UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SBA
(Amendment No. 3)
ELECTRIC CITY CORP.
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(Exact name of registrant as specified in its charter)
Delaware 36-4197337
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1280 Landmeier Road, Elk Grove Village, Illinois 60007
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: (847) 437-1666
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.0001 par value
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(Title of class)
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PART I
Items 1. Description of Business.
Electric City History and Recent Developments
Electric City Corp. is a development stage company that was formed to
acquire and commercialize a proprietary device and proprietary software package
that reduces the amount of electricity required to power various lighting
facilities in commercial buildings, factories, and office structures, as well as
street and parking lot lighting. All share amounts presented herein reflect the
2 for 1 share stock split on all outstanding shares of common stock effective
July 30, 1999.
Electric City plans to manufacture and sell its EnergySaver State of
the Art Lighting Control Technology (hereinafter referred to as the
"EnergySaver"), an energy management and savings system which utilizes the
technology, in the U.S. under an exclusive license agreement. Electric City's
activities to date have included raising capital, developing prototypes and
installing test systems at test sites in the U.S. and the limited sale of
systems.
On May 24, 1999, Electric City entered into an agreement to purchase
most of the assets, including inventory, of Marino Electric, Inc which agreement
the parties have treated as closed as of May 24, 1999, subject to the payment of
the balance of the purchase price. Marino Electric was a local designer and
manufacturer of custom electrical switchgear and distribution panels owned by
Joseph C. Marino, a director and principal shareholder of Electric City. The
purchase price of $3,392,000 consists of the issuance of 1,600,000 shares of
Electric City common stock and $1,792,000 in cash to be paid from the proceeds
of Electric City's current private placement described below. Electric City
plans to increase overall revenues by marketing and distributing Marino Electric
products in tandem with the EnergySaver.
Pursuant to the License Agreement dated January 1, 1998 between Giorgio
Reverberi, the owner of the Italian patent on a proprietary device and
proprietary software package underlying the EnergySaver, and Joseph C. Marino, a
director and principal shareholder of Electric City (who sublicensed the rights
to Electric City for use in the U.S.), Electric City must pay Reverberi a
royalty of $300 for each product unit made by or for Electric City and sold by
Electric City.
Electric City was initially formed as a Delaware limited liability
company (Electric City, L.L.C.) on December 5, 1997 to acquire the
above-referenced license and commercialize the application of a patented device
that reduces the amount of electricity required to power various lighting
facilities in commercial buildings, factories, office structures and street and
parking lot lighting.
On February 4, 1998, an Operating Agreement was entered into between
Electric City, L.L.C.'s two members each owning 50%, Joseph C. Marino, who on
May 2, 1998, assigned his interest to Pino, L.L.C. ("Pino"), which is controlled
by Mr. Marino and NCVC L.L.C., which is controlled by Victor Conant, Kevin
McEneely, and Nikolas Konstant through dy/dx Consulting, LLC, a Delaware limited
liability company. On June 5, 1998, Electric City, L.L.C. merged with and into
Electric City Corp. and Joseph C. Marino sublicensed his rights under the
Reverberi license agreement Electric City for use in the U.S.
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In June 1998, Electric City issued 1,200,272 shares of its common stock
representing approximately six (6%) percent of Electric City's issued and
outstanding common stock, to the approximately 330 shareholders of Pice Products
Corporation, an inactive unaffiliated company with minimal assets, pursuant to
merger agreement under which Pice was merged with and into Electric City. The
number of shares issued to Pice was determined and negotiated by the Company's
independent Board of Directors and was concluded by the Board to be an "arm's
length transaction". The purpose of the merger was to substantially increase the
number of shareholders of Electric City to facilitate the establishment of a
public trading market for Electric City common stock. Trading in Electric City
common stock commenced on August 14, 1998 through the OTC Bulletin Board under
the trading symbol "ECCC".
For a chart representing the "affiliated and Nonaffiliated Stock Ownership,
please see Page 16.
During July 1998, Electric City acquired its present corporate
headquarters, manufacturing and warehouse located at 1280 Landmeier Road, Elk
Grove Village, Illinois for the purchase price of $1,140,000 (of which $800,000
was borrowed by way of a mortgage) and $340,000 was paid by the issuance of
340,000 shares of its common stock. The mortgage debt bears interest at the rate
of 8.25% per annum and is payable in monthly installments of principal and
interest of $6,876 until August 2003, with a final balloon payment of $710,000
due in August 2003.
On May 24, 1999, Electric City entered into an asset purchase agreement
with Marino Electric, Inc. a corporation wholly owned by Joseph Marino, a
director and principal shareholder of Electric City. The terms of the agreement
were accepted by an independent board of directors and were determined to be an
"arms length" transaction". The Board believes the terms of the transaction are
as favorable to the Company as if negotiated with an unaffiliated third party.
The agreement provides for the acquisition by Electric City of certain of the
assets of Marino Electric, including work in progress, inventory, equipment and
all goodwill trade names and trademarks, excluding the accounts receivable,
cash, and a recreational vehicle, free and clear of any claims, liens or
encumbrances in exchange for $1,792,000 in cash and 1,600,000 shares of Electric
City common stock (at an assigned value of $1.00 per share determined by the
price of the stock at the time of the initial negotiation of the transaction in
January, 1999) for a total purchase price of $3,392,000. No liabilities of
Marino Electric, Inc. were assumed. Since that date, Electric City has
delivered, as partial payment of the purchase price, 1,600,000 shares of its
restricted common stock, however, the cash portion of the purchase price is to
be paid at the closing of the minimum of Electric City's current private
placement described herein. Electric City received an appraisal of a controlling
interest in Marino Electric's common stock conducted by The Griffing Group,
Inc., a party not affiliated with the transaction. This appraisal valued the
Marino Electric business as a going concern at approximately $3.2 million.
However, the final purchase price includes adjustments to the appraisal amount
to reflect the synergistic value of Marino Electric to Electric City and the
expected strategic benefits to be derived from the combination over and above
Marino Electric's stand-alone value. The parties are presently treating the
transaction as having been closed effective May 24, 1999, subject to the payment
of the balance of the purchase price, and therefore, Electric City has accrued a
current liability on its books for $1,792,000, which is accruing interest at the
rate of 9% per annum and will be paid on or before April 30, 2000. Mr. Marino
has agreed to allow the Company retain and utilize the funds until the
referenced date. The agreement also provides cross-indemnification against
losses suffered as a result of breaches of the representations and warranties of
the parties contained in the agreement.
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Through June 30, 1999, Electric City had sold approximately 50
EnergySaver systems to commercial clients within the United States. These sales
resulted in gross revenues of approximately $300,000. In addition, demonstration
EnergySaver units have been installed for test periods in some City of Chicago
buildings, including at O'Hare International Airport and several public
libraries.
Electric City's activities to date have included raising capital,
establishing a sales distribution network, selling the EnergySaver product and
preparing to assemble the EnergySaver product at Electric City's principal
facilities located at 1280 Landmeier Road, Elk Grove Village, Illinois.
Please see pages 23 and 24 for information relating to arrangements
with certain entities for consulting services.
Business of Marino Electric
Marino Electric is a local designer and manufacturer of custom
electrical switching gear and distribution panels which serve to distribute
electricity from a building's principal power source to the various electric
switches within a building. Marino Electric's products can be found in many
buildings in the Chicago area.
Marino Electric's principal customers are electrical contractors for
commercial building projects. Most Marino Electric contracts involve the custom
manufacturing of electrical switching gear and distribution panels for such
projects. In addition, Marino Electric fabricates cases (electrical boxes) and
assembles circuit breakers, bus bars and switches. Marino Electric's principal
parts suppliers are Siemens and Cutler Hammer.
Since Electric City's EnergySaver is attached to a building's electric
distribution panel, Electric City plans to increase overall revenues for the
combined entity by marketing and distributing Marino Electric products in tandem
with the EnergySaver, which can be incorporated directly into the distribution
panel for new construction projects. The acquisition is also expected to
generally result in national exposure for Marino Electric's business.
Product - The EnergySaver
The EnergySaver is a computer controlled voltage regulation system that
consists of control panels containing electrical parts in a free standing
enclosure which is connected between the power line and the building's
electrical lighting circuits. Regardless of the efficiency of the current
lighting system, the type of lamp/ballast used, whether for indoor or outdoor
lighting applications, the EnergySaver is programmable to provide the amount of
power that each lighting situation needs to function. The fluctuations (power
spikes, drops and surges) inherent in any power supply are eliminated, resulting
in a reduction of heat generated within a lighting system, which in turn
enhances lamp/ballast life. The EnergySaver regulates the power, while reducing
volts, amps and kilowatts. The EnergySaver has an on-board computer with
intelligent software that provides constant control and self-diagnosis and that
can be easily accessed directly or remotely via modem or two-way radio. The
user, or customer, can control, through the software, the amount of savings
desired, from 0% to 50%. Electric City manufactures EnergySavers of varying
sizes and capacities to address differing lighting situations. The EnergySaver
is Year 2000 compliant with a life expectancy of ten years.
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The Company believes the benefits derived from the EnergySaver are
substantial. These benefits include reducing the amount of energy required to
power lighting systems by up to 50%, while significantly increasing the
operating life of lighting bulbs and ballasts, which supplies power to bulbs
within the fixture. The EnergySaver interfaces with new and or existing lighting
panels, ballasts, and lamps without modifications. The EnergySaver provides
output voltage stability, eliminating spikes and surges while providing
protection from lightening strikes, electrical shocks and power interruptions.
The EnergySaver also reduces the heat generated by the lighting system through
its operation of that system with less electricity used.
Planned future enhancements to the EnergySaver include size reduction
for smaller buildings under 5,000 square feet (e.g., single family homes) and
continual product re-design to improve efficiency and manufacturability.
The European counterpart to the EnergySaver which uses the same
proprietary licensed technology has approximately 5,000 European installations
currently in use. This product has been sold in Europe for over 15 years where
it has principally been used by governmental agencies for outdoor street
lighting.
The Market Opportunity
The deregulation of the electric industry represents a unique
opportunity for Electric City and the EnergySaver. According to Forbes
Magazine's May 19, 1997 issue in an article entitled "Power Players", the
electric power industry is $215 billion in the U.S. alone. According to the
"Comprehensive Electricity Competition Plan" of the DOE, retail choice is
required to be implemented by January 1, 2003, thus, the industry is in the
process of a rapid deregulation. Companies, governments and individuals will
soon be able to buy power from any supplier. New power generation and
transmission companies will emerge. The DOE Plan also states that: "The
introduction of competition itself should provide important public benefits, as
sellers will have a strong incentive to add value and differentiate their
products in ways that will provide such benefits...companies will provide
bundled packages of electricity and efficiency services." Thus, large power
suppliers like Enron, Duke Energy and Unicom
(www.ceco.com/comed/business/display.asp), are actively seeking power saving
technologies that will give them a competitive advantage in securing customers.
According to "Demand Side Management in A Community Electricity Franchise:
Testimony of Cape and Islands Self-Reliance before the Massachusetts Department
of Public Utilities on the Economic Feasibility of Energy Efficiency Investment
(July, 1996), power customers are now seeking new ways to reduce their energy
consumption costs, through the implementation of demand side management tools,
tools that reduce the amount of electricity used by the customer themselves.
Therefore, Electric City has the enhanced opportunity to sell the EnergySaver to
end users of the electricity and to market the EnergySaver to utilities who need
to bundle the product with their services because of deregulation.
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Deregulation may or may not be accompanied by a reduction in market
prices. According to Nation's Business' September, 1997 issue in an article
entitled "Covering the `Stranded Costs,'" "If stranded costs are built into
post-regulation customer bills - as is expected....the full benefits of
competition will have to wait until these costs are paid." "'Stranded Costs
Recovery' has been the bottom line for electric utilities since the beginning of
the restructuring debate and many state regulators have already conceded utility
demands that the American public pay for all their uncompetitive power plants
and infrastructure," according to www.local.org/stranded.html. Furthermore,
according to Dan Berman, Chairman of The Coalition for Local Power, "Under
utility `restructuring,'...vendors will be clamoring for your electricity
dollar, with no regard for system reliability." Thus, the EnergySaver will be
able to be utilized in this situation to continue reducing the cost of lighting
in a deregulated market and in enhancing system reliability with the voltage
regulation features.
In the event that prices are reduced, increased environmental
sensitivity due to the issue of climate change may result in consumer desire to
lower energy use even in the presence of these falling energy costs, encouraging
the use of the EnergySaver. In October 1998, Coop America, an environmental
consumer group, reported that one in four adults in the U.S. is starting to
incorporate environmental and social values into purchasing and investing
decisions. "Green" purchases may be on the rise. An October 1998 report by the
World Watch Institute stated that not only is the earth's temperature rising,
but that it may be rising at increasing rates. As it becomes widely recognized
that the climate change is worsening, there may be increased efforts on the part
of governments, industry and individuals worldwide to decrease greenhouse gas
emissions that will have a positive effect on the energy conservation industry.
So, if prices do decline, customers will have an environmental incentive to
purchase the EnergySaver.
As a result of increased environmental sensitivity, Congress passed the
Energy Policy Act of 1992 which requires all states to adopt the American
Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE
Standard 90.1-1989), or better for their state energy codes. ASHRAE 90.1-1989
sets prescriptive unit lighting power allowances (ULPA) of 0.4 watts per square
foot for warehouses 250,000 square feet and over and 3.30 watts per square foot
for retail facilities less than 2,000 square feet. The EnergySaver will help
companies that are not in compliance achieve compliance by reducing energy
consumption to acceptable levels.
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The target market for Electric City's EnergySaver is any freestanding
building, commercial or industrial, over 5,000 square feet and any large-scale
outdoor lighting system (e.g. street and parking lot lighting) located in the
U.S. According to the Commercial Buildings Energy Consumption and Expenditures
1995, the most recent U.S. Department of Energy, Energy Information
Administration survey of energy use in commercial buildings, in 1995 there were
4.6 (+/-0.4) million commercial buildings in the U.S., and these buildings
comprised approximately 56.5 billion square feet, (i.e., 58.8 (+/-3.9) billion
square feet of total floor space).
Sales and Distribution
Electric City is in the process of establishing a comprehensive sales
and distribution network, along with strategic alliances with utility companies
and energy management organizations.
Electric City is in the process of contracting with established
(typically distribute electrical products) regional distributors ("Regional
Distributors") to carry and market the EnergySaver. Regional Distributors sign
multiyear agreements for product distribution. Regional Distributors secure
dealers to assist in their marketing and sales efforts. Both Regional
Distributors and other dealers are make their profit via product markup.
Electric City works with its Regional distributors in 19 states and is
currently negotiating contracts in New York City and Southern California.
Electric City anticipates that by the end of 1999 it will have established
distribution networks covering most of the U.S. The agreements have first year
guaranteed sales, guaranteed through letters of credit. Years two through ten
have sales quotas that increase throughout the term. The distribution agreements
are standard 10 year agreements with varying terms of territory, quotas, and
payment terms based on the market covered within the agreement. The Electric
City of Illinois LLC agreement included in the filing is representational of the
other 18 agreements. After the first year, nonperformance results in the loss of
the said territory to Electric City. Nonperformance relates in each instance to
quota achievement and payment within the said payment terms of the
agreement(generally 30-60 days with select areas requiring a 10% deposit upon
order placement). Agreements are renewable after the 10-year period at the
discretion of Electric City. Agreements terminate at the sole discretion of
Electric City if any term is not met. Exclusive distributors operate exclusively
in their named territory meaning they establish dealership within that market
and manage the sales, installation, product maintenance, and sales support
within the market. Upon selling outside the said exclusive market, the exclusive
distributor operates as a dealer in the markets of another exclusive
distributor, meaning they manage end user sales only.
In addition, Electric City distributors plan to distribute the
EnergySaver in tandem with the electric distribution panels manufactured by
Marino Electric.
Electric City plans to establish a direct sales force to target large
national or multinational companies. These sales people will focus their efforts
on the energy engineering staffs of these companies, which can analyze and
recommend the purchase of a device such as the EnergySaver for their multiple
sites.
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Finally, Joseph Marino, on behalf of the Company, is working to but has
not yet been able to establish alliances and partnerships with utility companies
to potentially buy and sell power and to include the EnergySaver in their energy
efficient programs, energy management organizations, and governmental agencies,
such as the United States Department of Energy.
Marketing
Electric City has retained Burson-Marsteller, a high end, full service
public relations firm to assist in the marketing efforts for the EnergySaver.
They have developed a media campaign to introduce the Company to Chicago media,
including print and television outlets. The retainer was for a period of six (6)
months, commencing in March of 1999. The Company has not renewed the agreement.
Licenses and Trademarks
Pursuant to the License Agreement dated January 1, 1998 between Giorgio
Reverberi, the owner of the foreign patent for the technology underlying the
EnergySaver, and Joseph C. Marino, Chairman and CEO of Electric City (who has
sublicensed the U.S. rights to Electric City, for no fee), Electric City is to
pay Reverberi a royalty of $300 for each product unit made by or for Electric
City and sold by Electric City. The term of the Reverberi license agreement,
which is transferable by Mr. Marino so long as he retains an interest in the
transferee, is until December 31, 2007, with automatic renewal available until
December 31, 2017, unless written termination is provided by either party of the
License Agreement no less than 90 days prior to the automatic renewal date. The
license applicable to Electric City also provides an exclusive license to
manufacture, have made, import, use and sell in North America, including the
United States, Canada and Mexico; Central and South Americas and the Caribbean,
excluding Cuba, Argentina, Chile, Paraguay and Uruguay any product or method
covered by one or more claims of the Reverberi's patents. The license granted to
Electric City may be transferred or assigned to a corporation or other legal
entity so long as Electric City retains any ownership interest in such legal
entity. The License Agreement may be terminated by either party upon breach
which remains uncured after sixty (60) days notice and only by Mr. Marino upon
sixty (60) days notice without cause.
In April 1999 Electric City filed applications with the U.S. Patent and
Trademark Office to federally register its marks "EnergySaver State of the Art
Lighting Control Technology" "EnergyMiser" and its corporate name. As of the
date of this registration statement, the U.S. Patent and Trademark Office had
not determined whether the marks and name could be federally registered and the
Company cannot guarantee that registration certificates will be issued. Electric
City currently relies solely on common law trademark protection. Under common
law, Electric City generally has priority over subsequent users of confusingly
similar marks in the same geographical areas, but does not have priority over a
prior user of a similar mark. If prior use is established, Electric City may not
be able to use its mark in the geographical area of the prior use. While
Electric City's marks are important to Electric City, unavailability of its
marks in any particular geographical area may not necessarily have a material
adverse effect on Electric City. However, such unavailability may preclude
utilization of competitive advantages that come with nationwide or regional
marketing and advertising.
