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EX-23.1 - Clear Skies Solar, Inc | v161345_ex23-1.htm |
EX-10.49 - Clear Skies Solar, Inc | v161345_ex10-49.htm |
As
filed with the Securities and Exchange Commission on October 8,
2009
Registration
No. 333-159730
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDMENT
NO. 2
TO
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
Clear
Skies Solar, Inc.
(Exact
Name of Registrant as Specified in its Charter)
Delaware
|
3433
|
30-0401535
|
||
(State
or other jurisdiction of
incorporation
or organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(IRS
Employer Identification
Number)
|
Clear
Skies Solar, Inc.
200
Old Country Road, Suite 610
Mineola,
New York 11501-4241
(516) 282-7652
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Ezra
Green
Chief
Executive Officer
Clear
Skies Solar, Inc.
200
Old Country Road, Suite 610
Mineola,
New York 11501-4241
(516) 282-7652
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copies
to:
Harvey
J. Kesner, Esq.
Ben
Reichel, Esq.
Sichenzia
Ross Friedman Ference LLP
61
Broadway, 32nd
Floor
New
York, New York 10006
Telephone:
(212) 930-9700
Approximate
date of commencement of proposed sale to the public: As soon as practicable
after this registration statement becomes effective.
If any of
the securities being registered on the Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box: þ
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462
(c) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering: ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier registration statement for the same offering:
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer ¨
|
Accelerated filer ¨
|
Non-accelerated filer ¨
|
Smaller reporting company þ
|
CALCULATION
OF REGISTRATION FEE
PROPOSED
|
PROPOSED
|
|||||||||||||||
AMOUNT TO
|
MAXIMUM
|
MAXIMUM
|
||||||||||||||
TITLE OF EACH CLASS OF
|
BE
|
OFFERING
|
AGGREGATE
|
AMOUNT OF
|
||||||||||||
SECURITITES TO BE
|
REGISTERED
|
PRICE PER
|
OFFERING
|
REGISTRATION
|
||||||||||||
REGISTERED
|
(1)
|
SHARE
|
PRICE
|
FEE
|
||||||||||||
Common stock, par value $0.001 per share (3) | 6,028,174 | $ | 0.18 | (2) | $ | 1,085,071 | $ | 77.37 | ||||||||
Common
stock, par value $0.001 per share (4)
|
14,398,438 | $ | 0.18 | (2) | $ | 2,591,719 | $ | 184.79 | ||||||||
Common
stock, par value $0.001 per share (5)
|
5,018,750 | $ | 0.18 | (2) | $ | 903,375 | $ | 64.41 | ||||||||
Common
stock, par value $0.001 per share (6)
|
1,536,343 | $ | 0.18 | (2) | $ | 276,542 | $ | 19.72 | ||||||||
Total
|
26,981,705 | $ | 0.18 | (2) | $ | 4,856,707 | $ | 346.28 | (7) |
_______________
(1)
|
In
the event of a stock split, stock dividend, or similar transaction
involving the common stock, the number of shares registered shall
automatically be increased to cover the additional shares of common stock
issuable pursuant to
Rule 416.
|
(2)
|
Estimated
solely for purposes of calculating the registration fee pursuant to Rule
457(c) of the Securities Act of 1933, as amended, based on the average
high and low prices of the common stock of the Registrant as reported on
the OTC Bulletin Board on October 6,
2009.
|
(3)
|
Represents shares of the Registrant’s common stock being registered for resale that were issued to the selling stockholders named in the prospectus upon exercise of warrants, conversion of promissory notes and in connection with the issuance of notes and warrants. |
(4)
|
Represents
shares of the Registrant’s common stock being registered for resale that
are issuable to the selling stockholders named in the prospectus or a
prospectus supplement upon conversion of outstanding convertible
promissory notes.
|
(5)
|
Represents
shares of the Registrant’s common stock being registered for resale that
are issuable to the selling stockholders named in the prospectus or a
prospectus supplement upon exercise of outstanding
warrants.
|
(6)
|
Represents
900,000 shares of the Registrant’s common stock being registered for
resale that have been issued to Grushko & Mittman, P.C., counsel to
certain of the selling stockholders, and 636,343 shares issued to
Sichenzia Ross Friedman Ference LLP, counsel to the
Company.
|
(7)
|
$192.81 was
previously paid.
|
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THERAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
The
information in this prospectus is not complete and may be changed. The selling
stockholders may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.
PRELIMINARY
PROSPECTUS
Subject
to Completion, dated October 8, 2009
Clear
Skies Solar, Inc.
200 Old
Country Road, Suite 610
Mineola,
New York 11501-4241
(516) 282-7652
26,981,705 Shares
of Common Stock
This
prospectus relates to the resale of up to 26,981,705 shares of our common
stock by the selling stockholders identified under the section entitled “Selling
Stockholders” in this prospectus. The shares of common stock offered by this
prospectus consist of: (i) 6,028,174 shares of common stock issued upon
conversion of certain promissory notes, upon exercise of warrants, and in
connection with the issuance of notes and warrants, (ii) 11,518,750 shares
of our common stock issuable upon conversion of outstanding convertible
promissory notes, (iii) up to an additional 2,879,688 shares of our common
stock that may be issued upon conversion of outstanding convertible promissory
notes due to anti-dilution adjustments to the conversion price,
(iv) 5,018,750 shares of our common stock issuable upon exercise of
outstanding warrants and (v) 1,536,343 shares of our common stock issued
for legal services provided.
All of
the shares of common stock offered by this prospectus are being sold by the
selling stockholders. It is anticipated that the selling stockholders will sell
these shares of common stock from time to time in one or more transactions, in
negotiated transactions or otherwise, at prevailing market prices or at prices
otherwise negotiated (see “Plan of Distribution” beginning on page 46 ).
We will not receive any proceeds from the sales by the selling stockholders, but
we may receive up to $506,000 of proceeds from the exercise of warrants
held by selling stockholders to purchase an aggregate of 5,018,750
shares of our common stock, if such warrants are exercised in full.
Our
common stock is quoted on the Over-the-Counter Bulletin Board, commonly known as
the OTCBB, under the symbol “CSKH.OB.” On October 6, 2009, the last sale price
of our common stock on the OTCBB was $0.19 per share.
No
underwriter or person has been engaged to facilitate the sale of shares of our
common stock in this offering. None of the proceeds from the sale of common
stock by the selling stockholder will be placed in escrow, trust or any similar
account. There are no underwriting commissions involved in this offering. We
have agreed to pay all the costs of this offering other than customary brokerage
and sales commissions. The selling stockholders will pay no offering expenses
other than those expressly identified in this prospectus.
Investing
in our securities involves a high degree of risk. You should carefully consider
the risks and uncertainties described under the heading “Risk Factors” beginning
on page 3 of this prospectus before making a decision to purchase our common
stock.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is October __, 2009
TABLE
OF CONTENTS
Page
|
|
PROSPECTUS
SUMMARY
|
1
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RISK
FACTORS
|
3
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CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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11
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USE
OF PROCEEDS
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11
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MARKET
FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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11
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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13
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BUSINESS
|
20
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MANAGEMENT
|
26
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EXECUTIVE
COMPENSATION
|
29
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EQUITY
COMPENSATION PLAN INFORMATION
|
30
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
|
33
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
35
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SELLING
STOCKHOLDERS
|
36
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DESCRIPTION
OF SECURITIES
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42
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PLAN
OF DISTRIBUTION
|
46
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EXPERTS
|
47
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LEGAL
MATTERS
|
47
|
WHERE
YOU CAN FIND MORE INFORMATION
|
48
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INDEX
TO FINANCIAL STATEMENTS
|
F-1
|
You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. The selling stockholders are offering to sell shares of our
common stock and seeking offers to buy shares of our common stock only in
jurisdictions where such offers and sales are permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
i
PROSPECTUS
SUMMARY
The
following summary highlights information contained elsewhere in this prospectus.
It may not contain all the information that may be important to you. You should
read this entire prospectus carefully, including the sections entitled “Risk
Factors” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operation,” and our historical financial statements and related notes
included elsewhere in this prospectus.
In this
prospectus, unless the context requires otherwise, references to the “Company,”
“Clear Skies,” “we,” “our” and “us,” for periods prior to the closing of the
reverse merger on December 20, 2007, refer to Clear Skies Group, Inc., a private
New York corporation that is now our wholly owned subsidiary, and such
references for periods subsequent to the closing of the reverse merger refer to
Clear Skies Solar, Inc., a publicly traded Delaware corporation formerly known
as Clear Skies Holdings, Inc., together with its subsidiaries, including Clear
Skies Group, Inc.
Corporate
History
Our
wholly owned operating subsidiary, Clear Skies Group, Inc., was formed in New
York on September 23, 2003 for the purpose of providing turnkey solar
electricity installations and renewable energy technology solutions to
commercial and residential customers across the United States. BIP Oil, Inc. was
formed as a Nevada corporation on January 31, 2007, for the purpose of
importing, marketing and distributing Greek olive oils, olives and spices in the
United States. On December 12, 2007, BIP Oil Inc. formed a wholly owned
subsidiary, Clear Skies Holdings, Inc., a Delaware corporation. On
December 18, 2007, BIP Oil, Inc. was merged with and into Clear Skies
Holdings, Inc., for the purpose of changing its state of incorporation to
Delaware from Nevada and changing its name.
On
December 20, 2007, we closed a reverse merger transaction pursuant to which
a wholly owned subsidiary of Clear Skies Holdings, Inc. merged with and into
Clear Skies Group, Inc., and Clear Skies Group, Inc., as the surviving
corporation, became a wholly owned subsidiary of Clear Skies Holdings, Inc.
Immediately following the closing of the reverse merger, under the terms of a
split-off agreement, we transferred all of our pre-merger operating assets and
liabilities to our wholly owned subsidiary, BIP Holdings, Inc., a Delaware
corporation, and transferred all of its outstanding capital stock to our
then-majority stockholders in exchange for cancellation of shares of our common
stock held by those stockholders.
After the
reverse merger and the split-off, Clear Skies Holdings, Inc. succeeded to the
business of Clear Skies Group, Inc. as its sole line of business, and all of
Clear Skies Holdings, Inc.’s then-current officers and directors resigned and
were replaced by Clear Skies Group, Inc.’s officers and directors. In addition,
on January 25, 2008, we changed our name from Clear Skies Holdings, Inc. to
Clear Skies Solar, Inc.
Business
Overview
We are a
designer, integrator and installer of solar power systems. We market, sell,
design and install systems for commercial and industrial customers and to
developers of residential properties, sourcing components (such as solar modules
and inverters) from third-party manufacturers. We commenced operations in
August 2005 and received our initial funding in September 2005. We
used those funds and shares of our stock to acquire certain assets, including
licenses and certifications, from S&T Electric and TAL Design &
Construction, a design and construction firm owned by Ezra Green, our Chief
Executive Officer, to file patent applications with respect to proprietary
technology we had developed, and to fund our operations. S&T Electric was a
licensed electrical contracting business that provided residential and
commercial services in New York for 12 years and was owned and operated by
William O’Connor, our Vice President of Operations, and another individual. We
have also developed XTRAX®, a
patented remote monitoring solution for measuring the production of renewable
energy systems and for transmission of the data via the cellular telephone,
microwave network or satellite.
Our
principal executive offices are located at 200 Old Country Road, Suite 610,
Mineola, New York 11501-4241 and our telephone number is (516) 282-7652. We
maintain a website at www.clearskiessolar.com
which contains a description of our company, but such website is not part of
this prospectus. Please note that you should not view such website as part of
this prospectus and should not rely on such website in making a decision to
invest in our common stock.
1
The
Offering
Common
stock offered by the selling stockholders:
|
26,981,705 shares
(1)
|
|
Common
stock outstanding:
|
50,539,585 (2)
|
|
Use
of proceeds:
|
We
will not receive any proceeds from the sale of the shares of common stock,
but we may receive proceeds from the exercise of warrants by the selling
stockholders. In the event that all of the warrants to purchase shares of
common stock included in this offering were exercised, we would receive
$566,000 of gross proceeds, which we would use for working
capital.
|
|
Risk
factors:
|
An
investment in our common stock involves a high degree of risk. You should
carefully consider the information set forth in this prospectus and, in
particular, the specific factors set forth in the “Risk Factors” section
beginning on page 3 of this prospectus before deciding whether or not to
invest in shares of our common stock.
|
|
OTC
Bulletin Board symbol:
|
CSKH.OB
|
(1)
|
Represents
(i) 6,028,174 shares of common stock issued upon conversion of certain
promissory notes, upon exercise of warrants, and in connection with the
issuance of notes and warrants, (ii) 11,518,750 shares of our
common stock issuable upon conversion of outstanding convertible
promissory notes, (iii) up to an additional 2,879,688 shares of our
common stock that may be issued upon conversion of outstanding secured
convertible promissory notes due to anti-dilution adjustments to the
conversion price, (iv) 5,018,750 shares of our common stock issuable
upon exercise of outstanding warrants and (v) 1,536,343 shares of our
common stock issued for legal services
provided.
|
(2)
|
Represents
the number of shares of our common stock outstanding as
of October 6, 2009, and
excludes:
|
|
·
|
2,500,000
shares of our common stock issuable upon exercise of outstanding stock
options granted under our 2007 Equity Incentive
Plan;
|
|
·
|
2,500,000
shares of our common stock issuable upon exercise of outstanding stock
options granted under our 2008 Equity Incentive
Plan;
|
·
|
1,050,000
shares of our common stock issuable upon exercise of outstanding stock
options granted under our 2009 Equity Incentive
Plan;
|
|
·
|
1,450,000
shares of our common stock reserved for future issuance under our 2009
Equity Incentive Plan;
|
|
·
|
800,000
shares of our common stock issuable upon exercise of outstanding stock
options granted under our 2008 Non-Employee Director Compensation
Plan;
|
|
·
|
200,000
shares of our common reserved for future issuance under our 2008
Non-Employee Director Compensation
Plan;
|
|
·
|
14,398,438 shares
of our common stock issuable upon conversion of outstanding convertible
promissory notes, which shares are being offered by this
prospectus;
|
|
·
|
5,018,750 shares
of our common stock issuable upon exercise of outstanding warrants, which
shares are being offered by this prospectus;
and
|
·
|
6,381,401
shares of our common stock underlying other outstanding warrants and
convertible notes that are not being offered by this
prospectus.
|
2
RISK
FACTORS
Investing
in our common stock involves a high degree of risk. Prospective
investors should carefully consider the risks described below and other
information contained in this prospectus before purchasing shares of our common
stock. There are numerous and varied risks that may prevent us from achieving
our goals. If any of these risks actually occur, our business, financial
condition or results of operation may be materially adversely affected. If this
were to happen, the trading price of our common stock could decline
significantly and investors in our common stock might lose all or a part of your
investment.
Risks
Related to Our Business
We
currently have no projects under construction, have earned no revenue to date in
2009 and may not generate revenues in the near future.
At this
time, Clear Skies has no active projects under construction. Our last
contract was completed in December 2008, except for several small residential
projects that were ordered from us in 2007 or before and have been delayed for a
variety of reasons. We had no revenue in the first quarter of 2009,
except for the sale of approximately $11,000 of excess solar panel inventory,
and we had no revenue in the second quarter of 2009. It is not
certain when we will begin generating revenues again. We are
negotiating with several parties for the financing and construction of a number
of solar energy projects, however there can be no assurance that we will be
successful in these negotiations or that such projects would be
profitable. Since we recognize revenue under the percentage of
completion method, even if we are successful in negotiating finance and
construction agreements, it could be several months after signing before we
begin performance and are able to report revenue on our financial
statements.
Our
cash resources are very limited and if we cannot raise additional funds or start
generating revenues, we will not be able to pay our vendors and will probably
not be able to continue as a going concern.
As of
October 6, 2009, our available cash balance was approximately $49,000.
Notwithstanding our recent sales of convertible notes for gross proceeds of
$910,000 and borrowings of $257,464 from an unrelated third party, we will need
to raise additional funds to pay outstanding vendor invoices. Our
future cash flows depend on our ability to enter into, and be paid under,
contracts for the construction of solar energy projects and our ability to sell
our debt and equity securities on terms satisfactory to us. While
management believes these can be accomplished, there can be no assurance that we
will be successful in entering into such contracts or selling our securities, in
which case we shall probably not be able to continue as a going concern. For a
full description of the recent sales of convertible notes see our Forms 8-K
filed on May 13, 2009, August 3, 2009, August 5, 2009, and September 21,
2009.
We
have a limited operating history, and it may be difficult for potential
investors to evaluate our business.
Our
wholly owned operating subsidiary, Clear Skies Group, Inc., began operations in
October of 2005. Our limited operating history makes it difficult for potential
investors to evaluate our business or prospective operations. Since our
formation, we have generated only limited revenues. Our revenues were $2,702,178
and $298,974 for the years ended December 31, 2008 and December 31,
2007, respectively. Our revenues for the first calendar quarter of 2009 were
$11,113 compared to $153,224 for the first calendar quarter of 2008. We had
no revenue in the second quarter of 2009. As an early stage company, we are
subject to all the risks inherent in the initial organization, financing,
expenditures, complications and delays inherent in a relatively new business.
Investors should evaluate an investment in our Company in light of the
uncertainties encountered by such companies in a competitive environment. Our
business is dependent upon the implementation of our business plan, as well as
our ability to enter into agreements with third parties for, among other things,
the supply of photovoltaic and solar-thermal systems, on commercially favorable
terms, as well as the availability and timing of financing from third parties
for each project. There can be no assurance that our efforts will be successful
or that we will be able to attain profitability.
3
We
have a limited operating history and have sustained recurring
losses.
Clear
Skies Group, Inc. was incorporated in September 2003 and has reported annual net
losses since its inception. For our fiscal years ended December 31, 2008 and
December 31, 2007, we experienced losses of approximately $6.8 million and $3.6
million, respectively. We also sustained a loss of approximately $2.3 million
for the six months ended June 30, 2009. As of December 31, 2008,
we had an accumulated deficit of approximately $11.4 million which increased to
$13.8 million as of June 30, 2009. In addition, we expect to incur additional
losses in the foreseeable future, and there can be no assurance that we will
ever achieve profitability. Our future viability, profitability and growth
depend upon our ability to successfully operate and expand our operations. There
can be no assurance that any of our efforts will prove successful or that we
will not continue to incur operating losses in the future.
We
will need additional financing to execute our business plan and fund operations,
and such additional financing may not be available on reasonable terms or at
all.
We have
limited funds. We may not be able to execute our current business plan and fund
business operations long enough to become cash-flow positive or to achieve
profitability. Our ultimate success may depend upon our ability to raise
additional capital. There can be no assurance that additional funds will be
available when needed from any source or, if available, will be available on
terms that are acceptable to us.
We may be
required to pursue sources of additional capital through various means,
including joint venture projects and debt or equity financings. Future
financings through equity investments will be dilutive to existing
stockholders. Also, the terms of securities we may issue in future capital
transactions may be more favorable for our new investors. Newly issued
securities may include preferences, superior voting rights, the issuance of
warrants or other convertible securities, which will have additional dilutive
effects. Further, we may incur substantial costs in pursuing future capital
and/or financing, including investment banking fees, legal fees, accounting
fees, printing and distribution expenses and other costs. We may also be
required to recognize non-cash expenses in connection with certain securities we
may issue, such as convertible notes and warrants, which will adversely impact
our financial condition and results of operations.
Our
ability to obtain needed financing may be impaired by such factors as the
weakness of capital markets, both generally and specifically in the renewable
energy industry, and the fact that we have not been profitable, which could
impact the availability or cost of future financings. If the amount of capital
we are able to raise from financing activities, together with our revenues from
operations, is not sufficient to satisfy our capital needs, even to the extent
that we reduce our operations accordingly, we may be required to cease
operations.
Please
see Note 15 - Subsequent Events – to our consolidated financial statements
for further information concerning our recent financing activities.
We
are dependent upon key personnel whose loss may adversely impact our
business.
We rely
heavily on the expertise, experience and continued services of our senior
management, especially Ezra J. Green, our Chairman and Chief Executive Officer.
The loss of Mr. Green or an inability to attract or retain other key
individuals, could materially adversely affect us. We seek to compensate and
motivate our executives, as well as other employees, through competitive
salaries and bonus and option plans, but there can be no assurance that these
programs will allow us to retain key employees or hire new key employees. As a
result, if Mr. Green were to leave or be unable to serve, we could face
substantial difficulty in hiring a qualified successor and could experience a
loss in productivity while any such successor obtains the necessary training and
experience. We have entered into an employment agreement with Mr. Green.
However, there can be no assurance that the terms of the employment agreement
will be sufficient to retain him.
We
may not be able to effectively control and manage our growth.
Our
strategy envisions a period of potentially rapid growth. We currently maintain
nominal administrative and personnel capacity due to the nature of our business,
and our expected growth may impose a significant burden on our future planned
administrative and operational resources. The growth of our business may require
significant investments of capital and increased demands on our management,
workforce and facilities. We will be required to substantially expand our
administrative and operational resources and attract, train, manage and retain
qualified management and other personnel. Failure to do so or satisfy such
increased demands would interrupt or have a material adverse effect on our
business and results of operations.
4
If
we fail to maintain an effective system of internal controls over financial
reporting, we may not be able to accurately report our financial results, which
could have a material adverse effect on our business, financial condition and
the market value of our securities.
Effective
internal controls over financial reporting are necessary for us to provide
reliable financial reports. If we cannot provide reliable financial reports, our
reputation, business and operating results may be harmed. In connection with the
preparation of Form 10-KSB for our fiscal year ended December 31, 2007, our
independent registered public accountants as well as our management identified a
material weakness in our internal control over financial reporting, due to
insufficient resources in our accounting and finance department, resulting in
(i) an ineffective review, monitoring and analysis of schedules,
reconciliations and financial statement disclosures and (ii) the
misapplication of U.S. GAAP and SEC reporting requirements. These
conditions were remedied during 2008 and no weakness was found as of December
31, 2008.
The
period in which these material weaknesses were identified included certain
non-recurring reverse merger related events that disproportionately absorbed our
financial and administrative resources. If we are not able to
implement controls to avoid the occurrence of material weaknesses in our
internal control over financial reporting in the future, then we might report
results that are not consistent with our actual results and we may need to
restate results that would have been previously reported.
We
could become involved in intellectual property disputes that create a drain on
our resources and could ultimately impair our assets.
We
currently have one issued U.S. patent (No. 7,336,201). In addition, we rely
on trade secrets and our industry expertise and know how. We do not knowingly
infringe on patents, copyrights or other intellectual property rights owned by
other parties; however, in the event of an infringement claim, we may be
required to spend a significant amount of management time and company money to
defend a claim, develop a non-infringing alternative or to obtain licenses. We
may not be successful in developing such an alternative or obtaining licenses on
reasonable terms, if at all. Any litigation, even if without merit, could result
in substantial costs and diversion of our time and resources and could
materially and adversely affect our business and operating results.
We
are exposed to risks associated with product liability claims in the event that
the use or installation of our products results in injury or
damage.
Since the
products we install are devices that produce electricity and heat, it is not
likely but possible that users could be electrocuted, burned or otherwise
injured or even killed by such products, whether by product malfunctions,
defects, improper installation, vandalism, misuse by the customer or other
causes. As a distributor and installer of products that are used by consumers,
we face an inherent risk of exposure to product liability claims or class action
suits in the event that the use of the solar power products we sell or install
results in injury or damage, whether we are at fault or
not. Moreover, we may not have adequate resources in the event of a
successful claim against us. We have general liability coverage for up to
$1,000,000 and umbrella liability coverage for up to $2,000,000; we also have a
policy of obtaining certificates of insurance from the property owners where we
operate and requiring all subcontractors to name us as an additional insured and
as a certificate holder on their policies. Furthermore, we anticipate acquiring
a product liability policy once we are ready to launch our XTRAX® product,
but there can be no assurance that one will be available on reasonable terms.
The successful assertion of product liability claims against us could result in
material reputational and/or monetary damages and, if our insurance protection
is inadequate, could require us to make significant payments.
5
Risks
Relating to Our Industry
We
are dependent upon our suppliers for the components used in the systems we
design and install and our major suppliers are dependent upon the continued
availability and pricing of silicon and other raw materials used in solar
modules.
The solar
panels, inverters and other components used in our systems are purchased from a
limited number of suppliers. We do not manufacture any of the components used in
our solar installations. We have purchased solar panels from Kyocera Solar,
Suntech America and Sharp, and we have considered buying from Solar-Fabrik AG,
General Electric, SMA American and XANTRAX. We purchase inverters principally
from SatCon Power Systems. We are subject to market prices for the components
that we purchase for our installations, which are subject to fluctuation, as we
have no supply agreements with these or other suppliers except for purchase
orders on a case-by-case basis. We cannot ensure that the prices charged by our
suppliers will not increase because of changes in market conditions or other
factors beyond our control. An increase in the price of components used in our
systems could result in reduced margins and/or an increase in costs to our
customers and could have a material adverse effect on our revenues and demand
for our services. Similarly, our suppliers are dependent upon the availability
and pricing of silicon, one of the main materials used in manufacturing solar
panels. The world market for solar panels has recently experienced a shortage of
supply due to insufficient availability of silicon and then a surplus of supply
as demand declined due to the worldwide financial crisis. This shortage caused
the prices for solar modules to increase and the surplus caused them to decline.
Such prices could increase again at any time and prediction of future prices is
very difficult. Interruptions in our ability to procure needed
components for our systems, whether due to discontinuance by our suppliers,
delays or failures in delivery, shortages caused by inadequate production
capacity or unavailability, or for other reasons, could limit our sales and
growth. Since many solar panel suppliers are located outside the United States
international issues or political conditions in the countries of manufacture
might impede supply and cause price increases. In addition, increases
in the prices of modules could make systems that have been sold but not yet
installed unprofitable for us. There is no assurance that we will be able to
have solar systems manufactured on acceptable terms or of acceptable quality, or
at all, the failure of which could lead to a loss of sales and
revenues.
We
face intense competition, and many of our competitors have substantially greater
resources than we do.
We
operate in a highly competitive environment that is characterized by price
fluctuations, supply shortages and rapid technological change. We compete with
major international and domestic companies. Our major competitors include Akeena
Solar, Global Solar, Premier Power Renewable Energy, Real Goods Solar, SPG
Solar, Sun Edison and SunPower/Powerlight, as well as numerous other regional
players, and other companies similar to us primarily located in our operating
markets. Our competitors often have greater market recognition and substantially
greater financial, technical, marketing, distribution, purchasing,
manufacturing, personnel and other resources than we do. Many of our competitors
are developing and are currently producing products based on new solar power
technologies that may ultimately have costs similar to, or lower than, our
projected costs. Many of our current and potential competitors have longer
operating histories, greater name recognition, access to larger customer bases
and significantly greater financial, sales and marketing, manufacturing,
distribution, technical and other resources than we do. As a result, they may be
able to respond more quickly to changing customer demands or to devote greater
resources to the development, promotion and sales of products than we
can.
Some of
our competitors own, partner with, have longer term or stronger relationships
with solar cell providers which could result in them being able to obtain solar
panels on a more favorable basis than we can. It is possible that new
competitors or alliances among existing competitors could emerge and rapidly
acquire significant market share, which would harm our business. If we fail to
compete successfully, our business would suffer and we may lose or be unable to
gain market share.
We may in
the future compete for potential customers with solar and heating, ventilation
and air conditioning system installers and service providers, electricians,
utilities and other providers of solar power equipment or electric power.
Competition in the solar power services industry may increase in the future,
partly due to low barriers to entry. In addition, we may face competition from
other alternative energy resources now in existence or developed in the future.
Increased competition could result in price reductions, reduced margins or loss
of market share and greater competition for qualified technical
personnel.
There can
be no assurance that we will be able to compete successfully against current and
future competitors. If we are unable to compete effectively, or if competition
results in a deterioration of market conditions, our business and results of
operations would be adversely affected.
6
Technological
changes in the solar power industry could render our proprietary technology
uncompetitive or obsolete, which could impair our ability to capture market
share and limit our sales.
Our
failure to further refine our technology and develop new technology could cause
our products to become uncompetitive or obsolete, which could impair our ability
to capture market share and limit our sales. The solar power industry is rapidly
evolving and competitive. Our future success will depend on our ability to
appropriately respond to changing technologies and changes in function of
products and quality. We may need to invest significant financial resources in
research and development to keep pace with technological advances in the solar
power industry and to effectively compete in the future. A variety of solar
power and monitoring technologies may be currently under development by other
companies that could result in higher product performance than those expected to
be produced using our technology. Our development efforts may be rendered
obsolete by the technological advances of others and other technologies may
prove more advantageous than our monitoring system and the installation of solar
power products that we can offer.
Our
business requires us to place our employees and technicians in our customers’
properties, which could give rise to claims against us.
If we are
unsuccessful in our installation of products and provision of services to
customers, we could damage or cause a material adverse change to their premises
or property, which could give rise to claims against us. Any such claims could
be material in dollar amount and/or could significantly damage our reputation.
In addition, we are exposed to various risks and liabilities associated with
placing our employees and technicians in the workplaces of others, including
possible claims of errors and omissions based on the alleged actions of our
personnel, including harassment, theft of client property, criminal activity and
other claims.
A
drop in the retail price of conventional energy or non-solar alternative energy
sources may negatively impact our profitability.
We
believe that a customer’s decision to purchase or install solar power
capabilities is primarily driven by the cost of electricity from other sources
and their anticipated return on investment resulting from purchase of a solar
power system. Fluctuations in economic and market conditions that impact the
prices of conventional and non-solar alternative energy sources, such as
decreases in the prices of oil and other fossil fuels, could cause the demand
for solar power systems to decline, which would have a negative impact on our
profitability.
Existing
regulations, and changes to such regulations, may present technical, regulatory
and economic barriers to the purchase and use of solar power products, which may
significantly reduce demand for our products.
Installation
of solar power systems are subject to oversight and regulation in accordance
with national and local ordinances, building and electrical codes, zoning,
environmental protection regulation, utility interconnection requirements for
metering and other rules and regulations. If we fail to observe these shifting
requirements on a national, state, or local level, in providing our products and
services, we may incur claims and/or reputational damage. Changes in utility
electric rates or net metering policies could also have a negative effect on our
business. Government regulations or utility policies pertaining to solar power
systems are unpredictable, may limit our ability to charge market rates and may
result in significant additional expenses or delays and, as a result, could
cause a significant reduction in our revenues and/or demand for solar energy
systems and our services.
