UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
Form 10-KSB
|_| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended ____________________________________
|X| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from 5/1/99 to 12/31/99
------ --------
Commission file number 000-2791
--------
Electric City Corp.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 36-4197337
- ------------------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1280 Landmeier Road, Elk Grove Village, IL 60007-2410
- ------------------------------------------ ------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (847) 437-1666
------------------------------------------------------
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
____________________________________ _________________________________________
____________________________________ _________________________________________
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $0.0001 Par
- --------------------------------------------------------------------------------
(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
1
<PAGE>
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. |X| Yes |_| No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
State issuer's revenues for its most recent fiscal year. $2,730,184
-----------------------
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
The aggregate market value of the voting common equity held by non-affiliates
computed by reference to the price at which the common equity was sold on March
31, 2000 was $70,276585.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. |_| Yes |_| No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 28,269,318 Common Stock as of March
31, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
None |X|
Transitional Small Business Disclosure Format (Check one): Yes |_|; No |X|
2
<PAGE>
PART I
Item 1. Description of Business.
Electric City Corp. ("Electric City" or the "Company") is a 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 devices 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 has begun 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., North America and portions of South America 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.
In January, 1999, Electric City entered into an agreement to purchase,
subject to an appraisal, most of the assets, including inventory, of Marino
Electric, Inc. ("Marino Electric"). 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 $3,888,000 consists of the issuance of 1,600,000 shares of
Electric City common stock ($2,096,000) and $1,792,000 in cash. The closing of
the purchase took place effective May 24, 1999. 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), Electric City must pay Reverberi a royalty of $300 for each
product unit made by or for Electric City and sold by Electric City. Pursuant to
an amendment dated January 28, 2000, Reverberi agreed to split the $300 royalty
as follows: $200 to Reverberi and $100 to Joseph C. Marino.
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 devices 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.
3
<PAGE>
merged with and into Electric City Corp. and Joseph C. Marino sublicensed his
rights under the Reverberi license agreement to Electric City for use in the
U.S.
In June 1998, Electric City issued 1,200,272 shares of its common stock
with a fair market value of $1,200,272 representing approximately six (6%)
percent of Electric City's issued and outstanding common stock, to the
approximately 330 shareholders of Pice Products Corporation ("Pice"), 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 with the principals of Pice by the
Company's Board of Directors as a whole and was concluded by the Board to be an
"arm's length transaction" in that none of the Board of Directors was in any way
affiliated with, or related to the principals of Pice. 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".
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. The rate will be adjusted on August 1, 2001 to Prime minus
0.25%.
Through December 31, 1999, Electric City had sold 117 EnergySaver systems
to commercial clients within the United States. These sales resulted in gross
revenues of approximately $1,015,000. 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. During
the eighth month period ending December 31, 1999 the EnergySaver accounted for
approximately 30 % of the Company's sales.
Electric City's activities to date have included raising capital,
establishing a sales distribution network, selling the EnergySaver product and
assembling the EnergySaver product at Electric City's principal facilities
located at 1280 Landmeier Road, Elk Grove Village, Illinois.
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
4
<PAGE>
cases (electrical boxes) and assembles circuit breakers, bus bars and switches.
Marino Electric's principal parts suppliers are Cutler Hammer and Siemens.
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 combination of the two businesses 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 significantly
reduced, 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 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 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, reducing spikes and surges while providing protection from lightning
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.
Sales and Distribution
Electric City has established 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 make their profit via product markup.
Electric City, by the end of 1999 established 21 exclusive distribution
agreements covering a large portion of the U.S. The distribution agreements are
standard 10 year agreements with varying terms of territory, quotas, and payment
terms based on the market covered within
5
<PAGE>
the agreement. The agreements have sales quotas that increase throughout the
term and contain penalties for failure to meet those quotas. Non-performance,
among other penalties, could result in the distributor's loss of the exclusive
territory. 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 dealerships 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. The Company, in a series of press releases has announced
the signing of the distributor agreements. In press releases dated March 26,
1999 announcing the Texas, Virginia, Tennessee, Missouri and Kentucky
Distributor Agreements, the April 8, 1999 announcing Wisconsin Distributor
Agreement, and the April 13, 1999 announcing Colorado and Nebraska Distributor
Agreements, the Company inadvertently announced that the agreements had
guaranteed sales beyond the first year of the agreement. In fact, these
agreements do not have guaranteed sales after the first year of the agreement.
Thereafter, all press releases correctly reflected that the distributor
agreements only have guaranteed sales for the first year of the agreement.
As the result of certain distributors failing to meet sales quotas and
minimum purchase requirements under their distribution agreements, the Company
has entered into discussions regarding the possible termination or restructuring
of those agreements. Three distributors, representing eleven states have not
agreed with the proposed restructuring of the distributorship agreements and
have threatened legal action. Management denies all of the claims made by the
distributors and plans to counterclaim to collect the minimum purchase amounts
and to enforce all of the Company's rights under the agreements. The three
distributors have made a variety of assertions, including, inter alia,
contending that the Company and/or its officers made misrepresentations
regarding the financial condition of the Company, the products' capabilities and
whether certain entities were customers of the Company, which allegedly induced
them to become distributors and stockholders to their alleged damage. They also
claim breaches of the distribution agreements including inter alia, failure to
provide adequate support for sales efforts, failure to furnish products that
conform with contractual requirements and wrongful efforts to take away and/or
interfere with the exclusivity of the distributors' rights. The type of claims
they contend they may assert are securities fraud and RICO claims, breach of
contract, breach of the covenant of good faith and fair dealing, common law
fraud and tortious interference. No complaint has yet been filed and no specific
damage number has been articulated by the distributors, but they contend that
the damage claims will be in the millions of dollars. Management denies all of
the claims made by the distributors and intends to fully and vigorously defend
the claims. If, and when, a legal proceeding is commenced, it is anticipated
that counterclaims against the distributors will be filed by the Company
relating to the lack of performance and other actions of the distributors. The
Company has retained the firm of Katten, Muchin, Zavis, of Chicago, Illinois, to
advise and defend the Company. While the Company believes the distributor claims
are frivolous and that the Company will prevail in its
6
<PAGE>
counterclaims, it is not able to definitively determine the ultimate outcome of
such claims and can not estimate the amount of potential losses. However, if the
distributors were successful, their claims could materially effect the financial
position and results of operations of the Company.
Electric City has begun 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.
In addition, Electric City distributors plan to distribute the EnergySaver
in tandem with the electric distribution panels manufactured by Marino Electric.
Complimenting the EnergySaver and electric distribution panels
manufactured by Marino Electric, the Company has recently introduced the
SystemCommander. While the base EnergySaver is focused on providing significant
lighting energy reduction with minimal loss in lighting levels, the
SystemCommander can be used to achieve more aggressive levels of energy
reduction with some loss in lighting levels. The SystemCommander provides a
single point of remote control to various EnergySaver units giving the user
control over lighting use/scheduling as well as the ability to continuously vary
the energy savings levels at any time. System operation of a pilot project
installation of the SystemCommander was successfully operated at a presentation
to the Chicago Park District Board at a meeting on March 8, 2000.
Competition
Electric City is not aware of any direct competitors currently offering
products comparable to the EnergySaver. 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.
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.
The Company believes that there is currently not a product on the market
that posses the features and benefits of the EnergySaver; however, there are
products in the market that the Company considers indirect competition to the
EnergySaver. Most products that compete in the same market as the EnergySaver
can be categorized into two categories: those that reduce the power to the
lighting system to a fixed amount of power and those that pulsate the power to
the
7
<PAGE>
lighting system, according to the National Lighting Product Information
Program's Specifier Report in Volume 6, Number 2 of the September, 1998 issue.
Both types reduce energy costs for lighting. The former allows the customer to
reduce the amount of power given to the lighting system with a fixed amount of
savings. For example, if the customer wanted 3% savings the technology would be
set to reduce the amount of power by 3% by the product's manufacturer. The level
of savings would not be changeable by the customer. The EnergySaver
electronically and automatically changes the savings amounts depending on the
changing customer needs and market prices. The latter category of indirect
competitors pulsate the power to the lighting systems to achieve savings.
According to the same Specifier Report referenced above, these power pulsators,
that in effect supply full power to the lighting systems and then turn the power
off so quickly that the lights remain on, "can reduce power quality as well as
lamp and ballast performance," whereas the EnergySaver enhances lamp/ballast
life. Finally, the Company believes that the EnergySaver rises above this
indirect 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 Company believes that the EnergySaver posses
features and benefits beyond its indirect competitors.