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Patents
Electric City's business, apart from that of Marino Electric, is
substantially dependent on the licensed proprietary electric load reduction
technology underlying the EnergySaver. This technology has been patented by
Giorgio Reverberi under Italian law but not in the U.S. a U.S. patent
application was filed by Mr. Reverberi in November 1997 and is has been granted.
The grant of the patent indicates that the EnergySaver does not infringe on
other patents or intellectual property rights. In light of technological
advances that may be made in products of this type, Electric City regards the
value of the protection provided by the patent to be of uncertain duration.
Electric City has made improvements to the EnergySaver since the patent filing.
A new software program was developed, bringing the EnergySaver to Y2k
compliance. The patent for the newly developed software is scheduled to be filed
within 90-120 days.
In addition, Electric City is continually striving to make synergistic
enhancements to the EnergySaver technology. Electric City intends to seek patent
protection for such technological enhancements to the extent that they are
separately patentable. However, the proprietary information may become known to
competitors or others may independently develop substantially equivalent or
better products that do not infringe on Electric City's property information
rights.
Competition
Although Electric City is not aware of any direct competitors currently
offering products comparable to the EnergySaver, competitors are expected to
develop or license their own technologies and to begin to offer products that
will compete with EnergySaver. Many of these competitors will have greater
financial, technical, marketing, customer service and other resources available
than Electric City. Electric City anticipates that the principal competitive
factors in this emerging industry will be affordable and flexible technology.
Electric City intends to aggressively market its products and quickly achieve a
significant market share which will help it withstand the entry of future
competitors. (See "Marketing.") However, there can be no assurance that Electric
City will succeed in this endeavor or will be able to achieve and maintain
profitability in the highly-competitive environment for energy management
products and services which is likely to develop.
Marino Electric competes primarily with national suppliers of
electrical switchboards such as Siemens and Cutler Hammer, and several local
electrical manufacturers in Illinois. Competition in Marino Electric's industry
revolves primarily around the price of the product and the time it takes to
complete the project. Marino Electric believes that it can generally complete
custom projects more quickly than the other national competitors. National
competitors are structured on an assembly line basis because they primarily
handle standard, non-custom work assignments; the benefit of a custom job shop
environment like Marino Electric is the ability to handle custom assignments in
a more timely manner because each assignment is handled individually and
assembly lines are not utilized.
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There is currently not a product on the market that possesses the
features and benefits of the EnergySaver; however, there are products in the
market that are considered indirect competition to the EnergySaver. Most
products that compete in the same market as the EnergySaver can be categorized
into two categories: constant wattage autotransformer technologies and wave
choppers. Both types reduce energy costs for lighting. The former utilized
autotransformers to control the voltage (power) feeding the lighting panel,
according to the National Lighting Product Information Program's Specifier
Report in Volume 6, Number 2 of the September, 1998 issue. The EnergySaver
differs from this category of product through its ability to electronically and
automatically program and adjust the voltage coming from the unit from a remote
location; these technologies require this to be done manually. According to the
same report, the latter category relies on the chopping of the sine waveform,
the reduction of the root-means-squared voltage supplied to the lighting load.
The report concluded that "waveform chopping can reduce power quality as well as
lamp and ballast performance," whereas the EnergySaver enhanced lamp/ballast
life with its features and benefits of voltage regulation and heat reduction.
Both of the discussed technologies also increase the harmonic distortion within
the lighting system which reduces power factor; whereas the EnergySaver reduces
harmonic distortion. Lastly, the EnergySaver rises above its competition because
of the software that accompanies the product which allows the customer to
monitor, operate, and manipulate the EnergySaver from a remote location. In
conclusion, the EnergySaver possesses features and benefits beyond its indirect
competitors.
Furthermore, in the face of potentially falling prices, the EnergySaver
will remain an attractive product because of the "soft savings" it provides.
Because of the reduced amperage and voltage the powers lighting systems with,
heat generation within the lighting system is reduced, extending lamp/ballast
life. According to the National Lighting Product Information Program's Specifier
Report in Volume 6, Number 2 of the September, 1998 issue stated referring to
technologies such as the EnergySaver which "reduce active power" it stated "they
should also reduce ballast operating temperatures and therefore have the
potential to extend ballast life." Heat reduction in the lighting system will
also impact air conditioning costs by lessening the counterproductive heat
generation of the overhead lighting. The EnergySaver regulates the voltage from
the power supply to the lighting system, protecting the lamps/ballast from
damaging power surges and spikes. By enhancing lamp/ballast life, the
EnergySaver reduces maintenance costs for its customers. These "soft savings"
are present whether energy costs rise or fall, creating value for the
EnergySaver in either scenario.
In Europe, Electronica Reverberi has two different types of products as
their competition. They could be categorized as number one which is Multiple Tap
Transformer. This particular machine needs continuous maintenance, its lifetime
is very short, and when operating is very heavy and noisy. The second category
which is called a Variac Transformer, also needs constant attention and
maintenance, and since it has many mechanical parts, detailed complications may
occur. Basically, both products that in any way compete, are undesirable for
lighting systems.
Manufacturing
The Reverberi license agreement provides that the licensee may
manufacture its own EnergySaver units. Electric City has begun manufacturing the
units at its principal facility in Elk Grove Village, Illinois, with most of the
component parts supplied by multiple U.S. manufacturers. Electric City continues
to engage in contracting with suppliers to arrange additional reliable sources
of supply of parts. However, at the present time Electric City is entirely
reliant on Electronica Reverberi S.A., which is controlled by Mr. Reverberi, to
supply the computer processor component of the EnergySaver. The inability of the
Company to obtain components parts from Reverberi at this time would have a
material adverse effect upon the Company, its revenue and its profitability. The
Company has designed and is developing a new software system that is anticipated
to be manufactured locally to overcome this risk. Although Electric City is
currently in discussion with a North American source of supply for the computer
processor component, the Company cannot guarantee that such efforts will be
successful.
Due to the capabilities and expertise of the personnel obtained from
Marino Electric, Electric City plans eventually to enter into arrangements
whereby mass production of the EnergySaver would be performed by contract
manufacturers and Electric City's facility in Chicago would be used primarily
for custom orders and technological improvements to the EnergySaver.
Company Financing
For information concerning Company financing, see Item 2. Plan of
Operation.
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Research and Development
The Company, through the day to day use of EnergySaver and its
components, and their use at various testing sites around the country develops
modifications and improvements to the product. Total research and development
costs charged to operations were $1,923,000.
Compliance with Environmental Laws
Neither the Company's production nor sales of its products in any way
generate activities or materials that that would require compliance with
federal, state or local environmental laws. The cost of such compliance is
minimal.
Employees
As of June 30, 1999 Electric City had 37 employees, including 17 former
employees of Marino Electric. 35 of these employees are employed full-time.
Electrical manufacturing employees from Marino Electric are covered by a
collective bargaining agreement with the International Brotherhood of Electrical
Workers, affiliated with the A.F.of L.-C.I.O. which expires on December 31,
2000. Electric City considers its relations with its employees to be
satisfactory.
Item 2. Plan of Operation
Electric City is a development stage company that was formed to acquire
and commercialize a proprietary device and proprietary software package that
reduces the amount of electricity required to power various lighting facilities.
Electric City's activities, to date, have included raising capital, developing
prototypes, installing test systems at test sites in the U.S. and the limited
sale of its EnergySaver system.
On May 24, 1999, Electric City entered into an agreement to purchase
most of the assets of Marino Electric, which is a designer and manufacturer of
custom electrical switchgear and panels.
From December 5, 1997 through April 30, 1999, Electric City has
borrowed a total of $1 million from related parties to fund its initial
operating expenses. As of July 30, 1999, $500,000 of this amount has been
converted into 500,000 shares of common stock and $200,000 remains outstanding
and payable on demand. In addition, a total of $98,968 in operating expenses has
been paid on behalf of Electric City by principal shareholders. (See "Certain
Relationships and Related Transactions.") This amount has been treated as
additional paid in capital in the Electric City financial statements as of April
30, 1999.
In addition, Electric City has raised a total of $1,365,179 in cash and
received services with a recorded value of $2,715,899 through private placements
of its common stock. Further, Electric City has purchased land and a building
for its principal offices with a recorded value of $1,140,000 through the
issuance of $800,000 in debt and the issuance of common stock. The mortgage debt
bears interest at 8.25% and is payable in monthly principal and interest
installments of $6,876 until August 2003, with a final balloon payment of
$710,000 due in August 2003.
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From May 1, 1998 through April 30, 1999, Electric City has used cash of
$1,724,048 in operating activities, primarily attributable to selling, general
and administrative expenses, and used cash of $945,320 in investing activities
to purchase property and equipment.
The agreement for the purchase of Marino Electric assets provided for
the issuance of 1,600,000 shares of common stock and the payment of $1,792,000
in cash. The tangible assets acquired consist primarily of equipment and
inventory.
In addition to the cash needed to complete the purchase of Marino
Electric assets and implement the planned expansion of Marino Electric from a
local to a national company, Electric City currently estimates that additional
cash may be needed for possible niche acquisitions within the next 12 months of
companies which supply components for the EnergySaver or sell products which are
complementary to the marketing and distribution of the EnergySaver. Electric
City also expects to hire key management personnel such as a chief financial
officer and a chief operating officer within the next twelve months. Only a very
small portion of the cash requirements for these items is expected to be
satisfied through operating revenues.
To satisfy its cash requirements, in July 1999 Electric City obtained a
one-year line of credit for $500,000 from LaSalle Bank N.A. Amounts drawn on
this line of credit bear interest at the prime rate plus 1% and are
collateralized by substantially all of the assets of Electric City. Electric
City has borrowed approximately $200,000 against this line of credit. The line
of credit will be retired before the end of October, 1999. In addition, Electric
City is currently seeking to raise up to an additional $9,900,000 through a
private placement of up to 2,200,000 shares of its common stock. To date
$8,200,000 has been raised. The net proceeds of this offering are to be used for
the purchase of the assets of Marino Electric, to purchase inventory, to repay
indebtedness to principal shareholders and for general working capital purposes.
Although Electric City cannot determine at this time how much cash will
be raised in the next 12 months from financing activities, funds are available
for the completion of the acquisition of Marino Electric's assets (the only
material financial commitment for the next 12 months). Electric City anticipates
additional private placements or public offerings of debt or equity securities
for the purpose of expanding its business and meeting the demands of its growth.
Year 2000 Readiness Disclosure
Computer programs or other embedded technology that have been written
using two digits (rather than four) to define the applicable year and that have
time-sensitive logic may recognize a date using "00" as the Year 1900 rather
than the Year 2000, which could result in widespread miscalculations or system
failures. Both information technology systems and non-information technology
systems using embedded technology may be affected by the Year 2000. Electric
City's EnergySaver is Year 2000 compliant, according to the certificate received
by the software manufacturer, and Electric City believes that its other
equipment, meaning the electric distribution product acquired in the acquisition
of Marino Electric, will not be affected by the Year 2000 because of its
mechanical driven operation as opposed to software driven operation. Electric
City does not utilize any proprietary computer software, but uses a commercially
available accounting software program licensed from Intuit. Electric City has
been advised that the software it uses is Year 2000 compliant.
12
<PAGE>
Electric City has not completed its assessment of Year 2000 issues, in
particular the process of verification of whether the critical technology
systems of distributors, vendors, suppliers and significant customers with which
Electric City has material relationships are Year 2000 compliant, except for a
single vendor which supplies Electric City with the software program for the
EnergySaver, from whom a Y2K certificate of compliance has been received. Under
a worst-case scenario, if Electric City and such third parties are unable to
address potential Year 2000 problems in a timely manner, it could result in
material financial risk to Electric City, including distributor, supplier and
customer delays resulting in delay of revenue and substantial unanticipated
costs. Therefore, Electric City plans to devote all resources necessary to
resolve anticipated Year 2000 problems which it can control in a timely manner,
beginning with the ordering of a material supply sufficient enough to allow for
continued manufacturing during potential Year 2000 issue rectification. Electric
City does not expect that costs of remediating Year 2000 problems will be
material. Electric City does not currently have a Year 2000 contingency plan.
Electric City is currently not able to determine whether the Year 2000 will have
a material effect on Electric City's financial condition, results of operations
or cash flows.
Item 3. Description of Property.
Electric City's principal executive offices, as well as manufacturing
and warehouse space are contained in a single story building of approximately
16,000 square feet located at 1280 Landmeier Road, Elk Grove Village, IL 60007.
Electric City purchased this property in July 1998 in exchange for $800,000 in
the form of a first mortgage and the issuance of 340,000 shares of Electric City
common stock. The property remains encumbered by first mortgage indebtedness in
the amount of $786,887.17 at June 30, 1999.
The location is approximately 60% manufacturing and 40% office.
Electric City's management believes this facility is satisfactory for
all of its needs for the foreseeable future and that the property is adequately
covered by insurance.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The table below sets forth the beneficial ownership as of July 30, 1999
of shares of Electric City's outstanding common stock, $0.0001 par value per
share, (i) by all persons known to Electric City to be the beneficial owner of
more than 5% of the common stock and (ii) by each member of Electric City's
board of directors, Electric City's Named Executive Officer (as defined in Item
6 below) and by all Directors and the Named Executive Officer as a group.
As of July 30, 1999, there were 26,240,250 shares of common stock
issued and outstanding. On July 8, 1999, the Electric City board of directors
declared a 2 shares-for-1 share stock split of all of the issued and outstanding
shares of common stock as of July 29, 1999.
13
<PAGE>
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership % of Class*
- ------------------- -------------------- -----------
Pino, LLC (1) 11,075,002 42.2%
1280 Landmeier Road
Elk Grove, IL 60006
NCVC L.L.C. (2) 9,124,998 34.8%
7300 N. Lehigh
Niles, IL 60714
Joseph C. Marino 11,433,135 (3) 43.6%
1280 Landmeier Road
Elk Grove, IL 60006
Michael S. Stelter 155,000 (4) 0.6%
1280 Landmeier Road
Elk Grove, IL 60006
Kevin P. McEneely 9,124,998 (5)(6) 34.8%
7300 N. Lehigh
Niles, IL 60714
Victor L. Conant 9,124,998 (5)(7) 34.8%
7300 N. Lehigh
Niles, IL 60714
Nikolas Konstant 9,124,998 (5) 34.8%
7300 N. Lehigh
Niles, IL 60714
All Directors and Named Executive
Officer as a group (4 persons) 20,723,133 79.0%
- -----------------------------
* Rule 13d-3(d)(1)(i) under the Securities Exchange Act of 1934, regarding the
determination of beneficial owners of securities, includes as beneficial owners
of securities, among others, any person who directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise has or shares
voting power and/or investment power with respect to such securities; and, any
person who has the right to acquire beneficial ownership of such security within
sixty days through a means, including, but not limited to, the exercise of any
option, warrant, right or conversion of a security. Any securities not
outstanding that are subject to such options, warrants, rights or conversion
privileges shall be deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by such person, but
shall not be deemed to be outstanding for the purpose of computing the
percentage of the class by any other person.
(1) Pino, LLC is an entity in which Joseph Marino holds a 70% membership
interest and Michael Stelter holds a 10% membership interest.
14
<PAGE>
(2) NCVC L.L.C. is an entity with which Kevin P. McEneely and Victor L.
Conant, directors of Electric City, and Nikolas Konstant, are
affiliated and who may be deemed beneficial owners of the Electric City
common stock held by NCVC L.L.C.
(3) Consists of all 11,075,002 shares held of record by Pino, LLC, 328,133
shares held directly by Mr. Marino and 40,000 shares held by Mr.
Marino's son.
(4) Consists of 155,000 shares held of record by Mr. Stelter. Since Mr.
Stelter owns only a 10% membership interest in Pino, LLC and thus is
not able to control Pino, no shares held of record by Pino have been
attributed to Mr. Stelter. All shares held of record by Pino have been
attributed to Mr. Marino, who holds a controlling 70% membership
interest in Pino.
(5) Consists of 9,124,998 shares held of record by NCVC L.L.C. which is
controlled by Messrs. Conant, McEneely and Konstant. Such shares are
deemed to be beneficially owned by each of these individuals.
(6) Mr. McEneely disclaims beneficial ownership of an aggregate of 448,846
shares held by Patrick McEneely and Ryan McEneely, his adult children.
(7) Mr. Conant disclaims beneficial ownership of an aggregate of 470,748
shares held in trust for Carson Conant and Chappell Conant, his adult
children.
As of July 30, 1999, Pino, LLC and NCVC L.L.C. each held options to
acquire 2,000,000 shares of Electric City common stock at an exercise price of
$1.10 per share. These options become exercisable on January 2, 2000 and expire
in June 2008. Effective January 4, 1999, Electric City granted to Joseph Marino
an option to acquire up to 900,000 shares at an exercise price of $1.75 per
share. This option becomes exercisable in pro rata installments at the end of
each of the first four years after the date of grant and expires in December 31,
2008.
In January 1999, employees were granted options to purchase 304,000
shares of common stock at an exercise price ranging from $1.75 to $3.50. 150,000
options vested upon the signing of the option agreements and 154,000 will vest
in fiscal 2000. In addition, as of July 30, 1999 there is an outstanding
warrant, currently exercisable, to purchase 200,000 shares of Electric City
common stock at an exercise price of $2.00 per share. Further, in April 1999
Electric City entered into a contract with John Prinz & Associates LLC whereby
Electric City may issue up to 340,000 shares of common stock to Prinz upon the
completion of services for Electric City. Through July 30, 1999, 80,000 shares
had been issued to Prinz See "Recent Sales of Unregistered Securities."
The following chart represents the relationship between affiliated and
nonaffiliated stock ownership:
ELECTRIC CITY CORP.
STOCK OWNERSHIP
20,723,133 5,517,117
---------- ---------
Affiliate Non-affiliate
15
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The directors and executive officers of Electric City are as follows:
Name Age Positions Held With Company
---- --- ---------------------------
Joseph C. Marino 44 Chief Executive Officer and Chairman of the
Board of Directors and a Director
Kevin P. McEneely 51 Senior Executive Vice President,
Chief Operating Officer,
Secretary and a Director
Michael S. Stelter 42 Vice President of Sales and a Director
Victor L. Conant 52 Director
James Stumpe 41 Director
All directors of Electric City are elected annually unless no annual
shareholders' meeting is held, in which event the Directors serve until their
successors have been elected and qualified. The Bylaws of the Company provides
for five (5) directors of the Company. There is no limit on the number of
one-year terms which a Director may serve. Officers of Electric City serve at
the discretion of the Board of Directors. The following chart represents the
corporate structure of the Company:
Shareholders
Elect
|
Directors
Elect
|
Officers:
CEO/President
|
-------------------------------------------------------
Senior Executive Vice President Vice President of Sales
Chief Operating Officer
There are no family relationships among directors or executive officers
of Electric City.