Our
business depends on the availability of rebates, tax credits and other financial
incentives; reduction or elimination of which would reduce the demand for our
services and impair our results.
Certain
states, including California, New Jersey and Arizona, offer substantial
incentives to offset the cost of solar power systems. These systems can take
many forms, including direct rebates, state tax credits, system performance
payments and Renewable Energy Credits (RECs). In addition, the Federal
government currently offers a tax credit on the installation of solar power
systems. This Federal Investment Tax Credit approved in 2005 was due to expire
at the end of 2008 but was extended for eight years in November
2008. Tax laws can be changed at any time. Current tax
rules also permit businesses to accelerate the depreciation on their system over
five years. Reduction in or elimination of such tax and other incentives or
delays or interruptions in the implementation of favorable federal or state laws
could substantially increase the costs of our systems to customers, resulting in
reduced demand for our services, and negatively affecting our sales and
financial condition.
7
Our
business strategy depends on the widespread adoption of solar power
technology.
The
market for solar power products is emerging and rapidly evolving, and its future
success is uncertain. If solar power technology proves unsuitable for widespread
commercial deployment or if demand for solar power products fails to develop
sufficiently, we would be unable to generate enough revenues to achieve and
sustain profitability and positive cash flow. The factors influencing the
widespread adoption of solar power technology include but are not limited
to:
|
•
|
cost-effectiveness
of solar power technologies as compared with conventional and non-solar
alternative energy technologies;
|
|
•
|
performance
and reliability of solar power products as compared with conventional and
non-solar alternative energy products;
|
|
•
|
success
of other alternative distributed generation technologies such as fuel
cells, wind power, tidal power and micro turbines;
|
|
•
|
fluctuations
in economic and market conditions which impact the viability of
conventional and non-solar alternative energy sources, such as increases
or decreases in the prices of oil and other fossil fuels;
|
|
•
|
continued
deregulation of the electric power industry and broader energy industry;
and
|
|
•
|
availability
of governmental subsidies and
incentives.
|
Risks
Relating to Our Organization and Our Common Stock
As
a result of our reverse merger, Clear Skies Group, Inc. became a subsidiary of a
company that is subject to the reporting requirements of federal securities
laws, which is expensive and diverts resources from other projects, thus
impairing our ability to grow.
As a
result of the reverse merger, Clear Skies Group, Inc. became a subsidiary
of ours and, as a public reporting company, is subject to the
information and reporting requirements of the Exchange Act and other federal
securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the
“Sarbanes-Oxley Act”). The costs of preparing and filing annual and quarterly
reports, proxy statements and other information with the Securities and Exchange
Commission and furnishing audited reports to stockholders will cause our
expenses to be higher than they would have been if we had remained privately
held and did not consummate the reverse merger.
It may be
time consuming, difficult and costly for us to develop and implement the
internal controls and reporting procedures required by the Sarbanes-Oxley Act.
We may need to hire additional financial reporting, internal controls and other
finance personnel in order to develop and implement appropriate internal
controls and reporting procedures. If we are unable to comply with the internal
controls requirements of the Sarbanes-Oxley Act, then we may not be able to
obtain the independent registered public accountant certifications required by
such Act, which may preclude us from keeping our filings with the Securities and
Exchange Commission current. Non-current reporting companies are
subject to various restrictions and penalties.
Public
company compliance may make it more difficult for us to attract and retain
officers and directors.
The
Sarbanes-Oxley Act and new rules subsequently implemented by the Securities and
Exchange Commission have required changes in corporate governance practices of
public companies. As a public company we expect these new rules and regulations
to increase our compliance costs in 2009 and beyond and to make certain
activities more time consuming and costly. As a public company we also expect
that these new rules and regulations may make it more difficult and expensive
for us to obtain director and officer liability insurance in the future or we
may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. As a result,
it may be more difficult for us to attract and retain qualified persons to serve
on our board of directors or as executive officers.
8
Because
we became public by means of a reverse merger, we may not be able to attract the
attention of major brokerage firms.
There may
be risks associated with Clear Skies Group, Inc. becoming public through a
“reverse merger.” Securities analysts of major brokerage firms may not provide
coverage of us since there is no incentive to brokerage firms to recommend the
purchase of our common stock. No assurance can be given that brokerage firms
will, in the future, want to conduct any secondary offerings on behalf of our
post-reverse merger company.
If
we fail to remain current in our reporting requirements, we could be removed
from the OTC Bulletin Board, which would limit the ability of broker-dealers to
sell our securities and the ability of our shareholders to sell their securities
in the secondary market.
Companies
trading on the OTC Bulletin Board, such as us, must be reporting issuers under
Section 12 of the Exchange Act, and must be current in their reports under
Section 13 of the Exchange Act, in order to maintain price quotation
privileges on the OTC Bulletin Board. If we fail to remain current in our
reporting requirements, we could be removed from the OTC Bulletin Board. As a
result, the market liquidity for our securities could be adversely affected by
limiting the ability of broker-dealers to sell our securities and the ability of
our shareholders to sell their securities in the secondary market.
Persons
associated with securities offerings, including consultants, may be deemed to be
broker dealers, which may expose us to claims for rescission or
damages.
If our
securities are offered without engaging a registered broker-dealer we may face
claims for rescission and other remedies. We may become engaged in costly
litigation to defend these claims, which would lead to increased expenditures
for legal fees and divert managements’ attention from operating the business. If
we could not successfully defend these claims, we may be required to return
proceeds of any affected offering to investors, which would harm our financial
condition.
Our
stock price may be volatile.
The
market price of our common stock is likely to be highly volatile. Since trading
of our common stock began on January 8, 2008 through October 6, 2009,
the high and low bid prices of our common stock were $2.40 and $.01. The price
of our stock could fluctuate widely in price in response to various factors,
many of which are beyond our control, including the following:
|
·
|
changes
in our industry;
|
|
·
|
competitive
pricing pressures;
|
|
·
|
our
ability to obtain working capital or project
financing;
|
|
·
|
additions
or departures of key personnel;
|
|
·
|
limited
“public float” in the hands of a small number of persons whose sales or
lack of sales could result in positive or negative pricing pressure on the
market price for our common stock;
|
|
·
|
sales
of our common stock;
|
|
·
|
our
ability to execute our business
plan;
|
|
·
|
operating
results that fall below
expectations;
|
|
·
|
loss
of any strategic relationship;
|
|
·
|
economic
and other external factors; and
|
|
·
|
period-to-period
fluctuations in our financial
results.
|
In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also materially and
adversely affect the market price of our common stock.
9
We
have not paid dividends in the past and do not expect to pay dividends in the
future. Any return on investment may be limited to the value of our common
stock.
We have
never paid cash dividends on our common stock and do not anticipate doing so in
the foreseeable future. The payment of dividends on our common stock will depend
on earnings, financial condition and other business and economic factors
affecting us that our Board of Directors may consider relevant. If we do not pay
dividends, our common stock may be less valuable because a return on your
investment will only occur if our stock price appreciates.
There
is currently a limited trading market for our common stock, and we cannot ensure
that a liquid market will be established or maintained.
Trading
in our common stock began on January 8, 2008 and only a limited market has
developed for the purchase and sale of our common stock. We cannot predict how
liquid the market for our common stock might
become. Therefore, the purchase of our shares must be considered
a long-term investment acceptable only for prospective investors who are willing
and can afford to accept and bear the substantial risk of the investment for an
indefinite period of time. Because there is a limited public market
for the resale of our shares, a prospective investor may not be able
to liquidate its investment, even in the event of an emergency, and our shares
may not be acceptable as collateral for a loan.
Furthermore,
for companies whose securities are quoted on the OTC Bulletin Board, it is more
difficult (1) to obtain accurate quotations, (2) to obtain coverage
for significant news events because major wire services generally do not publish
press releases about such companies, and (3) to obtain needed
capital.
Our
common stock is currently a “penny stock,” which may make it more difficult for
our investors to sell their shares.
Our
common stock is currently and may continue in the future to be subject to the
“penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny
stock rules generally apply to companies whose common stock is not listed on The
NASDAQ Stock Market or other national securities exchange and trades at less
than $4.00 per share, other than companies that have had average revenue of at
least $6,000,000 for the last three years or that have tangible net worth of at
least $5,000,000 ($2,000,000 if the company has been operating for three or more
years). These rules require, among other things, that brokers who trade penny
stock to persons other than “established customers” complete certain
documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk
disclosure document and quote information under certain circumstances. Many
brokers have decided not to trade penny stocks because of the requirements of
the penny stock rules and, as a result, the number of broker-dealers willing to
act as market makers in such securities is limited. If we remain subject to the
penny stock rules for any significant period, it could have an adverse effect on
the market, if any, for our securities. Since our securities are subject to the
penny stock rules, investors may find it more difficult to dispose of our
securities.
Offers
or availability for sale of a substantial number of shares of our common stock
may cause the price of our common stock to decline.
If our
stockholders sell substantial amounts of our common stock in the public market,
including shares being offered for sale pursuant to this prospectus or
upon the expiration of any statutory holding period, under Rule 144, or
upon expiration of lock-up periods applicable to outstanding shares, or issued
upon the exercise of outstanding options or warrants, it could create a
circumstance commonly referred to as an “overhang” and in anticipation of which
the market price of our common stock could fall. The existence of an overhang,
whether or not sales have occurred or are occurring, also could make more
difficult our ability to raise additional financing through the sale of equity
or equity-related securities in the future at a time and price that we deem
reasonable or appropriate. Recent revisions to Rule 144 may result in
shares of our common stock that we may issue in the future becoming eligible for
resale into the public market without registration in as little as six months
after their issuance.
10
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. All statements other than
statements of historical facts contained in this prospectus, including
statements regarding our future results of operations and financial position,
business strategy and plans and objectives of management for future operations,
are forward-looking statements. These statements involve known and unknown
risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements.
In
some cases, you can identify forward-looking statements by terms such as "may,"
"will," "should," "expects," "plans," "anticipates," "could," "intends,"
"target," "projects," "contemplates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of these terms or other similar words.
These statements are only predictions. We have based these forward-looking
statements largely on our current expectations and projections about future
events and financial trends that we believe may affect our business, financial
condition and results of operations. We discuss many of the risks in greater
detail under the heading "Risk Factors." Also, these forward-looking statements
represent our estimates and assumptions only as of the date of this prospectus.
Except as required by law, we assume no obligation to update any forward-looking
statements after the date of this prospectus.
This
prospectus also contains estimates and other statistical data made by
independent parties and by us relating to market size and growth and other
industry data. This data involves a number of assumptions and limitations, and
you are cautioned not to give undue weight to such estimates. We have not
independently verified the statistical and other industry data generated by
independent parties and contained in this prospectus and, accordingly, we cannot
guarantee their accuracy or completeness. In addition, projections, assumptions
and estimates of our future performance and the future performance of the
industries in which we operate are necessarily subject to a high degree of
uncertainty and risk due to a variety of factors, including those described in
“Risk Factors” and elsewhere in this prospectus. These and other factors could
cause results to differ materially from those expressed in the estimates made by
the independent parties and by us.
USE
OF PROCEEDS
We
will not receive any of the proceeds from the sale of the common stock by the
selling stockholders. However, we may receive up to $506,000 from the exercise
of the warrants if all such warrants are exercised in full. There can be no
assurance that any of the warrants will be exercised by the selling
stockholders. We expect to use the proceeds received from the exercise of the
warrants, if any, for general working capital purposes.
MARKET
FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
From
September 7, 2007 through January 4, 2008, our common stock was quoted
on the OTC Bulletin Board under the trading symbol “BIPO,” and since
January 8, 2008, our trading symbol has been “CSKH.OB.” Prior to
January 8, 2008, there was no active market for our common
stock. The quotations reflect inter-dealer prices, without retail
mark-ups, mark-downs, or commissions and may not necessarily represent actual
transactions.
The
closing price of our common stock on the OTC Bulletin Board on October 6,
2009 was $.19 per share.
The
following table sets forth the range of high and low sales prices as reported on
the OTC Bulletin Board for the periods indicated.
11
Sales Price
|
||||||||
Year Ended December 31, 2008
|
High
|
Low
|
||||||
First
quarter ended March 31, 2008
|
$ | 2.40 | $ | 1.022 | ||||
Second
quarter ended June 30, 2008
|
$ | 1.68 | $ | 0.90 | ||||
Third
quarter ended September 30, 2008
|
$ | 1.19 | $ | 0.22 | ||||
Fourth
quarter ended December 31, 2008
|
$ | 0.42 | $ | 0.11 |
Sales Price
|
||||||||
Year Ended December 31, 2009
|
High
|
Low
|
||||||
First
quarter ended March 31, 2009
|
$ | 0.225 | $ | 0.075 | ||||
Second
quarter ended June 30, 2009
|
$ | 0.13 | $ | 0.01 | ||||
Third quarter ended September 30, 2009 | $ | 0.22 | $ | 0.04 | ||||
Fourth
quarter ending December 31, 2009 (through October 6,
2009)
|
$ | 0.19 | $ | 0.17 |
Holders
As
of October 6, 2009, an aggregate of 50,539,585 shares of our common
stock were issued and outstanding and were owned by approximately 78
stockholders of record, based on information provided by our transfer
agent.
Dividends
We have
not previously paid any cash dividends on our common stock and do not anticipate
or contemplate paying dividends on our common stock in the foreseeable future.
We currently intend to use all available funds to develop our business. We can
give no assurances that we will ever have excess funds available to pay
dividends.
Equity
Compensation Plan Information
The
following table provides information as of December 31, 2008 with respect
to the shares of common stock that may be issued under our existing equity
compensation plans:
Plan Category
|
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
|
Weighted-
average exercise
price
of outstanding
options,
warrants
and
rights
|
Number of
securities
remaining
available for
future issuance
|
|||||||||
Equity
compensation plan approved by security holders (1)
|
2,500,000 |
$0.15
|
0 | |||||||||
Equity
compensation plan not yet approved by security holders
(2)
|
2,500,000 |
$0.18
|
0 | |||||||||
Equity
compensation plan not yet approved by security holders
(3)
|
1,050,000 |
$0.12
|
1,450,000 | |||||||||
Non-employee
directors compensation plan (4)
|
800,000 |
$0.16
|
200,000 | |||||||||
Equity (warrant) compensation plan not approved
by security holders (5)
|
1,327,121 |
$0.47
|
0 |
12
(1)
|
Represents
our 2007 Equity Incentive Plan.
|
(2)
|
Represents
our 2008 Equity Incentive Plan.
|
(3)
|
Represents
our 2009 Equity Incentive Plan.
|
(4)
|
Represents
our 2008 Non-employee directors compensation
plan
|
(5)
|
Represents
732,401 shares issuable upon exercise of five-year warrants with an
exercise price of $.50 per share issued to a placement agent for private
placement services. A total of 30,280 shares have been
purchased on the partial exercise of one warrant. Also
represents 500,000 shares and 125,000 shares issuable upon exercise of
five-year warrants with exercise prices of $.50 and $.18, respectively,
issued to an investor relations consultant and investment banking
consultants for services.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
This
discussion should be read in conjunction with our consolidated financial
statements and the notes thereto included in this prospectus, as well as the
other sections of this prospectus, including “Risk Factors” and “Description of
Business.” This discussion contains a number of forward-looking statements, all
of which are based on our current expectations and could be affected by the
uncertainties and risk factors described throughout this prospectus. See
“Cautionary Statement Regarding Forward-Looking Statements.” Our actual results
may differ materially.
Overview
We
deliver turnkey solar electricity installations and renewable energy technology
solutions to commercial, industrial and residential developer customers. Our
primary business is the design and installation of photovoltaic (sometimes
called “solar electric” or “PV” for short) solar power systems for the
commercial, industrial and residential developer markets. We have developed
certain proprietary photovoltaic panel mounting systems and trade secrets that
we believe reduce the required man-hours for system installations. We have also
developed XTRAX®, our
patented remote monitoring solution for measuring the production of renewable
energy systems, among other things. We have served customers in California, New
York and New Jersey. We also plan to expand to other locations where the amount
of sunshine, the cost of electricity and/or the availability of governmental
rebates make prospects of solar energy system sales appear
attractive.
Clear
Skies Group, Inc. was incorporated in New York in 2003 and began operations in
August 2005. As a result of the reverse merger transaction that we
consummated on December 20, 2007, our historical financial statements for
periods prior to the reverse merger are those of Clear Skies Group,
Inc.
Since we
began operations we have incurred annual net losses. As of June 30, 2009, we had
an accumulated deficit of $13,805,492 and we expect to incur additional
losses in the foreseeable future. Our revenues during the six month periods
ended June 30, 2009 and 2008 were $11,113 and $1,286,664, respectively. We
recognized net losses of $2,317,145 (or a basic and diluted loss of $.07 per
common share) for the six months ended June 30, 2009 and a net loss of
$3,157,043 (or a basic and diluted loss of $.10 per common share) for the
comparable period in 2008.
Since
our inception, we have financed our operations primarily through sales of equity
and debt securities. From inception through October 6, 2009, we received
net offering proceeds from private sales of equity and debt securities (after
deducting placement agents’ discounts, commissions and expenses, and our
offering expenses) of approximately $7,986,000 in the
aggregate.
Based
on our current plans and assumptions, which include our expectations relating to
the future sale of our equity and debt securities and entering into contracts
for the financing and installation of solar energy systems and the resulting
cash flows and revenues, we believe that we will have adequate resources to fund
our operations in 2009. However, there can be no assurances that we
will be successful in entering into such contracts or arranging financing on
terms satisfactory to us, in which case there would be significant doubt as to
our ability to continue as a going concern. As of October 6,
2009, our available cash balance was approximately $49,000. Notwithstanding our
recent sales of convertible notes for gross proceeds of $936,000 and borrowings
of $257,464 from an unrelated third party, we will need to raise additional
funds to pay outstanding vendor invoices and operating
expenses.
13
Depending
upon the needs of our customers, we may have to increase our installation staff
significantly in 2009 to ensure that installations can be completed while
applicable rebates remain in effect. We expect that our selling and general and
administrative expenses will increase in future periods, as we expand our
administrative, sales and installation workforce.
We
outgrew our original offices and in June 2008 leased new office space in
Mineola, New York as our headquarters which can accommodate our expected needs
for the next three years. See Lease Commitments in Note 10 above. In addition,
we anticipate establishing regional field offices for our sales teams.
Accordingly, we expect the rental expense component of our general and
administrative expenses to increase in future periods.
We expect
our immediate capital expenditures, which we do not expect to exceed
approximately $400,000, will be related to completing the Beta tests and initial
launch of XTRAX®. Subject
to industry and governmental approvals, and availability of funds, we expect to
be able to have a commercial XTRAX® product
during 2009; however, no assurance can be given that our expectations will be
met. Cranes and other solar energy system installation equipment are generally
available for rental on reasonable terms, and we do not have plans to acquire
any.
Generally,
we anticipate that our operating costs and expenses will increase in the future
to support a higher level of revenues. Increased costs will be attributable to
increased personnel, principally sales and installation personnel and support
staff for a multi-office infrastructure and increased marketing expenditures to
promote our services.
Critical
Accounting Policies
Revenue Recognition and
Deferred Revenue: We currently have one primary revenue stream generated
by our activities as a prime contractor for the design and installation of solar
energy systems. We may have other revenue if we serve as a consultant
to others on solar project or, as we have done in years before 2008, work as a
subcontractor for others. These revenue streams have very different
characteristics and payment time cycles. Therefore, we apply a different revenue
recognition policy to each category.
Contract Revenue.
In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 101, which was superseded by SAB 104 — “Revenue Recognition in
Financial Statements,” we recognize revenues from contracts that we sign
directly with the customer using the percentage of completion method. The
percentage of completion is calculated by dividing the direct labor and other
direct costs incurred by the total estimated direct costs of the project.
Contract value is defined as the total value of the contract, plus the value of
approved change orders. Estimates of costs to complete are reviewed periodically
and modified as required. Provisions are made for the full amount of anticipated
losses, on a contract-by-contract basis. These loss provisions are established
in the period in which the losses are first determined. Changes in estimates are
also reflected in the period they become known. We maintain all risks and
rewards of billing. Regardless of the customer’s structure or industry, if we
are the lead contractor, then we recognize all revenues from such customers in
this manner.
Subcontracting
and Consulting Revenue. Prior to 2008 we performed installation and other
services as a subcontractor. We might do so again and may also perform
consulting work for others. These services differ from contract revenue as we
are entitled to be compensated for subcontractor or consulting work performed
prior to completion of the system. We are paid for all invoiced work so long as
we complete tasks satisfactorily and invoice the client for our work in a timely
manner. We will book all revenues from projects where we act as subcontractor to
our income statement as they are invoiced to the client if we are reasonably
assured of payment.
Cost Recognition:
Contract costs include all direct materials, labor and equipment costs, and
those indirect costs related to performance such as indirect labor, supplies,
and tool costs. We make provisions for estimated losses on uncompleted contracts
in the period in which such losses are determined. Changes in job performance,
job conditions and estimated profitability, including those arising from
contract penalty provisions and final contract settlements, may result in
revisions to costs and income and are recognized in the period in which the
revenues are determined.
14
Costs and
estimated earnings in excess of billings consist of our costs to acquire
materials that we purchased for projects which had not been completed as of the
relevant balance sheet date. These costs are charged to the project as they are
installed.
Manufacturer and
Installation Warranties: We warrant our products and services against
defects in material or installation workmanship. The manufacturer’s warranty
period on the solar panels and the inverters we use have a warranty period range
of five to twenty-five years. We assist the customer in the event that the
manufacturer’s warranty needs to be used to replace a defective panel or
inverter. We offer a five-year warranty on the installation of a system and all
equipment and identical supplies other than solar panels and inverters that are
covered under the manufacturer’s warranty. We record a provision for the
installation warranty within cost of sales — currently at 2% of contract revenue
— based on historical experience and future expectations of the probable cost to
be incurred in honoring our warranty commitment. As we develop
sufficient history the 2% rate may change if appropriate.
Results
of Operations: Comparison of Fiscal 2008 and 2007
Generally,
we anticipate that our operating costs and expenses will increase in the future
to support a higher level of revenues. Increased costs will be attributable to
increased personnel, principally sales personnel and support staff for a
multi-office infrastructure and increased marketing expenditures to promote our
services as well as increased installation staff. In addition, as a
public reporting entity, compliance with Securities and Exchange Commission and
Sarbanes-Oxley regulations will increase our general and administrative
costs.
We had a
loss from operations in each of the last two fiscal years. A major
impediment to fully executing our business plan in 2008 was the failure of the
U.S. Congress to renew and extend the 30% investment tax credit until enactment
of the financial bailout law in November 2008 and the general crisis in the
financial and capital markets. These factors significantly reduced
our ability to enter into contracts for solar energy systems and to obtain the
required financing for them, including the uncertainty of the extension of the
investment tax credit which would have otherwise expired at the end of
2008. In addition, a lack of operating capital and the time spent by
members of management obtaining financing adversely impacted our marketing
efforts. Accordingly, a comparison of our results of operations for
the years ended December 31, 2008 and December 31, 2007 may be of
limited probative value.
We have
restated our financial statements as of and for the year ended December 31,
2007 (see Note 1a to the financial statements). All amounts discussed herein
have been updated to conform to the restated financial statements.
Revenues
Total
revenues for the year ended December 31, 2008 were $2,702,178 compared to
$298,974 for the year ended December 31, 2007. This $2,403,204 increase in
revenue is due to completion of three commercial projects in 2008 while in 2007
we were impacted primarily by our lack of operational capital with which to
execute our business plan. The shift in focus of our marketing efforts from
residential sales and installations prior to 2008 to commercial projects also
had an impact. Commercial projects provide greater revenues and margins, but
have significantly longer lead times than residential projects. In addition, our
move towards managing our own projects rather than serving as a subcontractor
has caused delays in our recognition of revenue during 2008, since subcontractor
revenue is generally recognized immediately but contract revenue is recognized
on the percentage of completion method.
15
Cost
of Goods Sold
Cost of
goods sold were $2,465,984 for the fiscal year ended December 31, 2008,
compared to $268,707 for the prior year. The $2,197,277 increase in cost of
goods sold (and the resulting decrease in gross margin from 10.1% of total
revenue to 8.7%) is primarily due to the completion of three commercial projects
in 2008 compared to the delay in residential contract completion which resulted
in higher job costs in 2007. The average gross margin on the three commercial
solar energy systems we installed in 2008 was 23.1%.The gross margin percentage
of 8.7% includes the negative gross margin on old holdover single family
projects due to increased costs which we were completing and the sale of excess
inventory at a loss.
Costs
and Estimated Earnings in Excess of Billings
Costs and
estimated earnings in excess of billings were zero at December 31, 2008,
compared to $27,641 at December 31, 2007. This account consists
of our costs incurred to partially install systems for certain projects that
exceeded the to-date billing for that project, as of the balance sheet
date. As the work on projects begun prior to 2008 progressed in 2008,
the revenue was recognized in its appropriate period.
Operating
Expenses
Our
operating expenses are composed of selling expenses and general and
administrative expenses. The year ended December 31, 2008 was our
first year of operations as a publicly owned company. Selling
expenses in 2008 increased to $1,190,670 from $468,858 in 2007 for an increase
of $721,812 or 154%. The main causes of this increase were increased
salaries and related taxes and benefits of about $319,000, marketing expenses in
Greece and Spain of $169,000, public relations costs of $165,000 and higher
travel costs of approximately $56,000.
General
and administrative expenses increased to $5,698,388 in 2008 from $2,294,039 in
2007, or an increase of $3,404,349 or 148%. The major components of
this increase were higher salaries and related taxes and benefits of $941,000,
$836,000 of higher investor relations fees, an increase in legal fees of
$517,000, an increase in non-cash amortization of the value of stock, warrants
and options of $413,000, an increase in engineering and technical expenses of
$220,000, the value of shares of common stock paid to those buying stock in our
December 2007 financing as liquidated damages for the late effectiveness of our
registration statement of $109,000 and higher consulting fees of
$97,000.
Other
Expenses
Interest
expense in 2008 totaled $14,741 compared to $40,199 in 2007. The interest
expense in 2008 was incurred in 2008 due to equipment leases and deferred
payments of certain expenses. Interest expense in 2007 was higher
primarily due to payment of interest on the Bridge Notes in the face amount of
$745,000. We had interest income of $46,773 in 2008 compared to
none in 2007 due to temporary investment of excess cash in
2008. Furthermore, in 2007, we had a non-cash amortization of the
debt discount expense resulting from the issuance of $745,000 of bridge
notes.
Cash
Flows from Operations
Non-cash
items totaled $1,144,755 in 2008, compared to $1,467,966 in 2007. This decrease
of $323,211 (22%) is due to the charges associated with liquidated damages paid
in stock and estimated loss on contracts and stock compensation to
staff, vendors, and directors, offset by the amortization of the Bridge Notes we
sold in August and September of 2007 that were exchanged for shares in the
Reverse Merger.
Results
of Operations: Comparison of Six Month Periods Ended June 30, 2009 and
2008
Revenues
in the first half of 2009 were $11,113, a decrease of $1,275,551 from the
$1,286,664 of revenue for the six months ended June 30, 2008. In the 2009
period, revenue decreased as we had completed all work on our jobs in 2008 and
sold excess solar panel inventory, while in the 2008 quarter we only billed
relatively small contract and sub-contract work. Cost of revenue in the first
half of 2009 was $27,946, down $1,017,956 from the cost of revenue of $1,045,902
in the six months ended June 30, 2008. The gross margin loss in the 2009
quarter was $16,833, a decrease of $257,595 from the gross margin of $240,762 in
the first half of 2008.
Selling
expenses decreased by $307,419 from the $484,814 incurred in the first half of
2008 to $177,395 in the comparable 2009 period. The decrease is largely
accounted for by decreases in salaries of $122,000, public relations of
$113,000, travel of $25,000 and advertising and trade show costs of
$12,000.
16
General
and administrative expenses were $2,086,113 for the six months ended June 30,
2009 compared to $2,933,292 in the six months ended June 30, 2008, for a
decrease of $847,179. This decrease is largely accounted for by (a) a
decrease in legal fees of $360,000, (b) investor relations expenses
decreasing by $458,000, (c) a $68,000 decrease in cash salaries and offset in
part by an increase in non-cash stock compensation expense of $180,000, (d) an
increase in rent of $30,000, (e) a decrease to zero in liquidated damages
compared to the payment in the second quarter of 2008 of $34,000, (f) a decline
in accounting fees of $37,000, (g) a decline in travel costs of $42,000 and (h)
a decline in consulting costs of $31,000.
Interest
income of $42,315 for the six months ended June 30, 2008 resulted from the
investment of excess cash from our December, 2007 private placement compared to
$478 of interest income in the 2009 comparable period.
Liquidity
and Capital Resources
At June
30, 2009, we had an accumulated deficit of $13,805,492 and we expect to incur
additional losses in the foreseeable future. While we have funded our operations
since inception through private placements of equity and bridge loans, there can
be no assurance that adequate financing will continue to be available to us and,
if available, on terms that are favorable to us.
As of
October 6, 2009, our available balance of cash and cash equivalents was
approximately $49,000, which amount is after receipt of the $250,000 proceeds
from the September 2009 financing in which we sold (i) secured convertible
promissory notes in the aggregate principal amount of $275,000, (ii) warrants to
purchase up to 1,718,750 shares of our common stock and (iii) issued
1,250,000 shares of our common stock. The bulk of the proceeds were
to pay a portion of the overdue employee salaries and reimbursable expenses as
well as employee benefits and insurance costs. As part of the July
2009 Financing the conversion price of the convertible notes and the purchase
price of warrants issued in the May 2009 Financing were reduced from $.10 and
$.15, respectively, to $.07. See our Forms 8-K and 8-K/A filed with the
Securities and Exchange Commission on August 3 and August 5, 2009,
respectively.
