shares of the Surviving Corporation.
Subsequent to Akeena, Inc. being merged into Akeena Solar, Akeena Solar became the obligor on the Warrant (see Note 9 and Note 11). On June 23, 2006, Akeena Solar declared and effected an 18,000-for-one stock split of the Company’s outstanding shares of common stock in the form of a stock dividend. Accordingly, all common share and per share data in the financial statements have been retroactively adjusted to reflect the impact of the 18,000-for-one stock split for all periods presented. After the stock split, the Warrant was exercisable for up to 1,000,000 of Akeena Solar’s common stock at an exercise price of $0.01 per share.
9. Stock options and stock warrants
The Company’s 2001 Stock Option Plan (the ‘‘2001 Plan’’) provides for the issuance of incentive stock options and non-statutory stock options. The Company’s Board of Directors, which, subject to the terms of the 2001 Plan, determines to whom grants are made, and the vesting, timing, amounts and other terms of such grants. Incentive stock options may be granted only to employees of the Company, while non-statutory stock options may be granted to the Company’s employees, officers, directors, consultants and advisors. Options under the Plan vest as determined by the Board of Directors, but in no event at a rate less than 20% per year. The term of the options granted under the 2001 Plan may not exceed 10 years and the maximum aggregate shares that may be issued upon exercise of such options is 4,000,000 shares of common stock. No options have been granted under the 2001 Plan as of June 30, 2006.
In March 2001, the Company issued a warrant (the ‘‘Warrant’’) to purchase 1,000,000 shares of the Company’s common stock at an exercise price per share of $0.01 in exchange for the purchase of assets from, AWI, Inc., a related party (see Note 11). The Warrant expires in March 2011 and therefore, the remaining contractual life of the Warrant at June 30, 2006 is 4.7 years. In connection with the Company’s reverse merger transaction (see Note 13) during August 2006, the holder of the Warrant has not notified the Company of its intent to exercise the Warrant.
10. Earnings per share
Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period presented. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the periods plus the effect of dilutive securities outstanding during the periods. For the three and six months ended June 30, 2006 and 2005, respectively, basic earnings per share is the same as diluted earnings per share as a result of the Company’s common stock equivalents being anti-dilutive due to the Company’s net loss in all
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periods presented. At June 30, 2006, the Warrant to purchase 1,000,000 shares of the Company’s common stock is a dilutive security that may dilute future earnings per share.
11. Related party transactions
The Company issued the Warrant (see Note 9) to AWI, Inc. (‘‘AWI’’) during March 2001 to purchase 1,000,000 shares of the Company’s common stock at an exercise price per share of $0.01. The President of the Company is a director of AWI and is currently a custodian for AWI. The Company also has an amount due from this related party for expenses of approximately $21,000 paid by the Company on behalf of AWI, which are recorded as due from related party within the accompanying balance sheet.
12. Commitments and contingencies
Litigation
The Company is involved in certain legal proceedings arising in the ordinary course of business. In the opinion of management, the outcome of such proceedings will not materially affect the Company’s financial position, results of operations or cash flows.
13. Subsequent events
On July 18, 2006, the President of the Company purchased a warrant from AWI to purchase up to 90,000 shares of Akeena Solar common stock for a purchase price of $2,700. The purchase price was determined by an independent third-party appraiser to be the fair market value of the warrants.
On August 8, 2006, Akeena Solar adopted the Akeena Solar, Inc. 2006 Stock Incentive Plan (the ‘‘Stock Plan’’), whereby 450,000 shares of common stock shall be available for grant to employees, directors and consultants under the Stock Plan. Restricted stock and stock options may be issued under the Stock Plan.
On August 11, 2006, Akeena Solar entered into a reverse merger transaction with Fairview Energy Corporation, Inc. (‘‘Fairview’’). Pursuant to the merger agreement, the stockholders of Akeena Solar received one share of Fairview common stock for each issued and outstanding share of Akeena Solar common stock. Subsequent to the closing of the merger transaction (the ‘‘Merger’’), the closing of a Private Placement for $2,527,500, and the cancellation of 3,877,477 shares of Fairview common stock in exchange for 100% of the outstanding capital stock of Akeena Solar, the former stockholders of Akeena Solar hold 8,197,692 shares, or 57.0%, of Fairview’s outstanding common stock. Since the stockholders of Akeena Solar own a majority of the outstanding shares of Fairview common stock immediately following the Merger, the Merger is being accounted for as a reverse merger transaction and Akeena Solar is deemed to be the acquirer. The assets, liabilities and the historical operations prior to the Merger will be those of Akeena Solar. Subsequent to the Merger, the consolidated financial statements will include the assets and liabilities of Akeena Solar and Fairview, and the historical operations of Akeena Solar and the operations of Fairview from the closing date of the Merger. As of August 11, 2006, the effective date of the Merger, 197,692 shares of restricted stock had been issued under the Stock Plan.
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