Additional information concerning each director and executive officer
of Electric City follows:
Joseph C. Marino is a co-founder of Electric City and has served as
Chief Executive Officer of Electric City since its organization as a limited
liability company in December 1997 and as Chairman of the Board of Directors of
Electric City since its incorporation in June 1998. Mr. Marino also serves as
President of Marino Electric, a position he has held since his founding of
Marino Electric in 1986. Marino Electric is an electrical manufacturing company
which is wholly owned by Mr. Marino.
16
<PAGE>
Kevin P. McEneely is a co-founder of Electric City and has served as
Senior Executive Vice President and Chief Operating Officer of Electric City
since its organization in December 1997, and as a director of Electric City
since its incorporation in June 1998. Mr. McEneely is also an Executive Vice
President of Nightingale-Conant Corporation, a position which he has held since
1985. Nightingale-Conant Corporation is a publisher and marketer of audio and
video self-improvement materials.
Michael S. Stelter is a co-founder of Electric City and has served as
Vice President of Sales since its organization in December 1997 and as a
director of Electric City since its incorporation in June 1998. Mr. Stelter also
serves as Vice President of Marino Electric, a position which he has held since
1987.
Victor L. Conant is a co-founder of Electric City and has served as a
director of Electric City since its incorporation in June 1998. Mr. Conant is
also President and Chief Executive Officer of Nightingale-Conant Corporation, a
position which he has held since 1986.
James Stumpe is a member of Electric City of Illinois, LLC., a
distributor of the Company. Mr. Stumpe is also the owner of RCI, another
distributor of the Company, since its inception in 1997. He has a degree from
DeVry Institute, an engineering school and is a member of the Local 134,
Electrical Union. Mr. Stumpe became a Director of the Company on October 12,
1999 and currently owns 76,000 shares of the Company's common stock.
Promoter and Control Person
Nikolas Konstant is a co-founder of Electric City. Mr. Konstant is also
the Managing Member of DYDX LLC, (since August 1997) a private investment
company. DYDX is a special limited partner of the Catterton Simon LLP, a venture
capital fund ("CSP III").
Item 6. Executive Compensation.
Summary Compensation Table
The following table summarizes the total compensation awarded or paid
by Electric City to Electric City's Chief Executive Officer for the fiscal year
ended April 30, 1999, Electric City's first completed fiscal year. No other
executive officer of Electric City had a total annual salary and bonus in excess
of $100,000 for fiscal 1999. Accordingly, Electric City's Chief Executive
Officer is the only Named Executive Officer of Electric City under SEC rules.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
- --------------------------------------------------------------------- ---------------------------------------------------------
Awards Payouts
------ -------
Name and Principal Fiscal Restricted
Salary ($) Bonus ($) Other Annual Stock LTIP All Other
Position Year ---------- --------- Compensation ($) Award(s) ($) Options (#) Payouts ($) Compensation($)
-------- ---- --------------- ------------ ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph C. Marino, 1999 $60,000(1) $0 $0 $0 2,700,000(2) $0 $0
Chief Executive
Officer
17
<PAGE>
<FN>
(1) In connection with Electric City's initial formation as a limited
liability company, Mr. Marino agreed to an initial salary of $60,000
per year until Electric City obtained sales levels in excess of
$1,000,000, at which time his annual salary was to be increased to
$150,000. Effective January 1, 1999, Electric City and Mr. Marino
entered into a 3-year employment agreement which provides for an annual
salary of $225,000.
(2) Effective July 31, 1998, Electric City granted to Pino, LLC a 10-year
option to acquire up to 2,000,000 shares of common stock at an exercise
price of $1.10 per share. This option becomes exercisable on January 2,
2000. In that Mr. Marino owns a 70% membership interest in Pino, LLC,
only 70% of those shares are reflected . Effective January 4, 1999,
Electric City granted to Joseph Marino an option to acquire up to
900,000 shares at an exercise price of $1.75 per share. This option
becomes exercisable in pro rata installments at the end of each of the
first four years after the date of grant and expires in December, 2008.
</FN>
</TABLE>
Compensation of Other Executive Officers and Directors
There are no standard or other compensation arrangements for directors
of Electric City for their services as such, including service on committees or
special assignments, except for the standard reimbursement of expenses for
attendance at board of directors meetings.
Option Exercises and Values
Option/SAR Grants in Last Fiscal Year
-------------------------------------
(Individual Grants)
<TABLE>
<CAPTION>
Percent of total
Number of Securities options/SARS granted
Underlying Options/SARS to employees in Exercise or base
Name granted (#) fiscal year price ($/Sh) Expiration Date
---- ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
Joseph C. Marino 1,400,000 35% (1) $1.10/Sh 06/25/2008
Joseph C. Marino 900,000 18% (2) $1.75/Sh 12/31/2008
<FN>
(1) Mr. Marino owns a 70% membership interest in Pino, LLC, to which an
option to acquire up to 2,000,000 shares of common stock was issued in
1998. Michael Stelter owns a 10% membership interest in Pino, LLC.
18
<PAGE>
(2) Effective January 4, 1999, Electric City granted to Joseph C. Marino an
option to acquire up to 900,000 shares at an exercise price of $1.75
per share. This option becomes exercisable in prorata installments at
the end of each of the first four years after the date of grant and
expires in December, 2008.
</FN>
</TABLE>
Aggregate Option/SAR Exercise in Last Fiscal Year
And FY-End Option/SAR Values
<TABLE>
<CAPTION>
Value of unexercised
Shares Number of unexercised in-the-money options/SARS at
acquired on options/SARS at FY-end(#) FY-end ($)
Name exercise (#) Value realized ($) exercisable/unexercisable exercisable/unexercisable
---------- ------------ ------------------ ------------------------- -------------------------
<S> <C> <C> <C>
Joseph C. Marino - - 0/1,400,000 0/$ 2,660,000 (1)
Joseph C. Marino - - 0/900,000 0/$ 1,125,000 (2)
<FN>
(1) Based on the difference between the $1.10 per share exercise price and the
closing bid quotation for Electric City common stock on the OTC Bulletin
Board for April 30, 1999 of $3.00 per share (post split).
(2) Based on the difference between the $1.75 per share exercise price and the
closing bid quotation for Electric City common stock on the OTC Bulletin
Board for April 30, 1999 of $3.00 per share (post split).
</FN>
</TABLE>
Long-Term Incentive Plans
The Company has no long-term incentive plans.
Employment Contracts
Effective January 1, 1999, Electric City and Mr. Marino entered into a
3-year employment agreement as President and Chief Executive Officer which
provides for an annual salary of $225,000. As a part of his compensation, Mr.
Marino is allowed the use of a new automobile, provided insurance and is
reimbursed for cellular telephone usage. The Employment Agreement also granted
Mr. Marino options to purchase the common stock of the Company as described
above. Mr. Marino is subject to confidentiality restrictions and an agreement
not to compete with the Company for two (2) years after his separation from the
Company.
Item 7. Certain Relationships and Related Transactions.
On February 4, 1998, in connection with the organization of Electric
City, Joseph C. Marino and NCVC, L.L.C. entered into an operating agreement,
which was amended on May 26, 1998, which commenced the operation of Electric
19
<PAGE>
City as a limited liability company. Under the operating agreement, NCVC agreed
to loan Electric City $500,000 to meet operating cash needs of Electric City and
to secure a letter of credit with a financial institution for $500,000 to secure
the payment obligation to Reverberi. In exchange Joseph C. Marino sublicensed
his rights under the Reverberi license agreement to Electric City. No value was
accorded for the sublicense or the securing of the letter of credit. Of the
total of $500,000 transferred to Electric City, $374,000 was transferred through
May 31, 1998, with the remaining $126,000 loaned to Electric City in July 1998.
The loans, which represented convertible debt, bore no interest, and was paid
off by the issuance of 500,000 shares of Electric City common stock, at a price
equal to the fair market value at the time of the conversion, upon completion of
the private placement. The letter of credit was retired and in accordance with
the operating agreement, the $500,00 was distributed 50% to Mr. Marino and 50%
to NCVC. Upon completion of this transaction, each of Mr. Marino and NCVC will
have a further obligation to loan Electric City up to $250,000 on an as-needed
basis. As of April 30, 1999, outstanding debt under this arrangement totaled
$500,000. As of July 30, 1999, outstanding debt under this arrangement totaled
$200,000. These loans bear interest of 9% and are payable on demand. Accrued
interest on this debt was approximately $16,000 at July 30, 1999. The Company's
Board negotiated and approved the terms of the transaction and believes the
terms are as favorable to the Company as if negotiated with an unaffiliated
third party.
During the period from December 5, 1997 (date of inception) through
April 30, 1999, Electric City paid approximately $165,000 to Marino Electric for
goods purchased and services rendered which included components and cabinets for
EnergySaver units and the installations of EnergySaver units. Marino Electric is
wholly owned by Mr. Marino. Further, since January 1, 1999 Electric City has
allowed Marino Electric to use portions of Electric City's building without
charge.
Effective May 24, 1999, Electric City entered into an agreement to
acquire most of the assets of Marino Electric for a purchase price of $3,392,000
consisting of $1,792,000 in cash and 1,600,000 shares of Electric City common
stock.
Mr. Marino owns the rights under the Reverberi license agreement to
sell EnergySaver in Canada, Mexico, and portions of South America.
Item 8. Description of Securities.
Electric City Corp. is authorized under its certificate of
incorporation to issue 30,000,000 shares of $.0001 par value common stock and
5,000,000 shares of preferred stock, par value $.01 per share. All of the common
shares are entitled to one vote on any matter brought before the shareholders
including the election of directors. The preferred stock may be issued in series
and the board of directors is specifically vested with the authority to
establish and designate series of preferred and fix rights, preferences,
privileges and restrictions of any series of the preferred stock, including
without limitation, those relating to any dividend rights and terms, conversion
rights, voting rights, redemption rights, liquidation preferences and sinking
fund terms. There are no provisions in the Company's certificate of
incorporation that would delay, defer or prevent a change in control.
20
<PAGE>
Electric City common stock has been subject to the "penny stock" rules
under the Securities Exchange Act of 1934, which cover any equity security that
has a market price less than $5.00 per share, subject to certain exceptions
ss.ss. 15(g). In that the stock has been trading for in excess of $5.00 per
share, the stock is currently not subject to the "penny stock' rules. Any broker
engaging in a transaction in a penny stock is required to provide any customer
with a risk disclosure document, disclosure of market quotations, if any,
disclosure of the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market values of penny
stocks held in the customer's accounts. Further the broker-dealer must determine
the suitability of the customer for an investment in "penny stocks" by obtaining
customer information concerning the person's "financial situation, investment
experience, and investment objectives. The broker-dealer must then "reasonably
determine" based on the information furnished and any other information known to
the broker-dealer that transactions in penny stocks are suitable for the person
and that the person (or his independent adviser in such transactions) has
sufficient knowledge and experience in financial matters that the person
reasonably may be expected to be capable of evaluating the risks of transactions
in penny stocks. The bid and offer quotation and compensation information must
be provided prior to effecting the transaction and must be contained on the
customer's confirmation. Certain brokers are less willing to engage in
transactions involving penny stocks as a result of the additional disclosure
requirements described above. If the per share market price of Electric City
common stock falls below $5.00, the penny stock rules may make it more difficult
for holders of Electric City common stock to dispose of their shares.
PART II
Item 1. Market for Common Equity and Related Stockholder Matters.
Market Information
Electric City common stock has been quoted on the OTC Bulletin Board
under the symbol "ECCC" since August 14, 1998. The following table sets forth
the range of high and low closing per share bid quotations for Electric City
common stock for each fiscal quarter since August 14, 1998. Such prices are
reported by the OTC Bulletin Board inter-dealer quotation system and reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. These amounts are from trading days prior to the
2 for 1 share stock split of all outstanding shares of common stock effective
July 30, 1999.
Fiscal Quarter High Low
-------------- ---- ---
Fiscal Year 1999
Quarter Ended 10/31/98(1) $3.438 $.875
Quarter Ended 1/31/99 $2.938 $1.125
Quarter Ended 4/30/99 $3.905 $1.625
Fiscal Year 2000 $14.84 $2.25
Quarter Ended 7/31/99
(1) Since August 14, 1998.
21
<PAGE>
The closing quotation for Electric City common stock on the OTC
Bulletin Board on July 30, 1999 was $8.56 per share. Electric City intends to
apply for the listing of its common stock on the Nasdaq SmallCap Market when as
it meets the requirements for such listing. However, Electric City cannot
provide assurance that its application will be approved. The requirements that
Electric City must meet include the registration of its common stock with the
SEC under the Securities Exchange Act of 1934, a per share market price of
$4.00, $4,000,000 in net tangible assets, 3 registered and active market makers
and 300 round lot (100 shares or more) shareholders.
Electric City has never paid a cash dividend with respect to its common
stock and does not anticipate paying cash dividends on its common stock in the
foreseeable future.
As of June 30, 1999 there were approximately 450 holders of record of
Electric City common stock not including those shares beneficially held in
brokerage accounts.
Item 2. Legal Proceedings.
Neither Electric City nor any of its properties are the subject of any
pending legal proceeding, nor is Electric City aware of any contemplated legal
proceeding involving Electric City or its property.
Item 3. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 4. Recent Sales of Unregistered Securities.
Since its inception on December 5, 1997, Electric City has sold
securities in the transactions described below without registering the
securities under the Securities Act of 1933. Except as otherwise indicated, no
underwriter or sales or placement agent was involved in the transactions.
(1) In February 1998, initial membership interests in Electric City
L.L.C. were issued to Joseph Marino and NCVC L.L.C. in exchange for the
sublicense of Mr. Marino's rights under his license agreement with Giorgio
Reverberi to the technology underlying the EnergySaver and an agreement by NCVC
L.L.C. to make capital contributions of up to $500,000 and to cause the issuance
of a $500,000 irrevocable standby letter of credit in favor of Mr. Reverberi.
Such limited liability company membership interests were issued in reliance upon
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933, as such transaction did not involve any public offering. Mr. Marino
subsequently transferred his membership interests to Pino, LLC.
22
<PAGE>
(2) The Electric City LLC interests were converted into an aggregate of
20,000,000 shares of common stock upon the conversion of Electric City to a
corporation by the merger of Electric City L.L.C. into Electric City Corp. Such
shares were issued in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as such transaction did not involve
any public offering.
(3) In June 1998, Electric City issued an aggregate of 1,200,272 shares
of common stock valued at $0.00 to the approximately 330 shareholders of Pice
Products Corporation, an inactive company with minimal assets, pursuant to a
merger agreement under which Pice Products was merged with and into Electric
City. Such shares were issued in reliance upon the exemption from registration
provided by Rule 504 of Regulation D promulgated under the Securities Act of
1933, which limits the aggregate offering price to not exceed $1,000,000.
(4) In June 1998, Electric City concluded a private placement under
which it issued an aggregate of 940,000 shares of common stock to 47 persons in
exchange for an aggregate of $440,000 in cash and the conversion of Electric
City's indebtedness to NCVC L.L.C. in the amount of $500,000. Such shares were
issued in reliance upon the exemption from registration provided by Rule 504 of
Regulation D promulgated under the Securities Act of 1933, which limits the
aggregate offering price to not exceed $1,000,000.
(5) In July 1998, Electric City granted to Pino, LLC and NCVC L.L.C.
10-year options to acquire up to an aggregate of 4,000,000 shares of common
stock at an exercise price of $1.10 per share. These options become exercisable
on January 2, 2000. The options were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as such
transaction did not involve any public offering.
(6) In September 1998, Electric City issued an aggregate of 340,000
shares of common stock to Giovanni and Maria Gullo, Anthony and Rebecca
Petropoulos, and James and Rosanne Spanola pursuant to a Real Estate Sales
Contract dated July 3, 1998, under which Electric City acquired real estate for
its new headquarters. The total purchase price for the property was $1,140,000
of which $800,000 was paid through issuing a mortgage at the closing and the
balance of $340,000 was paid pursuant to the issuance of 340,000 shares of
common stock. Such shares were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as such
transaction did not involve any public offering.
(7) On January 18, 1999, Electric City entered into a six-month
consulting agreement with 1252996 Ontario Limited (d/b/a The Stockpage) under
which Electric City issued in April 1999 an aggregate of 200,000 shares of
common stock and warrants to purchase 200,000 shares of common stock at an
exercise price of $2.00 per share, in exchange for investor relations services
through the Internet, which presence was achieved via "Rolling Capital". The
agreement has expired and will not be renewed. Under the agreement, Electric
City is to commence registration of the 200,000 shares of issued common stock
within six months from the date of the agreement, if it is legally able to do
so. Electric City has not commenced such registration and there is no penalty
for such failure. The shares of common stock and the warrants were issued in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as such transaction did not involve any public offering.
23
<PAGE>
(8) In February and March 1999, Electric City issued 911,978 shares of
common stock in exchange for $938,202 to approximately 30 individuals. Each
individual represented to the Company in writing the they were "accredited
investors" as defined in Regulation D of the Securities Act of 1933. Such shares
were issued in reliance upon the exemption from registration provided by
Regulation D and Section 4(2) promulgated under the Securities Act of 1933, as
such transaction did not involve any public offering.
(9) In April 1999, Electric City issued an aggregate of 996,000 shares
of common stock to TJ Riley and Associates (Tom Riley), Giorgio Reverberi,
Giuseppe Tagliati, The Stockpage and Richard Levy in exchange for consulting
services rendered. Such shares were issued in reliance upon the exception from
registration provided by Rule 4(2) of the Securities Act of 1933, as such
transaction did not involve any public offering.
(10) The Company entered into a Consulting Agreement with John Prinz &
Associates dated April 16, 1999 for Prinz to act as a consultant and promoter on
behalf of the Company. The term of the agreement was for six (6) months and has
expired. Prinz was to have received shares of stock for services provided to the
Company as follows: 50,000 shares for the introduction to a market maker with
whom the Company would work; 30,000 shares for the development of an acceptable
financial plan; a ten percent (10%) fee for each equity transaction consummated
by the Company initiated by Prinz; a three percent (3%)fee and 10,000 shares for
each debt transaction consummated by the Company initiated by Prinz; 15,000
shares for facilitating the Company's transition to a NASDAQ small cap company;
and ten percent (10%) fee and 20,000 shares to facilitate funding of the
purchase of Marino Electric.