Based
on our current plans and assumptions, which include our expectations relating to
the future sale of our equity and debt securities and entering into contracts
for the financing and installation of solar energy systems and the resulting
cash flows and revenues, we believe that we will have adequate resources to fund
our operations in 2009. However, there can be no assurances that we will be
successful in entering into such contracts or arranging financing on terms
satisfactory to us, in which case there would be significant doubt as to our
ability to continue as a going concern. Notwithstanding the September 2009
financing, the July 2009 financing, the May 2009 financing and borrowings of
$282,464 in the first half of 2009 from an unrelated third party, we will need
to raise additional funds to pay outstanding vendor invoices and operating
expenses.
Clear
Skies Group, Inc. began operations in August 2005, and raised $310,000 of
gross proceeds from a private placement offering of securities to Rudd-Klein
Alternative Energy, LLC (“Rudd-Klein”) that closed on September 30, 2005.
On April 18, 2006, Rudd-Klein funded the remaining $100,000 of the purchase
price in such private placement. On April 25, 2006, Clear Skies Group, Inc.
sold its common stock in an additional private placement transaction that raised
gross proceeds of $100,000. From April 26, 2007 through July 26, 2007,
Clear Skies Group, Inc. sold its common stock and warrants to two separate
purchasers in a series of private placement transactions that raised aggregate
gross proceeds of $95,000. In the quarter ended September 30, 2007, Clear
Skies Group, Inc. issued an aggregate of $745,000 principal amount of bridge
notes in a private placement transaction. The purchasers of such bridge notes
paid an aggregate gross purchase price of $745,000 for such Bridge Notes and
shares of common stock of Clear Skies Group, Inc. In accordance with the terms
of the Bridge Notes, the holders of all $745,000 of outstanding principal amount
of Bridge Notes invested in our private placement that closed in
December 2007 by exchanging the Bridge Notes for an aggregate of 1,490,000
shares of our common stock (i.e. the number of shares of our common stock
offered for sale in the Private Placement for an aggregate purchase price of
$745,000). The accrued interest on the Bridge Notes was paid out of the proceeds
of the December 2007 private placement. In the fourth quarter of 2007,
Clear Skies Group, Inc. borrowed an aggregate of $250,000 and issued 8%
promissory notes to evidence such borrowing, which notes were repaid upon
closing of the private placement in December 2007. In closings on
December 20, 2007 and December 24, 2007, we raised an aggregate of
approximately $5,931,000 in net proceeds (in addition to eliminating $745,000 of
indebtedness) from the private placement of 16,000,000 shares of our common
stock.
17
Several
of our officers and directors, or their affiliates, have from time to time
extended loans to Clear Skies Group, Inc. or agreed to defer compensation
payable to them in order to fund our operating expenses. In this regard:
(i) Quixotic Systems, Inc. (“Quixotic”), an affiliate of Richard Klein,
who was then a member of our board of directors, loaned $285,000
($175,000 of which constitute amounts Quixotic has paid in connection with a
settlement agreement among Quixotic, Alpha Energy and Clear Skies Group, Inc.,
dated as of August 30, 2007), which loan had been repaid in full, together
with 10% interest compounded daily, by December 31, 2007; and
(ii) Gelvin Stevenson, a director and then also our Secretary and Treasurer
loaned $20,000, which had been repaid in full as of December 31, 2007.
Furthermore, Ezra Green, our Chairman and Chief Executive Officer, agreed to the
deferral of $73,259 of his compensation, of which $69,366 remained unpaid as of
December 31, 2007 (and was recorded as a balance due to related party at
December 31, 2007). As of March 18, 2008, Mr. Green’s deferred
compensation had been paid in full. In addition, Mr. Green had advanced
$30,275 to us in 2006 and an additional $70,037 to us in 2007 (which has been
recorded as a balance of $100,312 due to related party at December 31,
2007). This related party amount was also repaid in full by March 18, 2008.
Such loans and other arrangements were interest free (except for Quixotic) and
had not been memorialized by written promissory notes. In consideration for the
extension and maintenance of such credit and deferral of salary, on May 7,
2007, Clear Skies Group, Inc. granted Mr. Green, Quixotic and
Dr. Stevenson securities that were exchanged for 610,452, 290,691 and
77,517 shares of our common stock, respectively, in our reverse
merger.
We will
need to raise additional funds through either the licensing or sale of our
technologies, products and services or additional public or private offerings of
our securities. There can be no assurance that we will be able to obtain further
financing, do so on reasonable terms, or do so on terms that would not
substantially dilute our current stockholders’ equity interests in us. If we are
unable to raise additional funds on a timely basis, or at all, we probably
will not be able to continue as a going concern.
We expect
to put our present and anticipated capital resources to the following
uses:
•
|
payment of operating
expenses;
|
•
|
towards our budget for the
engagement of investor relations and public relations
firms;
|
•
|
possibly for strategic
acquisitions, if and to the extent we determine
appropriate;
|
•
|
completion of beta testing and
commercialization of XTRAX®; and
|
•
|
for general working capital
purposes.
|
Commitments
and Contingencies
We have
entered into employment agreements with Ezra J. Green to serve as our Chief
Executive Officer and Chairman, with Thomas J. Oliveri to serve as our President
and Chief Operating Officer and with Arthur L. Goldberg to serve as our Chief
Financial Officer. These agreements were entered into in December 2007, March
2008 and January 2008, respectively, and were all amended and restated in
November 2008. The initial terms of the amended and restated
agreements (the “Agreements”) are three years, with automatic one-year renewals
following this three-year period in the absence of a notice of non-renewal as
provided for in the Agreements. Pursuant to the Agreements
Messrs. Green, Oliveri and Goldberg are to receive minimum annual base
salaries of $250,000, $200,000 and $200,000, respectively, for the first three
years, and then an agreed upon salary (of not less than the amount specified
above) for each future year of employment. Each of Messrs. Green, Oliveri and
Goldberg will be entitled to an annual bonus of $50,000 for the twelve months
ended March 31, 2009 if we record gross revenues in excess of $5,000,000 during
such period (which we did not) and an annual bonus of $75,000 if we record gross
revenues in excess of $10,000,000 during the twelve months ended March 31,
2010. If any of such executives’ employment is terminated without
cause or if any resign for good reason (as defined in their employment
agreements), then we will be obligated to pay the terminated executive, as
severance, his then current annual base salary and annual bonuses (as such is
defined within the Agreements) for the remainder of the term.
18
Our
Board of Directors has granted options to purchase our common stock under our
2007, 2008 and 2009 Equity Incentive Plans: to Mr. Green to
purchase 425,000 shares on November 12, 2008 at $0.352 per share, 500,000
shares on March 17, 2009 at $.132 per share and 850,000 shares on July 29, 2009
at $.09 per share; to Mr. Oliveri to purchase 187,500 shares on November 12,
2008 at $.32 per share, 512,500 shares on March 17, 2009 at $.12 per share and
300,000 shares on July 29, 2009 at $.09 per share; to Mr. Goldberg to purchase
162,500 shares on November 12, 2008 at $.32 per share, 512,500 shares on March
17, 2009 at $.12 per share and 325,000 shares on July 29, 2009 at $.09 per
share.
The options
granted on November 12, 2008 vest in three equal installments on the
first three anniversaries of the grant date. The options granted on March
17, 2009 vest as follows: 25% vest six months from the grant date, 25% vest
twelve months from the grant date and the final 50% vest eighteen months from
the grant date. The options granted on July 29, 2009 vested in full on
grant. Certain of the options granted to Mr. Green expire five years
after grant and the exercise prices are 110% of the fair market value on the
date of grant. The options granted to Mr. Oliveri and Mr. Goldberg expire
ten years after the grant date and the exercise prices are 100% of the fair
market value on the date of grant.
On July 29, 2009 our Board of
Directors approved the granting of certain stock options which were only granted
to those employees who agreed to the cancellation of previously granted higher
priced options for the same number of shares. All employees agreed to the
cancellation.
We occupy
premises consisting of 3,356 square feet in a modern office building pursuant to
a seven year lease. Annual fixed rent under this lease is $93,968 in the first
year escalating to $115,510 in the seventh year. Additional payments are due for
electricity and real estate tax escalation in amounts to be determined in each
future year. We have provided a letter of credit as security under this lease in
the initial amount of $113,634 which reduces to $56,817 after two years and to
$28,408 after four years. Our obligations for each of the next five calendar
years are:
2009
|
$ | 100,053 | ||
2010
|
$ | 103,399 | ||
2011
|
$ | 104,643 | ||
2012
|
$ | 106,007 | ||
2013
|
$ | 109,717 |
Recently
Issued Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair
value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles (“GAAP”), and expands disclosures about
fair value measurements. This statement does not require any new fair value
measurements in accounting pronouncements where fair value is the relevant
measurement attribute. However, for some entities, the application of this
statement will change current practice for financial statements issued for
fiscal years beginning after November 15, 2007. The Company is currently
evaluating the impact of the adoption of SFAS 157 on its definition and
measurement of fair value and disclosure requirements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities.” This Statement permits entities
to choose to measure many financial instruments at fair value. Unrealized gains
and losses on items for which option has been elected are reported in earnings.
SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the impact of SFAS
No. 159 but does not expect that it will have a material impact on the
Company’s financial position and results of operations and cash
flows.
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations). SFAS No. 141(R) provides companies with principles and
requirements on how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, liabilities assumed, and any
non-controlling interest in the acquiree as well as the recognition and
measurement of goodwill acquired in a business combination. SFAS No. 141(R)
also requires certain disclosures to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
Acquisition costs associated with the business combination will generally be
expensed as incurred. SFAS No. 141(R) is effective for business
combinations occurring in fiscal years beginning after December 15, 2008,
which will require the Company to adopt these provisions for business
combinations occurring in fiscal 2009 and thereafter. Early adoption of SFAS
No. 141(R) is not permitted.
19
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements — An Amendment of ARB No. 51”. SFAS
No. 160 requires reporting entities to present noncontrolling
(minority) interests as equity as opposed to as a liability or mezzanine
equity and provides guidance on the accounting for transactions between an
entity and noncontrolling interests. SFAS No. 160 is effective the first
fiscal year beginning after December 15, 2008, and interim periods within
that fiscal year. SFAS No. 160 applies prospectively as of the beginning of
the fiscal year SFAS No. 160 is initially applied, except for the
presentation and disclosure requirements which are applied retrospectively for
all periods presented subsequent to adoption. The adoption of SFAS No. 160
will not have a material impact on the financial statements; however, it could
impact future transactions entered into by the Company.
In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles.” SFAS No. 162 identifies the sources of
accounting principles and provides entities with a framework for selecting the
principles used in preparation of financial statements that are presented in
conformity with GAAP. The current GAAP hierarchy has been criticized because it
is directed to the auditor rather than the entity, it is complex, and it ranks
FASB Statements of Financial Accounting Concepts, which are subject to the same
level of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The FASB believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. The adoption of FASB 162 is not expected
to have a material impact on the Company’s consolidated financial
statements.
On May
28, 2009, the FASB issued FASB Statement No. 165, “Subsequent Events” (“SFAS No.
165”). Statement 165 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. Specifically,
Statement 165 provides:
|
1.
|
The
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial
statements.
|
|
2.
|
The
circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial
statements.
|
|
3.
|
The
disclosures that an entity should make about events or transactions that
occurred after the balance sheet
date.
|
In
accordance with this Statement, an entity should apply the requirements to
interim or annual financial periods ending after June 15, 2009. Management of
the Company does not expect the adoption of this pronouncement to have material
impact on its financial statements.
Off-Balance
Sheet Arrangements
We did
not engage in any off-balance sheet arrangements during the fiscal years ended
December 31, 2008 or 2007.
Fluctuations
in Operating Results
Our
results of operations have fluctuated significantly from period to period in the
past and are likely to continue to do so in the future. We anticipate that our
annual results of operations will be impacted for the foreseeable future by
several factors including the progress and timing of expenditures related to
award of contract to us, availability and timing of financing for each project,
completion of customer contracts, our research and development efforts,
marketing expenses related to product launches, and market acceptance of our
products. Due to these fluctuations, we believe that the period to period
comparisons of our operating results are not a good indication of our future
performance.
Certain
Risks and Uncertainties
Certain
statements in this prospectus, including certain statements contained in
“Description of Business” and “Management’s Discussion and Analysis or Plan of
Operation,” constitute “forward-looking statements”. The words or phrases “can
be,” “may,” “could,” “would,” “expects,” “believes,” “seeks,” “estimates,”
“projects” and similar words and phrases are intended to identify such
forward-looking statements. Such forward-looking statements are subject to
various risks and uncertainties, including those described in the section “Risk
Factors”, and we caution you that any forward-looking information provided by or
on behalf of us is not a guarantee of future performance. Our actual results
could differ materially from those anticipated by such forward-looking
statements due to a number of factors, some of which are beyond our control. All
such forward-looking statements are current only as of the date on which such
statements were made. We do not undertake any obligation to publicly update any
forward-looking statement to reflect events or circumstances after the date on
which any such statement is made or to reflect the occurrence of unanticipated
events.
BUSINESS
Corporate
History
Our
wholly owned operating subsidiary, Clear Skies Group, Inc., was formed in New
York on September 23, 2003 for the purpose of providing turnkey solar
electricity installations and renewable energy technology solutions to
commercial and residential customers across the United States. BIP Oil, Inc. was
formed as a Nevada corporation on January 31, 2007, for the purpose of
importing, marketing and distributing Greek olive oils, olives and spices in the
United States. On December 12, 2007, BIP Oil Inc. formed a wholly owned
subsidiary, Clear Skies Holdings, Inc., a Delaware corporation. On
December 18, 2007, BIP Oil, Inc. was merged with and into Clear Skies
Holdings, Inc., for the purpose of changing its state of incorporation to
Delaware from Nevada and changing its name.
20
On
December 20, 2007, we closed a reverse merger transaction pursuant to which
a wholly owned subsidiary of Clear Skies Holdings, Inc. merged with and into
Clear Skies Group, Inc., and Clear Skies Group, Inc., as the surviving
corporation, became a wholly owned subsidiary of Clear Skies Holdings, Inc.
Immediately following the closing of the reverse merger, under the terms of a
split-off agreement, we transferred all of our pre-merger operating assets and
liabilities to our wholly owned subsidiary, BIP Holdings, Inc., a Delaware
corporation, and transferred all of its outstanding capital stock to our
then-majority stockholders in exchange for cancellation of shares of our common
stock held by those stockholders.
After the
reverse merger and the split-off, Clear Skies Holdings, Inc. succeeded to the
business of Clear Skies Group, Inc. as its sole line of business, and all of
Clear Skies Holdings, Inc.’s then-current officers and directors resigned and
were replaced by Clear Skies Group, Inc.’s officers and directors. In addition,
on January 25, 2008, we changed our name from Clear Skies Holdings, Inc. to
Clear Skies Solar, Inc.
Our
Business
We are a
designer, integrator and installer of solar power systems. We market, sell,
design and install systems for commercial and industrial customers and to
developers of residential properties, sourcing components (such as solar modules
and inverters) from third-party manufacturers. We commenced operations in
August 2005 and received our initial funding in September 2005. We
used those funds and shares of our stock to acquire certain assets, including
licenses and certifications, from S&T Electric and TAL Design &
Construction, a design and construction firm owned by Ezra Green, our Chief
Executive Officer, to file patent applications with respect to proprietary
technology we had developed, and to fund our operations. S&T Electric was a
licensed electrical contracting business that provided residential and
commercial services in New York for 12 years and was owned and operated by
William O’Connor, our Vice President of Operations, and another individual. We
have also developed XTRAX®, a
patented remote monitoring solution for measuring the production of renewable
energy systems and for transmission of the data via the cellular telephone,
microwave network or satellite.
Customers
We sell
our solar power systems directly to commercial and industrial users and
residential home developers. We maintain an internal sales and marketing staff
to promote our systems. We currently serve customers in California, New York and
New Jersey and perform installations through Clear Skies Group, Inc.’s licenses
and those of our vendors. We also have agreements, subject to obtaining
financing and local approvals, for multi-megawatt projects in Greece and India.
We currently plan to expand our domestic operations to Arizona, Georgia, Nevada,
New Mexico and Texas and other states where the amount of sunshine, the cost of
electricity and/or the availability of governmental rebates make our prospects
of solar energy system sales appear attractive to us. We derived a significant
percentage of our revenues in 2007 from one or two residential customers. We
currently intend to focus our activities on commercial, industrial and
governmental customers and have discontinued pursuing activities in the
single-family residential market. We believe that, depending upon the size of
the projects, it is likely that a significant portion of our business will
continue to derive from a small number of customers. There can be no assurance
that the loss of any such customer would not adversely affect our business or
results of operations.
Research
and Development
We not
only supply and install solar power systems, but we also seek to develop new
technologies and products that will promote the expansion of the industry. Our
commitment to improving the effectiveness of renewable energy systems has
yielded developments that include proprietary photovoltaic (sometimes called
“solar electric” or “PV”) panel mounting systems and trade secrets that reduce
the required man-hours on system installations. During 2007 and 2008, we spent
approximately $91,024 and $197,921, respectively, on research and development
activity, none of which was borne directly by our customers.
21
Suppliers
We have
purchased solar panels used in our solar power systems from Kyocera Solar,
Suntech America and Sharp. Other vendors we would consider purchasing
from include, among others, Solar-Fabrik AG, General Electric, SMA American and
XANTRAX. We purchased inverters principally from SatCon Power
Systems. Solar panels and inverters represent approximately
two-thirds of the cost of our component requirements. Hardware and other
materials are readily available for off-the-shelf purchase and make up the
balance. Although solar panels are manufactured world-wide, we are
subject to market price fluctuation and vendor lead times and inventory for the
components that we purchase.
Products
and Services
We offer
PV products and services that seek to generate revenue from initial installation
activities, as well as potential recurring revenues from an installed base of
customers. Such products and services include the following:
Commercial Solar
Installations. We install commercial solar systems, with a focus on
systems that produce one megawatt or less. This is an area of the market that we
believe is underserved. The financial considerations of a project depend
significantly upon the available tax credits and depreciation schedules as well
as various forms of rebates. We believe this sector offers the
possibility of integrating our monitoring services and generating additional
business from existing clients with multiple locations. In 2007, we were
subcontractor on installation projects generating approximately $230,000 of
revenues (approximately 78% of our 2007 revenues). We did not perform any
subcontracting work in 2008. We are currently focusing solely on installation
projects where we will act as general contractor for commercial and industrial
projects.
Residential Solar
Installations. We installed residential solar systems for medium to large
single family homes that average a 6.5 kilowatt (KW) system which resulted
in approximately 22% of our revenues in 2007. As of 2008, we discontinued our
pursuit of the residential market and focused our activities as general
contractor in the commercial markets, although we intend to complete our
currently existing single-family residential projects.
Other Markets. In addition to
commercial PV installations that include corporate buildings and multi-dwelling
residential development, subject to receipt of adequate financing, we currently
intend to pursue three specific additional markets: agricultural systems;
petroleum field systems; and non-profit and institutional clients.
(i)
|
Agricultural
Systems. In 2008 we completed the installation of a PV solar energy
system on a dairy farm in California. We believe that many
farms (including vineyards) typically have accessible land or roof space
that can accommodate a PV system that can meet their electricity needs.
According to the U.S. Department of Agriculture, there are more than
21 million farms in the United States. We believe that the typical
farm requires a system installation that exceeds $1 million at
current prices, due to their level of power
demand.
|
(ii)
|
Petroleum
Field Systems.
According to Gibson Consulting’s website, there are approximately 510,000
oil wells in the US that each pump about 10.5 barrels of oil per day on
average. Our energy systems can replace diesel generators that power the
pumps, heat water and inject steam into wells to increase production,
while also adding the ability to remotely monitor the equipment and the
well’s production. Our systems that service one stripper well will sell
for approximately $80,000 to $200,000 at current
prices.
|
(iii)
|
Non-Profit
& Institutional Clients. Nonprofit and institutional
customers cannot directly benefit from tax credits or depreciation.
However, we have identified third parties that are able to arrange power
purchase agreements and financing that captures the value of accelerated
depreciation and tax credits through third-party investment
financing.
|
Customized Installation Equipment.
We have developed a Ballasted Roof Mounting System with Custom Recycled
Rubber Feet that is less expensive than comparable roof mounting systems. This
mounting system also speeds up the installation process, puts less stress on
commercial roofs and has a reduced environmental impact. We also offer a
Residential PV Trim Kit that is intended to improve the aesthetic look of
residential PV installations.
22
Industrial and Commercial
Solar-thermal. Solar-thermal systems can supplement solar electric
systems. These systems heat water directed to a boiler, hot water heater, or
separate storage tank. Although these systems require maintenance, solar-thermal
is another way to reduce reliance on fossil fuels. Solar thermal is primarily
used for commercial, industrial, or large residential buildings with high water
usage. This is a secondary product of ours that will be offered as a complement
to commercial PV installations.
Remote Monitoring
Products
XTRAX® is our
patented system for remotely monitoring the energy production of renewable
energy systems and provides fault notification. The design philosophy behind
XTRAX® is to
avoid using relatively expensive personal computers for simple monitoring tasks.
The XTRAX® hardware
monitor uses a minimalist approach by integrating a microcontroller, an energy
measurement device, a cellular card and miscellaneous interface components to
provide a small and low cost hardware platform. This platform is capable of
being utilized for a variety of measurements, including but not limited to,
electrical energy production, temperature, volume and flow. It can
also provide alerts if the system under measurement malfunctions. The
XTRAX® hardware
monitor utilizes a database application for the retrieval and reporting of data
to owners, customers, and aggregators. Data is regularly reported via the
cellular telephone system and it can use microwave technology or connect via
satellite. The XTRAX® system
as a whole also provides users the ability to retrieve reports through a website
or potentially a text message.
Once
launched, we expect XTRAX® to
generate high margin recurring revenues. We plan to sell XTRAX® to our
installation customers as well as to other PV installers and utilities and
owners (primarily residential) of existing PV installations. We believe that
XTRAX® will
enable us to acquire and validate Renewable Energy Credits (RECs) and provide
information regarding greenhouse gas emissions that may support the generation
of Carbon Credits. Development of our XTRAX® system
may also open other potential markets, such as the ability to monitor heat and
flow rates for such applications as irrigation, oil well monitoring, and
solar-thermal measurement. We have begun beta testing of our proprietary
software, and we expect to outsource the manufacturing of XTRAX® units.
We currently plan to commercially launch XTRAX® during
2009.
Potential
improvements in our XTRAX®
technology and related applications that we are pursuing include the
following:
Expanded Capabilities. We are
working to configure XTRAX® to
monitor additional parameters including heat and liquid flow. This would open
the possibility of our pursuing the following applications, either directly or
through licensing:
(i)
|
Remote verification of water
usage quantities, flow rate, and quality. Potential customers range from
golf courses to municipalities to irrigation systems to environmental
testing.
|
(ii)
|
Remotely
monitoring the volume of petroleum storage tanks.
|
(iii)
|
Remotely monitoring the
production of solar-thermal energy
systems.
|
Greater Distances We are
developing MAXTRAX, a remote monitoring product that uses radio and satellite
uplinks. Through this product, we hope to enable monitoring in isolated, rural
locations in which XTRAX®, with
its cellular capability, would not be effective. MAXTRAX is currently in the
planning stage and no prototype currently exists but it is expected to utilize
our patented technology.
Market Opportunity The price
of oil in U.S. dollars has fluctuated widely in 2008 and into 2009 from being at
its historic high to relatively low prices while overall global energy demand
has been growing over the years. This volatility causes users of oil to be
concerned about future costs of power. We believe that sunlight has long been a
vast but underutilized source of energy. We also believe that the combination of
recent solar energy technology improvements and the uncertain cost of fossil
fuels will provide economic incentives for adoption of alternative energy
sources. Furthermore, we believe that RECs and Carbon Credits in various
countries may grow in demand if the regulatory landscape moves towards
market-based cap and trade systems.
23
Competitive Factors We face
intense competition in both the installation and monitoring fields. Many of our
competitors are larger with more established businesses than us and have
substantially greater resources than we do. We believe that our construction
background, through S&T Electric and TAL Design & Construction, provides
us with real world experience in delivering results quickly and cost-effectively
for our customers. Our commitment to improving the effectiveness of renewable
energy systems has yielded developments that include proprietary photovoltaic
panel mounting systems and trade secrets that we believe reduce the required
man-hours on system installations.
We
believe that we compete in part on the basis of: our relatively fast
installation of solar power systems resulting in potential reduced costs; our
experienced management team with construction backgrounds; our customer service
and responsiveness to customer needs; and our delivery
capabilities.
We
believe our principal PV installation competitors in the United States
include:
•
|
Akeena Solar,
Inc., a national
installer of solar power systems for residential and commercial customers,
currently in California, New Jersey, New York, Pennsylvania, and
Connecticut;
|
•
|
GoSolar,
Inc., a PV
installation company currently focused on residential systems, solar
thermal, and wind power, in the Long Island region;
|
•
|
Power Light
Corporation, a
wholly owned subsidiary of SunPower, that is focused on large-scale
commercial projects, headquartered in California, with employees
throughout the U.S., Europe and Asia;
|
•
|
Premier Power
Renewable Energy, Inc., provides solar power systems
and solutions to residential homeowners, commercial and industrial
enterprises, municipalities, and other solar energy providers in the
United States and Spain. It designs, engineers, installs, and integrates
photovoltaic systems.
|
•
|
The Solar
Center, Inc., a
large regional competitor that currently installs in New Jersey, southern
New York, Long Island and Connecticut; and
|
•
|
Sun Edison,
LLC, which focuses
on large scale commercial and government projects and delivers solar
electricity as a service, not a
product.
|
If and
when commercialized, we believe that XTRAX®’s
principal monitoring competitors will be:
•
|
Fat Spaniel
Technologies, Inc.,
which delivers computer-based remote monitoring of solar installations and
sends alerts via e-mail or text message if an inverter is shut
down.
|
•
|
Inverter-specific
Communications. Some
inverter manufacturers are attempting to improve this technology with new
features, such as SMA’s Sunny Boy inverters. Such new features
include communication capability in the standard inverter required on all
PV system interconnections, through an optional socket modem attached to
the existing power line. This software enables continuous monitoring and
can record the performance of a PV system on a personal computer through
the Windows-based program Sunny Data. The device can also send and receive
data and commands to and from a central monitoring
device.
|
•
|
Digi
International Inc.’s Digi RPM is an intelligent power
control and monitor device that enables users to remotely turn devices on
and off, measure electrical load and monitor ambient temperature and
integrate with additional devices to provide power management over
Ethernet and Internet
connections.
|
24
Regulatory
Matters
Our
operations are also subject to a variety of national, federal, state and local
laws, rules and regulations relating to worker safety, zoning, building and
electrical codes, and the use, storage, discharge and disposal of
environmentally sensitive materials. Because we purchase and do not manufacture
our solar power systems, we do not use, generate, store or discharge toxic,
volatile or otherwise hazardous chemicals and wastes. We do not engage in such
activities in connection with our research and development activities. We
believe that we are in compliance in all material respects with all laws, rules,
regulations and requirements that affect our business. Further, we believe that
compliance with such laws, rules, regulations and requirements does not impose a
material impediment on our ability to conduct business.
Solar Energy
Industry
We
believe that economic and national security issues, technological advances,
environmental regulations seeking to limit emissions from the use of fossil
fuels, air pollution regulations restricting the release of greenhouse gasses,
aging electricity transmission infrastructure and limited and a sometimes
unreliable supply of fossil fuels, has made reliance on traditional sources of
fuel for generating electricity less attractive. Government policies, in the
form of both regulation and incentives, have accelerated the adoption of solar
technologies by businesses and consumers. For example, in the United States, the
2005 energy bill enacted for three years a 30% investment tax credit for solar
which was renewed and extended for eight years in November, 2008, and in
February 2009 an alternative cash rebate program was approved. In
January 2006 California approved the largest solar program in the country’s
history that provides for long term subsidies in the form of rebates to
encourage use of solar energy where possible.
Government Subsidies and
Incentives
Various
subsidies and tax incentive program exist at the federal and state level to
encourage the adoption of solar power including capital cost rebates,
performance-based incentives, feed-in tariffs, tax credits and net metering.
Capital cost rebates provide funds to customers based on the cost or size of a
customer’s solar power system. Performance-based incentives provide funding to a
customer based on the energy produced by their solar system. Under a feed-in
tariff subsidy, the government sets prices that regulated utilities are required
to pay for renewable electricity generated by end-users. The prices are set
above market rates and may be differentiated based on system size or
application. Feed-in tariffs pay customers for solar power system generation
based on kilowatt-hours produced, at a rate generally guaranteed for a period of
time. Tax credits reduce a customer’s taxes at the time the taxes are due. Under
net metering, a customer can generate more energy than it uses, during which
periods the electricity meter will spin backwards. During these periods, the
customer “lends” electricity to the grid, retrieving an equal amount of power at
a later time. Net metering programs enable end-users to sell excess solar
electricity to their local utility in exchange for a credit against their
utility bills. Net metering programs are usually combined with rebates, and do
not provide cash payments if delivered solar electricity exceeds their utility
bills. In addition, several states have adopted renewable portfolio standards,
or RPS, which mandate that a certain portion of electricity delivered to
customers come from a list of eligible renewable energy resources. Under a RPS
the government requires regulated utilities to supply a portion of their total
electricity generation in the form of electricity from renewable sources. Some
programs further specify that a portion of the renewable energy quota must be
from solar generated electricity.
Despite
the benefits of solar power, there are also certain risks and challenges faced
by users of solar power. Solar power is heavily dependent on government
subsidies to promote acceptance by mass markets. We believe that the near-term
growth in the solar energy industry depends significantly on the availability
and size of these government subsidies and on the ability of the industry to
reduce the cost of generating solar electricity. The market for solar energy
products is, and for some time will continue to be, heavily dependent on public
policies that support growth of solar energy. There can be no assurances that
such policies will continue despite the November 2008 eight year renewal of the
30% investment tax credit applicable to solar energy projects and the February
2009 approval of the alternative cash rebate program. Decrease in the level of
rebates, incentives or other governmental support for solar energy would have an
adverse affect on our ability to sell our products.
Prior to
its commercialization, which we currently expect to be in 2009, XTRAX® will be
listed by Underwriters Laboratories (“UL”) and receive approval from the Federal
Communications Commission (“FCC”) due to certain low level magnetic emissions
from the XTRAX® unit. In
addition, it will have to be certified by various cellular network operators as
meeting technical requirements for devices that communicate via the cellular
network. We currently believe that the UL listing, the FCC approval and these
certifications will be obtained by such time.