Furthermore, in the face of potentially falling energy prices, the
EnergySaver will remain an attractive product because of the "soft savings" it
provides. Because of the reduced amperage and voltage that powers the lighting
systems, heat generation within the lighting systems is reduced, extending
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 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.
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 former CEO of Electric City, Mr.
Marino has 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. Mr. Marino is to pay Reverberi a royalty of $300 for each product unit
made or sold. Pursuant to an amendment dated January 28, 2000, Reverberi agreed
to split the $300 royalty as follows: $200 to Reverberi and $100 to Joseph C.
Marino. The term of the Reverberi License Agreement is until December 31, 2007,
which is renewable until December 31, 2017, unless written termination is
provided by either party of the License Agreement no less than 90 days prior to
the renewal date. The Reverberi License Agreement may be terminated by either
party upon breach which remains uncured after sixty (60) days notice and only by
Mr.
8
<PAGE>
Marino upon sixty (60) days notice without cause. The Reverberi License
Agreement is transferable by Mr. Marino so long as he retains an interest in the
transferee.
Mr. Marino has sublicensed to Electric City for no fee, certain rights
under the Reverberi license agreement. The terms of the Sublicense Agreement
dated June 5, 1999, and amended in December of 1999, mirror the Reverberi
License. The Sublicense is renewable upon the same terms as the Reverberi
License Agreement, except that the Sublicense can only be renewed if the
Reverberi License Agreement has not been terminated. Mr. Marino retains all
other rights under the Reverberi License Agreement. Pursuant to an amendment
dated January 28, 2000, Reverberi agreed to split the $300 royalty as follows:
$200 to Reverberi and $100 to Joseph C. Marino.
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. A U.S. patent application was filed by Mr.
Reverberi in November 1997 and 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 has been filed.
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.
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.
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 for the fiscal period ending
9
<PAGE>
April 30, 1999 was approximately $1,923,000. Total research and development
costs charged to operations for the fiscal period ending December 31, 1999 was
approximately $80,000.
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.
Employees
As of December 31, 1999 Electric City had 52 full-time employees,
including 17 former employees of Marino Electric. 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.
Reports to Security Holders
The Company files quarterly reports with the Security and Exchange Commission.
The public may read and copy any materials filed by the Company with the SEC at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. The public may also obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC at
http://www.sec.gov. The Company maintains its own website at
www.electriccityeccc.com.
Item 2. 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 13,000
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
which it financed through 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 $776,812 at December 31, 1999. The location is
approximately 60% manufacturing and 40% office. The Company believes that its
current location will adequate for its current needs.
Item 3. Legal Proceedings.
The Circuit court of Cook county, Illinois, case number 99L 11406, John
Prinz & Associates v. Electric City Corp. was filed in December of 1999,
alleging that the amount of $1,445,000 is due to John Prinz & Associates for
consulting services. The company has moved to dismiss the matter and
negotiations are proceeding toward its resolution. The company believes that the
matter will not materially effect the financial position or results of
operations of the Company.
10
<PAGE>
As the result of certain distributors failing to meet sales quotas and
minimum purchase requirements under their distribution agreements, the Company
has entered into discussions regarding the possible termination or restructuring
of those agreements. Three distributors, representing eleven states have not
agreed with the proposed restructuring of the distributorship agreements and
have threatened legal action. Management denies all of the claims made by the
distributors and plans to counterclaim to collect the minimum purchase amounts
and to enforce all of the Company's rights under the agreements. The three
distributors have made a variety of assertions, including, inter alia,
contending that the Company and/or its officers made misrepresentations
regarding the financial condition of the Company, the products' capabilities and
whether certain entities were customers of the Company, which allegedly induced
them to become distributors and stockholders to their alleged damage. They also
claim breaches of the distribution agreements including inter alia, failure to
provide adequate support for sales efforts, failure to furnish products that
conform with contractual requirements and wrongful efforts to take away and/or
interfere with the exclusivity of the distributors' rights. The type of claims
they contend they may assert are securities fraud and RICO claims, breach of
contract, breach of the covenant of good faith and fair dealing, common law
fraud and tortious interference. No complaint has yet been filed and no specific
damage number has been articulated by the distributors, but they contend that
the damage claims will be in the millions of dollars. Management denies all of
the claims made by the distributors and intends to fully and vigorously defend
the claims. If, and when, a legal proceeding is commenced, it is anticipated
that counterclaims against the distributors will be filed by the Company
relating to the lack of performance and other actions of the distributors. The
Company has retained the firm of Katten, Muchin, Zavis, of Chicago, Illinois, to
advise and defend the Company. While the Company believes the distributor claims
are frivolous and that the Company will prevail in its counterclaims, it is not
able to definitively determine the ultimate outcome of such claims and can not
estimate the amount of potential losses. However, if the distributors were
successful, their claims could materially effect the financial position and
results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
There have been no matters submitted for a vote by the Company's security
holders.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Electric City common stock has been quoted on the OTC Bulletin Board under
the symbol "ECCC" since August 14, 1998. From November 4, 1999 to January 31,
2000, the stock was traded on the "Pink Sheets" while waiting for the Company's
Registration Statement on Form 10SB to be approved by the SEC. 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 Pink Sheets and OTC Bulletin Board inter-dealer
quotation system and reflect inter-dealer prices, without retail mark-up,
mark-down
11
<PAGE>
or commission and may not represent actual transactions. The amounts reflect the
2 for 1 share stock split of all outstanding shares of common stock effective
July 30, 1999.
Fiscal Quarter High Low
-------------- ---- ---
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
Quarter Ended 7/31/99 $ 14.84 $ 2.25
Quarter Ended 10/31/99 $ 11.94 $ 6.75
Two Months Ended 12/31/99 $ 9.38 $ 7.61
(1) Since August 14, 1998.
The closing bid quotation for Electric City common stock on December 31,
1999 was $7.625 per share. Electric City has applied for the listing of its
common stock on the Nasdaq SmallCap Market. 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 March 31, 2000 there were approximately 794 holders of record of
Electric City common stock not including those shares beneficially held in
brokerage accounts.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion regarding the Company and its business and
operations contains "forward looking statements" within the meaning of Private
Securities Litigation Act of 1995. Such statements consist of any statement
other than a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The reader is cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties that could
cause actual events or results to differ materially from those referred to in
such forward-looking statements. The Company does not have a policy of up dating
or revising forward-looking statements and thus it should not be assumed that
silence by management of the Company over time means that actual events are
bearing out as estimated in such forward looking statements.
The Company has a short operating history. All risks inherent in a new and
inexperienced enterprise are inherent in the Company's business.
12
<PAGE>
Results of Operations
Eight Months Ended December 31, 1999 Compared to Twelve Months Ended December
31, 1998.
On January 31, 2000, the Board of Directors of Electric City Corp. voted
to change the Company's fiscal year-end from April 30th to December 31st, as a
result the financial statements presented herein cover the eight-month period
from May 1, 1999 through December 31, 1999. These statements are compared with
the statements for the twelve-month fiscal year ending April 30, 1999. These
periods are not necessarily comparable since the Company was still a Development
Stage Company as of April 30, 1999 and the eight-month period ending December
31, 1999 includes the results from operations of Marino Electric, Inc. ("Marino
Electric") which it acquired effective May 24, 1999.
The Company's total sales revenue for the eight-month period ended
December 31, 1999 were $2,730,184 versus $208,473 for fiscal year ending April
30, 1999. Prior to the acquisition of Marino Electric on May 24, 1999 Company
was considered a development stage company whose primary activities involved
research and development, testing, and the initial marketing of the EnergySaver.
Sales during this development period were limited to a small number of
EnergySaver units for evaluation purposes. For the entire eight-month period
ending in 1999, revenues from the EnergySaver accounted for approximately 30% of
the Company's total revenue with the balance being derived from the sale of
switchgear and distribution panels. During this period the Company sold
approximately 90 EnergySaver units.
The Company's cost of sales for the eight-month period ending December 31,
1999 totaled $2,568,070 as compared to $135,000 for previous fiscal year. The
increase in the cost of sales was due to the increase in sales activity
resulting from the acquisition of Marino Electric and increased sales of
EnergySaver units. The gross margin earned during the eight-month period was
approximately 6%. The Company's gross margin was negatively impacted by certain
inefficiencies created as it prepared to begin commercial production of the
EnergySaver and costs associated with integrating the former Marino Electric
business. Management believes the Company's gross margin will improve in future
periods as these inefficiencies are eliminated and as revenue from the
EnergySaver becomes a larger portion of its total sales.