The agreement also provides that all shares of Electric City common
stock issued under the agreement will have piggyback registration rights with
respect to any registration statement filed by Electric City with the SEC.
In May, 1999, Electric City issued 80,000 shares of common stock to
Prinz under this agreement. The shares of Electric City common stock issued
under the agreement were issued in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as such transaction did
not involve any public offering. Prinz Capital is required to perform additional
services to receive the additional shares, which may not be required by the
Company.
(11) In May 1999, Electric City issued 1,600,000 shares of common stock
to Joseph Marino in connection with the acquisition of the assets of Marino
Electric for the purchase price of $3,392,000 consisting of $1,792,000 in cash
and 1,600,000 shares of the Electric City common stock. Such shares were issued
in reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as such transaction did not involve any public offering.
(12) The Company is presently attempting to sell 2.2 million shares of
its common stock on a best efforts basis pursuant to a confidential private
placement memorandum. Such shares will be issued in reliance upon the exemption
from registration provided by Rule 506 of Regulation D of the Securities Act of
1933. The Company has sold 1,709,011.555 shares to 79 individuals or entities,
of whom 52 are accredited and 27 are non-accredited pursuant to such Rule.
The facts relied upon to make the exemption from registration provided
by Section 4(2) of the Securities Act of 1933 (the "Act") available for the sale
of securities discussed in paragraphs 5, 6, 7, 8, 9, 10 and 11 were the limited
number of purchasers, the sophistication or accreditation of the purchasers,
their access to material information, the information furnished to them by
Electric City, the absence of any general solicitation or advertising, and
restrictions on transfer of the securities issued to them as indicated by a
legend on the certificates representing such securities.
24
<PAGE>
Item 5. Indemnification of Directors and Officers.
Electric City's certificate of incorporation and bylaws provide that
Electric City may indemnify officers and directors of Electric City or as
permitted by Delaware law. Electric City has not as of the date of this
registration statement purchased directors and officers liability insurance,
however it may do so in the future.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Disclosure Regarding Forward-Looking Statements
This Registration Statement includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The safe
harbors under the Privates Securities Litigation Reform Act will not be
applicable until such time as the Company becomes subject to the periodic
reporting requirements under the Exchange Act. All statements, other than
statements of historical facts, included in this Registration Statement that
address activities, events or developments that Electric City Corp. (the
"Company" or "Electric City") expects, believes or anticipates will or may occur
in the future, future capital costs, the size of various markets, market share,
repayment of debt, business strategies, expansion and growth of the Company's
operations, Year 2000 issues and other such matters are forward-looking
statements. These statements are based on assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions, expected future developments and other factors it believes
are appropriate in the circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, general economic and business conditions,
the business opportunities (or lack thereof) that may be presented to and
pursued by the Company, changes in laws or regulations and other factors, many
of which are beyond the control of the Company. You are cautioned that any such
statements are not guarantees of future performance and that actual results or
developments may differ materially from those projected in the forward-looking
statements.
25
<PAGE>
PART F/S
Financial Statements and Exhibits
Index to Financial Statements
Electric City Corp.
-------------------
F-1 Report of Independent Certified Public Accountants
F-2 - F-3 Balance Sheet as of April 30, 1999
F-4 Statement of Operations for the year ended April 30,
1999
F-5 Statement of Stockholder's Equity for the year ended
April 30, 1999
F-6 Statement of Cash Flows for the year ended April 30,
1999
F-8 - F-21 Notes to Financial Statements
F-22 - F-23 Balance sheets as of July 31, 1999 and 1998
(Unaudited)
F-24 Statement of Operations for the three months ended
July 31, 1999 and 1998 (Unaudited)
F-25 Statement of Stockholders' Equity for the three
months ended July 31, 1999 (Unaudited)
F-26 - F-27 Statement of Cash Flows for the three months ended
July 31, 1999 and 1998 (Unaudited)
F-28 - F-29 Notes to Financial Statements
Marino Electric Inc.
- --------------------
F-30 Report of Independent Certified Public Accountants
F-31 - F-32 Balance Sheet as of December 31, 1998 and as of
April 30, 1999 (Unaudited)
F-33 Statement of Income and Retained Earnings for the
year ended Decembe 31, 1998 and December 31, 1997
(Unaudited) and the four months ended April 30, 1998
and 1999 (Unaudited)
26
<PAGE>
F-34 Statement of Cash Flows for the year ended December
31, 1998 and December 31, 1997 (Unaudited) and the
four months ended April 30, 1998 and 1999
(Unaudited)
F-35 - F-38 Notes to Financial Statements
Pro Forma Financial Statements
- ------------------------------
F-39 Pro Forma Financial Statements
F-40 Unaudited Pro Forma Statement of Operations for the
year ended April 30, 1999
F-41 Notes to Unaudited Pro Forma Financial Statement
F-42 Unaudited Pro Forma Statement of Operations for the
three months ended July 31, 1999
F-43 Notes to Unaudited Pro Forma Financial Statement
PART III
Exhibit
Number
- ------
2.1 Agreement and Plan of Merger dated June 5, 1998 between the Company and
Pice Products Corporation (Previously Filed)
3.1 Certificate of Incorporation (Previously Filed)
3.2 Bylaws (Previously Filed)
10.1 Sales, Distribution and Patent License Agreement dated January 1, 1998
between Giorgio Reverberi and Joseph C. Marino (Previously Filed)
10.2 Sublicense Agreement dated June 24, 1998 between the Company and Joseph
C. Marin (Previously Filed)
10.3 Employment Agreement dated as of January 1, 1999 between the Company
and Joseph C. Marino (Previously Filed)
10.4 Real Estate Sales Contract dated July 3, 1998 between the Company and
the Giovanni Gullo and Mario Gullo Family Limited Partnership
(Previously Filed)
10.5 Asset Purchase Agreement dated May 24, 1999 between the Company and
Marino Electric, Inc. (Previously Filed)
10.6 Distribution Agreement dated September 7, 1999 between the Company and
Electric City of Illinois LLC (Previously Filed)
10.7 Consulting Agreement dated April 16, 1999 between the Company and John
Prinz & Associates
10.8 Consulting Agreement dated January 18, 1999 between the Company and
1252996 Ontario Limited (d/b/a The Stockpage)
10.9 Warrant to Purchase Common Stock dated January 15, 1999 from the
Company to 1252996 Ontario Limited d/b/a The Stockpage
27.1 Financial Data Schedule as of July 31, 1999
27
<PAGE>
.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, this 29th day of Octoberber, 1999.
ELECTRIC CITY CORP.
Date: October 29, 1999 By:_________________________________
Joseph C. Marino
Chief Executive Officer
TABLE OF CONTENTS
-----------------
PART I 2
Items 1. Description of Business 2
Electric City History and Recent Developments 2
Business of Marino Electric 4
Product - The EnergySaver 4
The Market Opportunity 5
Sales and Distribution 7
Marketing 8
Licenses and Trademarks 8
Patents 9
Competition 9
Manufacturing 10
Company Financing 10
Research and Development 11
Employees 11
Item 2. Plan of Operation 11
Year 2000 Readiness Disclosure 12
Item 3. Description of Property 13
Item 4. Security Ownership of Certain Beneficial Owners and Management. 13
Item 5. Directors, Executive Officers, Promoters and Control Persons 16
Promoter and Control Person 17
28
<PAGE>
Item 6. Executive Compensation 17
Summary Compensation Table 17
Compensation of Other Executive Officers and Directors 18
Option Exercises and Values 18
Long-Term Incentive Plans 19
Employment Contracts 19
Item 7. Certain Relationships and Related Transactions 19
Item 8. Description of Securities 20
PART II 21
Item 1. Market for Common Equity and Related Stockholder Matters. 21
Market Information 21
Item 2. Legal Proceedings 22
Item 3. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 22
Item 4. Recent Sales of Unregistered Securities 22
Item 5. Indemnification of Directors and Officers 26
Disclosure Regarding Forward-Looking Statements 26
PART F/S 26
Financial Statements
Index to Financial Statements 26
PART III 27
SIGNATURES 28
29
<PAGE>
Financial Statements and Exhibits
Index to Financial Statements
Electric City Corp.
- -------------------
F-1 Report of Independent Certified Public Accountants
F-2 - F-3 Balance Sheet as of April 30, 1999
F-4 Statement of Operations for the year ended April 30,
1999
F-5 Statement of Stockholder's Equity for the year ended
April 30, 1999
F-6 Statement of Cash Flows for the year ended April 30,
1999
F-8 - F21 Notes to Financial Statements
F-22 - F23 Balance sheets as of July 31, 1999 and 1998
(Unaudited)
F-24 Statement of Operations for the three months ended
July 31, 1999 and 1998 (Unaudited)
F-25 Statement of Operations for the three months ended
July 31, 1999 (Unaudited)
F-26 - F-27 Statement of Cash Flows for the three months ended
July 31, 1999 and 1998 (Unaudited)
F-28 - F-29 Notes to Financial Statements
Marino Electric Inc.
- --------------------
F-30 Report of Independent Certified Public Accountants
F-31 - F-32 Balance Sheet as of December 31, 1998 and as of
April 30, 1999 (Unaudited)
F-33 Statement of Income and Retained Earnings for the
year ended December 31, 1998 and December 31, 1997
(Unaudited) and the four months ended April 30, 1998
and 1999 (Unaudited)
Page i
<PAGE>
F-34 Statement of Cash Flows for the year ended December
31, 1998 and December 31, 1997 (Unaudited) and the
four months ended April 30, 1998 and 1999
(Unaudited)
F-35 - F-38 Notes to Financial Statements
Pro Forma Financial Statements
- ------------------------------
F-39 Pro Forma Financial Statements
F-40 Unaudited Pro Forma Statement of Operations for the
year ended April 30, 1999
F-41 Notes to Unaudited Pro Forma Financial Statement
F-42 Unaudited Pro Forma Statement of Operations for the
three months ended July 31, 1999
F-43 Notes to Unaudited Pro Forma Financial Statement
Page ii
<PAGE>
Report of Independent Certified Public Accountants
Electric City Corp.
(A Development Stage Company)
We have audited the accompanying balance sheet of Electric City Corp. (a
development stage company) as of April 30, 1999 and the related statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Electric City Corp. (a
development stage company) at April 30, 1999, and the results of its operations
and cash flows for the year then ended, in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Chicago, Illinois
June 16, 1999
F-1
<PAGE>
Financial Statements
<PAGE>
Electric City Corp.
(A Development Stage Company)
Balance Sheet
April 30, 1999
- -------------------------------------------------------------------------------
Assets
Current Assets
Cash and equivalents $ 484,162
Accounts receivable 118,272
Inventories (Note 3) 459,882
Prepaid expenses (Note 11(d)) 213,332
- -------------------------------------------------------------------------------
Total Current Assets 1,275,648
- -------------------------------------------------------------------------------
Net Property and Equipment (Notes 4, 8 and 11(e)) 1,254,967
- -------------------------------------------------------------------------------
$ 2,530,615
===============================================================================
See accompanying notes to financial statements.
F-2
<PAGE>
Electric City Corp.
(A Development Stage Company)
Balance Sheet
April 30, 1999
- -------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to stockholders (Note 5) $ 500,000
Current portion of long-term debt (Note 8) 18,112
Accounts payable 184,160
Accrued expenses (Note 7) 98,172
- -------------------------------------------------------------------------------
Total Current Liabilities 800,444
- -------------------------------------------------------------------------------
Long-Term Debt, less current portion (Note 8) 770,239
- -------------------------------------------------------------------------------
Commitments (Note 10)
Stockholders' Equity (Notes 6, 11 and 13)
Preferred stock, $.01 par value;
5,000,000 shares authorized -
Common stock, $.0001 par value;
30,000,000 shares authorized,
24,388,250 issued
and outstanding 2,438
Additional paid-in capital 4,897,246
Deficit accumulated during the development stage (3,939,752)
- -------------------------------------------------------------------------------
Total Stockholders' Equity 959,932
- -------------------------------------------------------------------------------
$ 2,530,615
===============================================================================
See accompanying notes to financial statements.
F-3
<PAGE>
Electric City Corp.
(A Development Stage Company)
Statement of Operations
Year ended April 30, 1999
- ------------------------------------------------------------------------------
Revenue $ 208,473
- ------------------------------------------------------------------------------
Expenses
Cost of sales 135,000
Selling, general and administrative 4,083,028
- ------------------------------------------------------------------------------
Total 4,218,028
- ------------------------------------------------------------------------------
Operating Loss (4,009,555)
- ------------------------------------------------------------------------------
Other Income (Expense)
Interest income 9,054
Interest expense (59,613)
- ------------------------------------------------------------------------------
Total other expense (50,559)
- ------------------------------------------------------------------------------
Net Loss $ (4,060,114)
==============================================================================
Basic and Diluted Loss Per Common Share $ (0.18)
==============================================================================
Weighted Average Common Shares Outstanding 22,357,874
==============================================================================
See accompanying notes to financial statements.
F-4
<PAGE>
Electric City Corp.
(A Development Stage Company)
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Year ended April 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit Total
Accumulated Members'
Additional During the Deficit and
Member Common Paid-in Development Stockholders'
Shares Capital Stock Capital Stage Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expenses paid on behalf of the L.L.C. - $ 18,679 $ - $ - $ - $ 18,679
Issuance of common stock for merger into Company 20,000,000 (18,679) 2,000 16,679 - -
Acquisition of Pice Products Corporation (Note 11) 1,200,272 - 120 (120) - -
Conversion of convertible debt (Note 11) 500,000 - 50 499,950 - 500,000
Issuance of shares for cash
(net of offering costs of $13,023) (Note 11) 1,351,978 - 136 1,365,043 - 1,365,179
Issuance of shares for purchase
of land and building (Note 11) 340,000 - 34 339,966 - 340,000
Issuance of shares and warrants in
exchange for services received
(Note 11) 996,000 - 98 2,715,801 - 2,715,899
Net loss for the year ended April 30, 1999 - - - - (4,060,114) (4,060,114)
Net loss of LLC prior to becoming a corporation - - - (120,362) 120,362 -
Expenses paid on behalf of the Company - - - 80,289 - 80,289
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, April 30, 1999 24,388,250 $ - $ 2,438 $ 4,897,246 $ (3,939,752) $ 959,932
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Electric City Corp.
(A Development Stage Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
Year ended April 30, 1999
- --------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
<S> <C>
Net loss $ (4,060,114)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 30,353
Issuance of shares and warrants in exchange for services rendered 2,502,567
Expenses paid on behalf of company 98,968
Changes in assets and liabilities
Accounts receivable (118,272)
Inventories (459,882)
Accounts payable 184,160
Accrued liabilities 98,172
- --------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,724,048)
- --------------------------------------------------------------------------------------------------------
Cash Flows Used in Investing Activities
Purchase of property and equipment (945,320)
- --------------------------------------------------------------------------------------------------------
Cash Flows Provided by Financing Activities
Proceeds from long-term debt 800,000
Payments on long-term debt (11,649)
Proceeds from stock issuance 1,365,179
Proceeds from loan from stockholders 1,000,000
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,153,530
- --------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 484,162
Cash and Cash Equivalents, at beginning of year -
- --------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, at end of year $ 484,162
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
Electric City Corp.
(A Development Stage Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
Year ended April 30, 1999
- ---------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
<S> <C>
Stock issued in exchange for conversion of loan from stockholders $ 500,000
Stock issued as partial payment for land and building 340,000
Stock and warrants issued in exchange for services received 2,715,899
Cash paid for interest 44,000
</TABLE>
F-7
<PAGE>
Electric City Corp.
(A Development Stage Company)
Notes to Financial Statements
1. Organization and Electric City (the "Company") was formed as a
Nature of Business limited liability company (Electric City,
L.L.C.) on December 5, 1997 to acquire and
commercialize application of a patented
technology that reduces the amount of
electricity required to power various
lighting facilities such as commercial
buildings, factories and residential
structures. On February 4, 1998, an Operating
Agreement ("Operating Agreement") was entered
into between Electric City, L.L.C.'s two
members, Joseph C. Marino, who subsequently
assigned his interest to Pino, L.L.C.
("Pino") and NCVC, L.L.C. ("NCVC"), pursuant
to which Electric City, L.L.C. was to
actively market this technology in the United
States. Prior to May 1, 1998, the LLC had
nominal operations, resulting in a loss of
approximately $50,000. The Operating
Agreement was subsequently amended on May 26,
1998. On June 5, 1998, Electric City, L.L.C.
merged with Electric City Corp., a Delaware
corporation. As a result, Electric City Corp.
will distribute, manufacture and sell an
energy management saving system in the
United States under an exclusive license
agreement (Note 8).
The Company's activities to date have
included raising capital, developing
prototypes, installing test systems at test
sites in the United States and the limited
sales of systems. Upon consummation of the
acquisition of certain assets of Marino
Electric, Inc., the Company will no longer be
a development stage company.
2. Summary of Significant
Accounting Policies
Cash and Cash The Company considers highly liquid
Equivalents investments with a maturity of three months
or less when purchased to be cash
equivalents.
Inventories Inventories are stated at the lower of FIFO
cost or market.
F-8
<PAGE>
Electric City Corp.
(A Development Stage Company)
Notes to Financial Statements
Property and Equipment Property and equipment are stated at cost.
For financial reporting purposes depreciation
is computed over the estimated useful lives
of the assets by the straight-line method
over the following lives.
Building 39 years
Computer equipment 3 years
Furniture 5 years
Shop equipment 7 years
Revenue Recognition Revenue is recognized upon
transfer of ownership. Service revenue is
recognized at the time the related services
are provided.
Research and Development Research and development costs are charged to
Costs operations when incurred and are included in
selling, general and administrative expenses.
Total research and development costs charged
to operations were $1,923,000.
Marketing and Promotional Marketing and promotional costs incurred by
Costs the Company are expensed as incurred.
Organizational Costs The Company incurred organizational costs
upon incorporation of both Electric City,
L.L.C. and Electric City Corp. These costs
consisted of legal and filing costs for the
entities and were expensed as incurred, in
accordance with (AICPA) Statement of Position
98-5, "Reporting on the Costs of Start-Up
Activities."