25
Building
Codes
We are
required to obtain building permits and comply with local ordinances and
building and electrical codes for each project, the cost of which is included in
our estimated costs for each proposal.
Intellectual
Property
We have a
U.S. patent for a “Remote Access Energy Meter System and Method”
(No. 7,336,201 – issued on February 26, 2008), which we currently intend to
market as XTRAX®, and
have filed other patent applications in the U.S., Europe, Canada, China and Hong
Kong. In addition to our patent and potential future patent
applications, we also have trade secrets and know-how.
Our staff
is actively exploring new products, devices, systems and methods for installing,
monitoring and/or supporting solar installations that lower the cost and time
required for installation.
Employees
We
currently have 12 employees, including our officers. We expect that additional
sales and installation staff will be required to close the prospects currently
in our sales pipeline. We hope to keep our operating costs low by using
supplemental contract labor and subcontracting portions of work to installers
and other specialists, as is common in the construction industry. Our employees
are not represented by any union.
Legal
Proceedings
Other
than routine litigation arising in the ordinary course of business that we do
not expect, individually or in the aggregate, to have a material adverse effect
on us, there is no currently pending legal proceeding and, as far as we are
aware, no governmental authority is contemplating any proceeding to which we are
a party or to which any of our properties is subject.
MANAGEMENT
The
following table sets forth the names and positions of our directors and
executive officers and other key personnel:
Name
|
Age
|
Position
|
||
Ezra
J. Green
|
48
|
Chief
Executive Officer and Chairman
|
||
Robert
L. Dockweiler, Jr.
|
48
|
Director
of Engineering
|
||
Arthur
L. Goldberg
|
70
|
Chief
Financial Officer, Vice President, Secretary and
Treasurer
|
||
Joshua
M. Goldworm
|
29
|
Vice
President – Business Development
|
||
Pamela
Newman, Ph.D.
|
61
|
Director
|
||
William
O’Connor
|
45
|
Vice
President — Operations
|
||
Thomas
J. Oliveri
|
50
|
President
and Chief Operating Officer
|
||
Gelvin
Stevenson, Ph.D.
|
64
|
Director
|
Our
directors hold office until the earlier of their death, resignation or removal
or until their successors have been elected and qualified. Our officers are
elected annually by, and serve at the pleasure of, our board of
directors.
26
Biographies
Ezra J. Green (Chief Executive
Officer and Chairman). Ezra Green has been Chief Executive Officer and
Chairman of the registrant since the consummation of our reverse merger on
December 20, 2007. Ezra Green has been involved with renewable energy
companies for seven years and founded Clear Skies Group, Inc. in 2003. Prior to
launching Clear Skies Group, Inc., Mr. Green was a successful entrepreneur
who founded TAL Design & Construction in 1990, a general contracting firm.
Mr. Green has 25 years experience in the construction business,
including those in which he led TAL Design & Construction to top rankings
for excellence and customer satisfaction in The Franklin Report. TAL Design
& Construction consulted on interior design and performed high-end
commercial and residential construction in New York City and Long Island. Ezra
began his career as a software engineer and programmer.
Robert L. Dockweiler, Jr. (Director
of Engineering). Robert Dockweiler joined Clear Skies Group, Inc. as
Director of Engineering in October 2005 and took over the same capacity of
the registrant upon the consummation of our reverse merger on December 20,
2007. Mr. Dockweiler is responsible for the development of XTRAX® and
overseeing Clear Skies Group, Inc.’s engineering team. Prior to joining Clear
Skies, Mr. Dockweiler spent 20 years as a Senior Systems Engineer for
EEG Enterprises, an engineering firm that provides software for the broadcast,
postproduction, and educational industries. Mr. Dockweiler was responsible
for designing software, personal computer mother board layouts, integrated
communications hardware and software systems, and programming embedded firmware
for real-time video data encoders. Mr. Dockweiler earned a Bachelor of
Science in Electrical Engineering from SUNY — Farmingdale.
Arthur L. Goldberg (Chief Financial
Officer, Vice President, Secretary and Treasurer). Arthur Goldberg joined
us as our Chief Financial Officer effective January 21, 2008. He was
appointed Secretary and Treasurer on May 16, 2008 and a Vice President on August
24, 2009. Previously he served as CFO of Milestone Scientific, Inc., a
publicly traded company that had developed and markets a device for painless
injections for both dental and medical purposes. Before that he served as Chief
Administrative and Financial Officer of St. Luke’s School, a private college
preparatory school. Before working at St. Luke’s School Mr. Goldberg was a
partner in the firm Tatum CFO Partners, LLP from 1999 to 2006. Tatum’s business
was the furnishing of CFO services on an interim or special project basis.
Before Tatum Mr. Goldberg served as CFO of various public and privately
owned businesses. He earned an MBA degree from the University of Chicago, JD and
LLM degrees from the School of Law at New York University and his bachelor’s
degree from the City College of New York. Mr. Goldberg is also a certified
public accountant. Mr. Goldberg is a director of SED International Holdings,
Inc., a publicly owned distributor of computer related, consumer electronic and
wireless products.
Joshua M. Goldworm (Vice President –
Business Development). Joshua M. Goldworm joined Clear Skies
in October of 2006 and served as our analyst and salesman until he was promoted
to Vice President of Business Development in 2008. Previously, Mr.
Goldworm consulted for Mandalay Capital analyzing acquisition targets and
crafting communications for sales development. Prior to Mandalay Capital,
he was an analyst at Miller Tabak Roberts Securities, LLC, a boutique securities
firm, specializing in corporate, high yield, convertible and emerging market
debt and distressed and reorganized equities, at which firm Mr. Goldworm
prepared in-depth fundamental fixed income and convertible research reports on
companies within the gaming, healthcare and waste industries. Prior
to that position Mr. Goldworm was a mortgage consultant at American Residential
Mortgage. He earned his BA at the University of Colorado in 2002.
Pamela J. Newman, PhD (Director).
Pamela J. Newman joined the registrant’s board of directors upon
consummation of our reverse merger on December 20, 2007 and was a member of
Clear Skies Group, Inc.’s board of directors since October 2005.
Dr. Newman has been an Executive Vice President at AON Corporation,
specializing in Fortune 500 international clients, since 1991. Before joining
AON, Dr. Newman worked for Marsh & McLennan from 1979 to 1991 and,
before that, she worked for Peat, Marwick, Mitchell & Co. from 1975 to 1979.
Dr. Newman is a member of the board of directors of the publicly listed
Ivivi Technologies, Inc. and also serves on the boards of several private
companies, including RKO Pictures and Interactive Metronome. Dr. Newman
serves on the Medical Center Advisory Board of the New York Hospital-Cornell
Medical Center and on the Board of the McGowan Transplant Center, the Brain
Trauma Foundation and American ORT. Dr. Newman also serves on the Board of
Trustees of The American University of Paris, the Corporate Board of Carnegie
Hall and the Associate Committee of The Julliard School and is a Fellow of the
Foreign Policy Association. Dr. Newman has co-authored two books;
“Organizational Communications” and “Behind Closed Doors; A Guide to Effective
Meetings.” Dr. Newman earned her Bachelor of Arts, Master of Arts, and
Ph.D. from the University of Michigan and serves on the Horace Rackham
University of Michigan Graduate School Board of Advisors.
27
William O’Connor (Vice President —
Operations). William O’Connor was appointed Clear Skies Group, Inc.’s
Executive Vice President of Operations in September 2006 and took over the
same capacity of the registrant upon the consummation of our reverse merger on
December 20, 2007. Mr. O’Connor is responsible for job site supervision and
overseeing system installations. Mr. O’Connor received his Master
Electrician licensing in New York in 1996 and, prior to joining Clear Skies
Group, Inc. in 2005, owned and operated Bill O’Connor Electric, from 1996 to
1999, and S&T Electric Corp., from 1999 to 2005.
Thomas J. Oliveri (President and
Chief Operating Officer). Thomas J. Oliveri has been our President and
Chief Operating Officer since April 14, 2008. Thomas Oliveri joined CSG in April
of 2008 and brings 25 years of experience as a global executive directing and
managing all aspects of business operations, strategic planning, engineering,
marketing, sales, operations, accounting, HR, and IT functions. His experience
working in the United States, Europe, Asia, Russia, Australia, South America,
and South Africa will enable CSG to expand to foreign markets as opportunities
present themselves. Since 2006, Mr. Oliveri has led a corporate turnaround
effort as the Head of the Equipment Flow division of Sulzer Metco, Inc., a
worldwide leader in the thermal spray industry. From 1999 to 2006, Mr. Oliveri
served in a variety of executive roles, eventually rising to CEO, at Global
Payment Technologies, Inc., a currency validation manufacturer. From 1986
through 2000, Mr. Oliveri served in a variety of executive management positions
at manufacturing companies around the world. Mr. Oliveri has a Bachelor of
Science from SUNY Oswego and a Master of Science from SUNY Stony
Brook. Mr. Oliveri is a director of Table Trac, Inc., a
publicly owned company that supplies certain software systems to the gaming
industry.
Gelvin Stevenson, PhD (Director).
Gelvin Stevenson joined the registrant’s board of directors upon
consummation of our reverse merger on December 20, 2007 and was a member of
Clear Skies Group, Inc.’s board of directors since August 2005.
Dr. Stevenson has been Clear Skies Group, Inc.’s Treasurer since
March 2007 and was also appointed Secretary in August 2007.
Dr. Stevenson is an economist and served as an Adjunct Professor of
Environmental Economics at Cooper Union and Pratt Institute in 2004 and 2006,
respectively. Dr. Stevenson is a Program Director for the Center for
Economic and Environmental Partnership (since 2002), consults for the clean
energy industry and has organized numerous financing forums for start-up clean
energy companies. Dr. Stevenson has been an Investment Consultant to the
Oneida Tribe of Indians of Wisconsin for over 12 years, and served as
Director of Investment Responsibility for the NYC Comptroller’s Office in 1992,
when it managed over $40 billion in pension funds. Dr. Stevenson was
Economic and Corporate Finance Editor at Business Week magazine from
1977 to 1984, and his writings have appeared in the Business and the Real Estate
Sections of the New York
Times, New York
Magazine and elsewhere. Dr. Stevenson formerly held a Series 7
securities license and is currently a Public Arbitrator for the Financial
Industry Regulatory Authority (formerly NASD). Dr. Stevenson holds a
Bachelor of Arts from Carleton College and both a Master of Arts and a Ph.D.
from Washington University in St. Louis.
There are
no family relationships among any of our directors and executive
officers.
Director
Compensation
On May
1, 2008 the Board of Directors adopted the Clear Skies Solar, Inc. 2008
Non-Employee Director Compensation Plan pursuant to which, as amended on
November 12, 2008, options to purchase up to one million shares of common stock
may be granted to non-employee directors of the Company. All options
must be at the fair market value on the date of grant and expire no later than
ten years from the date of grant. Non-qualified stock options under
the Internal Revenue Code, were granted to each of Dr. Newman and Dr.
Stevenson to purchase 90,000 shares at $0.2725 per share on November 12,
2008, additional options to purchase 220,000 shares at $.12 per share were
granted to each of them on March 17, 2009 and on July 29, 2009 each were
granted an option to purchase 90,000 shares at $.13 per share. In addition, this
Plan provides for the payment of $750 to each non-employee director for
attending in person each meeting of the Board or any committee thereof and $500
if such attendance is via conference telephone. We also reimburse our
Directors for reasonable expenses incurred in connection with their services as
Directors.
28
In
September 2005, Clear Skies Group, Inc. granted its then three non-employee
Directors shares of Clear Skies Group, Inc. common stock for agreeing to serve
on its Board of Directors for a three year term. The shares of Clear Skies
Group, Inc. common stock granted to each such Director were exchanged for 77,518
shares of our common stock in our reverse merger.
Our
directors did not receive any compensation for services in our fiscal year ended
December 31, 2007.
Directors’
and Officers’ Liability Insurance
We
currently have directors’ and officers’ liability insurance insuring our
Directors and officers against liability for acts or omissions in their
capacities as Directors or officers, subject to certain exclusions. Such
insurance also insures us against losses which we may incur in indemnifying our
officers and Directors. In addition, we have entered into indemnification
agreements with key officers and Directors and such persons shall also have
indemnification rights under applicable laws, as well as our certificate of
incorporation and bylaws.
Code
of Ethics
We
adopted a code of ethics that applies to our officers, Directors and employees,
including our Chief Executive Officer and our Chief Financial
Officer.
Board
Committees; Corporate Governance
Our Board
of Directors has only one standing committee (a compensation committee which
does not meet the requirements of a compensation committee for the purposes of
our 2007, 2008 or 2009 Equity Incentive Plans). Our compensation committee,
comprised of Dr. Newman and Dr. Stevenson, was constituted on
February 6, 2008, and did not meet during the year ended December 31,
2008. We expect our Board of Directors, in the future, to appoint an audit
committee, a nominating committee and a compensation committee that meets the
requirements of our 2007, 2008 and 2009 Equity Incentive Plans, and to adopt
charters relative to each such committee. We intend to appoint such persons to
committees of the Board of Directors as are expected to be required to meet the
corporate governance requirements imposed by a national securities exchange,
although we are not required to comply with such requirements until we elect to
seek listing on a national securities exchange.
EXECUTIVE
COMPENSATION
The table
below sets forth, for the last two fiscal years, the compensation earned by each
person acting as our Chief Executive Officer and our other most highly
compensated executive officers whose total annual compensation exceeded $100,000
(together, the “Named Executive Officers”). Except as provided below, none of
our executive officers received annual compensation in excess of $100,000 during
the last two fiscal years.
Summary Compensation Table
Non-Equity
|
Nonqualified
|
||||||||||||||||||||||||||||
Stock
|
Incentive Plan
|
Deferred
|
|||||||||||||||||||||||||||
Year
|
Salary
|
Bonus
|
Awards
|
Compensation
|
Compensation
|
Other
|
Total
|
||||||||||||||||||||||
|
|||||||||||||||||||||||||||||
Ezra
Green
|
2008
|
$ | 244,231 | - | - | - | - | - | $ | 244,231 | |||||||||||||||||||
CEO
and Chairman (1)
|
2007
|
$ | 98,441 | - | $ | 258,300 | - | - | $ | 26,559 | $ | 383,300 | |||||||||||||||||
|
|||||||||||||||||||||||||||||
Thomas
J. Oliveri
|
2008
|
$ | 143,223 | - | - | - | - | - | $ | 143,223 | |||||||||||||||||||
President
and COO (2)
|
|||||||||||||||||||||||||||||
|
- | ||||||||||||||||||||||||||||
Arthur
L. Goldberg
|
2008
|
$ | 184,923 | - | - | - | - | - | $ | 184,923 | |||||||||||||||||||
Chief
Financial Officer,
|
|||||||||||||||||||||||||||||
Secretary
and Treasurer (3)
|
|||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||
Rami
Mikhail
|
2008
|
$ | 204,308 | - | - | - | - | - | $ | 204,308 | |||||||||||||||||||
Executive
Vice President
|
2007
|
$ | 161,538 | - | - | - | - | - | $ | 161,538 | |||||||||||||||||||
of
Sales and Marketing (4)
|
29
(1)
|
On
December 20, 2007, in connection with our reverse merger, Mr. Green became
the registrant's Chief Executive Officer and Chairman. Mr.
Green had served in the same capacities for Clear Skies since he founded
it in 2003. Other compensation consists of fees paid to a company
controlled by Mr. Green for his consulting
services.
|
(2)
|
Mr.
Oliveri's employment as our President and Chief Operating Officer
commenced on April 14, 2008.
|
(3)
|
Mr.
Goldberg's employment as our Chief Financial Officer commenced on January
21. 2008. He has also served as our Secretary and Treasurer
since May 16, 2008 and as Vice President since August 24,
2009.
|
(4)
|
Mr.
Mikhail was employed from February 1, 2007 to August 12,
2008.
|
Employment
Agreements
We have
entered into employment agreements with Ezra J. Green to serve as our Chief
Executive Officer and Chairman, with Thomas J. Oliveri to serve as our President
and Chief Operating Officer and with Arthur L. Goldberg to serve as our Chief
Financial Officer. These agreements were entered into in December 2007, March
2008 and January 2008, respectively, and were all amended and restated in
November 2008. The initial terms of the amended and restated
agreements (the “Agreements”) are three years, with automatic one-year renewals
following this three-year period in the absence of a notice of non-renewal as
provided for in the Agreements. Pursuant to the Agreements
Messrs. Green, Oliveri and Goldberg are to receive minimum annual base
salaries of $250,000, $200,000 and $200,000, respectively, for the first three
years, and then an agreed upon salary (of not less than the amount specified
above) for each future year of employment. Each of Messrs. Green, Oliveri and
Goldberg were entitled to an annual bonus of $50,000 for the twelve months ended
March 31, 2009 if we recorded gross revenues in excess of $5,000,000 during such
period (which we did not) and an annual bonus of $75,000 if we record gross
revenues in excess of $10,000,000 during the twelve months ended March 31,
2010. If any of such executives’ employment is terminated without
cause or if any resign for good reason (as defined in their employment
agreements), then we will be obligated to pay the terminated executive, as
severance, his then current annual base salary and annual bonuses (as such is
defined within the Agreements) for the remainder of the term. The
three Agreements have provisions regarding non-disclosure of confidential
information, non-solicitation and non-competition. On March 17, 2009
the Board granted Mr. Green a bonus award of 3,000,000 shares of common stock of
the Company.
EQUITY
COMPENSATION PLAN INFORMATION
2007, 2008
and 2009 Equity Incentive Plans
We
have adopted the Clear Skies Holdings, Inc. 2007, 2008 and 2009 Equity Incentive
Plans, pursuant to each 2,500,000 shares of our common stock are reserved for
issuance as awards to employees, directors, consultants, and other service
providers. The term of the 2007 Plan is ten years from December 19, 2007, the
term of the 2008 Plan is ten years from July 28, 2008 and the term of the 2009
Plan is ten years from March 17, 2009, their respective effective dates. At
December 31, 2007, we had no outstanding awards under the 2007 Plan but options
under both the 2007 and 2008 Plans were granted in 2008 and further awards were
granted under all plans in 2009. To date, the Board of Directors has granted
options to eleven of our employees to purchase a total of 5,550,000 shares of
our common stock with a weighted-average exercise price of $0.15 per
share.
On July 29, 2009 our Board of Directors approved the granting of
certain stock options which where only granted to those employees who
agreed to the cancellation of previously granted higher priced options for the
same number of shares. The new options vested upon grant and were
granted to all eligible employees, for the purchase of 1,955,000
shares at $.09 per share, the fair market value on date of grant as defined in
the employee equity incentive plans.
30
The
purpose of our Plans is to provide an incentive to attract and retain directors,
officers, consultants, advisors and employees whose services are considered
valuable, to encourage a sense of proprietorship and to stimulate an active
interest of such persons into our development and financial success. The Plan
permits the grant of the following types of incentive awards:
•
|
Incentive stock
options;
|
•
|
Non-qualified stock options;
and
|
•
|
Restricted
Stock.
|
The Plans
are administered by our Board of Directors or a committee of the Board of
Directors consisting of at least two directors who qualify as “independent
directors” under the rules of the NASDAQ Stock Market, “non-employee directors”
under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and as
“outside directors” under Section 162(m) of the Internal Revenue Code of 1986,
as amended. Our board of directors has not yet appointed a committee meeting the
above qualifications.
Subject
to the terms of the Plans, the Board of Directors as administrator has the sole
discretion to select the directors, officers, employees, consultants and
advisors who will receive awards, determine the terms and conditions of the
awards, and interpret the provisions of the Plans and outstanding awards. Our
Board of Directors generally may amend or terminate the Plans at any time and
for any reason, except that no amendment, suspension, or termination may impair
the rights of any participant without his or her consent, and except that
approval of our stockholders is required for any amendment which:
•
|
materially increases the number
of shares subject to the
Plan;
|
•
|
materially increases the benefits
accruing to the
participants;
|
•
|
materially modifies the
requirements for eligibility for
awards;
|
•
|
decreases the exercise price of
an option to less than 100% of the Fair Market Value (as defined in the
Plan) on the date of grant;
|
•
|
extends the term of any option
beyond the limits currently provided by the Plan;
or
|
•
|
reduces the exercise price of
outstanding options or effects repricing through cancellations and
regrants of new options.
|
Subject
to the foregoing, our Plan’s administrator also has authority to amend
outstanding awards prospectively or retrospectively, but no such amendment shall
impair the rights of any participant without such participant’s
consent.
The
number of shares of our common stock initially reserved for issuance under the
Plans is 2,500,000 in each Plan. If any award under the Plan is
cancelled prior to its exercise or vesting in full, or if the number of shares
subject to an award is reduced for any reason, the shares of our stock that are
no longer subject to such award will be returned to the available pool of shares
reserved for issuance under the Plan, except where such reissuance is
inconsistent with the provisions of Section 162(m) of the Internal Revenue Code
of 1986, as amended.
We
have also adopted the 2008 Non-Employee Directors Compensation Plan, as amended
on November 12, 2008, pursuant to which one million shares of our common stock
are reserved for issuance. The term of this Plan is ten years from
May 1, 2008, its effective dates. To date, the Board of Directors has granted
options to two current non-employee directors to purchase a total of 800,000
shares of our common stock with a weighted-average exercise price of $0.16 per
share.
31
The Plan
provides for an automatic grant of an option to purchase 90,000 shares of our
common stock upon a non-employee first being elected a Director of the Company,
or being an incumbent upon adoption of the Plan or otherwise as the Board may
determine. Options vest one third on each of the first three
anniversary dates of the grant of the option except that the grants on March 17,
2009 vest to the extent of 25% six months from the grant date, a
further 25% twelve months from the grant date and the last 50% eighteen months
from the grant date.
On July 29, 2009 our Board of Directors approved the granting of
certain stock options which were only granted to the non-employee directors
who agreed to the cancellation of previously granted higher priced options for
the same number of shares. The new options to non-employee directors vested upon
grant and permit the purchase of up to 180,000 shares at $.13 per share, the
fair market value on the date of grant as defined in the relevant plan.
Subject
to the terms of the Plans, the Board of Directors as administrator has the sole
discretion to select the directors who will receive awards, determine the terms
and conditions of the awards, and interpret the provisions of the Plan and
outstanding awards. Our Board of Directors generally may amend or terminate the
Plan at any time and for any reason, except that no amendment, suspension, or
termination may impair the rights of any participant without his or her
consent.
Grants
of Plan-Based Awards
The
following sets forth information regarding stock option awards to our named
executive officers under our stock option plans for the year ended December 31,
2008 as follows:
Our
Board of Directors has granted options to purchase our common stock under our
2007 and 2008 Equity Incentive Plans: to Mr. Green to purchase 425,000 shares on
November 12, 2008 at $0.352 per share, 500,000 shares on March 17, 2009 at $.132
per share and to purchase 850,000 shares on July 29, 2009 at $.09 per share; to
Mr. Oliveri to purchase, 187,500 shares on November 12, 2008 at $.32 per
share, 512,500 shares on March 17, 2009 at $.12 per share and 300,000
shares on July 29, 2009 at $.09 per share; to Mr. Goldberg to purchase, 162,500
shares on November 12, 2008 at $.32 per share, 512,500 shares on March 17, 2009
at $.12 per share and 325,000 shares on July 29, 2009 at $.09 per
share.
Outstanding
Equity Awards at Fiscal Year-End
None of
the options granted (see Grants of Plan-Based Awards above) have been exercised
and therefore all are presently outstanding.
Option
Exercises and Stock Vested
The
options granted on November 12, 2008 vest in three equal installments on the
first three anniversaries of the grant date. The options granted on March
17, 2009 vest to the extent of 25% six months after grant, an additional 25% one
year after grant and the final 50% 18 months after grant and the options granted
on July 29, 2009 vested in full on grant. Certain of the options
granted to Mr. Green expire five years after grant and the exercise prices are
110% of the fair market value on the date of grant. The options granted to Mr.
Oliveri and Mr. Goldberg expire ten years after the grant date and the exercise
prices are 100% of the fair market value on the date of grant. No options have
been exercised to date.
Pension
Benefits
The
Company does not have any plan which provides for payments or other benefits at,
following, or in connection with retirement.
Non-qualified
Deferred Compensation
The
Company does not have any defined contribution or other plan which provides for
the deferral of compensation on a basis that is not tax-qualified.
Director
Compensation Arrangements
The
following sets forth with respect to the named director, compensation
information inclusive of equity awards and payments made in the year ended
December 31, 2008. The following includes only directors that were
not employees of the Company. Any director who was also an executive
officer is included in the Summary Compensation Table.
32
On May
1, 2008 the Board of Directors adopted the Clear Skies Solar, Inc. 2008
Non-Employee Director Compensation Plan, as amended on November 12, 2008,
pursuant to which options to purchase up to one million shares of common stock
may be granted to non-employee directors of the Company. All options
must be at the fair market value on the date of grant and expire no later than
ten years from the date of grant. Non-qualified stock options under
the Internal Revenue Code, to purchase 90,000 shares at $.2725 per share each
were granted to Dr. Newman and Dr. Stevenson on November 12,
2008, additional options to purchase 220,000 shares at $.12 were granted to
each of them on March 17, 2009 and options to purchase 90,000 shares each at
$.13 per share were granted on July 29, 2009. In addition, this Plan
provides for the payment of $750 to each non-employee director for attending in
person each meeting of the Board or any committee thereof and $500 if such
attendance is via conference telephone. We also reimburse our
Directors for reasonable expenses incurred in connection with their services as
Directors. The July, 2009 options to non-employee directors
vested upon grant and permit the purchase of up to 180,000 shares at $.13 per
share, the fair market value on the date of grant as defined in the relevant
plan.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Richard
Klein, a former member of our board of directors, is also the owner and Chief
Executive Officer of Quixotic. From October 2005 to October 2006,
Quixotic provided certain sales, back-office and engineering support to Clear
Skies Group, Inc. Since October 2006, however, Quixotic’s relationship to
us has been primarily as a source of referrals in the New York area for Clear
Skies Group, Inc.’s installation work. Quixotic earns commissions from us for
projects so referred. In lieu of paying an aggregate of $50,000 of cash
commissions owed by Clear Skies Group, Inc. to Quixotic, Clear Skies Group, Inc.
issued Quixotic shares of its common stock on May 7, 2007, which shares
were exchanged for 48,449 shares of our common stock in the reverse
merger.
At
various times from March 2006 to August 2006, Quixotic ordered certain
power systems components from Alpha Energy, a division of Alpha Technologies
Services, Inc. (“Alpha”) on behalf of us, and such components were shipped to or
as directed by us. On July 19, 2007, Alpha filed a complaint against
Quixotic, in the United States District Court for the Western District of
Washington at Seattle. The complaint alleged, among other things, that Quixotic
purchased approximately $270,000 worth of power systems components from Alpha
for which Quixotic had not timely and fully paid. In August 2007, Alpha,
Quixotic and we entered into a settlement agreement, pursuant to which Quixotic
and we agreed, jointly and severally, to pay an aggregate of $206,778 to Alpha
to settle the Alpha lawsuit. Pursuant to the settlement agreement, Quixotic and
we executed a confession of judgment in the amount of approximately $251,014,
plus reasonable attorneys’ fees and expenses, which Alpha agreed to hold in
trust pending payment in full of the $206,778 settlement amount by us and/or
Quixotic. Also, pursuant to the settlement agreement, the Alpha lawsuit was
dismissed with prejudice and without award of costs or attorneys’ fees to any
party, and the parties exchanged mutual releases relating to the Alpha lawsuit.
In August 2007, Ezra Green, our Chief Executive Officer and Chairman, we
and Quixotic entered into an indemnity and guaranty agreement in order to induce
Quixotic to enter into the settlement agreement with Alpha and to refrain from
taking legal action against Mr. Green and/or us. Pursuant to the indemnity
and guaranty agreement, among other things, Mr. Green and we agreed,
jointly and severally, to assume liability for, to guarantee payment to or on
behalf of Quixotic and to indemnify Quixotic from and against liabilities in
connection with the Alpha lawsuit and the settlement agreement. All payments due
to Alpha under the settlement agreement were timely made, with the final payment
made by us on December 21, 2007, and we have reimbursed Quixotic in full
for $175,000 of settlement payments that it had advanced to Alpha. The
confession of judgment referred to above has been destroyed.
Several
of our officers and directors, or their affiliates, have from time to time
extended loans to Clear Skies Group, Inc. or agreed to defer compensation
payable to them in order to fund our operating expenses. In this regard:
(i) Quixotic loaned $285,000 (including amounts Quixotic had paid in
connection with the Alpha settlement agreement), which loan had been repaid in
full, together with 10% interest compounded daily, by December 31, 2007;
and (ii) Gelvin Stevenson loaned $20,000, which had been repaid in full as
of December 31, 2007. Furthermore, Ezra Green agreed to the deferral of
$73,259 of his compensation, of which $69,366 remained unpaid as of
December 31, 2007. As of March 18, 2008, Mr. Green’s deferred
compensation had been paid in full. In addition, Mr. Green had advanced
$30,275 to us in 2006 and an additional $70,037 to us in 2007 (which has been
booked as a balance of $100,312 due to related party at December 31, 2007).
This related party transaction was also repaid in full by March 18, 2008.
Such loans and other arrangements were interest free (except for Quixotic) and
had not been memorialized by written promissory notes. In consideration for the
extension and maintenance of such credit and deferral of salary, on May 7,
2007, Clear Skies Group, Inc. granted Mr. Green, Quixotic and
Dr. Stevenson securities that were exchanged for 610,452, 290,691 and
77,517 shares of our common stock, respectively, in our reverse
merger.
33
Clear
Skies Group, Inc. and Sustainable Profitability Group, Inc. (“SPG”) entered into
a consulting agreement, dated as of June 17, 2005 (the “SPG Agreement”),
for SPG to perform certain consulting services for Clear Skies Group, Inc.