Selling, general and administrative expenses ("SG&A") for the eight-month
period ending December 31, 1999 were $3,541,012 versus $4,033,559 for the fiscal
year ending April 30, 1999. During both of these periods the Company incurred
significant professional fees for legal and accounting services related to
acquisition and organizing activities including the acquisition of Pice Products
in June of 1998, the acquisition of Marino Electric in May of 1999, the
commencement of trading on the OTC Bulletin Board on August 14, 1998 and the
private placement initiated during the fall of 1999. The Company also realized
significant consulting costs for engineering and research and development costs
during both periods as it developed numerous improvements and enhancements to
the EnergySaver. During the fiscal year ended April 30, 1999 it recorded
consulting and professional fees of approximately $1.35 million and research and
development costs of $1.9 million. During the eight-month period ending December
31, 1999 it incurred consulting and professional fees of approximately $1.1
million
13
<PAGE>
and research and development costs of approximately $88,000. SG&A during the
period ending December 31, 1999 also included a $615,000 charge related to the
discount on certain shares issued to two institutional investors as part of a
private placement of its common stock, and $196,164 of amortization of the
goodwill associated with the purchase of Marino Electric. Since the Marino
Electric purchase closed in May of 1999, there was no such amortization expense
in the previous fiscal year.
Other non-operating expenses for the eight-month period ending December
31, 1999 totaled $36,105 as compared to $1,250,831 for the fiscal year ended
April 30, 1999. The Company recorded interest expense of $166,979 during the
eight-month period ended December 31, 1999, of which $96,768 was associated with
the note due to the sellers of Marino Electric, and $45,186 was related to the
mortgage on the Company's facility in Elk Grove Village. Other interest expense
included $9,363 in interest on the working capital facility with LaSalle
National Bank and $15,592 for certain notes payable to stockholders. The notes
payable to stockholders were repaid in full on October 25, 1999. Interest earned
on investments during the period totaled $130.874. Other non-operating expenses
for the fiscal year ended April 30, 1999 included net interest expense of
$50,559 and a $1.2 million charge related to the purchase of Pice Products
Corporation. Interest expense was comprised of $43,700 from the mortgage on the
Company's Elk Grove Village facility and $15,913 associated with the notes due
shareholders, offset by $9,054 of interest income.
Eight Months Ended December 31, 1999 Compared to Eight Months Ended December 31,
1998.
The Company's total sales revenue for the eight-month period ended
December 31, 1999 were $2,730,184 versus $49,696 for the equivalent period
ending December 31, 1998. The Company was considered a Development Stage Company
as of December 31, 1998. Revenue for the period was generated through the sale
of four EnergySaver units.
The Company's cost of sales for the eight-month period ending December 31,
1999 totaled $2,568,070 as compared to $88,881 for the eight-month period ended
December 31,1998. The increase in the cost of sales was due to the increase in
sales activity resulting from the acquisition of Marino Electric and increased
sales of EnergySaver units. The cost of sales during 1998 included many one-time
expenses associated with setting up operations in the Company's new facility in
Elk Grove Village.
SG&A expenses for the eight-month period ending December 31, 1999 were
$3,541,012 versus $624,793 for the same period ending December 31, 1998.
Approximately one third of the SG&A expense incurred during 1998 was for
consulting and professional fees associated with the acquisition of Pice
Products, organizing the Company, and refining the EnergySaver.
Other non-operating expenses for the eight-month period ending December
31, 1999 totaled $36,105 as compared to $1,223,457 for the eight-month period
ending December 31, 1998. Other non-operating expenses for the period ending
December 31, 1998 included a $1.2 million charge related to the purchase of Pice
Products Corporation. Interest expense made up
14
<PAGE>
the balance of the non-operating expenses during the 1998 period, with mortgage
interest responsible for $21,394 of the total.
Liquidity and Capital Resources
The Company's principal cash requirements are for operating expenses,
including employee costs, the costs related to research and development,
advertising costs, the cost of outside consultants including those providing
accounting, legal and engineering services, and the funding of inventory and
accounts receivable, and capital expenditures. The primary source of cash has
been the private placement of the Company's common stock.
In July of 1999, the Company commenced an offering to sell 2,200,000
shares of its common stock. As of December 31, 1999 the Company had raised
$8,765,732 through the issuance of 2,171,179 shares of common stock. As is
discussed more in note 13 to the financial statements, the funds raised as part
of the private placement may be subject to recession. Based upon the close
business relationship some investors have with the Company and its management
and relationships that others have with management of the Company, the Company
does not believe that investors owning a material amount of the securities
purchased in the private placement would demand recession and any such recession
would likely not have a material effect on the Company's financial position.
In July 1999, the Company entered into a $500,000 line-of-credit from
LaSalle Bank N.A. To save on the costs associated with maintaining the
line-of-credit, the Company elected to cancel the line-of-credit in December
1999 because it was not needed as a result of the cash generated through the
private placement.
Net cash increased $5,682,035 during the eight-month period ending
December 31, 1999. Net cash consumed by operating activities was $2,010,743
attributable primarily to the net loss of $3,401,835. Cash supporting net
working capital declined $26,129 during this period.
Cash used in investing activities totaled $700,005, of which $600,000 was
for a loan to a stockholder and $100,005 was for the purchase of property and
equipment. The $600,000 loan was repaid in full along with $120,000 in interest
on March 20, 2000. The investment in property and equipment was primarily for
shop equipment and office equipment at the Company's Elk Grove Village
headquarters.
Financing activities generated $8,392,783 during the period ending
December 31, 1999. The private placement raised $8,875,732 after commissions, of
which $500,000 was used to repay loans from shareholders.
Management believes that the cash raised as part of the recent private
placement, along with a $2 million working capital line that it received a
commitment for from LaSalle Bank N.A. should provide sufficient liquidity until
internally generated cash reaches a level sufficient to fund operations.
15
<PAGE>
Year 2000 Compliance
The costs to access and implement the year 2000 compliance plans did not
have a material adverse impact on the Company's financial condition, results of
operations or liquidity. In addition, to date, the Company has not experienced
any material year 2000 issues.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting standards
for derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure these instruments at fair market value. The
Company, to date, has not engaged in dollar derivative and hedging activities.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Obtained for Internal Use." SOP 98-1 is effective for financial
statements for the years beginning after December 15, 1998. SOP 98-1 provides
guidance over accounting for computer software developed or obtained for
internal use including the requirement to capitalize and amortize specific
costs. The adoption of this standard did not have a material effect on the
Company's capitalization policy.
Item 7. Financial Statements.
Index to Financial Statements
F-1 Report of Independent Certified Public Accountants
F-2 - F-3 Balance Sheets as of December 31, 1999 and April 30, 1999
F-4 Statements of Operations for the eight months ended December
31, 1999 and the year ended April 30, 1999
F-5 Statements of Stockholders' Equity for the eight months ended
December 31, 1999 and the year ended April 30, 1999
F-6 - F-7 Statements of Cash Flows for the eight months ended December
31, 1999 and the year ended April 30, 1999
F-8 - F-27 Notes to Financial Statements
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
N/A
16
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
The directors and executive officers of Electric City are as follows:
Name Age Positions Held With Company
---- --- ---------------------------
Joseph C. Marino 44 Chairman of the Board of Directors
Victor L. Conant 52 Director
Brian Kawamura 42 President, COO and Director
Kevin P. McEneely 51 Director
John P. Mitola 35 CEO and Director
Michael S. Stelter 42 Vice President of Sales and a 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 seven (7) 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.
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 served as Chief
Executive Officer of Electric City since its organization as a limited liability
company in December 1997 to December, 1999 and as Chairman of the Board of
Directors of Electric City since its incorporation in June 1998. Mr. Marino also
served as President of Marino Electric, a position he held from his founding of
Marino Electric in 1986 until May 24, 1999.
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. Mr. Conant is also a member of NCVC LLC,
a principal shareholder and founder of the Company.
Brian Kawamura is the President and Chief Operating Officer and a director
of Electric City Corp. Mr. Kawamura in 1999 was employed as Executive Vice
President, Field Sales and Operations, Southern Division of KMC Telecom
responsible for KMC Telecom sales growth in existing markets in Alabama,
Florida, Georgia, Louisiana and Texas as well as future markets in the South and
Southeast regions. Prior to joining KMC Telecom, Mr. Kawamura was Vice
17
<PAGE>
President and General Manager of the six state Central Region for MFS Worldcom,
Chicago. Mr. Kawamura became a director of the Company on November 18, 1999. In
January, 2000, Mr. Kawamura assumed the position of President and COO of
electric City Corp.
Kevin P. McEneely is a co-founder of Electric City and served as Senior
Executive Vice President and Chief Operating Officer of Electric City since its
organization in December 1997 to 1999, 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. Mr. McEneely is a member of NCVC LLC, a principal
shareholder and founder of the Company.