Income Taxes Income taxes are accounted for under the
asset and liability method. Deferred income
taxes are recognized for the tax consequences
in future years of differences between the
tax basis of assets and liabilities and their
financial reporting amounts at each year end
based on enacted tax laws and statutory tax
rates applicable to the periods in which the
differences are expected to affect taxable
earnings. Valuation allowances are
established when necessary to reduce deferred
tax assets to the amount more likely than not
to be realized.
Use of Estimates The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities
and disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from
those estimates.
F-9
<PAGE>
Net Loss Per Share The Company computes loss per share under
Statement of Financial Accounting Standard
No. 128 "Earnings Per Share". The statement
requires presentation of two amounts, basic
and diluted loss per share. Basic loss per
share is computed by dividing loss available
to common stockholders by the weighted
average common shares outstanding. Dilutive
earnings per share would include all common
stock equivalents. The Company has not
included the outstanding options or warrants
as common stock equivalents because the
effect would be antidilutive.
The members' capital was converted into
20,000,000 shares of common stock at the
merger date. The shares have been treated as
if they have been outstanding since inception
for purposes of computing net loss per share.
Recent Accounting In April 1998, the Accounting Standards
Pronouncements Executive Committee issued Statement of
Position ("SOP") 98-5 "Reporting on the Costs
of Start-up Activities." The SOP requires
that all costs of start-up activities should
be expensed as incurred. The SOP is effective
for years beginning after December 15, 1998.
The Company early adopted this SOP.
In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and
Hedging Activities." This standard
establishes accounting and reporting
standards for derivative instruments and for
hedging contracts. This standard is effective
for all fiscal quarters of all fiscal years
beginning after June 15, 2000. When the
Company adopts this statement, it is not
expected to have a material impact on the
Company's financial statements or their
presentation.
Stock Split Subsequent to year end, the Company effected
a 2-for-1 stock split. All shares and per
share amounts have been adjusted to reflect
the split.
F-10
<PAGE>
3. Inventories Inventories consist of the following:
April 30, 1999
---------------------------------------------
Raw materials $ 117,850
Work in process 75,978
Finished goods 266,054
---------------------------------------------
$ 459,882
=============================================
4. Property and Equipment Property and equipment at April 30, 1999 are
summarized as follows:
---------------------------------------------
Land $ 205,000
Building 935,000
Furniture 54,588
Computer equipment 21,608
Autos 69,124
---------------------------------------------
1,285,320
Less accumulated depreciation 30,353
---------------------------------------------
$ 1,254,967
=============================================
F-11
<PAGE>
Electric City Corp.
(A Development Stage Company)
Notes to Financial Statements
5. Operating Agreement On February 4, 1998, Joseph C. Marino
("Controlling Member") and NCVC ("Other
Member") entered into an Operating Agreement
subsequently amended on May 26, 1998,
commencing operations of the development
stage company (Electric City, L.L.C.). Under
the terms and subject to the conditions set
forth in the Operating Agreement, the Other
Member agreed to loan the Company $500,000 to
meet operating cash needs of the Company and
to secure a letter of credit with a financial
institution for $500,000. The Controlling
Member, in exchange, assigned its rights
under a Sales, Distribution and Patent
License Agreement ("License Agreement") (Note
8) to the Company. No value was assigned for
the assignment of the License Agreement or
the securing of the letter of credit. The
letter of credit was retired by the Other
Member's payment of $250,000 to the
Controlling Member, who will obtain and
surrender the letter of credit to the Other
Member and the financial institution. Upon
completion of this transaction, each member
had a further obligation to loan the Company
up to $250,000 each on an as-needed basis. As
of April 30, 1999, loans under this
arrangement totaled $500,000. These loans
bear interest at 9% and are payable on
demand. Accrued interest on this debt is
approximately $16,000 at April 30, 1999.
Additionally, pursuant to the Operating
Agreement, the Other Member was obligated to
bring the Company to the status of a publicly
traded company on the Over-The-Counter
Bulletin Board ("OTC").
The Operating Agreement also requires the
Other Member to indemnify the Controlling
Member in every manner necessary as it
relates to the public registration.
6. Merger Agreement On June 5, 1998, upon the merger of Electric
City, L.L.C. into Electric City Corp., the
Controlling Member and Other Member became
the controlling stockholder and significant
minority stockholder, respectively, and their
respective obligations under the Operating
Agreement transferred and continue to be
obligations.
F-12
<PAGE>
Electric City Corp.
(A Development Stage Company)
Notes to Financial Statements
7. Accrued Expenses Accrued expenses consist of the following:
---------------------------------------------
Compensation $ 7,042
Interest 15,914
Real estate taxes 11,950
Professional fees 47,730
Other 15,536
---------------------------------------------
$ 98,172
=============================================
8. Long-Term Debt Long-term debt consists of the following
at April 30, 1999.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Mortgage note to CIB Bank, 8.25%, payable in monthly
Principal and interest installments of $6,876 until
August 2003. A final payment of $710,000 is due in
<S> <C> <C>
August 2003. Collateralized by the building and land. $ 788,351
Less current portion 18,112
--------------------------------------------------------------------------------
$ 770,239
===============================================================================
</TABLE>
The aggregate amounts of long-term debt
maturing in each of the next five years are
as follows:
---------------------------------------------
2000 $ 18,112
2001 19,664
2002 21,350
2003 23,178
2004 706,047
---------------------------------------------
$ 788,351
=============================================
F-13
<PAGE>
Electric City Corp.
(A Development Stage Company)
Notes to Financial Statements
9. Income Taxes The composition of income tax expense
(benefit) is as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Current
<S> <C>
Federal $ (1,284,000)
State (226,000)
Adjustment to valuation allowance 1,510,000
-----------------------------------------------------------------------
Total income tax expense (benefit) $ -
=======================================================================
</TABLE>
Deferred income taxes consist of the
following:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
<S> <C>
Total deferred tax assets, relating principally
to net operating loss carryforwards $ 1,510,000
Deferred tax liabilities -
-----------------------------------------------------------------------
1,510,000
Less valuation allowance (1,510,000)
------------------------------------------------------------------------
Total net deferred tax asset $ -
=======================================================================
</TABLE>
The Company has recorded a valuation
allowance equaling the deferred tax asset due
to the uncertainty of its realization in the
future. At April 30, 1999, the Company has a
U.S. federal net operating loss carryforward
available to offset future taxable income of
approximately $3,860,000 which expires in
fiscal 2019.
F-14
<PAGE>
Electric City Corp.
(A Development Stage Company)
Notes to Financial Statements
The reconciliation of income tax expense
(benefit) to the amount computed by applying
the federal statutory rate is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
<S> <C>
Income tax (benefit) at federal statutory rate $ (1,364,000)
State taxes (193,000)
Tax benefit of loss prior to conversion from L.L.C. to
"C" corporation 47,000
Increase in valuation allowance 1,510,000
--------------------------------------------------------------------------------
Income tax expense (benefit) $ -
================================================================================
</TABLE>
10. License and Pursuant to the License Agreement dated
Employment January 1, 1998 between Giorgio Reverberi
Agreements ("Reverberi"), the owner of the patent, and
Joseph Marino, Chairman and CEO of Electric
City L.L.C. (who assigned the rights to
Company), the Company agrees to pay Reverberi
a royalty of $300 for each product unit made
by or for the Company and sold by the
Company. The term of the License Agreement is
until December 31, 2007, with automatic
renewal available until December 31, 2017,
unless written termination is provided by
either party of the License Agreement no less
than 90 days prior to the automatic renewal
date. The Company has accrued $7,800 at April
30, 1999.
In January 1999, the Company entered into an
employment agreement with its Chairman and
CEO for a period of four years. The agreement
requires an annual salary of $225,000
beginning in June 1999.
F-15
<PAGE>
Electric City Corp.
(A Development Stage Company)
Notes to Financial Statements
11. Equity Transaction
a) On June 5, 1998, the Company acquired
Pice Products Corporation ("Pice"), a
nonoperating company. In this
transaction, 1,200,272 common shares of
the Company were issued to the Pice
stockholders in return for all of the
outstanding shares of Pice. The Company
acquired no identifiable assets or
liabilities. The purpose of this merger
was to enable the Company to obtain
stockholders. The shares were valued at
the stated par value.
b) As part of the original Operating
Agreement (Note 4), the Other Member
agreed to loan amounts to the Company up
to $500,000 to meet cash needs prior to
the private placement offering in June
1998. These loans did not bear interest.
In June 1998, based on the estimated
fair market value price of $1 per share,
the outstanding balance of $500,000 was
converted into 500,000 shares of the
Company's common stock.
c) On June 11, 1998, the Company issued
940,000 shares of common stock in
connection with a private offering in
accordance with Regulation D, Section
504 of the Securities Exchange
Commission's 1933 Act (500,000 upon
conversion of loans described above). As
a result of this offering, the Company
generated $440,000 of cash less offering
costs of $13,023 through the sale of
440,000 shares of common stock at the
estimated fair market value price of $1
per share.
In addition, the Company sold 911,978
shares of common stock for a total of
$938,202 in February and March 1999.
These shares were sold at approximately
$1 per share. During this time period,
the fair market value of the stock
(current trading price on the "OTC")
ranged from $2.57 per share to $3.19 per
share.
d) In August 1998, the Company purchased a
building for $800,000 cash which was
satisfied by a first mortgage and
340,000 shares of the Company's common
stock, valued at $1 per share based on
the estimated fair market value of the
common stock.
F-16
<PAGE>
Electric City Corp.
(A Development Stage Company)
Notes to Financial Statements
e) In April 1999, the Company issued
996,000 shares and 200,000 warrants of
common stock in exchange for consulting
services rendered. As the fair market
value of these services was not readily
determinable, these services were valued
based on the fair market value for the
stock issued (current price of the
common stock on the "OTC") which ranged
from $2.09 to $2.81 Approximately
$2,503,000 has been charged to
operations. $213,332 has been classified
as a prepaid expense as this amount
represents payment for services to be
provided in the future.
f) At April 30, 1999, the Company had
outstanding warrants to purchase 200,000
shares of the Company's common stock at
an exercise price of $2 per share. These
warrants expire in February 2002.
12. Stock Options The Company's Chairman and CEO was granted
options as part of an employment agreement to
acquire 900,000 shares of common stock at
$1.75 each. These options vest ratably over
the four-year term of the employment
agreements and expire in December 2008.
In June 1998, both NCVC and Pino were granted
options to purchase 2,000,000 shares of
common stock each at an exercise price of
$1.10 per share. These options will vest in
January 2000 if the Company's closing stock
price exceeds $5 per share on any 20
consecutive trading days. Subsequent to year
end, the Company's closing stock price
exceeded $5 per share for 20 consecutive
trading days. These options expire in June
2008.
In January 1999, certain employees were
granted options to purchase 304,000 shares of
common stock at an exercise price ranging
from $1.75 to $3.50. 150,000 options vested
upon the signing of the agreements and
154,000 will vest in fiscal 2000. These
options expire in periods from December 2008
through March 2009.
F-17
<PAGE>
Electric City Corp.
(A Development Stage Company)
Notes to Financial Statements
The following table summarizes the options
granted, exercised and outstanding under the
plans:
<TABLE>
<CAPTION>
Exercise Weighted
Price Per Average
Shares Share Exercise Price
--------------------------------------------------------------------------------------
Outstanding at May 1, 1998
<S> <C> <C> <C> <C>
Granted 5,204,000 $1.10 - $3.50 $1.25
Exercised - - -
--------------------------------------------------------------------------------------
Outstanding at April 30, 1999 5,204,000 $1.10 - $3.50 $1.25
======================================================================================
Options exercisable at
April 30, 1999 150,000 $1.75 $1.75
======================================================================================
</TABLE>
The Company applies APB No. 25, "Accounting
for Stock Issued to Employees" and related
interpretations in accounting for options.
Under APB Opinion 25, because the exercise
price of the options equals the market price
of the underlying stock on the measurement
date, no compensation expense is recognized.
F-18
<PAGE>
Electric City Corp.
(A Development Stage Company)
Notes to Financial Statements
The weighted-average, grant-date fair value
of stock options granted to employees during
the year, and the weighted-average
significant assumptions used to determine
those fair values, using a modified
Black-Sholes option pricing model, and the
proforma effect on earnings of the fair value
accounting for stock options under Statement
of Financial Accounting Standards No. 123 are
as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
<S> <C>
Weighted average fair value per options granted $1.27
Significant assumptions (weighted average)
Risk-free interest rate at grant date 5.21%
Expected stock price volatility 55%
Expected dividend payout -
Expected option life (years) 4.10
Net loss
As reported (4,060,000)
Proforma (7,200,000)
Net loss per share
As reported (.18)
Proforma (.32)
</TABLE>
The following table summarizes information
about stock options outstanding at April 30,
1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ --------------------------
Number Weighted
Outstanding Average Weighted Number Weighted
at Remaining Average Exercisable Average
Exercise April 30, Contractual Exercise at April Exercise
Price 1999 Life Price 30, 1999 Price
-------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C>
$1.10 4,000,000 9.16 years 1.10 - N/A
$1.75 1,200,000 9.75 years 1.75 150,000 1.75
$3.50 4,000 9.92 years 3.50 - N/A
------------------------------------------------------ --------------------------
5,204,000 9.30 years 1.25 150,000 1.75
====================================================== ==========================
</TABLE>
F-19
<PAGE>
Electric City Corp.
(A Development Stage Company)
Notes to Financial Statements
13. Related Parties During the year ended April 30, 1999, the
Company paid approximately $165,000 to Marino
Electric, Inc. for goods purchased and
services rendered. Marino Electric, Inc. is
owned by an officer and stockholder of the
Company.
14. Financial Instruments The carrying amounts reported in the balance
sheet for cash, accounts receivable, accounts
payable and accrued expenses approximates
fair value because of the short-term nature
of these amounts. The Company's long-term
debt approximates fair value based on
instruments with similar terms.
15. Commitments In April 1999, the Company entered into a
consulting agreement beginning in May for an
initial six-month period. Under the
agreement, the Company is to receive
financial and promotional consulting
services. The agreement provides for payment
of specified shares of the Company's common
stock if the Company agrees to work with the
market maker introduced to them and
additional shares upon the completion of
certain other services.
The above shares, as well as other shares to
be paid for service, will be valued at the
fair market value of the stock at the date of
issuance.
16. Subsequent Event a) In January 1999, the Company agreed,
subject to an appraisal to acquire
certain assets of Marino Electric, Inc.,
from Joseph Marino, a related party, for
$1,792,000 in cash and 1,600,000 shares
($1,600,000) of the Company's common
stock. The change of control took place
May 24, 1999. As Mr. Marino owns less
than 50% of the common stock of the
Company, the transaction will be
accounted for by purchase accounting.
The purchase price of $3,392,000
exceeded the fair value of the assets
acquired by approximately $2,867,000,
which will be amortized on a
straight-line basis over 10 years.
F-20
<PAGE>
Electric City Corp.
(A Development Stage Company)
Notes to Financial Statements
The summarized unaudited proforma results of
operations set forth for the year ended April
30, 1999 assume the acquisition occurred as
of he beginning of the year.
(Unaudited)
---------------------------------------------
Net sales $ 3,179,000
Net loss (4,200,000)
---------------------------------------------
Proforma net loss per share $ (0.18)
=============================================
F-21
<PAGE>
Electric City Corp.
Balance Sheets
<TABLE>
<CAPTION>
July 31, 1999 1998
- -------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Assets
Current Assets
<S> <C> <C>
Cash and equivalents $ 3,805,428 $ 515,572
Accounts receivable, net of allowance
for doubtful accounts of $10,000 598,598 -
Inventories 703,363 215,502
- -------------------------------------------------------------------------------------------
Total Current Assets 5,107,389 731,074
- -------------------------------------------------------------------------------------------
Property and Equipment 1,460,902 2,904
Less accumulated depreciation (44,838) (128)
Net Property and Equipment 1,416,064 2,776
Cost in Excess of Assets Acquired,
net of amortization of $47,780 2,819,035 -
- -------------------------------------------------------------------------------------------
$ 9,342,488 $ 733,850
===========================================================================================
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
Electric City Corp.
Balance Sheets
<TABLE>
<CAPTION>
July 31, 1999 1998
- -----------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Liabilities and Equity
Current Liabilities
<S> <C> <C>
Due to seller $ 1,792,000 $ -
Line of credit and current maturities
of long-term debt 218,488 -
Notes payable to stockholders 200,000 -
Accounts payable 549,180 9,329
Accrued expenses 121,110 -
Deferred revenue 625,000 -
- -----------------------------------------------------------------------------------------------
Total Current Liabilities 3,505,778 9,329
- -----------------------------------------------------------------------------------------------
Long-Term Debt 765,647 -
- -----------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock, $.0001 par value,
30,000,000 shares authorized,
22,140,272 and 26,814,400 issued
and outstanding as of
July 31, 1998 and 1999 2,681 2,214
Additional paid-in capital 10,006,104 1,016,771
Retained deficit (4,937,722) (294,464)
- -----------------------------------------------------------------------------------------------
Total Stockholders' Equity 5,071,063 724,521
- -----------------------------------------------------------------------------------------------
$ 9,342,488 $ 733,850
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
Electric City Corp.
Statements of Operations
<TABLE>
<CAPTION>
Three months ended
July 31,
---------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue $ 833,523 $ -
- ---------------------------------------------------------------------------------------------------
Expenses
Cost of sales 668,861 -
Selling, general and administrative 1,111,471 297,185
- ---------------------------------------------------------------------------------------------------
Total expenses 1,780,332 297,185
- ---------------------------------------------------------------------------------------------------
Operating Loss (946,809) (297,185)
Other (Expense) Income
Interest income 8,155 2,721
Interest expense (59,316) -
- ---------------------------------------------------------------------------------------------------
Total other (expense) income (51,161) 2,721
- ---------------------------------------------------------------------------------------------------
Net Loss $ (997,970) $ (294,464)
===================================================================================================
Basic and Diluted Loss Per Common Share $ (0.04) $ (0.01)
===================================================================================================
Weighted Average Shares Outstanding 25,480,598 21,435,272
===================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
Electric City Corp.
Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Stockholders'
Shares Stock Capital Deficit Equity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, April 30, 1999 24,388,250 $ 2,439 $ 4,897,245 $ (3,939,752) $ 959,932
Issuance of shares in exchange for
services received 102,000 10 250,416 - 250,426
Acquisition of assets of Marino
Electric, Inc. 1,600,000 160 1,599,840 - 1,600,000
Private placement 724,150 72 3,258,603 - 3,258,675
Net loss for the quarter ended
July 31, 1999 - - - (997,970) (997,970)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1999 26,814,400 $ 2,681 $ 10,006,104 $ (4,937,722) $ 5,071,063
============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
Electric City Corp.
Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended
July 31,
---------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Cash Flows From Operating Activities
<S> <C> <C>
Net loss $ (997,970) $ (294,464)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities
Depreciation and amortization 71,428 128
Purchased margin 50,000 -
Issuance of shares and warrants in exchange for services
rendered 463,758 -
Expenses paid on behalf of company - 78,985
Changes in assets and liabilities, net of acquisition
Decrease in accounts receivable (480,326) -
Increase (decrease) in inventories 48,519 (215,502)
Increase in accounts payable 365,020 9,329
Increase in accrued expenses 22,938 -
Increase in deferred revenue 625,000 -
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 168,367 (421,524)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows Used in Investing Activities
Purchase of property and equipment (1,560) (2,904)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows Provided by Financing Activities
Borrowings on line of credit 200,000 -
Payments on long-term debt (4,216) -
Proceeds from stock issuance 3,258,675 440,000
Proceeds from loan from stockholders - 500,000
Payments on loan from stockholders (300,000) -
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,154,459 940,000
- -----------------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 3,321,266 515,572
Cash and Cash Equivalents, at beginning of period 484,162 -
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, at end of period $ 3,805,428 $ 515,572
=======================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
Electric City Corp.
Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended
July 31,
---------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Supplemental Cash Flow Disclosure
In May 1999, the Company purchased certain
assets of Marino Electric through the
issuance of 1,600,000 shares of common stock
($1,600,000) and an amount due to the seller
of $1,792,000. The purchase price exceeded
the fair value of the assets acquired by
$2,866,815. This amount has been accounted
for as goodwill and will be amortized over 10
years. The following is the fair value of the
assets acquired.
<S> <C>
Inventory $ 292,000
Purchased margin 50,000
Fixed assets 183,185
- -----------------------------------------------------------------------------
$ 525,185
=============================================================================
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
Electric City Corp.
Notes to Financial Statements
(The information as of July 31, 1998 and 1998 and for the three months
ended July 31, 1998 and 1999 is unaudited)
1. Basis of Presentation The financial information included herein is
unaudited; however, such information reflects
all adjustments (consisting solely of normal
recurring adjustments), which, in the opinion
of management, are necessary for a fair
statement of results for the interim periods.
The results of operations for the three-month
periods ended July 1998 and 1999 are not
necessarily indicative of the results to be
expected for the full year.
2. Line-of-Credit In July 1999, the Company entered into a
Agreement $500,000 line-of-credit agreement with
LaSalle Bank N.A. This line of credit bears
interest at prime (8% at July 31, 1999) plus
one percent and expires on July 12, 2000. At
July 31, 1999, $200,000 was outstanding under
this line-of-credit agreement.
3. Private Placement In July 1999, the Company issued a private
placement offering under Regulation D of the
Securities Act of 1993. The offering was for
a minimum of 600,000 shares and a maximum of
2,200,000 shares at $4.50 per share. As of
July 31, 1999, the Company had subscriptions
for 724,150 shares with total cash proceeds
of 3,258,675. As the minimum share
subscription was reached, all 724,150 shares
were considered outstanding at July 31, 1999.
Subsequent to July 31, 1999, the maximum
number of shares were subscribed.
4. Acquisition of Marino In January 1999, the Company agreed, subject
Electric Assets to an appraisal, to acquire certain assets of
Marino Electric, Inc. from Joseph Marino, a
related party, for $1,792,000 in cash and
800,000 shares ($1,600,000) of the Company's
common stock. The closing took place
effective May 24, 1999. As Mr. Marino owns
less than 50% of the common stock of the
Company, the transaction was accounted for by
the purchase method of accounting. The
purchase price of $3,392,000 exceeded the
fair value of the assets acquired by
approximately $2,867,000 which will be
amortized on a straight-line basis over 10
years. The results of operations of Marino
Electric from the date of the acquisition are
reflected in the statement of operations for
the three months ended July 31, 1999.
F-28
<PAGE>
5. Stock Split The Company effected a two-for-one stock
split effective July 30, 1999. The stock
split has been retroactively reflected in the
financial statements as of and for the three
months ended July 31, 1999 and 1998,
respectively.
6. Net Loss Per Share The Company computes loss per share under
Statement of Financial Accounting Standards
No. 128 "Earnings Per Share". The statement
requires presentation of two amounts, basic
and diluted loss per share. Basic loss per
share is computed by dividing loss available
to common stockholders by the weighed average
common shares outstanding. Dilutive earnings
per share would include all common stock
equivalents. The Company has not included the
outstanding options or warrants as common
stock equivalents because the effect would be
antidilutive.
F-29
<PAGE>
Report of Certified Public Accountants
Marino Electric, Inc.
We have audited the accompanying balance sheet of Marino Electric, Inc. as of
December 31, 1998 and the related statements of operations and retained earnings
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marino Electric, Inc. at
December 31, 1998, and the results of its operations and cash flows for the year
then ended, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Chicago, Illinois
August 30, 1999
F-30
<PAGE>
Financial Statements
<PAGE>
Marino Electric, Inc.
Balance Sheet
December 31, April 30,
1998 1999
- --------------------------------------------------------------------------------
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 246,359 $ 444,198
Accounts receivable (net of
allowance for doubtful
accounts of $182,000) (Note 6) 556,251 559,808
Inventories 227,580 291,130
- --------------------------------------------------------------------------------
Total Current Assets 1,030,190 1,295,136
- --------------------------------------------------------------------------------
Property and Equipment
Shop equipment 160,942 160,942
Transportation and other equipment 154,987 156,517
- --------------------------------------------------------------------------------
315,929 317,459
Accumulated depreciation (71,985) (85,599)
- --------------------------------------------------------------------------------
Net Property and Equipment 243,944 231,860
- --------------------------------------------------------------------------------
$ 1,274,134 $ 1,526,996
================================================================================
See accompanying notes to financial statements.
F-31
<PAGE>
Marino Electric, Inc.
Balance Sheet
December 31, April 30,
1998 1999
- --------------------------------------------------------------------------------
(Unaudited)
Liabilities and Stockholder's Equity
Current Liabilities
Loan payable to stockholder (Note 3) $ 228,114 $ 228,114
Bank note payable (Note 4) 39,893 34,170
Accounts payable 51,113 139,883
Accrued expenses 178,132 281,688
Deferred tax liability (Note 5) 194,500 149,500
- --------------------------------------------------------------------------------
Total Current Liabilities 691,752 833,355
- --------------------------------------------------------------------------------
Commitments
Stockholder's Equity
Common stock, $1.00 par value;
10,000 shares authorized, 1,000
issued and outstanding 1,000 1,000
Additional paid-in capital 89,975 94,535
Retained earnings 491,407 598,106
- --------------------------------------------------------------------------------
Total Stockholder's Equity 582,382 693,641
- --------------------------------------------------------------------------------
$ 1,274,134 $ 1,526,996
================================================================================
See accompanying notes to financial statements.
F-32
<PAGE>
Marino Electric, Inc.
Statement of Operations and Retained Earnings
<TABLE>
<CAPTION>
Four months ended
- ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
----------------------------------------- April 30, April 30,
1998 1997 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue (Note 6) $ 3,017,087 $ 3,066,577 $ 823,796 $ 705,391
- ------------------------------------------------------------------------------------------------------------------------------
Expenses
Cost of sales 1,689,905 1,438,981 366,549 540,961
Selling, general and administrative 1,234,826 876,585 289,195 322,267
- ------------------------------------------------------------------------------------------------------------------------------
Total 2,924,731 2,315,566 655,744 863,228
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 92,356 751,011 168,052 (157,837)
- ------------------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 11,539 1,432 1,569 2,926
Interest expense (35,336) (18,095) (7,922) (14,672)
- ------------------------------------------------------------------------------------------------------------------------------
Total other expense (23,797) (16,663) (6,353) (11,746)
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes
(benefit) 68,559 734,348 161,699 (169,583)
Taxes (Benefit) on Income (Note 5) 22,000 289,500 55,000 (46,850)
- ------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) 46,559 444,848 106,699 (122,733)
Retained Earnings, at beginning of
period 444,848 - 491,407 444,698
- ------------------------------------------------------------------------------------------------------------------------------
Retained Earnings, at end of period $ 491,407 $ 444,848 $ 598,106 $ 321,965
==============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
Marino Electric, Inc.
Statement of Cash Flows
<TABLE>
<CAPTION>
Four months ended
- ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, April 30, April 30,
1998 1997 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Cash Flows From Operating Activities
<S> <C> <C> <C> <C>
Net income (loss) $ 46,559 $ 444,848 $ 106,699 $ (122,733)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities
Depreciation 40,841 31,144 13,614 10,380
Interest imputation 18,625 9,850 4,560 6,560
Increase (decrease) in deferred tax
liability (95,000) 289,500 (45,000) (48,850)
Change in allowance for doubtful
Accounts 154,000 28,000 - -
Changes in assets and liabilities
Accounts receivable 73,902 (812,153) (3,557) 163,742
Inventories (147,580) (80,000) (63,550) -
Accounts payable (66,096) 117,209 88,770 12,486
Accrued liabilities 144,785 32,213 103,556 12,383
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 170,036 60,611 205,092 33,968
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows Used in Investing Activities
Purchase of property and equipment (48,487) (204,942) (1,530) -
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows Used in Financing Activities
Borrowings (repayments) of bank debt (22,653) 62,546 (5,723) (4,000)
Borrowings (repayments) on stockholder loan (100,000) 328,114 - -
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (122,653) 390,690 (5,723) (4,000)
- ------------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash
Equivalents (1,104) 246,359 197,839 29,968
Cash and Cash Equivalents, at beginning of
Period 247,463 - 246,359 247,463
- ------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, at end of period $ 246,359 $ 246,359 $ 444,198 $ 277,431
===============================================================================================================================
Supplemental Disclosure of Cash Flow Information
Stock issued in exchange for fixed assets $ - $ 62,500 $ - $ -
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
Marino Electric, Inc.
Notes to Financial Statements (Information as of April 30, 1999 and
for the year ended December 31, 1997 and four months ended April 30,
1999 and 1998 is unaudited)
1. Nature of Business Marino Electric, Inc. ("Marino") is a
designer and manufacturer of custom
electrical switching gear and distribution
panels which serve to distribute electricity
from a building's principal power source to
the various electric switches within a
building. Marino's principal customers are
located in the metropolitan Chicagoland area.
2. Summary of Significant
Accounting Policies
Cash and Cash The Company considers highly liquid
Equivalents investments with a maturity of three months
or less when purchased to be cash
equivalents.
Inventories Inventories, principally raw material
components, are stated at the lower of
average cost or market.
Property and Property and equipment are stated at cost.
Equipment For financial reporting purposes,
depreciation is computed over the estimated
useful lives of the assets by the
straight-line method over the following
lives:
Shop equipment 10 years
Transportation equipment 5 years
Other 10 years
Revenue Recognition Revenue is recognized upon transfer of
ownership. Service revenue is recognized at
the time the related services are provided.
Income Taxes The Company follows the asset and liability
method which requires the recognition of
deferred tax assets and liabilities for the
expected future tax consequences of temporary
differences between the tax basis and
financial reporting basis of assets and
liabilities.
F-35
<PAGE>
Marino Electric, Inc.
Notes to Financial Statements (Information as of April 30, 1999 and
for the year ended December 31, 1997 and four months ended April 30,
1999 and 1998 is unaudited)
Concentration of Financial instruments that potentially
Credit Risk subject the Company to significant
concentration of credit risk consist
principally of cash instruments and accounts
receivable. The Company maintains cash and
cash equivalents with various financial
institutions. The Company provides credit in
the normal course of business. The Company
performs ongoing credit evaluations of its
customers and maintains allowances for
potential credit losses.
Use of Estimates The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities
and disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from
those estimates.
Interim Financial The financial information as of April 30,
Statements 1999 and with respect to the four months
ended April 30, 1999 and 1998 is unaudited.
In the opinion of management, the financial
statements contain all adjustments consisting
of normal recurring accruals necessary for
the fair presentation of the results for such
periods. The information is not necessarily
indicative of the results of operations to be
expected for the fiscal year end.
3. Loans Payable to The balance represents amounts due the sole
Stockholder stockholder of the Company. The amounts are
noninterest bearing and payable on demand.
The Company has reflected interest expense
and a corresponding credit to additional
paid-in capital in accordance with SAB Topic
1:B in the amounts of $18,625, $9,850, $4,560
and $6,560 for the years ended December 31,
1999 and 1998 and the four months ended April
30, 1999 and 1998, respectively.
4. Bank Note Payable The Company has an equipment loan, payable in
monthly installments of $3,028 including
interest through August 1999, with a balloon
payment of approximately $20,000 in September
1999. Interest is computed at the Bank's
prime rate plus 1% (8.75% at December 31,
1998).
F-36
<PAGE>
Marino Electric, Inc.
Notes to Financial Statements (Information as of April 30, 1999 and
for the year ended December 31, 1997 and four months ended April 30,
1999 and 1998 is unaudited)
5. Income Taxes Income taxes (benefit) in the statement of
income are comprised of the following:
<TABLE>
<CAPTION>
Four months ended
----------------------------------------------------------------------------------------
Year ended December 31,
---------------------------------- April 30, April 30,
1998 1997 1999 1998
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current $ 117,000 $ - $ 100,000 $ 2,000
Deferred (95,000) 289,500 (45,000) (48,850)
----------------------------------------------------------------------------------------
Total taxes (benefit)
on income $ 22,000 $ 289,500 $ 55,000 $ (46,850)
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
The deferred tax liability recorded on the
balance sheet is comprised of the following:
December 31, April 30,
1998 1999
---------------------------------------------------------------------------------
Differences in cash/accrual
<S> <C> <C>
method of accounting $ 194,500 $ 149,500
---------------------------------------------------------------------------------
Total $ 194,500 $ 149,500
=================================================================================
</TABLE>
6. Significant Customer One customer accounted for 11% and 12% of
sales in the years ended December 31, 1998
and 1997, respectively. No customer accounted
for more than 10% of sales in the four months
ended April 30, 1999 or 1998. Receivables
from this customer represented 19.0% of total
receivables at December 31, 1998.
7. Related Party During the year ended December 31, 1998, the
Transactions Company sold approximately $219,500 of goods
sold to Electric City Corp. The sole
stockholder of the Company is a significant
stockholder of Electric City Corp.
F-37
<PAGE>
Marino Electric, Inc.
Notes to Financial Statements (Information as of April 30, 1999 and
for the year ended December 31, 1997 and four months ended April 30,
1999 and 1998 is unaudited)
8. Sale of Assets In January 1999, the Company agreed, subject
to an appraisal, to sell certain assets to
Electric City Corp., a related entity, for
$1,792,000 in cash and 1,600,000 shares of
stock. The closing took place effective May
24, 1999.
F-38
<PAGE>
Electric City Corp.
Proforma Financial Statements
The following unaudited proforma statements of operations for the year ended
April 30, 1999 and three months ended July 31, 1999 of Electric City Corp. (the
"Company") gives effect to the acquisition of certain assets of Marino Electric,
Inc. which was made as of May 24, 1999. The assets acquired were the
inventories, all shop equipment and transportation equipment, exclusive of a
recreational vehicle with a net book value of $53,000 at April 30, 1999. Cash
and cash equivalents and accounts receivable were not acquired. The fair value
of the shop and transportation equipment approximated net book value. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of operations of the acquired assets will be included
in Electric City Corp.'s results only from the acquisition date. The unaudited
proforma statements of operations has been prepared as if the acquisition
occurred on May 1, 1999 and 1998 and are based on historical financial
statements of Electric City Corp. and Marino Electric, Inc. from May 1, 1998
through April 30, 1999 and May 1, 1998 through July 31, 1999. The unaudited
proforma balance sheet has not been provided as the acquisition is reflected in
the Company's July 31, 1999 balance sheet.
The purchase method of accounting has been used in preparation of the unaudited
proforma financial statements. Under this method of accounting, the aggregate
purchase price is allocated to assets acquired based on their estimated fair
values. For purposes of the unaudited proforma financial statements, the
purchase price has been allocated based primarily on the information furnished
by management. The final allocation of the purchase price of the assets acquired
will be determined in a reasonable time after consummation of the transaction
and will be based on a complete evaluation of the assets acquired. Accordingly,
the information presented herein may differ from the final purchase price
allocation; however, such allocation is not expected to differ materially from
the preliminary amounts.
In the opinion of the Company's management, all adjustments have been made that
are necessary to present fairly the proforma data.
The unaudited proforma financial statements should be read in conjunction with
the respective financial statements and related notes included elsewhere in this
registration statement. The unaudited pro forma financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the results of operations or financial position that would have been achieved
had the transaction reflected therein been consummated as of the date indicated,
or of the results of operations or financial position for any future periods or
dates.
F-39
<PAGE>
Electric City Corp.
Unaudited Proforma Statement of Operations
Year Ended April 30, 1999
<TABLE>
<CAPTION>
Company
Historical Proforma
April 30, Marino Increase
1999 Electric, Inc. (Decrease) Proforma
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 208,473 $ 3,135,492 $ (165,000)(1) $ 3,178,965
- -------------------------------------------------------------------------------------------------------------------------
Expenses
Cost of selling 135,000 1,515,493 (73,000)(1) 1,577,493
Selling, general and
administrative 4,083,028 1,201,754 - 5,284,782
Amortization of goodwill - - 286,700 (1) 286,700
Interest expense, net 50,559 18,404 161,300 (1) 230,263
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 4,268,587 2,735,651 375,000 7,379,238
Taxes on income - 123,850 (123,850)(1) -
- -------------------------------------------------------------------------------------------------------------------------
Net (Loss) Income $ (4,060,114) $ 275,991 $ (416,150) $ (4,200,273)
=========================================================================================================================
Weighted Average Common
Shares Outstanding 22,357,874 - 1,600,000 (1) 23,957,874
=========================================================================================================================
Basic and Diluted Loss Per
Common Share Outstanding $ (0.18) - - $ (0.18)
=========================================================================================================================
</TABLE>
See accompanying note to unaudited proforma financial statements.
F-40
<PAGE>
Electric City Corp.
Note to Unaudited Proforma Statement of Operations
Year Ended April 30, 1999
Note 1 - Marino Electric, Inc.