Pursuant to the SPG Agreement, SPG was entitled to designate one member of Clear
Skies Group, Inc.’s Board of Directors and designated SPG’s Executive
Vice-President Mayur V. Subbarao. Mr. Subbarao served as a member of Clear
Skies Group, Inc.’s Board of Directors from August 2005 until
November 2007 and was also the Secretary of Clear Skies Group, Inc. from
August 2005 until August 2007. On or around February 16, 2007,
SPG provided Clear Skies Group, Inc. with notice of termination of the SPG
Agreement. Clear Skies Group, Inc., SPG, Mr. Subbarao and Ezra Green
entered into a Settlement Agreement and Release, dated as of November 8, 2007,
pursuant to which, among other things:
•
|
Clear Skies Group, Inc. paid SPG
$250,000;
|
•
|
SPG and Mr. Subbarao
transferred to Ezra Green all of the shares of Clear Skies Group, Inc.
common stock owned or controlled, directly or indirectly, by SPG and/or
Mr. Subbarao (the “SPG Shares”), which shares were exchanged in our
reverse merger for an aggregate of 271,312 shares of our common
stock;
|
•
|
Ezra Green delivered to SPG a
promissory note in the principal amount of $150,000, due in two
installments in January 2008 and June 2009, bearing interest at
8% per annum and secured by a pledge of the SPG
Shares;
|
•
|
Mr. Subbarao resigned from
the Board of Directors of Clear Skies Group, Inc. and from any
directorships or other offices or positions held with Clear Skies Group,
Inc. or any subsidiaries or affiliated
companies;
|
•
|
SPG agreed to the termination of
warrants to purchase 500,000 shares of Clear Skies Group, Inc.’s common
stock; and
|
•
|
The parties exchanged mutual
releases.
|
In order
to finance the cash portion of the settlement, Clear Skies Group, Inc. entered
into Note Purchase Agreements, dated as of November 7, 2007, with two
investors, pursuant to which Clear Skies Group, Inc. issued $250,000 aggregate
principal amount of 8% Promissory Notes which were repaid on December 20,
2007.
Our
predecessor, BIP Oil, Inc. was incorporated in the State of Nevada on
January 31, 2007 and issued an aggregate of 5,000,000 shares of its common
stock to its founders, Bobby Stanley and Ike Lewis, for $50 cash and services
rendered that were valued, in the aggregate, at $5,000 by its board of
directors. On December 18, 2007, BIP Oil, Inc. merged with and into its
wholly owned subsidiary, Clear Skies Solar, Inc., a Delaware corporation then
known as Clear Skies Holdings, Inc., pursuant to which merger each outstanding
share of common stock of BIP Oil, Inc. was converted into 9.19230769 shares of
our common stock.
Immediately
following our reverse merger and the closing of our December 2007 private
placement, under the terms of a split-off agreement, we transferred all of our
pre-merger operating assets and liabilities to our wholly owned subsidiary, BIP
Holdings, Inc., a Delaware corporation, and transferred all of its outstanding
capital stock to Messrs. Stanley and Lewis in exchange for cancellation of
all of the shares of our common stock then held by them, including the founders’
shares issued to them in January 2007.
34
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following tables set forth certain information as of October 6, 2009
regarding the beneficial ownership of our common stock by (i) each person
or entity who, to our knowledge, owns more than 5% of our common stock;
(ii) each executive officer; (iii) each director; and (iv) all of our
executive officers and directors as a group. Unless otherwise indicated in the
footnotes to the following table, each of the stockholders named in the table
has sole voting and investment power with respect to the shares of our common
stock beneficially owned. Except as otherwise indicated, the address of each of
the stockholders listed below is: c/o Clear Skies Solar, Inc., 200 Old Country
Road, Suite 610, Mineola, New York 11501-4241.
|
Number
of
Shares
|
Percentage
|
||||||
|
Beneficially
Owned
(1)
|
Beneficially
Owned
(2)
|
||||||
Name
of Beneficial Owner
|
|
|
||||||
Beneficial
owners of more than 5%:
|
||||||||
Alpha
Capital Anstalt
|
3,440,035 | (3) | 6.8 | %(3) | ||||
Pradafant
7, Furstentums
|
||||||||
Vaduz, Liechtenstein 9490 | ||||||||
Executive officers and directors: | ||||||||
Ezra
J. Green
|
4,116,667
|
(4) |
8.0
|
%
|
||||
Robert
L. Dockweiler
|
250,027
|
(5) |
*
|
|||||
Arthur
L Goldberg
|
1,009,078
|
(6) |
2.0
|
% | ||||
Joshua
M. Goldworm
|
442,917
|
(7) |
*
|
|||||
Pamela
Newman
|
252,218
|
(8) |
*
|
|||||
William
O’Connor
|
366,303
|
(9) |
*
|
|||||
Thomas
J. Oliveri
|
490,625
|
(10) |
*
|
|||||
Gelvin
Stevenson
|
330,035
|
(11) |
*
|
|||||
All
executive officers and directors as a group (eight
persons)
|
7,257,870
|
(4-11) |
14.4
|
%
|
*
Represents less than 1%
(1)
Unless otherwise indicated, includes shares owned by a spouse, minor children
and relatives sharing the same home, as well as entities owned or
controlled by the named beneficial owner.
(2)
Based on 50,539,585 shares of our common stock outstanding as
of October 6, 2009, together with securities exercisable or convertible
into shares of our common stock within 60 days of October 6, 2009, for each
stockholder. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock that are
currently exercisable or exercisable within 60 days of October 6, 2009, are
deemed to be beneficially owned by the person holding such securities for the
purpose of computing the percentage of ownership of such person, but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person.
(3) Due
to a limitation on stock ownership in the agreements with Alpha to 4.99%, or
under certain conditions to 9.99%, does not include 3,973,214 shares issuable
upon conversion of outstanding convertible promissory notes and 687,500 shares
issuable upon exercise of outstanding warrants. Without this
limitation and including the excluded shares Alpha would own 14.7%.
(4) Includes various shares of our common stock issuable upon
exercise of options that are vested or exercisable within 60 days in
amounts and at exercise prices as follows: 141,667 shares at
$.352, 125,000 shares at $.132 and 850,000 shares at $0.09. Does not
include certain shares of our common stock issuable upon exercise of
options that will not vest within 60 days with amounts and at exercise
prices as follows: 375,000 shares at $.132, and 283,333 shares at
$.352.
35
(5) Includes 28,750 shares of our common stock issuable upon exercise of
options that are vested with an exercise price of $.12 per share, 15,000
shares at $.32 and 90,000 shares at $.09. Does not include certain
shares of our common stock issuable upon exercise of options that will not
vest within 60 days with amounts and at exercise prices as
follows: 30,000 shares at $.32 and 86,250 shares at
$.12.
(6) Includes
225,893 shares issuable upon conversion of outstanding convertible promissory
notes and 225,893 shares issuable upon exercise of outstanding
warrants. Also includes various shares of our common stock
issuable upon exercise of options that are vested or exercisable within 60
days in amounts and at exercise prices as follows: 128,125 shares at
$.12, 54,167 shares at $.32 and 325,000 shares at $.09. Does not
include certain shares of our common stock issuable upon exercise of
options that will not vest within 60 days with amounts and at exercise
prices as follows: 108,333 shares at $.32 and 384,375 shares at
$.12.
(7)
Includes various shares of our common stock issuable upon exercise of
options that are vested or exercisable within 60 days in amounts and at
exercise prices as follows: 116,250 shares at $.12, 31,667 shares at
$.32 and 190,000 shares at $.09. Does not include certain shares of
our common stock issuable upon exercise of options that will not vest
within 60 days with amounts and at exercise prices as follows: 63,333
shares at $.32 and 348,750 shares at $.12.
(8)
Includes 90,000 shares of our common stock issuable upon exercise of
options that are exercisable within 60 days at an exercise price of $.13,
30,000 shares at $.2725 and 55,000 shares at $.12. Does not include
certain shares of our common stock issuable upon exercise of options that
will not vest within 60 days with amounts and at exercise prices as
follows: 60,000 shares at $.2725 and 165,000 shares at
$.12.
(9)
Includes 90,000 shares of our common stock issuable upon exercise of
options that are exercisable within 60 days at an exercise price of $.09,
15,000 shares at $.32 and 28,750 shares at $.12. Does not include
certain shares of our common stock issuable upon exercise of options that
will not vest within 60 days with amounts and at exercise prices as
follows: 30,000 shares at $.32 and 86,250 shares at $.12.
(10)
Includes 300,000 shares of our common stock issuable upon exercise of
options that are exercisable within 60 days at an exercise price of $.09,
62,500 shares at $.32 and 128,125 shares at $.12. Does not include
certain shares of our common stock issuable upon exercise of options that
will not vest within 60 days with amounts and at exercise prices as
follows: 125,000 shares at $.32 and 384,375 shares at
$.12.
(11)
Includes 90,000 shares of our common stock issuable upon exercise of
options that are exercisable within 60 days at an exercise price of $.13
per share, 30,000 shares at $.2725 and 55,000 shares at $.12. Does not
include certain shares of our common stock issuable upon exercise of
options that will not vest within 60 days with amounts and at exercise
prices as follows: 60,000 shares at $.2725 and 165,000 shares at
$.12.
SELLING
STOCKHOLDERS
Up
to 26,981,705 shares of our common stock are being offered by this
prospectus, all of which are being registered for sale for the accounts of the
selling security holders and include the following:
·
|
6,028,174
outstanding shares issued on exercise of warrants, conversion of
promissory notes and in connection with our private placement that closed
on September 16, 2009.
|
|
·
|
11,518,750 shares
of our common stock issuable upon conversion of secured convertible
promissory notes issued in our private placements that closed on May 8,
2009, July 28, 2009 and September 16,
2009.
|
·
|
2,879,688 shares
of our common stock which might be issued on conversion of secured
convertible promissory notes issued in our private placements that closed
on May 8, 2009, July 28, 2009, and September 16, 2009, depending on the
impact of anti-dilution
provisions.
|
36
|
·
|
5,018,750 shares
of our common stock issuable upon exercise of warrants issued in our
private placements which closed on May 8, 2009, July 28, 2009 and
September 16, 2009.
|
|
·
|
2,000,000
shares of our common stock issuable upon conversion of convertible
promissory notes issued in connection with borrowings from February
12 to May 5, 2009.
|
|
·
|
900,000
shares of our common stock issued to Grushko & Mittman, P.C., counsel
to investors in the private placements, for legal services
provided.
|
·
|
636,343
shares of our common stock issued to Sichenzia Ross Friedman Ference LLP,
counsel to the company, for legal services
provided.
|
May 2009 Private
Placement
On May 8, 2009, we entered into a
Subscription Agreement (the “May Subscription Agreement”) with Alpha Capital
Anstalt, Barry Honig and Michael Brauser (the “May Subscribers”), pursuant to
which we sold (i) secured convertible promissory notes (the “May Notes”) in the
original aggregate principal amount of $400,000 and (ii) warrants to purchase up
to 4,000,000 shares of our common stock.
The May
Notes mature one year from the issuance date (the “Maturity Date”) and accrue
interest at the rate of 6% per annum, payable on the Maturity
Date. During an Event of Default (as defined in the May Notes), the
interest rate of the May Notes will be increased to 18% per annum until paid in
full. In addition, upon the occurrence of an Event of Default, all
principal and interest then remaining unpaid shall immediately become due and
payable upon demand. Events of Default include but are not limited to (i) the
Company’s failure to make payments when due, (ii) breaches by the Company of its
representations, warranties and covenants, and (iii) delisting of the Company’s
common stock from the OTC Bulletin Board.
Pursuant
to the terms of the May Notes, the May Subscribers have the right, so long as
the May Notes are not fully repaid, to convert the May Notes into shares of the
Company’s common stock at a conversion price of $.10 per share, as may be
adjusted. The May Notes contain anti-dilution provisions, including
but not limited to if the Company issues shares of its common stock at less than
the then existing conversion price, then the conversion price of the May Notes
will automatically be reduced to such lower price. Pursuant to such
anti-dilution provisions, as of July 28, 2009 the conversion price was adjusted
to $.07 per share. The May Notes also contain limitations on conversion,
including the limitation that the holder may not convert its Note to the extent
that upon conversion the holder, together with its affiliates, would own in
excess of 4.99% of the Company’s outstanding shares of common stock (subject to
an increase upon at least 61-days’ notice by the Subscriber to the Company, of
up to 9.99%).
The May
Notes are secured by a security interest in certain assets of the Company,
pursuant to a security agreement.
The
Warrants are exercisable for a period of three (3) years at an exercise price of
$.15 per share, as may be adjusted. The Warrants contain
anti-dilution provisions, including but not limited to if the Company issues
shares of its common stock at less than the then existing exercise price,
the exercise price of the Warrants will automatically be reduced to such lower
price. Pursuant to such anti-dilution provisions, as of July 28, 2009
the exercise price was adjusted to $.07 per share. The Warrants also contain
limitations on exercise, including the limitation that the holders may not
exercise their Warrants to the extent that upon exercise the holder, together
with its affiliates, would own in excess of 4.99% of the Company’s outstanding
shares of common stock (subject to an increase upon at least 61-days’ notice by
the Subscriber to the Company, of up to 9.99%).
The
Warrants may be exercised on a “cashless” basis commencing ninety-one (91) days
after their issuance, only with respect to underlying shares not
included for unrestricted public resale in an effective registration statement
on the date notice of exercise is given by the holder.
Pursuant
to the terms of the May Subscription Agreement, the Company agreed to file a
registration statement covering the resale of the shares of common stock
underlying the May Notes and the Warrants no later than 30 days from the closing
of the offering and to have such registration statement declared effective no
later than 90 days from the closing of the offering (the “Effective
Date”). If the Company did not timely file the registration statement
or does not cause it to be declared effective by the required dates, then each
Subscriber shall be entitled to liquidated damages equal to 1% of the aggregate
purchase price paid by such Subscriber for the May Notes and Warrants for each
month that the Company does not file the registration statement or cause it to
be declared effective. As of July 28, 2009, the Effective Date has
been changed to September 8, 2009.
The
Company also granted the May Subscribers, until the later of one year from the
closing or so long as the May Notes are outstanding, a right of first refusal in
connection with future sales by the Company of its common stock or other
securities or equity linked debt obligations, except in connection with certain
Excepted Issuances (as defined in the May Subscription Agreement).
37
In
addition, in connection with the May 2009 private placement, we issued an
aggregate of 150,000 shares of our common stock to Grushko & Mittman, P.C.
for legal services provided to the investors.
The May
2009 private placement is more fully described in our Form 8-K filed with the
Securities and Exchange Commission on May 13, 2009.
July 2009 Private
Placement
As of July 28, 2009, we entered into
Subscription Agreements (the “July Subscription Agreements”) with Alpha Capital
Anstalt, Barry Honig and Arthur Goldberg (the “July Subscribers”), pursuant to
which we sold for an aggregate of $260,000, (i) secured convertible promissory
notes (the “July Notes”) in the original aggregate principal amount of $286,000
and (ii) warrants to purchase up to 4,085,714 shares of our common
stock.
The July
Notes mature one year from the issuance date (the “Maturity Date”) and accrue
interest at the rate of 6% per annum, payable on the Maturity
Date. During an Event of Default (as defined in the July Notes), the
interest rate of the July Notes will be increased to 18% per annum until paid in
full. In addition, upon the occurrence of an Event of Default, all
principal and interest then remaining unpaid shall immediately become due and
payable upon demand. Events of Default include but are not limited to (i) the
Company’s failure to make payments when due, (ii) breaches by the Company of its
representations, warranties and covenants, and (iii) delisting of the Company’s
common stock from the OTC Bulletin Board.
Pursuant
to the terms of the July Notes, the July Subscribers have the right, so long as
the July Notes are not fully repaid, to convert the July Notes into shares of
the Company’s common stock at a conversion price of $.07 per share, as may be
adjusted. The July Notes contain anti-dilution provisions, including
but not limited to if the Company issues shares of its common stock at less than
the then existing conversion price, then the conversion price of the July Notes
will automatically be reduced to such lower price. The July Notes also contain
limitations on conversion, including the limitation that the holder may not
convert its Note to the extent that upon conversion the holder, together with
its affiliates, would own in excess of 4.99% of the Company’s outstanding shares
of common stock (subject to an increase upon at least 61-days’ notice by the
Subscriber to the Company, of up to 9.99%).
The July
Notes are secured by a security interest in certain assets of the Company,
pursuant to a security agreement.
The
Warrants are exercisable for a period of three (3) years at an exercise price of
$.07 per share, as may be adjusted. The Warrants contain
anti-dilution provisions, including but not limited to if the Company issues
shares of its common stock at less than the then existing exercise price,
the exercise price of the Warrants will automatically be reduced to such lower
price. The Warrants also contain limitations on exercise, including the
limitation that the holders may not exercise their Warrants to the extent that
upon exercise the holder, together with its affiliates, would own in excess of
4.99% of the Company’s outstanding shares of common stock (subject to an
increase upon at least 61-days’ notice by the Subscriber to the Company, of up
to 9.99%).
The
Warrants may be exercised on a “cashless” basis commencing ninety-one (91) days
after their issuance, only with respect to underlying shares not
included for unrestricted public resale in an effective registration statement
on the date notice of exercise is given by the holder.
Pursuant
to the terms of the July Subscription Agreements, the Company agreed to amend
its filed registration statement to cover the resale of the shares of common
stock underlying the July Notes and the Warrants no later than 30 days from the
closing of the offering and to have such registration statement declared
effective no later than 90 days from the closing of the offering. If
the Company did not timely file the registration statement or does not cause it
to be declared effective by the required dates, then (i) the exercise price of
the Warrants is reduced to $.05 per share and (ii) each Subscriber shall be
entitled to liquidated damages equal to 1% of the aggregate purchase price paid
by such Subscriber for the July Notes and Warrants for each month that the
Company does not file the registration statement or cause it to be declared
effective.
The
Company also granted certain of the July Subscribers, until the later of one
year from the closing or so long as the July Notes are outstanding, a right of
first refusal in connection with future sales by the Company of its common stock
or other securities or equity linked debt obligations, except in connection with
certain Excepted Issuances (as defined in the July Subscription
Agreements).
38
In
addition, in connection with the May 2009 private placement, we issued an
aggregate of 550,000 shares of our common stock to Grushko & Mittman, P.C.
for legal services provided.
The July
2009 private placement is more fully described in our Form 8-K and 8-K/A filed
with the Securities and Exchange Commission on August 3 and August 5, 2009,
respectively.
September
2009 Private Placement
On
September 16, 2009, we entered into a Subscription Agreement (the “September
Subscription Agreement”), with Alpha Capital Anstalt, Barry Honig, Michael
Brauser and Arthur Goldberg (the “September Subscribers”), pursuant to which we
sold for an aggretate of $250,000, (i) secured convertible promissory notes (the
“September Notes”) in the original aggregate principal amount of $275,000, (ii)
warrants to purchase up to 1,718,750 shares of our common stock (the
“September Warrants”) and (iii) 1,250,000 shares of common stock (the “Incentive
Shares”).
The
September Notes will mature 45 days from the issuance date (the “Maturity Date”)
and will accrue interest at the rate of 5% per annum, payable on the Maturity
Date. During an Event of Default (as defined in the September Notes), the
interest rate of the September Notes will be increased to 18% per annum until
paid in full. In addition, upon the occurrence of an Event of
Default, all principal and interest then remaining unpaid shall immediately
become due and payable upon demand. Events of Default include but are not
limited to (i) the Company’s failure to make payments when due, (ii) breaches by
the Company of its representations, warranties and covenants, and (iii)
delisting of the Company’s common stock from the OTC Bulletin
Board.
Pursuant
to the terms of the September Notes, the September Subscribers have the right,
so long as the September Notes are not fully repaid, to convert the September
Notes into shares of the Company’s common stock at a conversion price of $.16
per share, as may be adjusted. The September Notes contain
anti-dilution provisions, including but not limited to if the Company issues
shares of its common stock at less than the then existing conversion price, the
conversion price of the September Notes will automatically be reduced to such
lower price. The September Notes contain limitations on conversion, including
the limitation that the holder may not convert its September Note to the extent
that upon conversion the holder, together with its affiliates, would own in
excess of 4.99% of the Company’s outstanding shares of common stock (subject to
an increase upon at least 61-days’ notice by the Subscriber to the Company, of
up to 9.99%). In addition, in the event the Company does not raise additional
capital of not less than $700,000 of net proceeds to the Company from the sale
of Common Stock within twenty-eight days of September 16, 2009, then the
conversion price shall be reduced to $.07 and the conversion price will be
further reduced to $.04 if said capital raise is not
completed within fifty-six days of September 16,
2009.
The
September Notes are secured by a security interest in certain assets of the
Company, pursuant to a security agreement.
The
September Warrants are exercisable for a period of three (3) years at an
exercise price of $.16 per share, as may be adjusted. In the event
(i) the September Notes are outstanding after the Maturity Date, or (ii) if the
Company does not consummate a sale of its common stock that nets at least
$700,000 (the “Additional Funding”) within twenty-eight days after the issuance
date, then the exercise price shall be reduced to $0.07, or if the Additional
Funding is not consummated within fifty-six days after the issuance date, then
the exercise price will be further reduced to $0.04. The September
Warrants also contain anti-dilution provisions, including but not limited to if
the Company issues shares of its common stock at less than the then existing
conversion price, the conversion price of the September Warrants will
automatically be reduced to such lower price and the number of shares to be
issued upon exercise will be proportionately increased. The September
Warrants contain limitations on exercise, including the limitation that the
holders may not convert their September Warrants to the extent that upon
exercise the holder, together with its affiliates, would own in excess of 4.99%
of the Company’s outstanding shares of common stock (subject to an increase upon
at least 61-days’ notice by the September Subscriber to the Company, of up to
9.99%).
The
September Warrants may be exercised on a “cashless” basis commencing ninety-one
(91) days after their issuance, only with respect to underlying
shares not included for unrestricted public resale in an effective registration
statement on the date notice of exercise is given by the
holder.
39
The
Company also granted the September Subscribers, until the later of one year from
the closing or so long as the September Notes are outstanding, a right of first
refusal in connection with future sales by the Company of its common stock or
other securities or equity linked debt obligations, except in connection with
certain Excepted Issuances (as defined in the September Subscription
Agreement).
The
September 2009 private placement is more fully described in our Form 8-K filed
with the Securities and Exchange Commission on September 21,
2009.
Certain
Other Notes
In
connection with a series of loans from the Green Energy Trust (the “Trust”), a
non-affiliated third party, we issued unsecured two year notes (the “GET Notes”)
in an aggregate face amount of $257,464, bearing interest at a rate of 8% per
annum, payable quarterly in cash or stock at our option and, if stock, at $.15
per share. The GET Notes are convertible into shares of our common
stock with the conversion price of each note set originally set at $.03 below
the closing price per share of our common stock on the day before the issuance
of each note. During an event of default (as defined in the GET
Notes), their interest rate will be increased to 12% per annum until paid in
full. In addition, upon the occurrence of an event of default, all
principal and interest then remaining unpaid shall immediately become due and
payable upon demand in an amount equal to 115% thereof. Events of default
include but are not limited to (i) the Company’s failure to make payments when
due and (ii) change of control of the Company as defined
therein.
Simultaneously
with the issuance of the GET Notes we issued warrants to the
Trust. The warrants are exercisable for a period of five (5) years at
an exercise price of $.05 per share higher than the closing price per share of
our common stock on the day before the issuance of each note, as may be
adjusted. The Warrants contain anti-dilution provisions including in the event
of a recapitalization, reclassification, subdivision or combination of shares, a
stock dividend is declared or a stock and rights offering is made to
shareholders.
The
Warrants may be exercised on a “cashless” basis only with respect to underlying
shares not included for unrestricted public resale in an effective registration
statement on the date notice of exercise is given by the
holder.
The
dates of the loans from the Trust are: February 12, 19, 24 and 27, 2009, March
12, 20, 25, 26 and 30, 2009, April 3, 17, 27 and 29, 2009 and May 5,
2009. On August 26, 2009 we and the Trust entered into an agreement
whereby the conversion price of the GET Notes was reduced to $.05, the Trust
surrendered for cancellation warrants to purchase 1,922,957 shares of our common
stock and the Trust waived its registration rights beyond two million shares of
our common stock underlying the GET Notes. The Trust then
entered into agreements with two other trusts, both non-affiliated third
parties, for the sale of the GET Notes. One of those trusts has
converted the GET Notes into our common stock.
40
Each of
the transactions by which the selling stockholders acquired their securities
from us was exempt under the registration provisions of the Securities Act of
1933, as amended (the “Securities Act”). There were no placement agents used in
connection with such transactions.
The
shares of common stock referred to above are being registered to permit public
sales of the shares, and the selling stockholders may offer the shares for
resale from time to time pursuant to this prospectus. The selling stockholders
may also sell, transfer or otherwise dispose of all or a portion of their shares
in transactions exempt from the registration requirements of the Securities Act
or pursuant to another effective registration statement covering those shares.
We may from time to time include additional selling stockholders in supplements
or amendments to this prospectus.
The table
below sets forth certain information regarding the selling stockholders and the
shares of our common stock offered by them in this prospectus. The selling
stockholders have not had a material relationship with us within the past three
years other than as described in the footnotes to the table below or as a result
of their acquisition of our shares or other securities. None of the selling
stockholders named below is a registered broker-dealer or an affiliate of a
broker-dealer. To our knowledge, subject to community property laws where
applicable, each person named in the table has sole voting and investment power
with respect to the shares of common stock set forth opposite such person’s
name.
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. Each selling stockholder’s percentage of ownership of our
outstanding shares in the table below is based upon 50,539,585 shares of
common stock outstanding as of October 6, 2009.
Ownership
Before Offering
|
After
Offering(1)
|
|||||||||||||||
Number
of
|
||||||||||||||||
Number
of
|
shares
of
|
Percentage
of
|
||||||||||||||
shares
of
|
common
stock
|
common
stock
|
||||||||||||||
common
stock
|
beneficially
|
beneficially
|
||||||||||||||
beneficially
|
Number
of
|
owned
|
owned
|
|||||||||||||
owned
prior to
|
shares
|
following
the
|
following
the
|
|||||||||||||
Selling
Stockholder
|
the
offering
|
offered
|
offering
|
offering
|
||||||||||||
Alpha Capital Anstalt (2) | 9,594,053 | (3) | 7,594,053 | (3) | 2,000,000 | 4.0 | % | |||||||||
Barry Honig | 12,258,566 | (4) | 12,258,566 | (4) | - | 0.0 | % | |||||||||
Michael Brauser | 3,333,923 | (5) | 3,034,484 | (5) | 299,439 | * | ||||||||||
Grushko & Mittman, P. C. (6) | 900,000 | 900,000 | - | 0.0 | % | |||||||||||
KHG Trust (7) | 2,520,000 | 2,000,000 | 520,000 | 1.0 | % | |||||||||||
Arthur L. Goldberg | 1,115,551 | (8)(9) | 558,259 | (8) | 557,292 | (9) | 1.1 | % | ||||||||
Sichenzia Ross Friedman Ference LLP (10) | 1,091,680 | 636,343 | 455,337 | * |
* less than 1%
(1)
|
Represents
the amount of shares that will be held by the selling stockholders after
completion of this offering based on the assumptions that (a) all
shares registered for sale by the registration statement of which this
prospectus is part will be sold and (b) that no other shares of our
common stock are acquired or sold by the selling stockholders prior to
completion of this offering. However, the selling stockholders may sell
all, some or none of the shares offered pursuant to this prospectus and
may sell other shares of our common stock that they may own pursuant to
another registration statement under the Securities Act or sell some or
all of their shares pursuant to an exemption from the registration
provisions of the Securities Act, including under Rule 144. To our
knowledge, except as set forth below, there are currently no agreements,
arrangements or understanding with respect to the sale of any of the
shares that may be held by the selling stockholders after completion of
this offering or otherwise.
|
(2)
|
Konrad
Ackerman as Director of Alpha Capital Anstalt has voting and dispositive
power over these
securities.
|
(3)
|
Includes
(i) 3,973,214 shares issuable upon conversion of outstanding convertible
promissory notes, (ii) 993,304 shares that may be issued upon conversion
of outstanding convertible promissory notes due to anti-dilution
adjustments to the conversion price and (iii) 687,500 shares issuable
upon exercise of outstanding
warrants.
|
(4)
|
Includes
(i) 5,986,607 shares issuable upon conversion of outstanding
convertible promissory notes, (ii) 1,496,651 shares that may be issued
upon conversion of outstanding convertible promissory notes due to
anti-dilution adjustments to the conversion price and (iii) 3,486,607
shares issuable upon exercise of outstanding
warrants.
|
41
(5)
|
Includes
(i) 1,333,036 shares issuable upon conversion of outstanding
convertible promissory notes, (ii) 333,259 shares that may be issued upon
conversion of outstanding convertible promissory notes due to
anti-dilution adjustments to the conversion price and (iii) 618,750
shares issuable upon exercise of outstanding
warrants.
|
(6)
|
Barbara
Mittman as member of Grushko & Mittman, P.C. has voting and
dispositive power over these
securities.
|
(7)
|
Natan
Green, as trustee, has voting and dispositive power over these
securities.
|
(8)
|
Includes
(i) 225,893 shares issuable upon conversion of outstanding
convertible promissory notes, (ii) 56,473 shares that may be issued upon
conversion of outstanding convertible promissory notes due to
anti-dilution adjustments to the conversion price and (iii) and
225,893 shares issuable upon excercise of outstanding warrants.
|
|
(9)
|
Includes various shares of our common stock are issuable upon exercise of options that are vested or exercisable within 60 days in amounts and at exercise prices as follows: 128,125 shares at $.12, 54,167 shares at $.32 and 325,000 shares at $.09. Does not include certain shares of our common stock issuable upon exercise of options that will not vest within 60 days with amounts and at exercise prices as follows: 108,333 shares at $.32 and 384,375 shares at $.12. |
(10)
|
Harvey
Kesner, as a member of Sichenzia Ross Friedman Ference LLP, has voting and
dispositive power over these
securities.
|
None of
the selling stockholders has held any position or office or has had any other
material Relationship with us or any of our predecessors or affiliates
during the past three years, except that Mr. Goldberg is the Chief Financial
Officer of the Company and on May 8, 2009, the Company entered into a
one-year consulting agreement with Barry Honig, pursuant to which Mr. Honig will
consult with the Company regarding its XTRAX® business. As
consideration for these services, the Company issued to Mr. Honig 4,000,000
shares of its common stock (the “Honig Shares”) and agreed to register 2,500,000
of such Honig Shares on a Form S-8. The Form S-8 was filed by the
Company on May 20, 2009.