John Mitola is the Chief Executive Officer and a director of Electric City
Corp. Mr. Mitola, in 1999 was employed as Vice President and General Manager
heading Unicom Corporation's largest unregulated subsidiary, Unicom Thermal
Technologies. Mr. Mitola has, since 1995 been involved in the development of
Unicom Thermal. Mr. Mitola became a director of the Company on November 18,
1999. In January, 2000, Mr. Mitola assumed the position of Chief Executive
Officer of Electric City.
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 served as
Vice President of Marino Electric, a position which he held from 1987 until May
24, 1999.
James Stumpe is an member of Electric City of Illinois, LLC, a distributor
of the Company. Mr. Stumpe is also the owner of RCI since 1997, another
distributor of the Company. He has been a part owner of Diamac Electric, an
electrical contracting firm, since 1989. 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
66,012 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 LLC is a special limited partner of the Catterton Simon LLP, a
venture capital fund.
Item 10. Executive Compensation.
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 and the eight month period ended December 31, 1999. No
other executive officer of Electric City had a total annual salary and bonus in
excess of $100,000 for fiscal 1999. Accordingly, Electric City's Chief Executive
Officer is the only Named Executive Officer of Electric City under SEC rules.
18
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Restricted LTIP
Name and Principal Fiscal Salary Bonus Other Annual Stock Options Payouts All Other
Position Year ($) ($) Compensation ($) Award(s) ($) (#) ($) Compensation ($)
-------- ---- --- --- ---------------- ------------ --- --- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph C. Marino, 4/30/99 $ 60,000(1) $0 $ 0 $0 2,900,000(2) $0 $0
CEO
12/31/99 160,902 $0 $5065 0 0 0 0
</TABLE>
(1) Effective January 1, 1999, Electric City and Mr. Marino entered into a
4-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. Effective January 4, 1999, Electric City granted to Joseph Marino an
option to acquire up to 900,000 shares at an exercise price of $1.75 per
share. This option becomes exercisable in pro rata installments at the end
of each of the first four years after the date of grant and expires in
December, 2008.
Compensation of Other Executive Officers and Directors
There are no standard or other compensation arrangements for directors of
Electric City for their services as such, including service on committees or
special assignments, except for the standard reimbursement of expenses for
attendance at board of directors meetings.
Option Exercises and Values
Option/SAR Grants in Fiscal Year ended 4/30/99
And the Eight Month period Ended 12/31/99
Number of Percent of total
Securities options/SARS
Underlying granted to
Options/SARS employees in Exercise or base Expiration
Name granted (#) fiscal year price ($/Sh) Date
- ---- ----------- ----------- ------------ ----
Joseph C. Marino 2,000,000 38%(1) $1.10/Sh 06/25/2008
Joseph C. Marino 900,000 17%(2) $1.75/Sh 12/31/2008
19
<PAGE>
(1) Mr. Marino owns a 100% membership interest in Pino, LLC, to which an
option to acquire up to 2,000,000 shares of common stock was issued in
1998.
(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 $1.75 per
share. This option becomes exercisable in prorata installments at the end
of each of the first four years after the date of grant and expires in
December, 2008.
Aggregate Option/SAR Exercise in Last Fiscal Year
And FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
unexercised Value of unexercised
options/SARS at in-the-money options/
Shares FY-end(#) SARS at FY-end ($)
acquired on Value realized exercisable/ exercisable/
Name exercise (#) ($) unexercisable unexercisable
- ---- ------------ --- ------------- -------------
<S> <C> <C> <C> <C>
Joseph C. Marino -- -- 0/2,000,000 0/$ (1)
$13,050,000
Joeph C. Marino -- -- 0/900,000 0/ (2)
$ 5,287,500
</TABLE>
(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 December 31, 1999 of $7.625 per share.
(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 December 31, 1999 of $7.625 per share.
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
4-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 an 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. Upon the
sale of more than forty (40%) of the net assets of the Company to a person or
entity not affiliated with the Company, all of the options immediately vest and
are exercisable by Mr. Marino. The agreement is terminable for cause by a vote
of 3/4 of the Board of Directors of the company, in which vote Mr. Marino, as a
director, would not vote nor be counted as a Director for purposes of
determining the 3/4 vote. Mr. Marino is subject to
20
<PAGE>
confidentiality restrictions and an agreement not to compete with the Company
for two (2) years after his separation from the Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table summarizes the beneficial ownership of the Company's
management and beneficial owners of more than 5% of the Company's common $0.0001
par value stock as of March 31, 2000:
Name and Address
of Beneficial Owner Ownership Amount % of Class
- ------------------- ---------------- ----------
Pino, LLC 9,306,251 (1) 30.7%
1280 Landmeier Road
Elk Grove, IL 60006
NCVC L.L.C. 10,174,998 (2) 33.6
7300 N. Lehigh
Niles, IL 60714
Joseph C. Marino 10,092,654 (3) 33.1
1280 Landmeier Road
Elk Grove, IL 60007
4.4
Michael S. Stelter 1,236,258
1280 Landmeier Road
Elk Grove, IL 60007
Kevin P. McEneely 10,174,998 (4)(5) 33.6
7300 N. Lehigh
Niles, IL 60714
Victor L. Conant 10,174,998 (4)(6) 33.6
7300 N. Lehigh
Niles, IL 60714
Nikolas Konstant 10,174,998 (4) 33.6
7300 N. Lehigh
Niles, IL 60714
John Mitola -0- -0-
1280 Landmeier road
Elk Grove village, IL 60007
Brian Kawamura 68,000 0.2
1280 Landmeier road
Elk Grove village, IL 60007
21
<PAGE>
James Stumpe 212,779 (7) 0.8
15426 S. 70th Court
Orland Park, IL 60462
(1) Pino, LLC is an entity in which Joseph Marino holds a 100% membership
interest. The amount includes an option to purchase 2,000,000 shares which
is exercisable within 60 days.
(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. The amount includes an option to purchase 2,000,000
shares which is exercisable within 60 days.
(3) Consists of 7,306,251 held of record by PINO, plus Pino's option to
purchase 2,000,000 shares, 521,403 held by Mr. Marino, plus an option to
purchase 225,000 shares and 40,000 shares held by Mr. Marino's son.
(4) Consists of 10,174,998 shares held of record by NCVC L.L.C., plus an
option to purchase 2,000,000 shares which is controlled by Messrs. Conant,
McEneely and Konstant. Such shares are deemed to be beneficially owned by
each of these individuals.
(5) Mr. McEneely disclaims beneficial ownership of an aggregate of 448,846
shares held by Patrick McEneely and Ryan McEneely, his adult children.
(6) Mr. Conant disclaims beneficial ownership of an aggregate of 470,748
shares held in trust for Carson Conant and Chappell Conant, his adult
children.
(7) Consists of 146,667 shares (reflecting 33% of the shares) of record held
by Electric City of Illinois, LLC., which is 33% owned by Mr. Stumpe and
66,112 held by Mr. Stumpe individually.
The Company's officers and directors as a group beneficially own
16,389,504 shares which represents 52.3% of the Company's common $0.0001 par
value common stock.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, directors, and certain shareholders to file reports of
ownership and changes on ownership of the Common Stock with the Securities and
Exchange Commission. To the Company's knowledge, based on a review of the copies
of such reports furnished to the Company and written representations that no
other reports were required, during the Company's eight (8) month period ended
December 31, 1999, all Sections 16(a) filing requirements were compiled with and
filed in a timely fashion.
Item 12. 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 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 NCVC loans, which represented convertible debt, bore no interest, and were
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, which was
upon completion of the private placement in June 1998. After the completion of
the private placement, the letter of credit was unnecessary and was retired.
Upon completion of this transaction, each of Mr. Marino and NCVC had a further
obligation to loan Electric City up to $250,000 on an as-needed basis, bearing
interest at
22
<PAGE>
9% per annum and payable on demand. As of December 31, 1999, outstanding debt
under this arrangement had been repaid in full. The Company's Board approved the
terms of each of these transaction and believes the terms each of these
transactions are as favorable to the Company as if negotiated with an
unaffiliated third party. The possibility of conflicts of interest was
counterbalanced by the fact that these transactions were negotiated between
equal, sole shareholders of the Company and each party was at risk and would
benefit equally.