Effective May 24, 1999, the Company acquired the inventories, all shop equipment
and transportation equipment exclusive of a recreational vehicle with a net book
value of $53,000 at April 30, 1999 of Marino Electric, Inc. ("Marino"). The
Company did not acquire the cash and cash equivalents or accounts receivable of
Marino, nor did the Company assume any liabilities of Marino. Marino's principal
business is the design and manufacture of custom electric switching gear and
distribution panels which serve to distribute electricity from a building's
principal power source to various switches within the building. Marino's
customers are primarily located in the metropolitan Chicagoland area. The
acquisition was consummated for $1,792,000 in cash and 1,600,000 shares of
Electric City Corp.'s common stock with a fair value of $1,600,000.
The transaction was recorded under the purchase method of accounting. The total
cost of the acquisition was approximately $3,392,000, which exceeded the fair
value of the assets acquired by approximately $2,867,000. The fair value of the
inventories, shop equipment and transportation equipment approximated book
value. Cost in excess will be amortized over a 10-year period.
Proforma adjustments related to the acquisition included the following:
o Elimination of $165,000 of sales from Marino to Electric City Corp.
o Amortization of the cost in excess of fair value of net assets acquired of
$286,700 based on a life of 10 years.
o Elimination of tax expense on Marino due to the overall net loss on a
proforma basis.
o The cash portion ($1,792,000) of the purchase price has been reflected as
due to seller at May 1, 1998, and an interest charge of $161,300 has been
made against proforma net loss.
F-41
<PAGE>
Electric City Corp.
Unaudited Proforma Statement of Operations
Three Months Ended July 31, 1999
<TABLE>
<CAPTION>
Company
Historical Proforma
July 31, Marino Increase
1999 Electric, Inc. (Decrease) Proforma
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 833,523 $ 142,476 $ - $ 975,999
- -------------------------------------------------------------------------------------------------------------------------
Expenses
Cost of selling 668,861 75,659 - 744,520
Selling, general and
administrative 1,063,691 50,360 - 1,114,051
Amortization of goodwill 47,780 - 23,895 (1) 71,675
Interest expense, net 51,161 - 10,300 (1) 61,461
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 1,831,493 126,019 34,195 1,991,707
Taxes on income - 5,000 (5,000)(1) -
- -------------------------------------------------------------------------------------------------------------------------
Net (Loss) Income $ (997,970) $ 11,457 $ (29,195) $ (1,015,708)
=========================================================================================================================
Weighted Average Common
Shares Outstanding 25,480,598 - 400,000 (1) 25,880,598
=========================================================================================================================
Basic and Diluted Loss Per
Common Share Outstanding $ (0.04) - - $ (0.04)
=========================================================================================================================
</TABLE>
F-42
<PAGE>
Electric City Corp.
Note to Unaudited Proforma Statement of Operations
Three Months Ended July 31, 1999
Note 1 - Marino Electric, Inc.
Effective May 24, 1999, the Company acquired the inventories, all shop equipment
and transportation equipment exclusive of a recreational vehicle with a net book
value of $53,000 at April 30, 1999 of Marino Electric, Inc. ("Marino"). The
Company did not acquire the cash and cash equivalents or accounts receivable of
Marino, nor did the Company assume any liabilities of Marino. Marino's principal
business is the design and manufacture of custom electric switching gear and
distribution panels which serve to distribute electricity from a building's
principal power source to various switches within the building. Marino's
customers are primarily located in the metropolitan Chicagoland area. The
acquisition was consummated for $1,792,000 in cash and 1,600,000 shares of
Electric City Corp.'s common stock with a fair value of $1,600,000.
The transaction was recorded under the purchase method of accounting. The total
cost of the acquisition was approximately $3,392,000, which exceeded the fair
value of the assets acquired by approximately $2,867,000. The fair value of the
inventories, shop equipment and transportation equipment approximated book
value. Cost in excess will be amortized over a 10-year period.
Proforma adjustments related to the acquisition included the following:
o Amortization of the cost in excess of fair value of net assets acquired for
the entire three-month period.
o Elimination of tax expense on Marino due to the overall net loss on a
proforma basis.
o Additional interest to reflect the cash portion ($1,792,000) as outstanding
for the entire three-month period.
o Reflect the shares issued (1,600,000) as outstanding for the entire
three-month period.
F-43
EXHIBIT 10.7
CONSULTING AGREEMENT
This CONSULTING AGREEMENT ("Agreement"), dated this _4__ day of
___16_____, 1999 is made by and between JOHN PRINZ & ASSOCIATES LLC
("Consultant") and ELECTRIC CITY CORP., a Delaware corporation ("Company").
RECITALS
WHEREAS, the Company desires to engage Consultant to serve, on a
non-exclusive basis, as a consultant and the Consultant desires to be engaged by
the Company as a consultant to perform certain activities as hereinafter
described for an initial period of six (6) months unless terminated earlier
pursuant to Section 8.
WHEREAS, the Company intends to strengthen its position in the public
market place and increase the value of its business through organic growth and
through the acquisition of other operating companies.
WHEREAS, the Company has announced its intentions to increase sales and
operations of the business.
WHEREAS, it is understood by both the Company and Consultant that they
will work together leveraging Consultant's relationships in the private and
public financial market place with the intent of moving Company from
Over-the-Counter ("OTC") Bulletin Board status to the NASDAQ Small-Cap Market as
soon as practicable.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Consultant and Company do
hereby agree as follows:
SECTION 1
RECITALS:
The aforementioned Recitals are incorporated into the terms and
conditions of this Agreement.
SECTION 2
SERVICES:
The Company hereby retains Consultant to provide, on a non-exclusive
basis, the services listed below. Consultant further agrees to perform such
services, to devote its knowledge and skill to the best interests of the Company
in the performance thereof, and upon reasonable notice from the Company to make
itself available at all reasonable times during normal business hours for
consultation with the officers and directors of the Company with respect
thereto. Consultant will work with the Company's executives to develop
strategies, arrange meetings, review proposals, provide feedback, and assist in
negotiations as requested by the Company.
1
<PAGE>
(A) Consultant will introduce the Company to at least three reputable
market makers ("Market Makers"). The Company will have the right, but not
obligation, to work with any one or all of the Market Makers introduced by
Consultant. The Company understands and agrees that it may be required to
compensate a broker, dealer or Market Maker if Company agrees to work with a
Market Maker. In the event Company works with any one of the Market Makers
Consultant shall receive 25,000 shares of Company's common stock.
(B) Consultant shall provide various services by and on behalf of the
Company in order to promote the image and opportunities of the Company in the
public market place. As part of those services Consultant will work with the
Company to develop a business/financial needs plan ("Financial Plan") to
facilitate capitalization of the Company. Upon the completion of a Financial
Plan acceptable to Company, Consultant shall receive 15,000 shares of Company's
common stock. Said payment to be made within ten (10) business days after
completion of the Financial Plan.
(C) Regardless of the mechanism used by the Company to facilitate its
equity capitalization, ("Equity Process") Consultant will coordinate said Equity
Process for the Company. Notwithstanding the foregoing, both Company and
Consultant agree that both have financial contacts that are capable of funding
some or all of the capital requirements for the Company through the Equity
Process. Therefore, Consultant will receive a fee (paid in U.S. Dollars) (the
"Fee") of 10% for each Equity transaction consummated between Company and an
individual or entity introduced to Company by Consultant. ("Equity Transaction")
Consultant's Fee is due at closing of each Equity Transaction.
(D) Regardless of the mechanism used by the Company to facilitate its
debt capitalization, ("Debt Process") Consultant will use the Financial Plan to
maximize the funding of working capital needs of the Company through asset
and/or cash flow based financial institutions. Consultant will receive a Fee of
3% for transactions consummated between Company and an individual or entity
introduced to Company by Consultant. ("Debt Transaction") Consultant's Fee is
due at closing of each Debt Transaction. Additionally, Consultant shall receive
10,000 shares of Company's common stock within ten (10) business days of the
closing of the first Debt Transaction.
(E) Consultant, through various activities shall facilitate the process
needed to qualify Company as a NASDAQ small-cap company. Consultant shall also
facilitate and coordinate the application process for Company to apply as a
NASDAQ small-cap company. Consultant shall receive 15,000 shares of Company's
common stock within ten (10) business days of Company formally becoming a NASDAQ
small-cap company.
(F) Consultant will facilitate the funding of Company's purchase of
Marino Electric ("Acquisition"). Consultant shall receive a ten percent (10%)
fee for only the cash portion of the Acquisition. Additionally, Consultant shall
also receive 20,000 shares of Company's common stock at the closing of the
Acquisition. Said payments are to be made within ten (10) business days of the
Acquisition.
2
<PAGE>
SECTION 3
REGISTRIATION RIGHTS.
All of the shares of Company's common stock issued to
Consultant according to the terms and conditions of this Agreement shall have
piggyback registration rights for any registration the Company files with the
Securities & Exchange Commission registering shares of Company's common stock
that are similar to the shares issued to Consultant hereunder. The Company will
use its best efforts to file an S-8 registration when Company becomes a fully
reporting company
SECTION 4
SURVIVAL.
The term of this Agreement shall commence as of the date hereof and
shall remain in effect for a period of six (6) months from the date of this
Agreement, unless earlier terminated as hereinafter provided in Section 8.
SECTION 5
INDEPENDENT CONTRACTOR
Consultant shall be and is an independent contractor and nothing herein
shall be construed to create an agency relationship or a relationship of
employer and employee between the Company and Consultant or any of the
employees, agents or representatives of Consultant. Consultant shall have no
authority, executive or otherwise, to bind the Company.
SECTION 6
RESTRICTIVE COVENANT
Consultant agrees that during the term of this Agreement and for a
period of one (1) year thereafter, it will not provide marketing or other
services on behalf of any other entity which is offering the same or similar
type of services for which it is representing Company pursuant to this
Agreement.
3
<PAGE>
SECTION 7
ASSIGNMENT
In view of the nature of the services to be performed by Consultant
under this Agreement, Consultant shall not have the right to assign or transfer
any of the rights or benefits hereunder, nor shall they be subject to voluntary
or involuntary alienation without the written permission of the Company.
SECTION 8
TERMINATION
This Agreement may be terminated by either party at any time by written
notice of termination given to the other party at least thirty (30) days in
advance of the termination date stated in such notice. Following termination of
this Agreement, Company agrees to pay Consultant's Fee or shares of Company's
common stock which are due or owing to Consultant based on service standards as
set forth in Section 2 of this Agreement and achieved prior to the termination
date hereof.
SECTION 9
NOTICE
Any notice required or permitted hereunder shall be made in writing (a)
either by actual delivery of the notice into the hands of the party thereto
entitled, by messenger or by overnight delivery service or (b) by the mailing of
the notice in the United States mail, certified or registered mail, return
receipt requested, all postage prepaid and addressed to the party to whom the
notice is to be given at the party's respective address set forth below.
If to the Consultant:
Prinz & Associates LLC
One Northfield Plaze
Suite 300
Northfield, Illinois 60093
If to the Company:
Electric City Corp.
1280 Landmeir Road
Elk Grove Village, Illinois 60007
Attention: Mr. Joseph Marino
With a copy to:
Kwiatt & Ruben, Ltd.
211 Waukegan Road
Northfield, Illinois 60093
Attention: Philip Ruben, Esq.
4
<PAGE>
SECTION 10
GOVERNING LAW
This Agreement and all questions arising in connection herewith shall
be governed by the laws of the State of Illinois.
SECTION 11
ENTIRE AGREEMENT
This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersede all existing agreements between
them concerning such subject matter, and may be modified only by a written
instrument duly executed by each party.
SECTION 12
SEVERABLITY
All Sections, clauses and covenants contained in this Agreement are
severable, and in the event any of them shall be held to be invalid by any court
of competent jurisdiction, this Agreement shall be interpreted as if such
invalid sections, clauses or covenants were not contained herein.
SECTION 13
COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date first set forth above.
ELECTRIC CITY CORP. PRINZ & ASSOCIATES LLC
By: __/SS/_Joe Marino________ By: __/SS/__John Prinz______
Title: _______________________ Title: _______________________
5
EXHIBIT 10.8
Consulting Agreement
This Agreement is effective as of the 18th of January, 1999, by and
between 1252996 Ontario Limited (dba The Stockpage), (the "Consultant"), and
Electric City Corp., a corporation duly incorporated according to the laws of
the state of Delaware, United States (trading symbol ECCC) (the "Company").
Whereas, the Company is a publicly traded Company; and
Whereas, the Consultant is in the business of assisting public
companies in the promotion of Company activities through the internet and Print
media; and
Whereas, the Company desires to retain Consultant to provide specific
services for the Company as herein set forth;
Now Therefore, in consideration of the mutual covenants and promises
contained herein, the receipt and sufficiency of which is hereby acknowledged,
the parties hereby agree as follows:
1. Duties and Involvement.
a. The Company hereby engages Consultant to provide Internet and
public relations services during the Term. Such services will
consist of advice to and consulting with the Company's
management concerning the developing of an Internet site for
the Company, investor profile information, methods of
expanding investor support and increasing investor awareness
of the Company and its products and/or services through the
Internet.
b. Consultant acknowledges that neither it nor any of its
employees or affiliates is an officer, director, or agent of
the Company, that in rendering advice or recommendations to
the Company it is not and will not be responsible for any
management decisions of behalf of the Company and that it is
not authorized or empowered to commit the Company to any
recommendation or course of action. The Company represents
that Consultant does not have, through stock ownership or
otherwise, the power to control the Company nor to exercise
and dominating influence over its management.
2. Term. This Agreement shall continue until six (6) months from the date of
execution (the "Term").
3. Compensation. The Company shall pay to the Consultant 100,000 common shares
of Electric City Corp., (trading symbol ECCC), as consideration for the services
herein. The shares shall be delivered according to the following schedule; The
Company shall deliver 50,000 within ten (10) business days following the
execution of this Agreement. The Company will provide an additional 25,000
shares sixty (60) days following the execution of this Agreement. The Company
will provide a final installment of 25,000 shares ninety (90) days following the
1
<PAGE>
execution of this Agreement. If legally able, Company will commence registration
of the aforementioned 100,000 shares of its common stock within six (6) months
from this Agreement. In addition and subject to all applicable securities laws,
the Company will provide to the Consultant 100,000 transferable warrants on ECCC
common stock exercisable at a price of $4.00 per share with an expiry of not
less than 24 months. The warrant contract will be prepared and delivered by the
Company to the Consultant within thirty (30) business days. In addition the
Company shall reimburse the Consultant for all reasonable out of pocket
disbursements incurred by the Consultant related to this Agreement but only with
the prior written approval of Company's Board of Directors.
4. Non Disclosure. The Company covenants not to disclose the nature of its
relationship with the Consultant or any of the Terms of this Agreement
without prior written consent of the Consultant. Company, however, may
disclose this information if it is required to do so 1) pursuant to an
order of a court of competent jurisdiction; or 2) due to Company's
nature as a publicly traded entity.
5. Confidential Information. The term "Confidential Information" as used
herein, means all information documentation or other materials not
generally known by non-Company personnel which (i) gives the Company
some competitive business advantage or the opportunity of obtaining
such advantage or the disclosure of which could be detrimental to the
interests of the Company; (ii) which is owned by the Company or in
which the Company has an interest and (iii) which is either (A) marked
"Confidential Information," "Proprietary Information" or other similar
marking, (B) known by Consultant to be considered confidential and
proprietary by the Company or (C) from all the relevant circumstances
should reasonably be assumed by Consultant to be confidential and
proprietary to the Company. Confidential Information includes, but is
not limited to, the following types of information and other
information of similar nature (whether or not reduced to writing):
trade secrets, inventions in various stages of development, drawings,
documentation, diagrams, blueprints, specifications, processes,
formulas, models, software in various stages of development, research
and development procedures, marketing techniques and materials, price
lists, pricing policies, information relating to customers and/or
suppliers' identities financial information and projections, and
employee files. Confidential Information also includes any information
described above which the Company obtains from another party and which
the company treats as proprietary or designates as Confidential
Information, whether or not owned or developed by the Company.
NOTWITHSTANDING THE ABOVE, HOWEVER, NO INFORMATION CONSTITUTES
CONFIDENTIAL INFORMATION IF IT IS GENERIC INFORMATION OR GENERAL
KNOWLEDGE WHICH CONSULTANT WOULD HAVE LEARNED IN THE COURSE OF SIMILAR
ACTIVITIES ELSEWHERE IN THE TRADE OR IF IT IS OTHERWISE PUBLICLY KNOWN
AND IN THE PUBLIC DOMAIN.
2
<PAGE>
The Consultant nor its associated or affiliated companies shall during
the term of this Agreement or thereafter disclose any Confidential
Information obtained or acquired by it in connection with this
Agreement or its activities, duties and obligations thereunder.
Consultant shall, however, be permitted to disclose (x) all or portions
of such confidential information on a strictly need-to-know basis to
the extent required by an order of a court of competent jurisdiction or
by the order or demand of a regulatory body having jurisdiction over
one or both parties and (y) any of such confidential information that
is the sole property of the party making the disclosure and does not
include any information owned by the other party. The Consultant shall
not disclose this agreement except upon written consent of Company.
Consultant agrees to use the Confidential Information only for the
purposes of carrying out its duties to the Company and will not use the
Confidential Information in any other way (including, but not limited
to, direct or indirect disclosure to any third parties).
6. Services Not Exclusive. Consultant shall devote such of its time and
effort necessary to the discharge of its duties hereunder. The Company
acknowledges that Consultant is engaged in other business activities of
a similar nature to this contract with other clients and that it will
continue such activities during the term of this Agreement. Consultant
shall not be restricted from engaging in other activities during the
Term of this Agreement.
7. Relationship of the Parties. The Parties intend that the relationship
between them created under this Agreement is that of an independent
contractor only/ Consultant is not to be considered an agent or
employee of the Company for any purpose. Consultant shall be
responsible for all provincial, federal, and local taxes, and Canadian
goods and service tax, including estimated taxes, and employment
reporting for Consultant or any employees or agents of the Consultant.
Consultant acknowledges that it is not an agent of the Company, and
that it may not commit the Company to any action or obligation. Any and
all Agreements or arrangements that Consultant may negotiate for or
with the Company will be subject to acceptance by the Company through
its board of directors or authorized corporate officers.
8. Records. Consultant shall keep full and accurate records of consulting
work performed under this Agreement. All records, sketches, drawings,
prints, computations, charts, reports, and other documentation made in
the course of the consulting work performed hereunder, or in
anticipation of the consulting work to be performed in regard to this
Agreement shall at all times remain the sole property of Company.