We will
file a prospectus supplement to name successors to any selling stockholders who
are able to use this prospectus to resell the securities covered by this
prospectus.
DESCRIPTION
OF SECURITIES
Authorized Capital
Stock
We have
authorized 110,000,000 shares of capital stock, par value $0.001 per share, of
which 100,000,000 are shares of common stock and 10,000,000 are shares of
preferred stock.
Capital Stock Issued and
Outstanding
Our
issued and outstanding securities as of October 6, 2009, on a fully diluted
basis, are as follows:
|
·
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50,539,585 shares
of our common stock;
|
|
·
|
No
shares of preferred stock;
|
|
·
|
Options
granted to employees to purchase an aggregate of 5,550,000 shares of our
common stock, at a weighted average exercise price of $.15 per
share;
|
|
·
|
Options
granted to non-employee directors and other non-employees to purchase an
aggregate of 1,300,000 shares of our common stock at a weighted average
exercise price of $.18 per share;
|
|
·
|
Warrants
to purchase 1,327,121 shares of our common stock issued to a placement
agent and investor relations and investment banking consultants for
private placement and consulting
services;
|
|
·
|
Warrants
to purchase 5,018,150 shares of our common stock issued to third
parties in private placements at a weighted average exercise price of $.10
per share; and
|
|
·
|
Convertible
promissory notes issued to third parties in private placements that can
currently be converted into 11,518,750 shares of our common stock
(which conversion amount may change based on certain anti-dilution
provisions).
|
42
Common
Stock
The
holders of our common stock are entitled to one vote per share. Our Certificate
of Incorporation does not provide for cumulative voting. The holders of our
common stock are entitled to receive ratably such dividends, if any, as may be
declared by our board of directors out of legally available funds; however, the
current policy of our board of directors is to retain earnings, if any, for
operations and growth. Upon liquidation, dissolution or winding-up, the holders
of our common stock are entitled to share ratably in all assets that are legally
available for distribution. The holders of our common stock have no preemptive,
subscription, redemption or conversion rights. The rights, preferences and
privileges of holders of our common stock are subject to, and may be adversely
affected by, the rights of the holders of any series of preferred stock, which
may be designated solely by action of our board of directors and issued in the
future.
Preferred
Stock
Our board
of directors is authorized, subject to any limitations prescribed by law,
without further vote or action by our stockholders, to issue from time to time
shares of preferred stock in one or more series. Each series of preferred stock
will have such number of shares, designations, preferences, voting powers,
qualifications and special or relative rights or privileges as shall be
determined by our board of directors, which may include, among others, dividend
rights, voting rights, liquidation preferences, conversion rights and preemptive
rights.
Private
Placement Warrants
In a private placement, we
issued a warrant to a third party to purchase 225,000 shares of our common
stock at an exercise price (subject to adjustment) of $.12 per share which was
$.05 higher than the closing price of a share of our common stock on the day
before issuance of the warrant and the warrant expires five years
from the date of issuance. Prior to exercise, such warrant does not confer upon
holders any voting or any other rights as a stockholder. Such warrant contains
provisions that protect the holders against dilution by adjustment of the
purchase price in certain events, such as stock dividends, stock splits and
other similar events.
Convertible
Promissory Notes
In
connection with a series of private placements with a third party, we issued
unsecured two year notes in an aggregate face amount of $257,464, bearing
interest at a rate of 8% per annum, payable quarterly in cash or stock at our
option and, if stock, at $.15 per share. These notes are now
convertible into shares of our common stock with the conversion price of each
note set at $.05. During an event of default (as defined in the notes), the
interest rate of the notes will be increased to 12% per annum until paid in
full. In addition, upon the occurrence of an event of default, all
principal and interest then remaining unpaid shall immediately become due and
payable upon demand in an amount equal to 115% thereof. Events of default
include but are not limited to (i) the Company’s failure to make payments when
due and (ii) change of control of the Company as defined therein. $126,000 of
these notes have been converted into 2,520,000 shares of our common
stock.
Secured
Convertible Promissory Notes
In connection with the private
placements that we closed in May, July and September 2009, we issued secured
convertible promissory notes in the original aggregate principal amount of
$400,000, $286,000 and $275,000, respectively.
The
May and July notes will mature one year from the issuance date and will accrue
interest at the rate of 6% per annum, payable on the maturity date. The
September notes mature on October 31, 2009 and accrue interest at 5% per
annum. During an event of default (as defined in the notes), the interest rate
of the notes will be increased to 18% per annum until paid in
full. In addition, upon the occurrence of an event of default, all
principal and interest then remaining unpaid shall immediately become due and
payable upon demand. Events of default include but are not limited to (i) the
Company’s failure to make payments when due, (ii) breaches by the Company of its
representations, warranties and covenants, and (iii) delisting of the Company’s
common stock from the OTC Bulletin Board.
Pursuant
to the terms of the notes, the subscribers have the right, so long as the notes
are not fully repaid, to convert the notes into shares of the Company’s common
stock at a conversion price of $0.07 per share as to the May Notes and
July Notes, and at $.16 as to the September Notes, all as may be
adjusted. The notes contain anti-dilution provisions, including but
not limited to if the Company issues shares of its common stock at less than the
then existing conversion price, the conversion price of the Notes will
automatically be reduced to such lower price. The Notes contain limitations on
conversion, including the limitation that the holder may not convert its note to
the extent that upon conversion the holder, together with its affiliates, would
own in excess of 4.99% of the Company’s outstanding shares of common stock
(subject to an increase upon at least 61-days’ notice by the subscriber to the
Company, of up to 9.99%).
In addition, the September Notes contain terms so that in the
event the Company does not raise additional capital of not less than $700,000 of
net proceeds to the Company from the sale of Common Stock within twenty-eight
days of September 16, 2009, then the conversion price shall be reduced to $.07
and the conversion price will be further reduced to $.04 if said capital raise
is not completed within fifty-six days of September 16, 2009.
43
The notes
are secured by a security interest in certain assets of the Company, pursuant to
a security agreement.
Warrants
In
connection with the private placement that we closed in December 2007, we
issued warrants to purchase an aggregate of 640,000 shares of our common stock
to designees of the placement agent for such offering. Each such warrant
entitles the holder to purchase shares of our common stock at an exercise price
of $0.50 per share (subject to adjustment) and will expire on December 20,
2010. Prior to exercise, such warrants do not confer upon holders any voting or
any other rights as a stockholder. We issued an additional 92,401 of these same
warrants to the placement agent in connection with Clear Skies Group, Inc.’s
private placement of bridge notes and common stock of Clear Skies Group, Inc.
that closed in August and September 2007. Such warrants contain provisions
that protect the holders against dilution by adjustment of the purchase price in
certain events such as stock dividends, stock splits and other similar
events.
Pursuant
to a consulting agreement, we issued warrants to purchase 500,000 shares to a
consultant. Such warrants entitle the holder to purchase shares of our common
stock at an exercise price of $0.50 per share (subject to adjustment) and will
expire on December 20, 2010. Prior to exercise, such warrants do not confer
upon holders any voting or any other rights as a stockholder. Such warrants
contain provisions that protect the holder against dilution by adjustment of the
purchase price in certain events such as stock dividends, stock splits and other
similar events.
In
connection with the private placements that we closed in May, July and
September, 2009, we issued warrants to purchase up to 4,000,000, 4,085,714
and 1,718,750 shares of our common stock, respectively. The May
and July warrants are exercisable for a period of three (3) years at an exercise
price of $.07 per share, and the September warrants have an exercise price
of $.16 per share as may be adjusted. The warrants contain
anti-dilution provisions, including but not limited to if the Company issues
shares of its common stock at less than the then existing exercise price,
the exercise price of the warrants will automatically be reduced to such lower
price. The warrants contain limitations on exercise, including the
limitation that the holders may not convert their warrants to the extent that
upon exercise the holder, together with its affiliates, would own in excess of
4.99% of the Company’s outstanding shares of common stock (subject to an
increase upon at least 61-days’ notice by the subscriber to the Company, of up
to 9.99%). In
addition, the September Warrants contain terms so that in the event the Company
does not raise additional capital of not less than $700,000 of net proceeds to
the Company from the sale of Common stock within twenty-eighty days of September
16, 2009 then the exercise price of the Warrants shall be reduced to $.07 and
the exercise price will be further reduced to $.04 if said capital raise is not
completed within fifty-six days of September 16, 2009.
Options
We have
adopted the Clear Skies Holdings, Inc. 2007, 2008 and 2009 Equity Incentive
Plans, pursuant to each 2,500,000 shares of our common stock are reserved for
issuance as awards to employees, directors, consultants, and other service
providers. The term of the 2007 Plan is ten years from December 19,
2007,the term of the 2008 Plan is ten years from July 28, 2008 and the term of
the 2009 Plan is ten years from March 17, 2009, their respective effective
dates. At December 31, 2007, we had no outstanding awards under the 2007
Plan but options under the 2007 and 2008 Plans were granted in 2008 and under
all Plans in 2009. To date, the Board of Directors has granted options to eleven
of our employees to purchase a total of 5,550,000 shares of our common stock
with a weighted-average exercise price of $.15 per share.
On July 29, 2009 our Board of Directors approved the granting of
certain stock options which were only granted to those employees who agreed to
the cancellation of previously granted higher priced options for the same number
of shares. The new options vested upon grant to all eligible employees
and permit the purchase of up to 1,955,000 shares at $.09 per share, the
fair market value on date of grant as defined in the employee equity incentive
plans.
On May
1, 2008 the Board of Directors adopted the Clear Skies Solar, Inc. 2008
Non-Employee Director Compensation Plan, as amended on November 12, 2008,
pursuant to which options to purchase up to one million shares of common stock
may be granted to non-employee Directors of the Company. All options
must be at the fair market value on the date of grant and expire no later than
ten years from the date of grant. Options, which are non-qualified
stock options under the Internal Revenue Code, to purchase 90,000 shares at $.13
per share each were granted to Dr. Newman and Dr. Stevenson on May 1, 2008,
options to purchase an additional 90,000 shares at $0.2725 per share were
granted to each of them on November 12, 2008 and options to purchase 220,000
shares at $.12 were granted to each of them on March 17, 2009. On July 29, 2009
our Board of Directors approved the granting of certain stock options which were
only granted to the non-employee directors who agreed to the cancellation of
previously granted higher priced options for the same number of shares. The new
options to non-employee directors vested upon grant and permit the purchase of
up to 180,000 shares at $.13 per share, the fair market value on the date of
grant as defined in the relevant plan. In addition, this Plan provides for the
payment of $750 to each non-employee director for attending in person each
meeting of the Board or any committee thereof and $500 if such attendance is via
conference telephone. We also reimburse our Directors for reasonable
expenses incurred in connection with their services as
Directors.
In addition, the September Warrants contain terms so that in the
event the Company does not raise additional capital of not less than $700,000 of
net proceeds to the Company from the sale of Common Stock within twenty-eight
days of September 16, 2009, then the exercise price of the Warrant shall be
reduced to $.07 and the exercise price will be further reduced to $.04 if said
capital raise is not completed within fifty-six days of September 16,
2009.
44
Registration
Rights
We
have agreed to file, by October 16, 2009, an amendment to our registration
statement filed on June 4, 2009 registering for resale (i) the shares of
our common stock underlying the secured convertible promissory notes issued in
our May, July and September 2009 private placements, (ii) the shares
of our common stock issuable upon exercise of the warrants issued in our May,
July and September 2009 private placements and (iii) shares of common
stock issued in connection with the September 2009 private placement. We have
also agreed to have such registration statement declared effective no later
than December 15, 2009 for
securities issued in the three private placements. If we
do not timely file the amendment or cause it to be declared effective by
the required dates, then (i) the exercise price of the warrants shall be
reduced to $.05 per
share from the $.07 for the July placement and to $.04 from $.16
for the September placement and (ii) each subscriber shall be entitled to
liquidated damages equal to 1% of the aggregate purchase price paid by such
subscriber for the notes and warrants for each month that we do not file the
registration statement or cause it to be declared effective.
Transfer Agent
Our
transfer agent is Action Stock Transfer Corp., 7069 S. Highland Dr., Suite 300,
Salt Lake City, Utah 84121.
Indemnification
of Directors and Officers
Section 145
of the Delaware General Corporation Law (“DGCL”) provides, in general, that a
corporation incorporated under the laws of the State of Delaware, such as we
are, may indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding
(other than a derivative action by or in the right of the corporation) by reason
of the fact that such person is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person’s conduct was unlawful. In the case of a
derivative action, a Delaware corporation may indemnify any such person against
expenses (including attorneys’ fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification will be made in respect of any claim, issue or matter as to
which such person will have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery of the State of Delaware or
any other court in which such action was brought determines such person is
fairly and reasonably entitled to indemnity for such expenses.
Our
Certificate of Incorporation and Bylaws provide that we will indemnify our
directors, officers, employees and agents to the extent and in the manner
permitted by the provisions of the DGCL, as amended from time to time, subject
to any permissible expansion or limitation of such indemnification, as may be
set forth in any stockholders’ or directors’ resolution or by
contract.
We also
have director and officer indemnification agreements with each of our executive
officers and directors that provide, among other things, for the indemnification
to the fullest extent permitted or required by Delaware law, provided that such
indemnitee shall not be entitled to indemnification in connection with any
“claim” (as such term is defined in the agreement) initiated by the indemnitee
against us or our directors or officers unless we join or consent to the
initiation of such claim, or the purchase and sale of securities by the
indemnitee in violation of Section 16(b) of the Exchange Act.
Any
repeal or modification of these provisions approved by our stockholders shall be
prospective only, and shall not adversely affect any limitation on the liability
of any of our directors or officers existing as of the time of such repeal or
modification.
We are
also permitted to apply for insurance on behalf of any director, officer,
employee or other agent for liability arising out of his actions, whether or not
the DGCL would permit indemnification.
45
Anti-Takeover
Effect of Delaware Law, Certain By-Law Provisions
Certain
provisions of our By-Laws are intended to strengthen the Board’s position in the
event of a hostile takeover attempt. These provisions have the following
effects:
|
·
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they
provide that only business brought before an annual meeting by the Board
or by a stockholder who complies with the procedures set forth in the
By-Laws may be transacted at an annual meeting of stockholders;
and
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·
|
they
provide for advance notice or certain stockholder actions, such as the
nomination of directors and stockholder
proposals.
|
We are
subject to the provisions of Section 203 of the DGCL, an anti-takeover law.
In general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a “business combination” with an “interested stockholder” for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. For purposes of Section 203, a “business combination”
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an “interested stockholder” is a
person who, together with affiliates and associates, owns, or within three years
prior, did own, 15% or more of the voting stock.
Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as
amended, may be permitted to our directors, officers and persons controlling us,
we have been advised that it is the Securities and Exchange Commission’s opinion
that such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended, and is, therefore,
unenforceable.
PLAN
OF DISTRIBUTION
Each
selling stockholder and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on the over-the-counter market or any other stock exchange,
market or trading facility on which the shares are traded, or in private
transactions. These sales may be at fixed or negotiated prices. A selling
stockholder may use any one or more of the following methods when selling
shares:
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•
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ordinary brokerage transactions
and transactions in which the broker-dealer solicits
purchasers;
|
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•
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block trades in which the
broker-dealer will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the
transaction;
|
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•
|
purchases by a broker-dealer as
principal and resale by the broker-dealer for its
account;
|
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•
|
an exchange distribution in
accordance with the rules of the applicable
exchange;
|
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•
|
privately negotiated
transactions;
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•
|
settlement
of short sales entered into after the date of this
prospectus;
|
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•
|
broker-dealers may agree with the
selling stockholders to sell a specified number of such shares at a
stipulated price per share;
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•
|
through the writing or settlement
of options or other hedging transactions, whether through an options
exchange or otherwise;
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•
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a combination of any such methods
of sale; or
|
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•
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any other method permitted
pursuant to applicable
law.
|
46
The
selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, buy,
except as set forth in a supplement to this prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance with
NASDR Rule 2440; and in the case of a principal transaction a markup or
markdown in compliance with NASDR Rule IM-2440.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. To the extent
permitted by applicable law, the selling stockholders may also sell shares of
our common stock short and deliver these securities to close out their short
positions, or loan or pledge the common stock to broker-dealers that in turn may
sell these securities. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the
creation of one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each selling stockholder has informed us
that it does not have any agreement or understanding, directly or indirectly,
with any person to distribute the common stock. In no event shall any
broker-dealer receive fees, commissions and markups which, in the aggregate,
would exceed eight percent (8%).
We are
required to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
Because
selling stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act, including Rule 172 thereunder. In addition, any
securities covered by this prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under Rule 144 rather
than under this prospectus. There is no underwriter or coordinating broker
acting in connection with the proposed sale of the shares by the selling
stockholders.
Under
applicable rules and regulations under the Exchange Act, any person engaged in
the distribution of the shares may not simultaneously engage in market making
activities with respect to our common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and sales of shares of our common stock by the selling stockholders or any other
person. We will make copies of this prospectus available to the selling
stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including by
compliance with Rule 172 under the Securities Act).
EXPERTS
The
consolidated financial statements included in this prospectus have been audited
by Davis Accounting Group P.C., an independent registered public accounting
firm, given on the authority of that firm as experts in accounting and auditing
to the extent and for the periods indicated in their report appearing elsewhere
herein.
LEGAL
MATTERS
Sichenzia
Ross Friedman Ference LLP ("SRFF"), 61 Broadway, 32nd Floor,
New York, New York 10006 has passed upon the validity of the shares of common
stock to be sold in this offering. Harvey Kesner, a member of SRFF,
beneficially owns shares of our common stock.
47
WHERE
YOU CAN FIND MORE INFORMATION
We have
filed with the Securities and Exchange Commission a registration statement on
Form S-1, together with any amendments and related exhibits, under the
Securities Act, with respect to our shares of common stock offered by this
prospectus. The registration statement contains additional information about us
and our shares of common stock that we are offering in this
prospectus.
We file
annual, quarterly and current reports and other information with the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended.
Our Securities and Exchange Commission filings are available to the public over
the Internet at the Securities and Exchange Commission’s website at
http://www.sec.gov. You may also read and copy any document we file at the
Securities and Exchange Commission’s public reference room located at 100 F
Street, N.E., Washington, D.C. 20549. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the public reference
rooms and their copy charges. Access to those electronic filings is available as
soon as practicable after filing with the Securities and Exchange Commission.
You may also request a copy of those filings, excluding exhibits, from us at no
cost. Any such request should be addressed to us at: 200 Old Country Road, Suite
610, Mineola, New York 11501.
48
CLEAR
SKIES SOLAR, INC. AND SUBSIDIARY
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting
Firm
|
F-2
|
|||
Consolidated Balance Sheets as at
December 31, 2008 and 2007
|
F-3
|
|||
Consolidated Statements of Operations for the
years ended December 31, 2008 and December 31,
2007
|
F-4
|
|||
Consolidated Statements of Stockholders’ (Deficit)
for the years ended December 31, 2008 and December 31,
2007
|
F-5
|
|||
Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
December 31, 2007
|
F-6
|
|||
Notes to Consolidated Financial
Statements
|
F-7
|
|||
Condensed Consolidated Balance Sheet as
at June 30, 2009 (unaudited) and Condensed Consolidated Balance
Sheet as at December 31, 2008
|
F-23
|
|||
Unaudited Condensed Consolidated Statements of
Operations for the six months ended June 30, 2009 and June
30, 2008
|
F-24
|
|||
Unaudited
Consolidated Statements of Stockholders’ (Deficit) for
the six months ended June 30, 2009 and June 30, 2008
|
F-25 | |||
Unaudited Condensed Consolidated Statements of
Cash Flows for the six months ended June 30, 2009
and June 30, 2008
|
F-26
|
|||
Notes to Unaudited Condensed Consolidated
Financial Statements
|
F-27
|
F-1
REPORT
OF REGISTERED INDEPENDENT AUDITORS
To the
Board of Directors and Stockholders
of Clear
Skies Solar, Inc.:
We have
audited the accompanying consolidated balance sheets of Clear Skies Solar, Inc.
(a Delaware corporation) and subsidiaries as of December 31, 2008, and 2007, and
the related consolidated statements of operations, stockholders’ equity
(deficit), and cash flows for each of the two years in the period ended December
31, 2008. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. 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 consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Clear Skies
Solar, Inc. and subsidiaries as of December 31, 2008, and 2007, and the results
of its consolidated operations and its cash flows for the each of the two years
in the period ended December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 4
to the consolidated financial statements, the Company has established only
limited sources of revenues to cover its operating costs. As such, it
has incurred an accumulated deficit, has negative working capital, and its cash
resources are insufficient to carrying out its business plan. These
and other factors raise substantial doubt about the Company’s ability to
continue as a going concern. Management’s plan regarding these
matters is also described in Note 4 to the consolidated financial
statements. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Respectfully
submitted,
/s/ Davis
Accounting Group P.C.
Cedar
City, Utah,
May 14,
2009.
F-2
CLEAR
SKIES SOLAR, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
December
31,
|
2008
|
2007
|
||||||
Restated
|
||||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$
|
155,577
|
$
|
4,866,842
|
||||
Accounts
receivable, less allowance for doubtful accounts of $65,275 and $32,775 as
of December 31, 2008 and 2007, respectively
|
157,225
|
92,291
|
||||||
Inventory
|
11,113
|
|||||||
Costs
and estimated earnings in excess of billings
|
27,641
|
|||||||
Total
current assets
|
323,915
|
4,986,774
|
||||||
Property
and equipment, net
|
192,653
|
13,293
|
||||||
Prepaid
expenses and investor relations fees
|
195,273
|
645,644
|
||||||
Security
deposit
|
113,634
|
|||||||
Other
assets
|
44,801
|
54,017
|
||||||
TOTAL
ASSETS
|
$
|
870,276
|
$
|
5,699,728
|
||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable and accrued expenses
|
$
|
1,274,563
|
$
|
788,468
|
||||
Billings
in excess of costs and estimated earnings
|
40,332
|
35,007
|
||||||
Due
to related parties
|
—
|
104,410
|
||||||
Customer
deposits
|
—
|
5,000
|
||||||
Obligation
to issue options and warrants
|
47,500
|
9,401
|
||||||
Estimated
loss on uncompleted contracts
|
109,305
|
0
|
||||||
Payroll
liabilities
|
31,047
|
140,729
|
||||||
Installation
warranty liability
|
56,964
|
7,743
|
||||||
Total
current liabilities
|
1,559,711
|
1,090,758
|
||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity (deficit)
|
||||||||
Preferred
stock, $.001 par value, 10,000,000 shares authorized, none issued or
outstanding
|
—
|
—
|
||||||
Common
stock, $.001 par value, 100,000,000 shares authorized, 31,696,066 and
30,883,723 issued and outstanding on December 31, 2008 and 2007,
respectively
|
31,696
|
30,883
|
||||||
Additional
paid-in capital
|
10,767,217
|
9,247,682
|
||||||
Accumulated
(deficit)
|
(11,488,348
|
)
|
(4,669,595
|
)
|
||||
Total
stockholders’ equity (deficit)
|
(689,435
|
)
|
4,608,970
|
|||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$
|
870,276
|
$
|
5,699,728
|
See
accompanying notes to the consolidated financial statements.
F-3
CLEAR
SKIES SOLAR, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the years ended December 31,
|
2008
|
2007
|
||||||
(Restated)
|
||||||||
Revenues
|
||||||||
Contract
revenue
|
$
|
2,476,004
|
$
|
74,520
|
||||
Subcontractor
revenue
|
224,454
|
|||||||
Other
|
226,174
|
|||||||
Total
revenues
|
2,702,178
|
298,974
|
||||||
Cost
of revenues
|
2,465,984
|
268,707
|
||||||
Gross
margin
|
236,194
|
30,267
|
||||||
Operating
expenses
|
||||||||
Research
and development
|
197,921
|
91,024
|
||||||
Selling
expenses
|
1,190,670
|
468,858
|
||||||
General
and administrative expenses
|
5,698,388
|
2,294,039
|
||||||
7,086,979
|
2,853,921
|
|||||||
Loss
from operations
|
(6,850,785
|
)
|
(2,823,654
|
)
|
||||
Other
Expenses
|
||||||||
Interest
income
|
46,773
|
|||||||
Interest
expense
|
14,741
|
40,199
|
||||||
Amortization
of debt discount expense
|
745,000
|
|||||||
32,032
|
785,199
|
|||||||
Provision
for income taxes
|
-
|
-
|
||||||
Net
(loss)
|
$
|
(6,818,753
|
)
|
$
|
(3,608,853
|
)
|
||
Weighted
average common shares outstanding, basic and diluted
|
31,358,282
|
7,229,534
|
||||||
(Loss)
per share, basic and diluted
|
$
|
(0.22
|
)
|
$
|
(0.50
|
)
|
See
accompanying notes to the consolidated financial statements.
F-4
CLEAR
SKIES SOLAR, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
For
the years ended December 31, 2008 and 2007 (Restated)
Common Stock
|
Additional Paid-
|
|||||||||||||||||||
$.001 par value
|
in
|
Accumulated
|
||||||||||||||||||
Shares
|
Capital
|
Deficit
|
Total
|
|||||||||||||||||
Balance,
December 31, 2006
|
3,042,571
|
$
|
3,042
|
$
|
(2,542
|
)
|
$
|
(1,060,742
|
)
|
$
|
(1,060,242
|
)
|
||||||||
Issuance
of common stock to satisfy common stock to be issued (Note
8)
|
2,020,297
|
2,020
|
891,980
|
—
|
894,000
|
|||||||||||||||
Issuance
of common stock and warrants as compensation (Note 9)*
|
1,065,869
|
1,066
|
656,694
|
—
|
657,760
|
|||||||||||||||
Issuance
of common stock and warrants (Note 9)*
|
72,673
|
73
|
74,927
|
—
|
75,000
|
|||||||||||||||
Issuance
of common stock and warrants (Note 9)*
|
19,379
|
19
|
19,981
|
—
|
20,000
|
|||||||||||||||
Issuance
of common stock and embedded conversion feature associated with Bridge
Notes (Note 7)*
|
1,782,906
|
1,783
|
573,217
|
—
|
575,000
|
|||||||||||||||
Issuance
of common stock and embedded conversion feature associated with Bridge
Notes (Note 7)*
|
527,120
|
527
|
169,473
|
—
|
170,000
|
|||||||||||||||
Issuance
of shares subsequently forfeited
|
77,576
|
77
|
(77
|
—
|
—
|
|||||||||||||||
Forfeited
shares (Note 2)*
|
(116,276
|
)
|
(116
|
116
|
—
|
—
|
||||||||||||||
Conversion
of warrants (Note 2)*
|
416,658
|
417
|
(417
|
—
|
—
|
|||||||||||||||
Shares
sold at $.50 each, net of costs of $1,323,945 (Note 2)
|
14,510,000
|
14,510
|
5,916,546
|
—
|
5,931,056
|
|||||||||||||||
Shares
sold at $.50 each (Notes 2 and 7)
|
1,490,000
|
1,490
|
743,510
|
—
|
745,000
|
|||||||||||||||
Shares
retained by owners of the shell company in the reverse merger (Note
2)
|
59,841,923
|
59,842
|
(28,182
|
—
|
31,660
|
|||||||||||||||
Forfeit
of shares in split-off (Note 2)
|
(53,866,923
|
)
|
(53,867
|
)
|
22,207
|
—
|
(31,660
|
)
|
||||||||||||
Issuance
of warrants and options in exchange for consulting and other services
(Note 10)
|
210,250
|
—
|
210,250
|
|||||||||||||||||
Net
loss - 2007
|
(3,608,853
|
)
|
(3,608,853
|
)
|
||||||||||||||||
Balance,
December 31, 2007
|
30,883,723
|
$
|
30,883
|
$
|
9,247,682
|
$
|
(4,669,595
|
)
|
$
|
4,608,970
|
||||||||||
Issuance
of shares to investor and public relations consultants
|
446,072
|
446
|
527,808
|
—
|
528,254
|
|||||||||||||||
Issuance
of shares on exercise of a warrant
|
30,280
|
31
|
14,922
|
—
|
14,953
|
|||||||||||||||
Issuance
of shares in payment of liquidated damages for the late filing and late
effectiveness of a registration statement
|
187,991
|
188
|
109,505
|
—
|
792,142
|
|||||||||||||||
Issuance
of options to employees and directors
|
682,448
|
—
|
682,448
|
|||||||||||||||||
Issuance
of shares to former shareholders in connection with the December 2007
reverse merger
|
148,000
|
148
|
184,852
|
—
|
185,000
|
|||||||||||||||
Net
loss - 2008
|
(6,818,753
|
)
|
(6,818,753
|
)
|
||||||||||||||||
Balance,
December 31, 2008
|
31,696,066
|
$
|
31,696
|
$
|
10,767,217
|
$
|
(11,488,348
|
)
|
$
|
(689,435
|
)
|
See
accompanying notes to the consolidated financial statements.