During the period from December 5, 1997 (date of inception) through
December 31, 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. The Company's Board negotiated and approved the terms of this
transaction and believes the terms of this transaction are as favorable to the
Company as if negotiated with an unaffiliated third party and allowed the
company to control the manufacture of these items. The possibility of a conflict
of interest was counter balanced by the fact that members of the Board not
affiliated with Marino Electric also approved the transaction. The votes of
Board members that were not affiliated with Marino Electric were necessary to
approve the supply agreement and were voted in favor of the transaction.
In January, 1999, Electric City entered into an agreement, subject to an
appraisal, to acquire most of the assets of Marino Electric for a purchase price
of $3,888,000 consisting of $1,792,000 in cash and 1,600,000 shares of Electric
City common stock. The closing of the purchase took place effective May 24,
1999. The Company's Board negotiated and approved the terms of each of these
transaction and believes the terms each of these transactions are as favorable
to the Company as if negotiated with an unaffiliated third party. Although the
Board approved the transactions by a Unanimous Consent, the possibility of a
conflict of interest was counter balanced by the fact that members of the Board
not affiliated with Marino Electric also approved the transaction. As of
December 31, 1999, outstanding debt under this arrangement totaled $1,792,000.
On December 16, 1999, the Company loaned $600,000 to Nikolas Konstant, a
member of NCVC LLC. The loan was secured by 200,000 shares of the company's
common stock and provided for $120,000 in interest which was payable upon the
earlier of: repayment of the loan; the sale of the stock securing the loan; or
May 16, 2000. As of December 31, 1999, no payments had been received by the
Company on the debt. The note was repaid in full, with interest on March 20,
2000.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number
2.1 Agreement and Plan of Merger dated June 5, 1998 between the Company and
Pice Products Corporation (Previously with Form 10SB)
3.1 Certificate of Incorporation (Previously with Form 10SB)
23
<PAGE>
3.2 Bylaws (Previously with Form 10SB)
10.1 Sales, Distribution and Patent License Agreement dated January 1, 1998
between Giorgio Reverberi and Joseph C. Marino (Previously with Form 10SB)
10.2 Sublicense Agreement dated June 24, 1998 between the Company and Joseph C.
Marino (Previously with Form 10SB)
10.3 Employment Agreement dated as of January 1, 1999 between the Company and
Joseph C. Marino (Previously with Form 10SB)
10.4 Real Estate Sales Contract dated July 3, 1998 between the Company and the
Giovanni Gullo and Mario Gullo Family Limited Partnership (Previously with
Form 10SB)
10.5 Asset Purchase Agreement dated May 24, 1999 between the Company and Marino
Electric, Inc. (Previously with Form 10SB)
10.6 Distribution Agreement dated September 7, 1999 between the Company and
Electric City of Illinois LLC (Previously with Form 10SB)
10.7 Consulting Agreement dated April 16, 1999 between the Company and John
Prinz & Associates (Previously with Form 10SB)
10.8 Consulting Agreement dated January 18, 1999 between the Company and
1252996 Ontario Limited (d/b/a The Stockpage) (Previously with Form 10SB)
10.9 Warrant to Purchase Common Stock dated January 15, 1999 from the Company
to 1252996 Ontario Limited d/b/a The Stockpage (Previously with Form 10SB)
10.10 Professional Services Agreement dated September 1, 1998 between the
Company and TJ Riley and Associates (Previously with Form 10SB)
27.1 Financial Data Schedule as of 12/31/99).
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
24
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
______________________________________________
ELECTRIC CITY CORP.:
By: __________________________________________
(John Mitola, Chief Executive Officer)
Date: ________________________________________
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: __________________________________________
(Jeffery Mistarz, Chief Financial Officer)
Date: ________________________________________
25
<PAGE>
TABLE OF CONTENTS
Item 1. Description of Business.............................................3
Business of Marino Electric..............................................4
Product - The EnergySaver................................................5
Sales and Distribution...................................................5
Competition..............................................................7
Licenses and Trademarks..................................................8
Patents..................................................................9
Manufacturing............................................................9
Research and Development.................................................9
Compliance with Environmental Laws......................................10
Employees...............................................................10
Reports to Security Holders.............................................10
Item 2. Description of Property............................................10
Item 3. Legal Proceedings..................................................10
Item 4. Submission of Matters to a Vote of Security Holders................11
PART II.......................................................................11
Item 5. Market for Common Equity and Related Stockholder Matters...........11
Item 6. Management's Discussion and Analysis or Plan of Operation..........12
Results of Operations...................................................13
Eight Months Ended December 31, 1999 Compared to Twelve Months
Ended December 31, 1998..............................................13
Eight Months Ended December 31, 1999 Compared to Eight Months
Ended December 31, 1998..............................................14
Liquidity and Capital Resources.........................................15
Year 2000 Compliance....................................................16
Recent Accounting Pronouncements........................................16
Item 7. Financial Statements...............................................16
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure...................................................16
PART III......................................................................17
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act .........................17
Item 10. Executive Compensation............................................18
Compensation of Other Executive Officers and Directors..................19
Option Exercises and Values.............................................19
Long-Term Incentive Plans...............................................20
Employment Contracts....................................................20
Item 11. Security Ownership of Certain Beneficial Owners and Management....21
Item 12. Certain Relationships and Related Transactions....................22
Item 13. Exhibits and Reports on Form 8-K..................................23
26
<PAGE>
SIGNATURES....................................................................25
27
<PAGE>
Report of Independent Certified Public Accountants
Electric City Corp.
Elk Grove Village, Illinois
We have audited the accompanying balance sheets of Electric City Corp. as of
December 31, 1999 and April 30, 1999 and the related statements of operations,
stockholders' equity and cash flows for the eight-month period ended December
31, 1999 and the year ended April 30, 1999. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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. at December
31, 1999 and April 30, 1999, and the results of its operations and cash flows
for the eight-month period ended December 31, 1999 and the year ended April 30,
1999 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Chicago, Illinois
April 11, 2000, except for Note 12(d)
which is as of May 1, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
Electric City Corp.
Balance Sheets
=============================================================================================================================
December 31, April 30,
1999 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $6,166,197 $ 484,162
Accounts receivable, less allowance for doubtful accounts of
$37,000 and $0 at December 31, 1999 and April 30, 1999,
respectively 1,324,901 118,272
Note receivable - stockholder (Note 4) 600,000 --
Inventories (Note 5) 1,115,817 459,882
Prepaid expenses -- 213,332
- -----------------------------------------------------------------------------------------------------------------------------
Total Current Assets 9,206,915 1,275,648
- -----------------------------------------------------------------------------------------------------------------------------
Net Property and Equipment (Notes 6 and 10) 1,456,467 1,254,967
Cost in Excess of Assets Acquired, net of amortization of
$196,164 (Note 3) 3,166,651 --
- -----------------------------------------------------------------------------------------------------------------------------
$13,830,033 $2,530,615
=============================================================================================================================
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Electric City Corp.
Balance Sheets
============================================================================================================================
December 31, April 30,
1999 1999
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Due to seller (Note 3) $ 1,792,000 $ --
Current maturities of long-term debt (Note 10) 28,380 18,112
Notes payable to stockholders (Note 7) -- 500,000
Accounts payable 820,762 184,160
Accrued expenses (Note 9) 417,265 98,172
Amounts refundable from private placement (Note 14) 110,000 --
Deferred revenue 175,000 --
- ----------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 3,343,407 800,444
- ----------------------------------------------------------------------------------------------------------------------------
Deferred Revenue 429,167 --
Long-Term Debt, less current maturities (Note 10) 777,022 770,239
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock Subject to Recession (Note 13) 9,149,982 --
Commitments (Notes 12 and 17)
Stockholders' Equity (Notes 14 and 15)
Preferred stock, $.01 par value; 5,000,000 shares authorized -- --
Common stock, $.0001 par value, 30,000,000 shares authorized,
26,091,500 and 24,388,250 issued and outstanding as of
December 31, 1999 and April 30, 1999, respectively 2,609 2,438
Additional paid-in capital 8,682,873 6,097,518
Accumulated deficit (8,555,027) (5,140,024)
- ----------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 130,455 959,932
- ----------------------------------------------------------------------------------------------------------------------------
$ 13,830,033 $ 2,530,615
=============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
Electric City Corp.