Consultant shall turn over to the Company all copies of such
documentation on request by the Company. Consultant agrees that neither
it not its employees or agents will, during the term of this Agreement,
or any time thereafter, disclose or divulge or use, directly or
indirectly, for its own benefit any confidential information, data,
trade secrets, etc. relating to the business of the Company learned in
connection with its work for the Company. The provisions of this
paragraph shall survive the termination of this Agreement and shall
continue until such information; data, trade secrets, etc. become
public knowledge through no action of Consultant or any of its
employees or agents.
3
<PAGE>
9. Notices. Any notice under this Agreement shall be in writing and shall
be effective when actually delivered in person or three days after
being deposited with Canada Post or US Postal Services, registered or
certified, postage prepaid and addressed to the party at the address
stated in this Agreement or such other address as either party may
designate by written notice to the other.
10. Information Provided by Company.
a. The Company covenants and agrees to provide to the Consultant
all information and documentation pertaining to the Company
that is reasonably necessary for the Consultant to perform its
services hereunder. The Company covenants, represents and
warrants to the Consultant that all information and
documentation provided herein will be timely, accurate and
complete in all respects.
b. The Company covenants to make full, fair and plain disclosure
to the Consultant of all material facts and changes to allow
the Consultant to accurately profile the Company. The Company
acknowledges that the Consultant will be relying on the above
mentioned disclosure in the preparation of the Consultants
materials.
c. Consultant acknowledges that it may have access to
confidential "non-public" information regarding the Company's
business, properties, prospective and actual investors, and
business partners. Consultant agrees that it will not, during
or subsequent to the term of this Agreement, divulge, furnish,
or make accessible to any person or entity information or
plans of the Company with respect to the Company's business,
properties, investors, or business partners except as
authorized by representatives of the Company for dissemination
hereunder.
d. The Company acknowledges and agrees that all reports and
documents prepared by the Consultant for the Company shall
contain a disclaimer with respect to liability of the
Consultant to members of the public. Notwithstanding the
foregoing, the Company hereby covenants and agrees to
indemnify and save the Consultant, its officers, directors,
shareholders, successors and assigns harmless, of and in
respect to any costs, expenses, damages, claims, causes of
action of liabilities of any nature or kind solely arising
from acts or omissions by the Company with regard to the
provision of information or other materials to the Consultant.
11. Survival of Obligations. All warranties, covenants and indemnities of
the Company in favor of the Consultant shall survive the termination of
this Agreement and remain in full force and effective thereafter.
12. Time. Time is of essence of this Agreement.
4
<PAGE>
13. Waiver. Failure of either party at any time to require performance of
any provision of this Agreement, shall not limit the party's right to
enforce the provision, nor shall any waiver of any breach of any
provision be a waiver of any succeeding breach of any provision or a
waiver of the provision itself or any other provision.
14. Assignment. Except as otherwise provided within this Agreement, neither
party hereto may transfer or assign this Agreement without prior
written consent of the other party.
15. Law Governing. Consultant represents and warrants that it is licensed
and qualified to do business in the State of Illinois. As such,
Consultant agrees to personal service made on it through the Illinois
Secretary of State provided that a copy of such service is made on
Consultant at its last known address.
16. Titles and Captions. All article, section and paragraph titles or
captions contained in this Agreement are for convenience only and shall
not be deemed part of the context nor affect the interpretation of this
Agreement.
17. Pronouns and Plurals. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural
as the identity of the Person or Persons may require.
18. Entire Agreement. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings
and Agreements among them respecting the subject matter of this
Agreement.
19. Agreement Binding. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties
hereto.
20. Good Faith, cooperation and Due Diligence. The parties hereto covenant,
warrant and represent to each other good faith, complete cooperation,
due diligence and honesty in fact in the performance of all obligations
of the parties pursuant to this Agreement. All promises and covenants
are separate and independent and in the event any covenant of provision
herein is found to be void or unenforceable it shall be deemed to be
removed from this Agreement and the balance of the Agreement shall be
construed as though such provision did not form part thereof.
21. Counterparts. This Agreement may be executed in several counterparts
and all so executed shall constitute one Agreement, binding on all the
parties hereto even though all the parties are not signatories to the
original to the same counterpart.
22. Parties in Interest. Nothing herein shall be construed to be to the
benefit of any third party, nor is it intended that any provision shall
be for the benefit of any third party.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement to be effective as of the day and year first above written.
1252996 Ontario Limited
Per: ___/SS/ Robert Landau__________
Robert Landau, President
_________________________ Witness Name
_________________________, Witness Signature
Company: Electric City Corp.
___/SS/Joe Marino_____________
Joseph Marino, President
_________________________ Witness Name
_________________________ Witness Signature
6
EXHIBIT 10.9
ELECTRIC CITY CORP.
WARRANT TO PURCHASE COMMON STOCK
Certificate No. WA-3 100,000 Warrants
January 15, 1999
Electric City Corp. ("Company") certifies that, for valuable
consideration, receipt of which is hereby acknowledged, that 1252996 Ontario
Limited d/b/a The Stockpage ("Holder") is entitled to purchase from the Company
100,000 shares of the Company's no par value common stock (the "Shares") at the
price of $4.00 per share ("Exercise Price").
1. Exercise.
a. Time of Exercise. This Warrant to Purchase Common
Stock (hereinafter the "Warrant") may be exercised in whole or in part
(but not as to fractional shares) at the office of the Company, at any
time or from time to time until 5:00 p.m. EST, on February 28, 2001,
after which time this Warrant shall expire and be null and void if not
exercised, the "Expiration Date."
b. Manner of Exercise. This Warrant is exercisable at
the Exercise Price, payable in cash or by check, payable to the
order of the Company, subject to
adjustment as provided in Section 3 hereof. Upon surrender of this
Warrant with the annexed Subscription Form duly executed, together with
payment of the Exercise Price for the Shares purchased (and any
applicable transfer taxes) at the Company's offices located at 1280
Landmeier Road Elk Grove Village, Illinois 60007, the Holder shall be
entitled to receive a certificate or certificates for the Shares so
purchased.
c. Delivery of Stock Certificates. As soon as
practicable, but not exceeding 10 days, after complete or partial
exercise of this Warrant, the Company, at its expense, shall cause to
be issued in the name of the Holder (or upon payment by the Holder of
any applicable transfer taxes, the Holder's assigns) a certificate or
certificates for the number of fully paid and non-assessable Shares to
which the Holder shall be entitled upon such exercise, together with
such other stock or securities or property or combination thereof to
which the Holder shall be entitled upon such exercise, determined in
accordance with Section 2 hereof.
1
<PAGE>
d. Record Date of Issuance of Shares. Irrespective of
the date of issuance and delivery of certificates for any stock or
securities issuable upon the exercise of this Warrant, each person
(including a corporation or partnership) in whose name any such
certificate is to be issued shall for all purposes be deemed to have
become the holder of record of the stock or other securities
represented thereby immediately prior to the close of business on the
date on which a duly executed Subscription Form containing notice of
exercise of this Warrant and payment of the Purchase Price is received
by the Company's Transfer Agent.
2. Adjustment of Exercise Price. The Exercise Price shall be
subject to adjustment as follows:
a. In case the Company shall (1) pay a dividend in
shares of its capital stock (other than an issuance of shares of
capital stock to holders of Common Stock who have elected to receive a
dividend in shares in lieu of cash), (ii) subdivide its outstanding
shares of Common Stock, (iii) reduce, consolidate or combine its
outstanding shares of Common Stock into a smaller number of shares, or
(iv) Issue by reclassification of its shares of Common Stock any shares
of the Company, the Purchase Price in effect immediately prior thereto
shall be adjusted to that amount determined by multiplying the Purchase
Price in effect immediately prior to such date by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding
on such date before giving effect to such divisions, subdivision,
reduction, combination or consolidation or stock dividend and of which
the denominator shall be the number of shares of Common Stock after
giving affect thereto. The number of shares issuable shall also be
adjusted upward or downward determined by multiplying the number of
warrants owned by the Holder by a fraction of which the denominator
shall be the number of shares of Common Stock outstanding on such date
before giving effect to such divisions, subdivision, reduction,
combination or consolidation or stock dividend and of which the
numerator shall be the number of shares of Common Stock after giving
affect thereto. Such adjustment shall be made successively whenever any
such effective date or record date shall occur. An adjustment made
pursuant to this subsection (a) shall become effective retroactively to
the Effective Date immediately after the record date in the case of a
dividend and shall become effective immediately after the effective
date In the case of a subdivision, reduction, consolidation,
combination or reclassification.
b. In case the Company shall distribute to all or
substantially all holders of its Common Stock evidences of its
indebtedness, shares of any class of the Company's stock other than
Common Stock or assets (excluding cash dividends) or rights or warrants
to subscribe, then in each such case the Exercise Price shall be
determined by dividing the Exercise Price In effect immediately prior
to such issuance by a fraction, of which the numerator shall be the
Exercise Price on the date of such distribution and of which the
denominator shall be such fair market value per share of the Common
Stock, less the then fair market value (as determined by the board of
directors of the Company, whose determination shall be conclusive, and
described in a statement, which will have the applicable resolutions of
the board of directors attached thereto, filed with the Company) of the
2
<PAGE>
portion of the assets or evidences of indebtedness or shares so
distributed or of such subscription rights or warrants applicable to
one share of the Common Stock, Such adjustment shall be made whenever
any such distribution Is made and shall become effective retroactively
immediately after the record date for the determination of stockholders
entitled to receive such distribution.
c. If the Common Stock issuable upon the conversion of
the Warrant shall be changed into the same or a different number of
shares of any class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision
or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation or sale of assets provided for in
this Section 2), then, and in each such event, the Holder of this
Warrant shall have the right thereafter to convert such Warrant into
the kind and amount of shares of Common Stock and other securities and
property receivable upon such reorganization, reclassification, or
other change by the Holders of the number of shares of Common Stock
into which such Warrant might have been converted, as reasonably
determined by the Company's board of directors, immediately prior to
such reorganization, reclassification, or change, all subject to
further adjustment as provided herein.
d. If at any time or from time to time there shall be a
capital reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for
elsewhere in this Section 2) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or
substantially all of the Company's properties and assets to any other
person, then, as a part of such reorganization, merger, consolidation
or sale, provision shall be made as reasonably determined by the
Company's board of directors so that the Holder of the Warrant shall
thereafter be entitled to receive upon conversion of such Warrant, the
number of shares of stock or other securities or property of the
Company or of the successor corporation resulting from such merger or
consolidation or sale, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such capital
reorganization, merger, consolidation or sale.
e. The adjustments provided for in this Section 2 are
cumulative and shall apply to successive divisions, subdivisions,
reductions, combinations, consolidations, issues, distributions or
other events contemplated herein resulting in any adjustment under the
provisions or this section, provided that, notwithstanding any other
provision of this section, no adjustment of the Exercise Price shall be
required unless such adjustment would require an increase or decrease
of at least 1% in the Exercise Price then In effect; provided, however,
that any adjustment which by reason of this subsection (a) are not
required to be made shall be carried forward and taken into account in
any subsequent adjustment.
f. Notwithstanding Section 2(b) above, no adjustment
shall be made in the Exercise Price if provision is made for the Holder
of this Warrant to participate in such distribution as if they had
converted all of the principal balance of the Warrant into shares of
Common Stock at the Exercise Price in effect immediately prior to such
distribution.
g. Upon each adjustment of the Exercise Price, the
Company shall give prompt written notice thereof addressed to the
Holder at the address of such Holder as shown on the records of the
Company, which notice shall state the Exercise Price resulting from
such adjustment and the increase or decrease, if any, in the number of
shares issuable upon the conversion of the Holder's warrants, setting
forth in reasonable detail the method of calculation and the facts upon
which such calculations is based.
3
<PAGE>
h. In the event of any question arising with respect to
the adjustments provided for In this Section 2, such question shall be
conclusively determined by an opinion of independent certified public
accountants appointed by the Company (who may be the auditors of the
Company) and acceptable to the Holder of this Warrant. Such accountants
shall have access to all necessary records of the Company, and such
determination shall be binding upon the Company and the Holder.
i. The Company may in its sole discretion and without
any obligation to do so reduce the Exercise Price then in effect by
giving 15 days' written notice to the Holders. The Company may limit
such reduction as to its temporal duration or may impose other
conditions thereto in its sole discretion.
3. Registration Rights. The Company agrees, if able, to file a
Registration Statement to register the resale of the common shares underlying
the Warrant within 6 months after issuance of this Warrant and use its best
efforts to have that Registration Statement declared effective at the earliest
practicable date. The Company, at its sole discretion, may withhold registration
subject to standard underwriter blackouts and cutbacks and/or if Company is
involved with an acquisition or sale that prohibits such filing.
4. Restriction on Transfer. The Holder, by its acceptance
hereof, represents, warrants, covenants and agrees that (i) the Holder has
knowledge of the business and affairs of the Company, and (ii) this Warrant and
the Shares issuable upon the exercise of this Warrant are being acquired for
investment and not with a view to the distribution hereof and that absent an
effective registration statement under the Securities Act of 1933 as amended
(the "Act") covering the disposition of this Warrant or the Shares issued or
issuable upon exercise of this Warrant, they will not be sold, transferred,
assigned, hypothecated or otherwise disposed of without first providing the
Company with an opinion of counsel (which may be counsel for the Company) or
other evidence, reasonably acceptable to the Company, to the effect that such
sale, transfer, assignment, hypothecation or other disposal will be exempt from
the registration and prospectus delivery requirements of the Act and the
registration or qualification requirements of any applicable state securities
laws. The Holder consents to the making of a notation in the Company's records
or giving to any transfer agent of the Warrant or the Shares an order to
implement such restriction on transferability.
This Warrant shall beer the following legend or a legend of
similar import, provided, however, that such legend shall be removed or not
placed upon the Warrant if such legend Is no longer necessary to assure
compliance with the Securities Act of 1933, as amended:
THESE WARRANTS AND THE SHARES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE. THIS WARRANT IS "RESTRICTED" AND MAY NOT BE
RESOLD OR TRANSFERRED NOR MAY THE WARRANT BE EXERCISED BY OR ON BEHALF OF ANY U.
S. PERSON EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO THE REGISTRATION OF THE
SECURITIES OR EXEMPTION THEREFROM.
4
<PAGE>
5. Payment of Taxes. All Shares issued upon the exercise of
this Warrant shall be validly issued, fully paid and non-assessable and the
Company shall pay all taxes and other governmental charges (other than income
tax) that may be imposed in respect of the issue or delivery thereof. The
Company shall not be required, however, to pay any tax or other charge imposed
In connection with any transfer involved in the issue of any certificate for
Shares in any name other than that of the Holder surrendered in connection with
the purchase of such Shares, and In such case the Company shall not be required
to issue or deliver any stock certificate until such tax or other charge has
been paid or it has been established to the Company's satisfaction that no tax
or other charge is due.
6. Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon the exercise of this Warrant,
such number of shares of Common Stock as shall be issuable upon the exercise
hereof. The Company covenants and agrees that, upon exercise of this Warrant and
payment of the Purchase Price thereof, all Shares of Common Stock issuable upon
such exercise shall be duly and validly issued, fully paid and non-assessable.
7. Notices to Holder. Nothing contained in this Warrant shall
be construed as conferring upon the Holder hereof the right to vote or to
consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter or as having any
rights whatsoever as a shareholder of the Company. All notices, requests,
consents and other communications hereunder shall be in writing and shall be
deemed to have been duly made when delivered or mailed by registered or
certified mail, postage prepaid, return receipt requested:
a. If to the Holder, to the address of such Holder as
shown on the books of the Company, or
b. If to the Company, to the address set forth in
Section 2(b) hereof or to any other address notice of which is
delivered to the Holder by regular mail.
8. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the ownership of and the loss, theft, destruction
or mutilation of this Warrant and (in case of loss, theft or destruction) upon
delivery of an indemnity agreement in an amount reasonably satisfactory to the
Company, or (in the case of mutilation) upon surrender and cancellation of the
mutilated Warrant, the Company will execute and deliver, in lieu thereof, a new
Warrant of like tenor.
9. Successors. All the covenants, agreements, representations
and warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
5
<PAGE>
10. Changes or Waiver. Neither this Warrant nor any term hereof
may be changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
11. Headings. The section headings in this Warrant are inserted
for purposes of convenience only and shall have no substantive effect.
12. Governing Law. This Warrant shall for all purposes be
construed and enforced in accordance with, and governed by, the internal laws of
the United States and the State of Illinois, without giving effect to principles
of conflict of laws.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated as of the
date first above written.
ELECTRIC CITY CORP.
By: ____/SS/ Joe Marino _____
Joseph Marino, President
6
<PAGE>
ASSIGNMENT
For value received _______________________, hereby sells,
assigns and transfers all of the right, title and interest of __________Warrants
represented by this Certificate to ________________________ and appoint
___________________ as my attorney-in-fact to accomplish same.
------------------------------------------
Signature of holder (exactly as it appears
on the Certificate)
_____________________________ Medallion signature guarantee required
Dated:________________________
7
<PAGE>
SUBSCRIPTION FORM
(To be Executed by the Registered Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the right
to purchase of the Shares covered by this Warrant according to the conditions
hereof and herewith makes payment of the Purchase Price of such Shares in full.
No. of Warrants Exercised _______________________
Amount of exercise price delivered $______________
Dated _________________, 199___.
__________________________________________________
Signature (must be as listed on Warrant Certificate)
Name Shares to be issued to:
Address for delivery:
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS FOR THE THREE MONTH PERIOD ENDED JULY 31, 1999 INCLUDED IN
THIS FORM 10-SB/A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-SB/A.
</LEGEND>
<CIK> 0001065860
<NAME> ELECTRIC CITY CORP.
<CURRENCY> dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 3,805,425
<SECURITIES> 0
<RECEIVABLES> 608,598
<ALLOWANCES> 10,000
<INVENTORY> 703,363
<CURRENT-ASSETS> 5,107,389
<PP&E> 1,460,902
<DEPRECIATION> 44,838
<TOTAL-ASSETS> 9,342,488
<CURRENT-LIABILITIES> 3,505,778
<BONDS> 765,647
0
0
<COMMON> 2,681
<OTHER-SE> 5,068,382
<TOTAL-LIABILITY-AND-EQUITY> 9,342,488
<SALES> 833,523
<TOTAL-REVENUES> 833,523
<CGS> 668,861
<TOTAL-COSTS> 668,861
<OTHER-EXPENSES> 4,083,028
<LOSS-PROVISION> 1,111,471
<INTEREST-EXPENSE> 51,161
<INCOME-PRETAX> (997,970)
<INCOME-TAX> 0
<INCOME-CONTINUING> (997,970)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (997,970)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