F-5
CLEAR
SKIES SOLAR, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the years ended December 31,
|
2008
|
2007
|
||||||
(Restated)
|
||||||||
Cash
flows from operating activities
|
||||||||
Net
loss
|
$
|
(6,818,753
|
)
|
$
|
(3,608,853
|
)
|
||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
|
17,915
|
4,512
|
||||||
Stock-based
compensation
|
875,530
|
732,429
|
||||||
Amortization
of debt discount
|
745,000
|
|||||||
Liquidated
damages paid in stock
|
109,505
|
-
|
||||||
Estimated
loss on contracts
|
109,305
|
-
|
||||||
Bad
debt expense (recoveries)
|
32,500
|
(13,975
|
)
|
|||||
Increase
(decrease) in cash and cash equivalents attributable to changes in
operating assets and liabilities
|
||||||||
Accounts
receivable
|
(97,434
|
)
|
(8,179
|
)
|
||||
Inventory
|
14,007
|
-
|
||||||
Costs
and estimated earnings in excess of billings
|
27,641
|
52,234
|
||||||
Prepaid
expenses and investor relations fees
|
453,977
|
(425,993
|
)
|
|||||
Other
assets
|
(19,205
|
)
|
4,594
|
|||||
Accounts
payable and accrued expenses
|
1,002,663
|
443,913
|
||||||
Customer
deposits
|
(5,000
|
)
|
5,000
|
|||||
Billings
in excess of costs and estimated earnings
|
5,325
|
(13,049
|
)
|
|||||
Security
deposits
|
(110,334
|
)
|
-
|
|||||
Obligations
to issue an option and warrant
|
38,099
|
-
|
||||||
Payroll
liabilities
|
(109,682
|
)
|
64,604
|
|||||
Installation
warranty liability
|
49,222
|
1,642
|
||||||
Net
cash provided by (used in) operating activities
|
2,394,034
|
(2,016,121
|
)
|
|||||
Net
cash flows used in investing activities, purchases of property and
equipment
|
(197,276
|
)
|
(97
|
)
|
||||
Cash
flows from financing activities
|
||||||||
Issuance
of loan payable, stockholder
|
||||||||
Advances
from related party
|
(104,410
|
)
|
74,135
|
|||||
Repayment
of loan payable, stockholder
|
-
|
(73,569
|
)
|
|||||
Proceeds
from the issuance of common stock, net of bridege loan
payment
|
-
|
7,255,000
|
||||||
Payment
of deal expenses
|
-
|
(1,323,945
|
)
|
|||||
Proceeds
from loan
|
-
|
20,000
|
||||||
Proceeds
from exercise of a warrant
|
15,140
|
|||||||
Payment
of loan
|
-
|
(20,000
|
)
|
|||||
Proceeds
from loan
|
-
|
285,000
|
||||||
Payment
of loan
|
-
|
(285,000
|
)
|
|||||
Proceeds
from the bridge loan
|
-
|
745,000
|
||||||
Issuance
of common stock
|
-
|
95,000
|
||||||
Common
Stock to be issued (Note 8)
|
||||||||
Net
cash provided by (used in) financing activities
|
(89,270
|
)
|
6,771,621
|
|||||
Net
increase (decrease) in cash and cash equivalents
|
(4,711,265
|
)
|
4,755,403
|
|||||
Cash
and cash equivalents, beginning of year
|
4,866,842
|
111,439
|
||||||
Cash
and cash equivalents, end of year
|
$
|
155,577
|
$
|
4,866,842
|
||||
Supplemental
disclosures of cash flow information
|
||||||||
Cash
paid for interest expense
|
$
|
14,741
|
$
|
25,199
|
||||
Income
Taxes
|
$
|
-
|
$
|
-
|
||||
Supplemental
disclosure of noncash financing and investing activities
|
||||||||
Issuance
of shares to satisfy common stock to be issued
|
$
|
894,000
|
||||||
Issuance
of warrants to purchase 500,000 shares of common stock at $.50 per share
for investor relations and consulting services (see Note
10)
|
$
|
210,250
|
||||||
Recognition
of debt discounts related to common stock and embedded conversion feature
associated with the Bridge Notes
|
$
|
745,000
|
See
accompanying notes to consolidated financial statements.
F-6
CLEAR
SKIES SOLAR, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
1. Basis
of presentation and nature of operations
Nature
of Operations
Clear
Skies Group, Inc. (“CSG”) was formed in New York in September 2003 for the
purpose of providing turnkey solar electricity installations and renewable
energy technology solutions to commercial and residential customers across the
United States. CSG commenced operations in August 2005 and received its initial
funding in September 2005. The Company also has proprietary and
patented remote monitoring technology under the name XTRAX® with
applications in the solar electricity production industry and other potential
markets.
Unless
the context requires otherwise, references to the “Company,” for periods prior
to the closing of the Reverse Merger (Note 2) on December 20, 2007 refer to
Clear Skies Group, Inc., a private New York corporation that is now Clear Skies
Solar, Inc.’s wholly owned subsidiary, and such references for periods
subsequent to the closing of the Reverse Merger on December 20, 2007, refer
to Clear Skies Solar, Inc., a publicly traded Delaware corporation formerly
known as Clear Skies Holdings, Inc. (“CSH”), together with its subsidiaries,
including Clear Skies Group, Inc.
Basis
of Presentation
The
consolidated financial statements include the accounts of Clear Skies Solar,
Inc. and its wholly owned subsidiaries Clear Skies Group, Inc. and Carbon 612
Corporation. Periods prior to the date of the reverse merger reflect the
financial condition and results of operations of Clear Skies Group, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
1a.
Restatement and reclassifications of previously issued financial
statements
Summary
of Restatement Items
In
July 2008 the Company concluded that it was necessary to restate its
financial results for the fiscal year ended December 31, 2007 to reflect
the reclassification of its obligations to issue shares of its common stock and
an option to purchase its common stock to two consultants. The Company had
previously classified the value of these obligations as a current liability.
After further review, the Company has determined that these obligations are not
liabilities as defined by GAAP and therefore should not be reflected on the
Company’s balance sheet and therefore the recording of the offsetting prepaid
expenses should also not have been recorded as assets. The accompanying balance
sheet and statement of operations as of and for the year ended December 31,
2007 have been restated to effect the changes described above. The impact of the
adjustments related to these re-classifications is summarized below. The
statement of cash flows has not been shown below, as the adjustments offset each
other and there is no change in the total net cash used for operating
activities.
F-7
Balance
Sheet Impact
The
following table sets forth the effects of the restatement adjustments on the
Company’s balance sheet as of December 31, 2007:
As
|
||||||||||||
Originally
|
As
|
|||||||||||
Reported
|
Changes
|
Restated
|
||||||||||
Cash
and cash equivalents
|
$
|
4,866,842
|
$
|
4,866,842
|
||||||||
Acounts
receivable, less allowance for doubtful accounts of
$32,775
|
92,291
|
92,291
|
||||||||||
Costs
and estimated earnings in excess of billings
|
27,641
|
27,641
|
||||||||||
Total
current assets
|
4,986,774
|
4,986,774
|
||||||||||
Property
and equipment, net
|
13,293
|
13,293
|
||||||||||
Prepaid
expenses and investor relations fees
|
960,507
|
$
|
314,863
|
645,644
|
||||||||
Other
assets
|
54,017
|
54,017
|
||||||||||
$
|
6,014,591
|
$
|
314,863
|
$
|
5,699,728
|
|||||||
Acounts
payable and accrued expenses
|
$
|
788,468
|
$
|
788,468
|
||||||||
Billings
in excess of costs and estimated earnings
|
35,007
|
35,007
|
||||||||||
Due
to related parties
|
104,410
|
104,410
|
||||||||||
Customer
deposits
|
5,000
|
5,000
|
||||||||||
Obligations
to issue options and warrants
|
327,650
|
318,249
|
9,401
|
|||||||||
Payroll
liabilities
|
140,729
|
140,729
|
||||||||||
Installation
warranty
|
7,743
|
7,743
|
||||||||||
Total
current liabilities
|
1,409,007
|
318,249
|
1,090,758
|
|||||||||
Total
stockholders’ equity
|
4,605,584
|
3,386
|
4,608,970
|
|||||||||
$
|
6,014,591
|
$
|
314,863
|
$
|
5,699,728
|
F-8
Impact
on the Statement of Operations
The
following table sets forth the effects of the restatement adjustments on the
Company’s statement of operations for the year ended December 31,
2007:
As
|
||||||||||||
Originally
|
As
|
|||||||||||
Reported
|
Changes
|
Restated
|
||||||||||
Revenues
|
||||||||||||
Contract
revenue
|
$
|
74,520
|
$
|
74,520
|
||||||||
Subcontract
revenue
|
224,454
|
224,454
|
||||||||||
Total
revenues
|
298,974
|
298,974
|
||||||||||
Cost
of revenues
|
268,707
|
268,707
|
||||||||||
Gross
margin
|
30,267
|
30,267
|
||||||||||
Operating
expenses
|
||||||||||||
Selling
expenses
|
468,858
|
468,858
|
||||||||||
General
and administrative expenses
|
2,388,449
|
3,386
|
2,385,063
|
|||||||||
2,857,307
|
3,386
|
2,853,921
|
||||||||||
Loss
from operations
|
(2,827,040
|
)
|
3,386
|
(2,823,654
|
)
|
|||||||
Other
expenses
|
||||||||||||
Interest
expenses
|
40,199
|
40,199
|
||||||||||
Amortization
of debt discount expense
|
745,000
|
745,000
|
||||||||||
785,199
|
785,199
|
|||||||||||
Net
loss
|
$
|
(3,612,239
|
)
|
$
|
3,386
|
$
|
(3,608,853
|
)
|
||||
Weighted
average common shares outstanding, basis and diluted
|
7,229,534
|
7,229,534
|
||||||||||
Loss
per share, basic and diluted
|
$
|
(0.50
|
)
|
$
|
(0.50
|
)
|
F-9
2. Business
combination and subsequent financing
The
Reverse Merger
On
December 13, 2007, our predecessor, BIP Oil, Inc., a Nevada corporation
(“BIP”), and Clear Skies Holdings, Inc., a Delaware corporation and wholly owned
subsidiary of BIP (“CSH”), entered into an Agreement and Plan of Merger. On
December 18, 2007, BIP merged with and into CSH, so that BIP and CSH became
a single corporation named Clear Skies Holdings, Inc., which exists under, and
is governed by, the laws of the State of Delaware (the “Reincorporation”).
Immediately following the Reincorporation, there were 59,841,923 shares of Clear
Skies Holdings, Inc. issued and outstanding to stockholders of
record.
On
December 20, 2007, Clear Skies Acquisition Corp., a newly formed wholly
owned subsidiary of Clear Skies Holdings, Inc., was merged with and into Clear
Skies Group, Inc. (the “Reverse Merger”), and Clear Skies Group, Inc., as the
surviving corporation, became a wholly owned subsidiary of Clear Skies Holdings,
Inc. Prior to the Reverse Merger, certain stockholders of Clear Skies Group,
Inc. agreed to surrender an aggregate of 60,000 shares of Clear Skies Group,
Inc. (exchangeable for an aggregate of 116,276 shares of common stock of Clear
Skies Holdings, Inc. in the Reverse Merger) for cancellation. Pursuant to the
Reverse Merger, the outstanding shares of common stock of Clear Skies Group,
Inc. were exchanged for an aggregate of 8,492,067 shares of Clear Skies
Holdings, Inc. at a conversion rate of 1.937943 shares of Clear Skies Holdings,
Inc. for each share of Clear Skies Group, Inc. In addition, pursuant to the
Reverse Merger, outstanding warrants to purchase an aggregate of 760,000 shares
of common stock of Clear Skies Group, Inc. were exchanged for an aggregate of
416,658 shares of common stock of Clear Skies Holdings, Inc.
Immediately
following the closing of the Reverse Merger, Clear Skies Holdings, Inc.
transferred all of its pre-Reverse Merger operating assets and liabilities to
its newly formed wholly owned subsidiary, BIP Holdings, Inc., a Delaware
corporation, and transferred all of BIP Holdings, Inc.’s outstanding capital
stock to Clear Skies Holdings, Inc.’s then-majority stockholders in exchange for
cancellation of 53,866,923 shares of Clear Skies Holdings, Inc. common stock
held by those stockholders (such transaction, the “Split-Off”). The remaining
stockholders of Clear Skies Holdings, Inc. continued to hold 5,975,000 shares of
Clear Skies Holdings, Inc. after the split-off.
After the
Reverse Merger, Clear Skies Holdings, Inc. succeeded to the business of Clear
Skies Group, Inc. as its sole line of business, and all of Clear Skies Holdings,
Inc.’s then-current officers and directors resigned and were replaced by Clear
Skies Group, Inc.’s officers and directors.
On
January 25, 2008, Clear Skies Holdings, Inc. changed its name to Clear
Skies Solar, Inc.
The
Reverse Merger was accounted for as a reverse acquisition and recapitalization
of Clear Skies Group, Inc. for financial accounting purposes. Consequently, the
assets and liabilities and the historical operations that are reflected in the
Company’s consolidated financial statements for periods prior to the Reverse
Merger are those of Clear Skies Group, Inc. and have been recorded at the
historical cost basis of Clear Skies Group, Inc., and the Company’s consolidated
financial statements for periods after completion of the reverse merger include
both the Company’s and Clear Skies Group, Inc.’s assets and liabilities, the
historical operations of Clear Skies Group, Inc. prior to the Reverse Merger and
the Company’s operations from the closing date of the Reverse
Merger.
The
Private Placement
Following
the business combination discussed above, the Company completed a private
placement offering of 16,000,000 shares of its common stock for an aggregate
gross purchase price of $8,000,000, including $745,000 of exchanged debt. The
cash costs of the issuance of the bridge notes discussed in Note 7 and private
placement of common stock discussed in Note 2 were approximately $2 million
in the aggregate, and the Company issued warrants expiring in December 2010, in
connection with both financings, to the placement agent and its designees to
purchase an aggregate of up to 732,401 shares of the Company’s common stock at
$.50 per share. The common stock of Clear Skies Solar, Inc. trades on the over
the counter bulletin board under the symbol CSKH:OB. The Company agreed to file
a registration statement with the Securities and Exchange Commission within
ninety days of the closing of the private placement (by March 23, 2008)
seeking registration of the 16,000,000 shares as well as shares issuable under
certain options and warrants issued in connection with the sale of the bridge
notes and to two consultants. The Company also agreed to use its best efforts to
cause the registration statement to become effective within 180 days of the
closing of the private placement. Neither obligation was met and therefore the
Company was required to pay the purchasers of the 16,000,000 shares, pro rata
liquidated damages of $80,000 per month (or approximately $2,700 per day for
periods less than a full month). As permitted by the agreement, the Company
elected to satisfy this obligation by the issuance of 187,991 shares of its
common stock to said purchasers.
F-10
3.
Summary of significant accounting policies
Cash
Equivalents
The
Company considers all highly liquid investments with maturities of three months
or less, when purchased, to be cash equivalents. The Company maintains cash and
cash equivalents, which consist primarily of short term obligations and demand
deposits, with high credit quality financial institutions. At certain times,
such amounts have exceeded FDIC insurance limits. The Company has not
experienced any losses on these investments.
Accounts
Receivable and Allowance for Doubtful Accounts
The
Company regularly evaluates the validity of its accounts receivable. The Company
carries its accounts receivable at cost less an allowance for doubtful accounts.
On a periodic basis, the Company evaluates its accounts receivable and
establishes an allowance for doubtful accounts, if necessary, based on a history
of past bad debts and collections and current credit conditions. Accounts
receivable are written-off as uncollectible on a case-by-case basis at the
discretion of management. Accounts receivable consist of trade receivables and
when applicable amounts due from state agencies for rebates on state-approved
solar systems installed. A total of $37,080 of rebates was included in accounts
receivable at December 31, 2008. When the Company sells systems with a
rebate component, the savings is passed directly to the customer and the Company
takes ownership of the rebate receivable from the applicable state
agency.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation. The Company
provides for depreciation principally using the straight-line method as
follows:
Asset
|
Useful Life
|
Principal Method
|
||
Computer
equipment
|
3
Years
|
Straight-line
|
||
Equipment
and tools
|
3
Years
|
Straight-line
|
||
Automobile
|
5
Years
|
Straight-line
|
F-11
Long-Lived
Assets
The
Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying value of a long-lived asset may not be
recoverable. The Company periodically evaluates whether events and circumstances
have occurred that may warrant revision of the estimated useful lives of its
long-lived assets or whether the remaining balance of long-lived assets should
be evaluated for impairment. The Company does not believe that there were any
indicators of impairment that would require an adjustment to such assets or
their estimated periods of recovery at December 31, 2008.
Revenue
Recognition
The
Company has two distinct revenue streams that have very different
characteristics and payment time cycles. Therefore, a different revenue
recognition policy applies to each category.
Contract
revenue: In accordance with SEC Staff Accounting Bulletin No. 101 —
“Revenue Recognition in Financial Statements” (“SAB”), which was superseded by
SAB 104, contract revenues are recognized using the percentage of completion
method. The percentage of completion is calculated by dividing the direct labor
and other direct costs incurred by the total estimated direct costs of the
project. Contract value is defined as the total value of the contract, plus the
value of approved change orders. Estimates of costs to complete are reviewed
periodically and modified as required. Provisions are made for the full amount
of anticipated losses, on a contract-by-contract basis. These loss provisions
are established in the period in which the losses are first determined. Changes
in estimates are also reflected in the period they become known. The Company
maintains all the risks and rewards of billing. Regardless of a customer’s
structure or industry, if the Company is the lead contractor, then the Company
recognizes all revenues using the percentage of completion method.
Subcontractor
Revenue: From time to time, the Company has performed installation and other
services as a subcontractor. These services differ from contract revenue in that
the Company is entitled to be compensated for subcontractor work performed prior
to completion of the system, because the Company has no obligation or ownership
of the system so long as it completes its tasks satisfactorily. Revenues from
subcontractor projects are realized as they are completed.
Cost
Recognition
Contract
costs include all direct material, labor, and equipment costs and those indirect
costs related to contract performance such as indirect labor, supply, and tool
costs. The Company makes provisions for estimated losses on uncompleted
contracts in the period in which such losses are determined. Changes in job
performance, job conditions, and estimated profitability, including those
arising from contract penalty provisions, and final contract settlements may
result in revisions to costs and income and are recognized in the period in
which the revenues are determined.
The
Company does not typically carry inventory.
Manufacturer
and Installation Warranties
The
Company warrants its products and services against defects in material or
installation workmanship. The manufacturer’s warranty period on the solar panels
and inverters used by the Company have a warranty period range of 5 —
25 years. The Company assists its customer in the event that the
manufacturer’s warranty needs to be used to replace a defective panel or
inverter. The Company provides a 5-year warranty on the installation of a system
and all equipment and identical supplies other than solar panels and inverters
that are covered under the manufacturer’s warranty. The Company records a
provision for the installation warranty, within cost of revenues — currently at
2% of contract revenue — based on historical experience and future expectations
of the probable cost to be incurred in honoring its warranty commitment. The
provision charged to warranty expense for the years ended December 31, 2008
and 2007 was approximately $49,000 and $2,000, respectively.
Fair
Value of Financial Instruments
The
carrying values reported for cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate their respective fair values in the
accompanying balance sheet due to the short-term maturity of these financial
instruments.
F-12
Income
Taxes
The
Company complies with SFAS 109, “Accounting for Income Taxes,”
which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed for differences between the financial statement and tax bases of assets
and liabilities that will result in future taxable or deductible amounts, based
on enacted tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized.
The
Company also complies with the provisions of the Financial Accounting Standards
Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes” (“FIN 48”). FIN 48 prescribes a recognition threshold and
measurement process for recording in the financial statements uncertain tax
positions taken or expected to be taken in a tax return. FIN 48 also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosures and transitions. The Company adopted FIN 48 and
has determined that the adoption did not have an impact on the Company’s
financial position, results of operations, or cash flows.
Earnings
Per Share
The
Company complies with SFAS No. 128, “Earnings Per Share.” SFAS No. 128
requiring dual presentation of basic and diluted income/loss per share for all
periods presented. Basic income/loss per share excludes dilution and is computed
by dividing income/loss available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted income/loss per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then share in the income/loss of
the Company. The difference between the number of shares used to compute basic
income/loss per share and diluted income/loss per share relates to additional
shares to be issued upon the assumed exercise of stock options and warrants, net
of shares hypothetically repurchased at the average market price with the
proceeds of exercise. As the Company reported a net loss for the years ended
December 31, 2008 and 2007, the effects of the 1,202,121 and 1,332,401
shares issuable upon exercise of outstanding warrants and options as of
December 31, 2008and December 31, 2007, respectively, have not been
considered in the diluted net loss per common share since these dilutive
securities would reduce the loss per common share and become
anti-dilutive.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair
value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles (“GAAP”), and expands disclosures about
fair value measurements. This statement does not require any new fair value
measurements in accounting pronouncements where fair value is the relevant
measurement attribute. However, for some entities, the application of this
statement will change current practice for financial statements issued for
fiscal years beginning after November 15, 2007. The Company is currently
evaluating the impact of the adoption of SFAS 157 on its definition and
measurement of fair value and disclosure requirements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities.” This Statement permits entities to
choose to measure many financial instruments at fair value. Unrealized gains and
losses on items for which option has been elected are reported in earnings. SFAS
No. 159 is effective for fiscal years beginning after November 15,
2007. The Company is currently evaluating the impact of SFAS No. 159 but
does not expect that it will have a material impact on the Company’s financial
position and results of operations and cash flows.
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations”. SFAS No. 141(R) provides companies with principles and
requirements on how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, liabilities assumed, and any
non-controlling interest in the acquiree as well as the recognition and
measurement of goodwill acquired in a business combination. SFAS No. 141(R)
also requires certain disclosures to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
Acquisition costs associated with the business combination will generally be
expensed as incurred. SFAS No. 141(R) is effective for business
combinations occurring in fiscal years beginning after December 15, 2008,
which will require the Company to adopt these provisions for business
combinations occurring in fiscal 2009 and thereafter. Early adoption of SFAS
No. 141(R) is not permitted.
F-13
Stock
Based Compensation
The FASB
issued SFAS No. 123(R), “Accounting for Stock-Based Compensation
(Revised).” SFAS No. 123(R) focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
SFAS 123(R) requires an entity to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair
value of the award (with limited exceptions). That cost will be recognized of
the period during which an employee is required to provide service in exchange
for the award. No compensation costs are recognized for equity instruments for
which employees do not render the requisite service. The Company adopted SFAS
No. 123(R) at commencement of operations.
Concentration
of credit risk:
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist of cash accounts in a financial institution, which at times,
exceeds the Federal depository insurance coverage of $100,000. Such coverage has
recently been increased to $250,000. The Company has not experienced
losses on these accounts and management believes the Company is not exposed to
significant risks on such accounts.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
4. Operations
and Going Concern
Since
inception, the Company has incurred losses and negative cash flows from
operations and at December 31, 2008 the Company has an accumulated deficit
of approximately $11.5 million. In December 2007 the Company completed a
private placement of 16 million shares of its common stock and received net
proceeds of approximately $5.9 million, including the cancellation of
$745,000 of debt. At December 31, 2008 and March 31, 2009 we had approximately
$155,000 and $8,000, respectively, in cash and cash
equivalents. Based on our current plans and assumptions, which
include our expectations relating to the future sale of our equity and debt
securities and entering into contracts for the financing and installation of
solar energy systems and the resulting cash flows and revenues, we believe that
we will have adequate resources to fund our operations in
2009. However, there can be no assurances that we will be successful
in entering into such contracts or arranging financing on terms satisfactory to
us, in which case there would be significant doubt as to our ability to continue
as a going concern. Notwithstanding our recent sale of convertible notes for
gross proceeds of $400,000 and borrowings of $248,464 from an unrelated third
party, we will need to raise additional funds to pay outstanding vendor
invoices.
5. Property
and equipment
Details
of property and equipment at December 31, 2008 and 2007 are:
2008
|
2007
|
|||||||
Computer equipment
|
$
|
20,825
|
$
|
1,780
|
||||
Equipment
and tools
|
34,315
|
6,162
|
||||||
Automobile
|
25,848
|
17,000
|
||||||
Land
|
128,449
|
|||||||
Software
|
12,781
|
|||||||
222,218
|
24,942
|
|||||||
Accumulated
depreciation
|
29,564
|
11,649
|
||||||
$
|
192,654
|
$
|
13,293
|
For the
years ended December 31, 2008 and 2007, depreciation expense amounted to
approximately $18,000 and $5,000, respectively.
F-14
6.
Prepaid expenses and investor relations fees
Prepaid
expenses and prepaid investor relation fees at December 31, 2008 and 2007
are as follows:
2008
|
2007
|
|||||||
Payments
to US public and investor relations firms
|
$
|
191,667
|
$
|
14,000
|
||||
Payment
to a European investor relations firm
|
-
|
394,790
|
||||||
Payment
of compensation to be amortized over the periods in which the services are
rendered
|
-
|
201,610
|
||||||
Prepaid
insurance premiums
|
3,607
|
35,244
|
||||||
$
|
195,274
|
$
|
645,644
|
The
Company has entered into agreements with several firms in the US to provide it
with both public relations and investor relations advice and services over
periods from one to three years. These agreements call for payments in both cash
and common stock and payments are being amortized over the period of each
agreement. In addition to the amounts above, the Company has committed to pay
monthly retainers to the above firms ranging from $5,000 to $15,000 per month
over the life of the agreement The payment to the European firm was pursuant to
a six month agreement and represented an advance payment of anticipated out of
pocket expenses of the consultant in 2008 but, as of December 31, 2007 none of
the funds had been expended. The consultant has agreed to return any funds not
spent and returned $167,988 to the Company in 2008.
7.
Notes payable
On
August 31, 2007 and September 12, 2007, the Company issued an
aggregate of $745,000 principal amount of 10% convertible secured notes (“Bridge
Notes”). The purchasers of the Bridge Notes paid an aggregate gross purchase
price of $745,000 for such Bridge Notes and also received shares of common stock
of Clear Skies Group, Inc., which were exchanged for 2,310,026 shares of the
common stock of the Company in the Reverse Merger. The Bridge Notes became due
and payable upon the closing of the December 2007 private placement
transaction (see Note 1). Pursuant to the terms of the Bridge Notes, each holder
had the right to exchange its Bridge Note for an amount of securities that could
be purchased in such private placement for a purchase price equal to the
outstanding amount of such holder’s Bridge Note. The holders of all of the
Bridge Notes exercised their exchange rights and, consequently, there is no
Bridge Note balance due to the holders as of December 31,
2007.
All of
the proceeds of the Bridge Notes were allocated to the 1,782,906 and 527,120
shares (after giving effect to the exchanged on completion of the Reverse
Merger) issued on August 31, 2007 and September 12, 2007, respectively
and the embedded conversion feature. The resulting discount was charged to
interest expense in 2007 as every Bridge Note holder exercised their right to
convert their Bridge Notes into common stock on December 20,
2007.
8.
Stock-based compensation and common stock issued and agreed to be
issued
Upon
commencement of operations, the Company entered into multiple agreements in
which the Company received consulting and other services in exchange for the
Company’s common stock or options to purchase the Company’s common stock. The
Company complies with SFAS 123(R) and records compensation expense for the fair
value of these services over the periods in which they are
provided.
In
September 2005, the Company agreed to grant 120,000 shares (exchanged for
232,553 shares in the Reverse Merger) to three individuals for agreeing to serve
on the Board of Directors for a three year term. The fair value of these shares
at the date of such agreement was estimated to be approximately $96,000. For the
years ended December 31, 2008 and 2007, the Company recorded Board of
Director fees and compensation expense, which are included in general and
administrative expenses, of approximately $21,000 and $32,000, respectively, for
these shares. Included in other assets as of December 31, 2008 and December
31, 2007 are deferred Board of Director fees of approximately zero and $21,000
and $53,000, respectively.
F-15
In
September 2005, the Company agreed to grant 160,000 shares (exchanged for
310,070 shares in the Reverse Merger) to two entities for agreeing to provide
consulting and other services over a two year term. The fair value of these
shares at the date of such issuance was estimated to be approximately $128,000
which results in a monthly compensation expense of approximately $5,333 over the
term of the agreement. For the years ended December 31, 2008 and December
31, 2007, the Company recorded consulting and other service fees, which is
included in general and administrative expenses, of approximately zero and
$48,000, respectively.
As a
result of the above transactions, capital advances of $310,000 in
September 2005 and $200,000 in April 2006, and services performed in
exchange for shares issued prior to 2006, the Company became contractually
obligated to issue shares in excess of its 200 authorized shares (“Old Shares of
Clear Skies Group, Inc.”). As a result, the Company recorded a liability of
approximately $894,000 as of December 31, 2006 for the value of the
contractual obligations. Due to the contractual obligation to issue the excess
shares, the Board of Directors, with stockholder approval, passed a resolution
to increase the authorized shares to 10,000,000. On January 30, 2007, the
certificate of incorporation (the “Charter”) was officially amended to authorize
the Company to issue 10,000,000 shares (“New Shares of Clear Skies Group, Inc.”)
of $0.01 par value common stock. Concurrently with the amendment to the Charter,
the Company’s sole shareholder was issued 1,570,000 New Shares of Clear Skies
Group, Inc. (exchanged for 3,042,570 shares in the Reverse Merger) in exchange
for the Old Share of Clear Skies Group, Inc. previously issued. Upon the
amendment to the Charter, the obligation to issue 1,042,500 shares of CSG common
stock (exchanged for 2,020,297 in the Reverse Merger) was fulfilled and the
liability was reclassified to stockholders equity as Common Stock to the extent
of par value with the excess classified as Additional Paid-In
Capital.
In
May 2007, the Company issued a stockholder a warrant to purchase 50,000 New
Shares of Clear Skies Group for services rendered. Such warrant had a three year
term and an exercise price of $2.00 per share. The fair value of the warrant at
issuance was estimated to be approximately $31,000 which was recorded as service
fees and included in general and administrative expenses for the year ended
December 31, 2007. As part of the Reverse Merger, the warrant was cancelled
in exchange for the issuance of 96,897 shares of the Company’s common
stock.
The
Company is obligated under a contract with a public relations consultant to
issue $4,500 worth of its common stock to the consultant each month during the
term of the contract which expired on September 30, 2008. As of
December 31, 2007, the Company was obligated to issue $13,500 worth of its
common stock and the $13,500 was recorded as an expense on the accompanying
statement of operations and the obligation recorded as an accrued expense on the
consolidated balance sheet.
9. Related
party transactions
In
April 2007, the Company issued 37,500 shares of common stock and warrants
to purchase 37,500 shares of CSG common stock for $75,000. These shares were
exchanged for 72,673 shares in the Reverse Merger and the warrants were
exchanged for an additional 72,673 shares of our common stock in the Reverse
Merger.
In
April 2007, the Company issued 40,000 shares (exchanged for 77,517 shares
in the Reverse Merger) to an individual who was a director as compensation for
services rendered other than as a director. The fair value of these shares at
issuance was estimated to be approximately $33,000 which was recorded as service
fees and included in general and administrative expenses for the year ended
December 31, 2007.
In
April 2007, the Company issued 60,000 shares (exchanged for 116,276 shares
in the Reverse Merger) to an individual to serve as the Company’s Chief
Operating Officer during 2007. The fair value of these shares at the date of
such agreement was estimated to be approximately $49,000. At December 31,
2007, the Company recorded compensation expense, which is included in general
and administrative expenses, of approximately $49,000 for these
shares.