Statements of Operations
============================================================================================================================
Eight months
ended Year ended
December 31, April 30,
1999 1999
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 2,730,184 $ 208,473
- ----------------------------------------------------------------------------------------------------------------------------
Expenses
Cost of sales 2,568,070 135,000
Selling, general and administrative 3,541,012 4,033,559
- ----------------------------------------------------------------------------------------------------------------------------
Total 6,109,082 4,168,559
- ----------------------------------------------------------------------------------------------------------------------------
Operating Loss (3,378,898) (3,960,086)
- ----------------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Acquisition expense (Note 14) -- (1,200,272)
Interest income 130,874 9,054
Interest expense (166,979) (59,613)
- ----------------------------------------------------------------------------------------------------------------------------
Total other expense (36,105) (1,250,831)
- ----------------------------------------------------------------------------------------------------------------------------
Net Loss (3,415,003) (5,210,917)
============================================================================================================================
Basic and Diluted Loss Per Common Share $ (0.13) $ (0.23)
============================================================================================================================
Weighted Average Common Shares Outstanding 26,638,391 22,357,874
============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Electric City Corp.
Statements of Stockholders' Equity
=======================================================================================================================
Member Common
Shares Capital Stock
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, May 1, 1998 - $ 18,679 $ -
Issuance of common stock for merger of Company 20,000,000 (18,679) 2,000
Acquisition 1,200,272 - 120
Conversion of convertible debt 500,000 - 50
Issuance of shares for cash (net of offering costs of $13,023) 1,351,978 - 136
Issuance of shares for purchase of land and building 340,000 - 34
Issuance of shares and warrants in exchange for services received 996,000 - 98
Net loss for the year ended April 30, 1999 - - -
Net loss of LLC prior to becoming a corporation - - -
Expenses paid on behalf of the Company - - -
- -----------------------------------------------------------------------------------------------------------------------
Balance, April 30, 1999 24,388,250 - 2,438
Issuance of shares in exchange for services received 103,250 - 11
Acquisition of assets of Marino Electric, Inc. 1,600,000 - 160
Discount on shares issued in private placement - - -
Commissions paid on private placement shares subject to recession - - -
Net loss for the eight months ended December 31, 1999 - - -
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 26,091,500 $ - $ 2,609
=======================================================================================================================
<CAPTION>
============================================================================================================================
Total
Members'
Additional Deficit and
Paid-in Accumulated Stockholders'
Capital Deficit Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, May 1, 1998 $ - $ (49,469) $ (30,790)
Issuance of common stock for merger of Company 16,679 - -
Acquisition 1,200,152 - 1,200,272
Conversion of convertible debt 499,950 - 500,000
Issuance of shares for cash (net of offering costs of $13,023) 1,365,043 - 1,365,179
Issuance of shares for purchase of land and building 339,966 - 340,000
Issuance of shares and warrants in exchange for services received 2,715,801 - 2,715,899
Net loss for the year ended April 30, 1999 - (5,210,917) (5,210,917)
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 6,097,518 (5,140,024) 959,932
Issuance of shares in exchange for services received 258,765 - 258,776
Acquisition of assets of Marino Electric, Inc. 2,095,840 - 2,096,000
Discount on shares issued in private placement 615,000 - 615,000
Commissions paid on private placement shares subject to recession (384,250) - (384,250)
Net loss for the eight months ended December 31, 1999 - (3,415,003) (3,415,003)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 8,682,873 $(8,555,027) $ 130,455
============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Electric City Corp.
Statements of Cash Flows
==========================================================================================================================
Eight months
ended Year ended
December 31, April 30,
1999 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $(3,415,003) $ (5,210,917)
Adjustments to reconcile net loss to net cash used in operating
activities, net of assets acquired
Depreciation and amortization 277,854 30,353
Issuance of shares and warrants in exchange for services
rendered 472,108 3,702,839
Discount on stock sold in private placement 615,000 -
Expenses paid on behalf of company - 80,289
Changes in assets and liabilities
Accounts receivable (1,206,629) (118,272)
Inventories (313,935) (269,001)
Accounts payable 636,602 184,160
Accrued liabilities 319,093 98,698
Deferred revenue 604,167 -
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,010,743) (1,501,851)
- --------------------------------------------------------------------------------------------------------------------------
Cash Flows Used in Investing Activities
Cash advanced on note receivable to stockholder (600,000) -
Purchase of property and equipment (100,005) (941,432)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (700,005) (941,432)
- --------------------------------------------------------------------------------------------------------------------------
Cash Flows Provided by Financing Activities
Proceeds from long-term debt 31,152 800,000
Payments on long-term debt (14,101) (11,649)
Proceeds from private placement 9,149,982 -
Commissions paid for private placement (384,250) -
Amounts refundable from private placement 110,000 -
Proceeds from stock issuance - 1,365,179
Proceeds from loan from stockholders - 746,000
Payments on loans from stockholders (500,000) -
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 8,392,783 2,899,530
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Electric City Corp.
Statements of Cash Flows
=============================================================================================================================
Eight months
ended Year ended
December 31, April 30,
1999 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Increase in Cash and Cash Equivalents $ 5,682,035 $ 456,247
Cash and Cash Equivalents, at beginning of period 484,162 27,915
- -----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, at end of period $ 6,166,197 $ 484,162
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
In May 1999, the Company acquired certain assets of
Marino Electric, Inc. from Joseph Marino, a
related party, as follows:
Inventory $ 342,000
Property and equipment 183,185
Cost in excess of assets acquired 3,362,815
- --------------------------------------------------------------------------------------------------------------
Assets acquired 3,888,000
Due to seller (1,792,000)
Stock issued to seller (2,096,000)
- --------------------------------------------------------------------------------------------------------------
$ -
- --------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash paid during the periods for interest $ 143,000 $ 44,000
Supplemental Disclosures of Noncash Investing and Financing
Activities
Stock and warrants issued in exchange for services received $ 258,776 $2,715,899
Stock issued in exchange for conversion of loan from stockholders - 500,000
Stock issued as partial payment for land and building - 340,000
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
1. Organization and Nature of Business
Electric City (the "Company") was formed as a 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. distributes,
manufactures and sells an energy management saving system in the United States
under an exclusive license agreement (Note 12(a)).
In May 1999, the Company acquired certain assets of Marino Electric, Inc.
("Marino") (see Note 3). As a result, subsequent to May 24, 1999, the Company
also operates as 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. Upon
consummation of the acquisition of certain assets of Marino, the Company was no
longer considered a development stage company.
In January 2000, the Company changed its fiscal year end to December 31 which
will be its fiscal year end in the future. Prior to January 2000, the Company's
fiscal year ended on April 30. As a result, the accompanying financial
statements include (1) results of operations and cash flows for the eight-month
period from May 1, 1999 through December 31, 1999, referred to as the
"transition period" and (2) the historically reported 12-month period ended
April 30, 1999. For comparative purposes, unaudited results of operations for
the comparable eight-month period ended December 31, 1998 have been presented in
Note 18.
F-8
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
Concentrations of Credit Risk
Approximately 26% of the trade receivables before allowances at December 31,
1999 were represented by two customers. These two customers represented
approximately 30% of the Company's revenue for the eight months ended December
31, 1999. Two vendors accounted for approximately 29% of the Company's total
purchases during the eight months ended December 31, 1999 and represent 36% of
the accounts payable balance at December 31, 1999. There were no such
concentrations for the year ended April 30, 1999.
Inventories
Inventories are stated at the lower of FIFO cost or market.
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.
Buildings 39 years
Computer equipment 3 years
Furniture 5 - 10 years
Shop equipment 3 - 5 years
Transportation equipment 3 years
Cost in Excess of Assets Acquired
Cost in excess of fair value of assets acquired is amortized using the
straight-line method over 10 years.
Deferred Revenue
Customer payments received prior to shipment of the related goods are included
in deferred revenue. Also, a nonrefundable deposit received from a distributor
of the Company has been reflected as deferred revenue and is being recognized as
revenue on a straight-line basis over the 10-year term of the related
distributor agreement.
F-9
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
Business Segments
Currently, management views the Company's operations as one business segment. It
is anticipated that in the future, management will view the operations in two
business segments; sales of energy savers and the design and manufacture of
electrical switching goods and distribution panels.
Revenue
Recognition Revenue is recognized upon shipment. On contracts where the Company
is required to perform installation services, revenue is recognized when the
services have been provided.
Research and Development Costs
Research and development costs are charged to operations when incurred and are
included in selling, general and administrative expenses. Total research and
development costs charged to operations were $88,000 and $1,923,000 for the
periods ended December 31, 1999 and April 30, 1999, respectively.
Marketing and Promotional Costs
Marketing and promotional costs incurred by the Company are expensed as
incurred.
Advertising
Advertising expenditures are generally charged to operations in the period
incurred and totaled $207,000 and $56,000 for the periods ended December 31,
1999 and April 30, 1999, respectively.
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.
F-10
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
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.
