Principles of Consolidation, Organization and Nature of Operations
 12 Months Ended
Dec. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Principles of Consolidation, Organization and Nature of Operations

1. Principles of Consolidation, Organization and Nature of Operations

 

Real Goods Solar, Inc. (“RGS” or the “Company”) is a residential and commercial solar energy engineering, procurement, and construction firm.

 

The consolidated financial statements include the accounts of RGS and its wholly-owned subsidiaries. RGS has prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States, or GAAP, which include the Company’s accounts and those of its subsidiaries. Intercompany transactions and balances have been eliminated. The Company has included the results of operations of acquired companies from the effective date of acquisition.

 

Reverse Stock Splits

 

The Company reports all share and per share amounts reflecting the most recent reverse stock split.

 

Discontinued Operations

 

During 2014, the Company committed to a plan to sell certain contracts and rights comprised of the Company’s large commercial installations business, otherwise known as the Company’s former Commercial segment. At the same time, the Company determined not to enter into further large commercial installation contracts in the mainland United States. Most contracts in process at December 31, 2014 were substantially completed during 2015 and remaining work was completed in 2016. The Company now reports this business as a discontinued operation, separate from the Company’s continuing operations. The following discussion and analysis of financial condition and results of operations is for the Company’s continuing operations, unless indicated otherwise.

 

Liquidity and Financial Resources Update

 

We have experienced recurring operating losses and negative cash flow from operations in recent years. Because of these losses, we did not pay vendors on a timely basis and, accordingly, experienced difficulties obtaining credit terms from our equipment suppliers that limited our ability to convert our backlog in an expeditious manner, which resulted in customer cancellations of contracts.

 

Starting with the fourth quarter of 2014, we implemented measures to reduce our cash outflow for operations such that the required level of sales to achieve break-even results was reduced. These measures included (i) exiting the large commercial segment which was operating at both an operating and cash flow loss, (ii) reducing staffing levels, (iii) raising prices for our products and (iv) efforts to enhance accounts receivable collections and optimize inventory levels. Net cash outflow for 2016 from continuing operations of $12.0 million, which includes $4.0 million for reduction in vendor accounts payable, is an improvement from 2015’s net cash outflow from continuing operations.

 

To execute our revenue growth strategy and reduce our payables and indebtedness, during 2016 the Company obtained additional financial capital through the following transactions:

 

• On April 1, 2016, the Company issued $10.0 million of Senior Secured Convertible Notes due April 1, 2019 (each, a “Note”) and Series G warrants to purchase 9,710 shares of our Class A common stock, raising net proceeds of approximately $9.1 million (the “2016 Note Offering”),”) of which the Company has received net proceeds of $8.9 million in unrestricted cash as of December 31, 2016.

 

• On September 14, 2016, the Company issued $2.8 million of Series A 12.5% Mandatorily Convertible Preferred Stock and Series H warrants exercisable into 16,970 shares of our Class A common stock. The Company received, after offering costs, $2.2 million in cash, and received $1.6 million from the exercise of Series H warrants into 9,515 shares of our Class A common stock on September 30, 2016. 
As of December 31, 2016, all of the convertible preferred stock had been converted into Class A common stock. 


 

• On December 13, 2016, the Company issued $4.1 million of Class A common stock and Series I warrants exercisable into 616,667 shares of Class A common stock. The Company received, after offering costs, $3.6 million in cash.

 

Further, in 2017, the Company had the opportunity to raise additional capital under the current full-shelf registration.

 

• On February 6, 2017, the Company issued $11.5 million of Class A common stock, and Series K warrants exercisable into 3,710,000 shares of our Class A common stock and Series L warrants exercisable into 1,613,080 shares of our Class A common stock. The Company received, after offering costs, $10.6 million in cash at closing.

 

• On February 9, 2017, the Company issued $6.0 million of Class A common stock, and Series M warrants exercisable into 1,800,000 shares of our Class A common stock, and Series N warrants exercisable into 750,000 shares of our Class A common stock. The Company received, after offering costs, $5.5 million in cash at closing.

 

The Company has used the proceeds from the additional financial capital to reduce accounts payable, purchase materials to convert its backlog to revenue, begin to execute its growth strategy and for other corporate purposes.

 

The Company has prepared its business plan for the ensuing twelve months, and as described below, believes it has sufficient financial resources to operate for the ensuing 12-month period. The Company’s objectives in preparing this plan include expanding the size of the Company’s sales and construction organizations to generate gross margin that is more than its reduced fixed operating cost infrastructure and thereby reducing the Company’s present operating losses in order to return the Company to profitable operations in the future. Elements of this plan include, among others, (i) realizing operating costs savings from reductions in staff, of which substantially all non-sales and construction staff reductions had been realized as of December 31, 2016, (ii) the positive impact of the strategic decision to exit the large commercial segment which operated at both a substantial cash and operating loss, (iii) hiring and training additional field and e-sales force personnel to grow sales, (iv) optimizing the Company’s construction capability through authorized third-party integrators to realize the revenue from installation of the Company’s backlog and minimize the impact on gross margin of idle construction crew time, (v) changing the mix of marketing expenditures to achieve a lower cost of acquisition than that employed in prior periods, (vi) realizing the benefits of new vendor terms negotiated by the Company that reduce the cost of materials acquired by the Company, and (vii) increasing sales and installations with small commercial customers. The Company believes that because of (i) the additional financial capital realized during 2016 and 2017, as described above, and (ii) the actions it has already implemented to reduce its fixed operating cost infrastructure and to reduce the cost of materials, the Company has sufficient financial resources to operate for the ensuing 12 months.