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 weighted average common
shares outstanding. Included in the computation of weighted average shares
outstanding for the eight months ended December 31, 1999 are the 2,171,179
shares of common stock subject to recession (Note 13). 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 10,000,000 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 Pronouncements
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 activities. It requires that an entity recognizes all derivatives as
either assets or liabilities in the balance sheets and measures these
instruments at fair market value. SFAS No. 133 has been amended by SFAS No. 137,
which delays the effective date to periods beginning after June 15, 2000. The
Company, to date, has not engaged in derivative and hedging activities.
Stock Split
The Company effected a two-for-one stock split effective July 30, 1999. All
shares and per share amounts have been adjusted to reflect the split.
F-11
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
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.
3. Acquisition of Marino Electric Assets
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 ($2,096,000) of the Company's common
stock. The Company has not paid the cash balance and is accruing interest
expense at 9% per annum on the unpaid cash balance. 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 $3,888,000 exceeded the fair value of the
assets acquired by approximately $3,363,000 and is being amortized on a
straight-line basis over 10 years. The results of operations of Marino from the
date of the acquisition are reflected in the statement of operations for the
eight-month period ended December 31, 1999.
The following unaudited pro forma data summarizes the results of operations for
the periods indicated as if the Marino acquisition had been completed as of the
beginning of the periods presented. The pro forma data give effect to actual
operating results prior to the acquisition, adjusted to include the pro forma
effect of interest expense, amortization of intangibles and income taxes. The
pro forma information does not necessarily reflect the actual results that would
have occurred nor is it necessarily indicative of future results of operations
of the combined companies.
Eight months
Ended Year ended
December 31, April 30,
1999 1999
--------------------------------------------------------------------------
Revenues $ 2,873,000 $ 3,179,000
Net loss (3,430,000) (5,400,676)
Basic and diluted loss per common share (0.13) (0.23)
F-12
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
4. Note Receivable - Stockholder
In December 1999, the Company advanced $600,000 to a significant stockholder of
the Company. Interest is being charged on this advance in the fixed amount of
$120,000 which approximates an annual rate of 60%. The note receivable matures
in April 2000 and is secured by 200,000 shares of the Company's common stock.
The note receivable and the related interest was paid in March 2000.
5. Inventories Inventories consist of the following:
December 31, April 30,
1999 1999
- --------------------------------------------------------------------------
Raw materials $ 742,501 $117,850
Work in process 331,053 75,978
Finished goods 42,263 266,054
- ---------------------------------------------------------------------------
$1,115,817 $459,882
- ---------------------------------------------------------------------------
6. Property and Equipment
Property and equipment are summarized as follows:
December 31, April 30,
1999 1999
- ---------------------------------------------------------------------------
Land $ 205,000 $ 205,000
Building 941,297 935,000
Furniture 57,820 38,310
Shop equipment 161,594 16,278
Computer equipment 55,662 21,608
Transportation equipment 147,136 69,124
- ----------------------------------------------------------------------------
1,568,509 1,285,320
Less accumulated depreciation 112,042 30,353
- ----------------------------------------------------------------------------
$1,456,467 $1,254,967
- ----------------------------------------------------------------------------
F-13
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
7. 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 12(a)) 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 obtained and surrendered 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 December 31, 1999 and April 30, 1999, loans under this
arrangement totaled $0 and $500,000, respectively. These loans bear interest at
9% and are payable on demand. Accrued interest on this debt is approximately $0
and $16,000 at December 31, 1999 and April 30, 1999, respectively.
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.
8. 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-14
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
9. Accrued Expenses
Accrued expenses consist of the following:
December 31, April 30,
1999 1999
- ------------------------------------------------------------------------------
Compensation $ 42,649 $ 7,042
Interest 40,320 15,914
Real estate taxes 39,968 11,950
Professional fees 63,572 47,730
Sales tax payable 92,061 -
Accrued royalties 46,800 7,800
Warranty reserve 50,000 -
Other 41,895 7,736
- ------------------------------------------------------------------------------
$417,265 $98,172
- ------------------------------------------------------------------------------
10. Long-Term Debt
Long-term debt consists of the following:
December 31, April 30,
1999 1999
- ------------------------------------------------------------------------------
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 August 2003.
Collateralized by the building and land. $776,812 $788,351
Various 28,590 -
- ------------------------------------------------------------------------------
Total long-term debt 805,402 788,351
Less current portion 28,380 18,112
- ------------------------------------------------------------------------------
$777,022 $770,239
==============================================================================
F-15
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
The aggregate amounts of long-term debt maturing in each of the next four
years are as follows:
- -----------------------------------------------------------------------------
2000 $ 28,380
2001 31,000
2002 30,000
2003 716,022
- -----------------------------------------------------------------------------
$805,402
- -----------------------------------------------------------------------------
11. Income Taxes
The composition of income tax expense (benefit) is as follows:
Eight months
ended Year ended
December 31, April 30,
1999 1999
- -----------------------------------------------------------------------------
Deferred
Federal $ (912,000) $(1,279,000)
State (161,000) (226,000)
Change in valuation
allowance 1,073,000 1,505,000
- -----------------------------------------------------------------------------
Benefit for income taxes $ - $ -
- -----------------------------------------------------------------------------
F-16
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
Significant components of the Company's deferred tax asset are as follows:
Eight months
ended Year ended
December 31, April 30,
1999 1999
- ------------------------------------------------------------------------------
Deferred tax asset
Net operating loss
carryforwards $ 1,389,000 $ 446,000
Common stock issued for
services rendered 1,160,000 1,059,000
Other 29,000 -
- ------------------------------------------------------------------------------
2,578,000 1,505,000
Less valuation allowance (2,578,000) (1,505,000)
- ------------------------------------------------------------------------------
Total net deferred tax asset $ - $ -
- ------------------------------------------------------------------------------
The Company has recorded a valuation allowance equaling the deferred tax asset
due to the uncertainty of its realization in the future. At December 31, 1999,
the Company has U.S. federal net operating loss carryforward available to offset
future taxable income of approximately $3,560,000 which expires in the years
2018 and 2019.
F-17
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
The reconciliation of income tax expense (benefit) to the amount computed by
applying the federal statutory rate is as follows:
For the eight For the year
Months ended ended
December 31, April 30,
1999 1999
- -----------------------------------------------------------------------------
Income tax (benefit) at federal
statutory rate $(1,161,000) $1,772,000)
State taxes (121,000) (188,000)
Nondeductible acquisition
expense - 408,000
Nondeductible discount on stock
sold in private placement 209,000 -
Tax benefit of loss prior to
conversion from L.L.C. to
"C" corporation - 47,000
Increase in valuation allowance 1,073,000 1,505,000
- -----------------------------------------------------------------------------
Income tax expense (benefit) $ - $ -
- -----------------------------------------------------------------------------
F-18
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
12. Commitments
a) Pursuant to the License Agreement dated January 1, 1998 and amended in
January 2000 between Giorgio Reverberi ("Reverberi"), the owner of the
patent, and Joseph Marino, Chairman and former CEO of Electric City L.L.C.
(who assigned the rights to the Company), the Company agreed to pay
Reverberi a royalty of $200 for each product unit made by or for the
Company and sold by the Company. Joseph Marino is also paid a royalty of
$100 for each unit 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 $46,800 and $7,800 at December 31,
1999 and April 30, 1999, respectively.
b) In January 2000, the Company has entered into employment agreements with
certain officers and employees for initial terms ranging between three to
four years. Under the terms of these agreements, the aggregate amount due
is $4,950,000.
c) A consultant has brought suit in the Circuit Court of Cook County,
Illinois against the Company alleging breach of a consulting agreement
that was entered into between the parties on April 6, 1999. Pursuant to
that agreement, which terminated by its own terms on October 6, 1999, the
consultant was to perform a variety of services, including (1) assisting
the Company in obtaining working capital, (2) facilitating the purchase of
another company, and (3) facilitating the process of listing the Company
as a NASDAQ small-cap company. The consultant alleges that he accomplished
the first two items and was prevented from performing the third item based
upon the actions of the Company. The consultant seeks damages of
approximately $1,450,000. The Company has answered the first two counts of
the complaint denying that the consultant performed under the terms of the
contract. The Company has moved to dismiss the remaining counts of the
complaint, arguing that any claims for services that were not performed
are barred by the terms of the contract. The Company intends to vigorously
defend itself in this matter; however, the ultimate outcome of this
situation is not presently determinable. Accordingly, no adjustments that
may result from the final resolution of this uncertainty have been made in
the accompanying financial statements.
d) As the result of certain distributors failing to meet sales quotas and
minimum purchase requirements under their distribution agreements, the
Company has entered into discussions regarding the possible termination or
restructuring of those agreements. Three distributors, representing 11
states have not agreed with the proposed restructuring of the
distributorship agreements and have threatened legal action. Management
denies all of the claims made by the distributors and plans to take action
to counterclaim to collect the minimum purchase amounts and to enforce all
of the Company's rights under the agreements. The three distributors have
made a variety of assertions, including, inter alia, contending that the
Company and/or its officers made misrepresentations regarding the
financial condition of the Company, the products' capabilities and whether
certain entities were customers of the Company, which allegedly induced
them to become distributors and stockholders to their alleged damage. They
also claim breaches of the distribution agreements including inter alia,
failure to provide adequate support for sales efforts, failure to furnish
products that conform with contractual requirements and wrongful efforts
to take away and/or interfere with the exclusivity of the distributors'
rights. The type of claims they contend they may assert are securities
fraud and RICO claims, breach of contract, breach of contract, breach of
the covenant of good faith and fair dealing, common law fraud and tortuous
interference. No complaint has yet been filed and no specific damage
number has been articulated by the distributors, but they contend that the
damage claims will be in the millions of dollars. Management denies all of
the claims made by the distributors and intends to fully and vigorously
defend the claims. If, and when, a legal proceeding is commenced, it is
anticipated that counterclaims against the distributors will be filed by
the Company relating to the lack of performance and other actions of the
distributors. The Company has retained the firm of Katten, Muchin Zavis,
of Chicago, Illinois, to advise and defend the Company. While the Company
believes the distributor claims are frivolous and that the Company will
prevail in its counterclaims, it is not able to definitively determine the
ultimate outcome of such claims and can not estimate the amount of
potential losses. However, if the distributors were successful, their
claims could materially effect the financial position and results of
operations of the Company.
F-19
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
13. Common Stock Subject to Recession
In January 2000, the Company completed a private placement of 2,181,179 shares
of its common stock in an offering made pursuant to Regulation D and Rule 506
(the "506 Offering"). The proceeds of this offering are to be used for payment
of the cash portion of the Marino acquisition, inventory, repay indebtedness to
the principal stockholders and for general working capital purposes. As a result
of the Company's statements made in certain press releases issued during the 506
offering, it is possible, but not altogether certain, that such statements might
be considered general solicitation which is not permitted in a nonpublic
offering under Rule 506 and therefore, a violation of the registration
provisions of Section 5 of the Securities Act of 1933, as amended. As a result,
the Company may be in violation of Section 5 of the Securities Act of 1933, as
amended, and consequently, certain investors may have recession rights as to the
shares purchased. Such investors may have the right to rescind these purchases
of common stock for a period of one year from the date of purchase of the common
stock. Based upon the close business relationship some investors have with the
Company and its management and relationships that others have with management of
the Company, the Company does not believe that investors owning a material
amount of securities purchased in the 506 offering would demand recession and
any such recession would not have a material effect on the Company's financial
position.
As the possibility of recession does exist, the shares subject to recession have
been reported as mezzanine equity in the Company's financial statements.
14. Equity Transactions
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 $1 per share based on the
estimated fair value. As the Company acquired no assets, the Company
incurred a charge for $1,200,272.
F-20
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
b) As part of the original Operating Agreement (Note 7), the Other Member
agreed to loan amounts to the Company of 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.
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 660,000 shares and a maximum of 2,200,000 shares at $4.50 per share. As
of December 31, 1999, the Company had received cash proceeds, net of
commissions, of $8,765,732 in exchange for 2,171,179 shares of common
stock. (See Note 13). Two investors requested refunds totaling $110,000
prior to the issuance of the related stock certificates. This amount was
refunded in January 2000 and is reflected as a current liability at
December 31, 1999. As discussed below, certain common stock issued in
connection with this private placement offering were sold for less than
the established offering price of $4.50.
F-21
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
820,000 shares of common stock were sold to two institutional investors at
$3.75 per share. The Company has recognized $615,000 of marketing expense
for the difference between the private placement offering price and the
cash received for these shares.
d) In August 1998, the Company purchased the building used as its corporate
headquarters 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.
e) The Company issued 103,250 and 996,000 shares of common stock in exchange
for consulting services rendered for the eight-month period ended December
31, 1999 and the year ended April 30, 1999, respectively. In April 1999,
200,000 warrants were also issued 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 of
the stock issued (current price of the common stock on the "OTC") which
ranged from $2.09 to $7.72 per share. Approximately $472,000 and
$2,503,000 was charged to operations for the eight months ended December
31, 1999 and the year ended April 30, 1999, respectively. $213,332 was
classified as a prepaid expense at April 30, 1999 and subsequently was
charged to operations in the eight months ended December 31, 1999.
f) In connection with the purchase of certain assets of Marino Electric (Note
3), he Company issued 1,600,000 shares of its common stock to the seller.
The fair market value of these shares was determined to be $2,096,000
based on the current price of the common stock on the "OTC."
F-22
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
g) At December 31, 1999 and 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.
15. Stock Options
Joseph Marino, as Chairman and former CEO, was granted options as part of an
employment agreement to acquire 900,000 shares of common stock at $1.75 per
share. 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. During the eight months ended
December 31, 1999, 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 per
share. 150,000 options vested upon the signing of the agreements and 154,000
will vest in January 2000. These options expire in periods from December 2008
through March 2009.
In November 1999, certain employees were granted options to purchase 40,000
shares of common stock at an exercise price of $7.50 per share. 6,000 options
will vest in 2000, 6,000 in 2001 and 28,000 in 2002.
Subsequent to year end, as part of employment agreements, certain officers and
key employees of the Company were granted options to acquire 3,661,503 shares of
common stock at exercise prices ranging from $7.00 to $12.99 per share. These
options vest over periods through 2006.
F-23
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
The following table summarizes the options granted, exercised and outstanding as
of December 31:
<TABLE>
<CAPTION>
Weighted
Exercise Price Per Average
Shares Share Exercise Price
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at May 1, 1998
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
Granted 40,000 $7.50 $7.50
Exercised - - -
- ---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1999 5,244,000 $1.10 - $7.50 $1.30
===================================================================================================
Options exercisable at
December 31, 1999 and 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-24
<PAGE>
Electric City Corp.
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:
For the eight For the
months ended Year ended
December 31, April 30,
1999 1999
- -------------------------------------------------------------------------------
Weighted average fair value per
options granted $3.52 $1.27
Significant assumptions (weighted
average)
Risk-free interest rate at grant 5.94
date % 5.21%
Expected stock price volatility 55% 55%
Expected dividend payout - -
Expected option life (years) 3.7 4.10
Net loss
As reported (3,415,000) (5,211,000)
Proforma (3,812,000) (7,611,000)
Net loss per share
As reported (.13) (.23)
Proforma (.14) (.34)
F-25
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
The following table summarizes information about stock options outstanding at
December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------- ----------------------------------------
Number
Outstanding
at Weighted Average Weighted Average Weighted Average
Exercise December 31, Remaining Contractual Exercise Number Exercisable Exercise
Price 1999 Life Price at December 31, 1999 Price
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.10 4,000,000 8.5 years $1.10 - N/A
$1.75 1,200,000 9.0 years 1.75 150,000 1.75
$3.50 4,000 9.25 years 3.50 - N/A
$7.50 40,000 10 years 7.50 - N/A
--------------------------------------------------------------------------------------------------------------
5,244,000 8.63 years $1.30 150,000 $1.75
==============================================================================================================
</TABLE>
16. 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.
In May 1999, the Company acquired certain assets of Marino Electric, Inc. from
an officer and stockholder of the Company. At December 31, 1999, the unpaid cash
portion of the purchase price in the amount of $1,792,000 has been reflected as
a current liability. Approximately $97,000 of interest was charged to interest
expense for the eight months ended December 31, 1999. At December 31, 1999,
approximately $16,000 of royalties due to an officer and stockholder of the
Company has been included in accrued expenses.
F-26
<PAGE>
Electric City Corp.
Notes to Financial Statements
================================================================================
17. Subsequent Event
Subsequent to year end, the Company signed two letters of intent for
acquisitions. The Company intends to fund these acquisitions through the
issuance of its common stock to shareholders of companies being acquired. The
acquisitions are expected to close in May and June 2000.
18. Transition Period Comparable Information (Unaudited)
In January 2000, the Company changed its fiscal year end from April 30 to
December 31. Therefore, the transition period ended December 31, 1999 includes
eight months of operations.
The unaudited information for the comparable eight-month period of May 1998
through December 31, 1998 included below 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 comparable transition
period.
- -------------------------------------------------------------------------------
Revenues $ 50,000
Gross loss (39,000)
Net loss (1,880,000)
Basic and diluted loss per share (.09)
F-27