In
May 2007, the Company issued 300,000 shares and a warrant to purchase
150,000 additional New Shares of Clear Skies Group, Inc. to the president of the
Company as compensation for services rendered. The 300,000 shares and the
warrant were exchanged for 581,383 and 29,069 shares in the Reverse Merger,
respectively. The balance of the warrant was cancelled. The warrant had a three
year term and an exercise price of $2.00 per New Share of Clear Skies Group,
Inc. The fair value of the shares at issuance was estimated to be approximately
$246,000 and the fair value of the warrant at issuance was estimated to be
approximately $12,000. Total service fees of approximately $258,000 was recorded
which are included in general and administrative expenses for the year ended
December 31, 2007.
F-16
In
May 2007, the Company issued 150,000 shares (exchanged for 290,691 shares
in the Reverse Merger) to a related party as compensation for services rendered.
The fair value of these shares at issuance was estimated to be approximately
$123,000 which was recorded as service fees and included in general and
administrative expenses for the year ended December 31, 2007.
In
July 2007, the Company issued 10,000 shares of common stock and warrants to
purchase shares of CSG common stock for $20,000. These shares were exchanged for
19,379 shares in the Reverse Merger and the warrants were
cancelled.
Several
of the Company’s officers and directors, or their affiliates, have from time to
time extended loans to the Company or agreed to defer compensation payable to
them in order to fund the Company’s operating expenses. In this regard:
(i) Quixotic Systems, Inc. (“Quixotic”), an entity owned by a then director
of the Company, loaned $285,000 at 10% interest compounded daily,
which had been repaid in full as of December 31, 2007; and (ii) Gelvin
Stevenson, a director of the Company, loaned $20,000 all of which had been
repaid in full as of December 31, 2007. Furthermore, Ezra Green, our
Chairman and Chief Executive Officer, agreed to the deferral of $73,259 of his
compensation (of which $69,366 was unpaid and included in accrued expenses as of
December 31, 2007). As of March 18, 2008, Mr. Green’s
deferred compensation had been repaid in full. Mr. Green advanced $30,275
to the Company in 2006 and an additional $70,037 in 2007 (which has been
recorded as a balance of $100,312 due to related party at December 31,
2007). This related party transaction was also repaid in full by March 18,
2008. Such loans and other arrangements were interest free (except for Quixotic)
and have not been memorialized by written promissory notes. At December 31,
2007, there were miscellaneous due to related parties of approximately
$4,000.
Refer to
Note 8 for details of stock-based compensation to stockholders.
10.
Stock Options and Warrants
In
accordance with SAS No. 123(R), the Company uses the Black-Scholes option
pricing model to measure the fair value of its Option awards granted in 2007 as
part of or after the Reverse Merger described in Note 1. All Option awards
granted prior to the Reverse Merger transaction described in Note 2 were
exchanged for common stock as part of that transaction. The Black-Scholes model
requires the input of highly subjective assumptions including volatility,
expected term, risk-free interest rate and dividend yield. As the Options were
granted to non-employee consultants the resulting fair value is recorded as
consulting expense on a straight-line basis over the period of service of the
consultants, in this case one year. The amount of this expense charged to
earnings for the years ended December 31, 2008 and 2007 was $644,000 and
$9,700, respectively, and $375,000 will be charged against earnings in the
following calendar year. The warrants granted to the placement agent and its
designees to purchase a total of 732,401 shares at $.50 per share expiring on
December 20, 2010 are reflected as offsetting charges to additional paid-in
capital as of and for the year ended December 31, 2007.
The value
of a warrant issued to a consultant was estimated using the Black-Scholes model
and the following assumptions: risk free rate of return ranging from 3.25% to
4.20%; zero estimated dividend yield; expected terms ranging from three to five
years and volatility of 121%. The estimated stock price volatility was derived
based on the average volatility of 34 companies that the Company considered
reasonably similar to it. The risk free rate of return was based on the yield of
US Treasury debt of comparable maturities on the date of issuance of the
Options. The resulting value of this warrant was $210,250 of which $8,640 has
been charged to earnings in 2007 with the remainder amortized during 2008 over
the period in which services were rendered under the applicable consulting
agreement.
In
December 2007 the Company’s shareholders approved its 2007 Equity Incentive
Plan which provides for the granting of options to both employees and
non-employees to purchase up to 2,500,000 shares of the Company’s common stock.
The Plan is administered by the Company’s Board of Directors or a committee
appointed by the Board. As of December 31, 2007 no options have been
granted under this Plan but a total of 2,400,000 options were outstanding under
this Plan as of December 31, 2008.
The Board
of Directors approved our 2008 Equity Incentive Plan in July 2008 which also
provides for the granting of options to both employees and non-employees to
purchase up to 2,500,000 shares of the Company’s common stock. A
total of 680,000 options were outstanding under this Plan as of December 31,
2008.
F-17
Weighted
|
|||||||
Weighted
|
Average
|
||||||
Average
|
Remaining
|
||||||
Number
|
Exercise
|
Contractual
|
|||||
of
|
Price
per
|
Term
|
|||||
Options
|
Option
|
(Years)
|
|||||
Employees:
|
|||||||
Outstanding,
January 1, 2008
|
—
|
||||||
Granted
— February 6, 2008
|
1,045,000
|
$
|
1.59
|
7.68
|
|||
Granted
— March 31, 2008
|
500,000
|
$
|
1.25
|
7.15
|
|||
Granted
— April 14,2008
|
225,000
|
$
|
1.52
|
9.50
|
|||
Granted
— May 1, 2008
|
50,000
|
$
|
1.30
|
9.58
|
|||
Granted
- July 28, 2008
|
510,000
|
$
|
0.98
|
5.91
|
|||
Granted
- November 12, 2008
|
1,065,000
|
$
|
0.33
|
7.84
|
|||
Cancelled/forfeited
|
-365,000
|
$
|
1.47
|
||||
Outstanding,
December 31, 2008
|
3,030,000
|
||||||
Non-employees:
|
|||||||
Granted
- April 2, 2008
|
100,000
|
$
|
1.50
|
2.25
|
|||
Granted
— June 20, 2008
|
50,000
|
$
|
1.21
|
1.25
|
|||
Outstanding,
December 31, 2008
|
3,180,000
|
No
options were granted during the 2007 calendar year.
The
following table summarizes additional information about stock
options granted during the calendar year 2008:
Risk
free rate
|
2.64
|
%
|
||
Stock
price volatility
|
121
|
%
|
||
Dividend
yield
|
0
|
The
Company has issued options and warrants to public and investor relations
consultants mentioned in Note 6 which could result in the issuance of up to
800,000 shares of common stock at purchase prices of $.50 to $1.50 per share. In
addition, the Company agreed to issue a total of common stock with a value of
$4,500 per month pursuant to a one year contract with one of the consultants,
the exact number of shares being dependant on the market price of the Company’s
common stock. For the three months in which the contract was in effect in 2007
the Company is required to issue a total of 27,000 shares of common stock to
this consultant and a further 44,072 shares were issued in 2008.
11.
Significant Concentration of Business and Credit Risk
The
Company had three vendors that accounted for approximately 16% of materials
purchased during 2007. At December 31, 2007 all amounts due to these
vendors had been paid in full.
The
Company had one customer that accounted for approximately 75% of revenues
recognized during 2007. At December 31, 2007, accounts receivable included
amounts owed to the Company from this customer of approximately
$2,500.
The
Company had two vendors that accounted for approximately 85% of materials
purchased during 2006. The Company had two customers that accounted for
approximately 49% of revenues billed during 2006.
The
Company had three vendors that accounted for approximately 64% of materials
purchased during 2008. At December 31, 2008 all amounts due to these vendors had
been paid in full.
F-18
The
Company had three customers that accounted for approximately 92% of revenues
recognized during 2008. At December 31, 2008, accounts receivable included
amounts owed to the Company from one of these customers of approximately
$56,000.
12.
Contracts
The
Company generates billings based on the fulfillment of milestones, which are set
forth in the signed contract for each project. Milestones may include, but are
not limited to, initial permits being obtained, delivery of materials, and when
installation is subsequently complete.
As
of December 31,
|
2008
|
2007
|
||||||
Costs
incurred on contracts
|
$
|
2,381,574
|
$
|
355,183
|
||||
Estimated
earnings, less foreseeable losses
|
483,488
|
30,610
|
||||||
2,865,062
|
385,793
|
|||||||
Billings
to date
|
(2,905,394
|
)
|
(393,159
|
)
|
||||
Net
costs and estimated earnings//loss in excess billings
|
$
|
(40,332
|
)
|
$
|
(7,366
|
)
|
||
These
amounts are included in the accompanying December 31, 2008 and 2007 under
the following captions:
|
||||||||
Costs
and estimated earnings in excess of billings
|
-
|
27,641
|
||||||
Billings
in excess of costs and estimated earnings
|
(40,332
|
)
|
(35,007
|
)
|
||||
(40,332
|
)
|
(7,366
|
)
|
13. Income
Taxes
The
provision (benefit) for income taxes for the years ended December 31, 2008, and
2007, were as follows (assuming a 23 percent effective tax rate):
Years
Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Federal
and State-
Provision
for income taxes
|
$
|
-
|
$
|
-
|
||||
Total
current tax provision
|
$
|
-
|
$
|
-
|
||||
Federal
and State-
Loss
carryforwards
|
$
|
1,568,300
|
$
|
830,000
|
||||
Change
in valuation allowance
|
(1,568,300
|
)
|
(830,000
|
)
|
||||
Total
deferred tax provision
|
$
|
-
|
$
|
-
|
The
Company had deferred income tax assets as of December 31, 2008 and 2007, as
follows:
As of December
31,
|
||||||||
2008
|
2007
|
|||||||
Loss
carryforwards
|
$
|
2,642,300
|
$
|
1,074,000
|
||||
Less
- Valuation allowance
|
(2,642,300
|
)
|
(1,074,000
|
)
|
||||
Total
net deferred tax assets
|
$
|
-
|
$
|
-
|
F-19
These NOL
carryforwards are limited due to section 382 of the Internal Revenue
Code.
The
Company provided a valuation allowance equal to the deferred income tax assets
for the years ended December 31, 2008, and 2007, because it is not presently
known whether future taxable income will be sufficient to utilize the loss
carryforwards.
As of
December 31, 2008, and 2007, the Company had approximately $11,418,300 and
$4,599,600 in tax loss carryforwards that can be utilized in future periods to
reduce taxable income, and expire in the year 2028.
14. Commitments
and Contingencies
Litigation
From time
to time, the Company is a party to various legal matters in the normal course of
business, the outcome of which, in the opinion of management, will not have a
material adverse effect on the financial position, results of operations or cash
flows of the Company.
Lease
commitments
We lease
approximately 3,356 square feet of office space at 200 Old Country Road,
Mineola, New York from HUB Properties Trust at an initial base rental of $7,831
per month increasing to $9,626 per month pursuant to a seven year lease. We also
rent storage space pursuant to an oral arrangement from United Store All for
$400 per month.
Employment
agreements
The
Company has entered into several employment agreements with certain employees
providing for severance arrangements. The severance arrangements become Company
obligations if the Company terminates such a contract without “cause” or if the
employee terminates his contract with “good reason” (as such terms are defined
in the relevant agreement) and vary in amount (based on the salary in effect on
such termination date) and duration from three months to the remainder of the
contract term.
15.
Subsequent Events
Consulting
Agreements
On May 8,
2009, Clear Skies Solar, Inc., a Delaware corporation (the “Company”), entered
into a six-month Consulting Services Agreement with Ice Cold Stocks (“ICS”),
pursuant to which ICS will provide, among other services, public relations,
advisory and consulting services to the Company in conjunction with the
development of the Company’s marketing plan, business plan and
goals. As consideration for these services, the Company issued to ICS
(i) 1,000,000 shares of its common stock (the “ICS Shares”) and (ii) one-year
warrants to purchase an additional 1,000,000 shares of common stock, at a cash
exercise price of $.25 per share. Pursuant to the terms of this
agreement, ICS was granted piggy-back registration rights for the ICS
Shares.
On May 8,
2009, the Company entered into a one-year Consulting Agreement with Barry Honig,
pursuant to which Mr. Honig will consult with the Company regarding its XTRAX
business. As consideration for these services, the Company issued to
Mr. Honig 4,000,000 shares of its common stock (the “Honig Shares”) and agreed
to register 2,500,000 of the Honig Shares on a Form S-8.
The
foregoing is not a complete summary of the terms of the consulting agreements
and reference is made to their complete texts attached hereto as Exhibits 10.35,
10.36 and 10.37.
F-20
Consulting
Agreements
On May 8,
2009, Clear Skies Solar, Inc., a Delaware corporation (the “Company”), entered
into a six-month Consulting Services Agreement with Ice Cold Stocks (“ICS”),
pursuant to which ICS will provide, among other services, public relations,
advisory and consulting services to the Company in conjunction with the
development of the Company’s marketing plan, business plan and
goals. As consideration for these services, the Company issued to ICS
(i) 1,000,000 shares of its common stock (the “ICS Shares”) and (ii) one-year
warrants to purchase an additional 1,000,000 shares of common stock, at a cash
exercise price of $.25 per share. Pursuant to the terms of this
agreement, ICS was granted piggy-back registration rights for the ICS
Shares.
On May 8,
2009, the Company entered into a one-year Consulting Agreement with Barry Honig,
pursuant to which Mr. Honig will consult with the Company regarding its XTRAX
business. As consideration for these services, the Company issued to
Mr. Honig 4,000,000 shares of its common stock (the “Honig Shares”) and agreed
to register 2,500,000 of the Honig Shares on a Form S-8.
The
foregoing is not a complete summary of the terms of the consulting agreements
and reference is made to their complete texts attached hereto as Exhibits 10.35,
10.36 and 10.37.
Private
Placement
On May 8,
2009, the Company entered into a Subscription Agreement (the “Subscription
Agreement”), by and among the Company and the subscribers listed therein (the
“Subscribers”). The Subscription Agreement provides for, among other
things, the sale by the Company of (i) secured convertible promissory notes (the
“Notes”) in the original aggregate principal amount of $400,000 and (ii)
warrants to purchase up to 4,000,000 shares of the Company’s common stock (the
“Warrants”). The Company will receive gross proceeds in the amount of
$400,000 from the sale of the Notes and Warrants. The Company has
received $135,000 of the proceeds and will receive the remaining funds upon
filing of its Annual Report on Form 10-K for the fiscal year ended December 31,
2008 on or before May 18, 2009. Immediately after the closing, the
Company had 40,498,844 shares of common stock outstanding.
The Notes
will mature one year from the issuance date (the “Maturity Date”) and will
accrue interest at the rate of 6% per annum, payable on the Maturity Date.
During an Event of Default (as defined in the Notes), the interest rate of the
Notes will be increased to 18% per annum until paid in full. In
addition, upon the occurrence of an Event of Default, all principal and interest
then remaining unpaid shall immediately become due and payable upon demand.
Events of Default include but are not limited to (i) the Company’s failure to
make payments when due, (ii) breaches by the Company of its representations,
warranties and covenants, and (iii) delisting of the Company’s common stock from
the OTC Bulletin Board.
Pursuant
to the terms of the Notes, the Subscribers have the right, so long as the Notes
are not fully repaid, to convert the Notes into shares of the Company’s common
stock at a conversion price of $.10 per share, as may be
adjusted. The Notes contain anti-dilution provisions, including but
not limited to if the Company issues shares of its common stock at less than the
then existing conversion price, the conversion price of the Notes will
automatically be reduced to such lower price. The Notes contain limitations on
conversion, including the limitation that the holder may not convert its Note to
the extent that upon conversion the holder, together with its affiliates, would
own in excess of 4.99% of the Company’s outstanding shares of common stock
(subject to an increase upon at least 61-days’ notice by the Subscriber to the
Company, of up to 9.99%).
The Notes
are secured by a security interest in certain assets of the Company, pursuant to
a security agreement.
The
Warrants are exercisable for a period of three (3) years at an exercise price of
$.15 per share, as may be adjusted. The Warrants contain
anti-dilution provisions, including but not limited to if the Company issues
shares of its common stock at less than the then existing exercise price, the
exercise price of the Warrants will automatically be reduced to such lower
price. The Warrants contain limitations on exercise, including the
limitation that the holders may not convert their Warrants to the extent that
upon exercise the holder, together with its affiliates, would own in excess of
4.99% of the Company’s outstanding shares of common stock (subject to an
increase upon at least 61-days’ notice by the Subscriber to the Company, of up
to 9.99%).
F-21
In the
event the shares of common stock underlying the Warrants have not been
registered for resale in an effective registration statement within 90 days of
the issuance of the Warrants, then the Warrants may be exercised on a “cashless”
basis.
Pursuant
to the terms of the Subscription Agreement, the Company agreed to file a
registration statement covering the resale of the shares of common stock
underlying the Notes and the Warrants no later than 30 days from the closing of
the offering and to have such registration statement declared effective no later
than 90 days from the closing of the offering. If the Company does
not timely file the registration statement or cause it to be declared effective
by the required dates, then (i) the exercise price of the Warrants is reduced to
$.10 per share and (ii) each Subscriber shall be entitled to liquidated damages
equal to 1% of the aggregate purchase price paid by such Subscriber for the
Notes and Warrants for each month that the Company does not file the
registration statement or cause it to be declared effective.
The
Company also granted the Subscribers, until the later of one year from the
closing or so long as the Notes are outstanding, a right of first refusal in
connection with future sales by the Company of its common stock or other
securities or equity linked debt obligations, except in connection with certain
Excepted Issuances (as defined in the Subscription Agreement).
The
foregoing is not a complete summary of the terms of the private placement
described in this Note 15 and reference is made to the complete text
of the Subscription Agreement, Form of Note, Form of Warrant and Security
Agreement attached hereto as Exhibits 10.38, 10.39, 10.40 and 10.41,
respectively.
F-22
CLEAR
SKIES SOLAR, INC.
Condensed
Consolidated Balance Sheets
June 30, 2009
|
December 31, 2008
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current Assets: | ||||||||
Cash
and cash equivalents
|
$ | 18,817 | $ | 155,577 | ||||
Accounts
receivable, less allowance for doubtful accounts of $65,275 at June 30,
2009 and at December 31, 2008, respectively
|
29,542 | 157,225 | ||||||
Inventory
|
- | 11,113 | ||||||
Costs
and estimated earnings in excess of billings
|
19,841 | |||||||
Total
current assets
|
68,200 | 323,915 | ||||||
Property
and equipment, net
|
172,580 | 192,653 | ||||||
Prepaid
expenses and investor relations fees
|
525,622 | 195,273 | ||||||
Security
deposit
|
113,634 | 113,634 | ||||||
Other
assets
|
57,579 | 44,801 | ||||||
Total
Assets
|
$ | 937,615 | $ | 870,276 | ||||
LIABILITIES
AND STOCKHOLDERS' (DEFICIT)
|
||||||||
Liabilities:
|
||||||||
Accounts
payable and accrued expenses
|
$ | 1,410,007 | $ | 1,274,563 | ||||
Billing
in excess of costs and estimated earnings
|
42,553 | 40,332 | ||||||
Customer
deposits
|
28,386 | |||||||
Obligation
to issue options and warrants
|
- | 47,500 | ||||||
Notes
and loan payable
|
400,033 | |||||||
Payroll
liabilities
|
176,461 | 31,047 | ||||||
Provision
for estimated warranty liability
|
56,964 | 56,964 | ||||||
Estimated
loss on uncompleted contracts
|
109,305 | 109,305 | ||||||
Total
current liabilities
|
2,223,709 | 1,559,711 | ||||||
Long-term
liabilities:
|
||||||||
Notes
payable
|
41,057 | - | ||||||
Total
long-term liabilities
|
41,057 | - | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
(Deficit)
|
||||||||
Preferred
stock, $.001 par value, 10,000,000 shares authorized,
none issued and outstanding
|
||||||||
Common
stock, $.001 par value, 100,000,000 shares
authorized, 42,002,945 and 31,696,066 shares issued and
outstanding at June 30, 2009 and December 31, 2008,
respectively
|
42,003 | 31,696 | ||||||
Additional
paid-in capital
|
12,436,338 | 10,767,217 | ||||||
Accumulated
(deficit)
|
(13,805,492 | ) | (11,488,348 | ) | ||||
Total
stockholders' (deficit)
|
(1,327,151 | ) | (689,435 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
|
$ | 937,615 | $ | 870,276 |
See
Accompanying Notes to Unaudited Condensed Consolidated Financial
Statements
F-23
CLEAR
SKIES SOLAR, INC.
Unaudited Condensed Consolidated
Statements of Operations
For the three months ended June 30,
|
For the six months ended June 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues
|
||||||||||||||||
Contract
revenue
|
- | $ | 1,133,440 | - | $ | 1,271,664 | ||||||||||
Subcontract
revenue
|
- | |||||||||||||||
Other
|
- | 11,113 | 15,000 | |||||||||||||
Total
revenues
|
- | 1,133,440 | 11,113 | 1,286,664 | ||||||||||||
Cost
of revenues
|
- | 852,554 | 27,946 | 1,045,902 | ||||||||||||
Gross
margin
|
- | 280,886 | (16,833 | ) | 240,762 | |||||||||||
Operating
expenses
|
||||||||||||||||
Selling
expenses
|
86,140 | 251,137 | 177,395 | 484,814 | ||||||||||||
General
and administrative expenses
|
1,045,639 | 1,531,055 | 2,086,113 | 2,933,292 | ||||||||||||
Research
and development
|
176 | 4,659 | 2,311 | 7,273 | ||||||||||||
Total
operating expenses
|
1,131,955 | 1,786,851 | 2,265,819 | 3,425,379 | ||||||||||||
Loss
from operations
|
(1,131,955 | ) | (1,505,965 | ) | (2,282,652 | ) | (3,184,617 | ) | ||||||||
Other
income (expense)
|
||||||||||||||||
Interest
income
|
8 | 9,968 | 478 | 42,315 | ||||||||||||
Interest
expense
|
(29,619 | ) | (8,811 | ) | (34,971 | ) | (14,741 | ) | ||||||||
Provision
for income taxes
|
||||||||||||||||
Net
loss
|
$ | (1,161,566 | ) | $ | (1,504,808 | ) | $ | (2,317,145 | ) | $ | (3,157,043 | ) | ||||
Loss
per share, basic and diluted
|
$ | (0.03 | ) | $ | (0.05 | ) | $ | (0.07 | ) | $ | (0.10 | ) | ||||
Weighted
average common shares outstanding, basic and diluted
|
38,679,545 | 30,886,678 | 35,305,025 | 31,093,778 |
See
Accompanying Notes to Unaudited Condensed Consolidated Financial
Statements
F-24
CLEAR SKIES SOLAR,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
For the six months ended June 30,
2009
Common
Stock
|
||||||||||||||||||||
$.001
par value
|
Additional
Paid-in
|
Accumulated
|
||||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
||||||||||||||||
Balances,
December 31, 2008
|
31,696,066
|
$
|
31,696
|
$
|
10,767,217
|
$
|
(11,488,348
|
)
|
$
|
(689,435
|
)
|
|||||||||
|
||||||||||||||||||||
Issuance
of shares to an investor relations consultant for services
rendered
|
25,000
|
25
|
4,975
|
5,000
|
||||||||||||||||
|
||||||||||||||||||||
Issuance
of shares to a law firm for consulting services rendered
|
200,000
|
200
|
47,800
|
48,000
|
||||||||||||||||
|
||||||||||||||||||||
Issuance
of options to employees and directors
|
228,580
|
228,580
|
||||||||||||||||||
|
||||||||||||||||||||
Bonus
to employee
|
210,000
|
210,000
|
||||||||||||||||||
|
||||||||||||||||||||
Issuance
of warrant to an investment banking firm for services
rendered
|
18,738
|
18,738
|
||||||||||||||||||
|
||||||||||||||||||||
Issuance
of convertible notes and warrants to a lender
|
146,464
|
146,464
|
||||||||||||||||||
|
||||||||||||||||||||
Issuance
of shares to attorneys for services rendered
|
706,879
|
707
|
51,899
|
52,606
|
||||||||||||||||
|
||||||||||||||||||||
Issuance
of shares to Chief Executive Officer as a bonus (1)
|
3,000,000
|
3,000
|
(3,000
|
)
|
-
|
|||||||||||||||
Issuance
of shares to a marketing consulting firm
|
250,000
|
250
|
47,250
|
47,500
|
||||||||||||||||
|
||||||||||||||||||||
Issuance
of shares in connection with a borrowing in May 2009
|
5,150,000
|
5,150
|
412,570
|
417,720
|
||||||||||||||||
|
||||||||||||||||||||
Issuance
of shares to two investor relations firms
|
975,000
|
975
|
180,131
|
181,106
|
||||||||||||||||
|
||||||||||||||||||||
Issuance
of convertible notes and warrants in connection with loans
|
71,648
|
71,648
|
||||||||||||||||||
|
||||||||||||||||||||
Issuance
of stock options to employees
|
252,066
|
252,066
|
||||||||||||||||||
Net
loss for the three months ended June 30, 2009
|
(2,317,144
|
)
|
(2,317,144
|
)
|
||||||||||||||||
Totals
|
42,002,945
|
42,003
|
12,436,338
|
(13,805,492
|
)
|
(1,327,151
|
)
|
See Accompanying Notes to the Unaudited
Condensed Consolidated Financial Statements.
F-25
CLEAR SKIES SOLAR,
INC.
Unaudited Condensed Consolidated
Statements of Cash Flows
For
the six months ended June 30,
|
2009
|
2008
|
||||||
Net
loss
|
$ | (2,317,145 | ) | $ | (3,157,043 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
|
12,076 | 5,319 | ||||||
Stock-based
compensation
|
1,397,712 | 501,019 | ||||||
Estimated
loss on contracts
|
41,842 | |||||||
Bad
debt expense
|
9,000 | |||||||
Increase
(decrease) in cash and cash equivalents attributable to changes in
operating assets and liabilities:
|
||||||||
Accounts
receivable
|
127,683 | (46,171 | ) | |||||
Inventories
|
11,113 | (932,728 | ) | |||||
Costs
and estimated earnings in excess of billings
|
(19,841 | ) | (438,446 | ) | ||||
Prepaid
expenses and investor relations fees
|
(330,349 | ) | 225,492 | |||||
Security
deposits
|
(113,634 | ) | ||||||
Other
assets
|
(12,780 | ) | (13,819 | ) | ||||
Accounts
payable and accrued expenses
|
417,160 | 406,235 | ||||||
Provision
for estimated warranty liability
|
25,158 | |||||||
Customer
deposits
|
28,386 | 5,000 | ||||||
Billings
in excess of costs and estimated earnings
|
2,221 | 7,277 | ||||||
Payroll
liabilities
|
145,414 | (121,478 | ) | |||||
Obligations
to issue option and warrant
|
(47,500 | ) | 31,962 | |||||
Net
cash (used in) operating activities:
|
(585,850 | ) | (3,565,015 | ) | ||||
Net
cash provided by (used in) investing activities:
|
||||||||
Purchases
of equipment
|
(166,374 | ) | ||||||
Sales
of equipment
|
8,000 | |||||||
Net
cash provided by (used in) investing activities:
|
8,000 | (166,374 | ) | |||||
Net
cash provided by (used in) financing activities:
|
||||||||
Advances
received from (paid to) related party
|
(104,410 | ) | ||||||
Repayment
of loans payable
|
(9,000 | ) | ||||||
Notes
payable
|
450,090 | |||||||
Net cash provided by (used in) financing activities: | 441,090 | (104,410 | ) | |||||
Net
(decrease) in cash and cash equivalents:
|
(136,760 | ) | (3,835,799 | ) | ||||
Cash
and cash equivalents, beginning of period
|
155,577 | 4,866,842 | ||||||
Cash
and cash equivalents, end of period
|
$ | 18,817 | $ | 1,031,043 | ||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid for interest
|
$ | - | $ | 14,741 | ||||
Supplemental
disclosure of non-cash financing and investment
activities:
|
||||||||
Value
of shares of common stock issued to consultants
|
$ | 217,104 | $ | 525,250 | ||||
Reclassification
of prepaid investor relations to other receivables
|
$ | 167,988 |
See
Accompanying Notes to Unaudited Condensed Consolidated Financial
Statements
F-26
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation, current
status and nature of operations
The
accompanying unaudited condensed consolidated financial statements as of June
30, 2009 and for the three and six month periods ended June 30, 2009 and 2008
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information, and with the
rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, these interim financial statements do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of the Company, these unaudited condensed
consolidated financial statements include all adjustments necessary to present
fairly the information set forth therein. All such adjustments are of a normal
recurring nature. Results for interim periods are not necessarily indicative of
results to be expected for a full year. The condensed consolidated balance sheet
information as of December 31, 2008 was derived from the audited financial
statements and notes thereto, together with management’s discussion and analysis
or plan of operations, included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2008. The interim financial
statements contained herein should be read in conjunction with that
Report.
In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, the Company is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. On an ongoing basis, the Company evaluates
estimates, including those related to bad debts, inventory reserves, and
warranty expense. The Company bases its estimates on historical data and
experience, when available, and on various other assumptions that are believed
to be reasonable under the circumstances, the combined results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results could differ
from those estimates.
Current
Status
At this
time, Clear Skies has no active commercial projects under
construction. Our last contract was completed in December 2008,
except for several small residential projects that were ordered from us in 2007
or before and have been delayed for a variety of reasons. We had no
revenue in the first quarter of 2009, except for the sale of approximately
$11,000 of excess solar panel inventory and we had no revenue in the second
quarter of 2009. It is not certain when we will begin generating
revenues again. We are negotiating with several parties for the
financing and construction of a number of solar energy projects, however there
can be no assurance that we will be successful in these negotiations or that
such projects would be profitable. Even if we are successful in
negotiating finance and construction agreements, since we recognize revenue
under the percentage of completion method, it could be several months after
signing before we begin performance and are able to report revenue on our
financial statements.
As of
July 31, 2009, our available balance of cash and cash equivalents was
approximately $61,000 which amount is after receipt of the proceeds from a
financing closed as of July 28, 2009 (the “July 2009 Financing”). See
Note 4. Liquidity and Capital Resources and Item 2 – Management’s Discussion –
Liquidity and Capital Resources. Notwithstanding the receipt of $260,000 from
the July 2009 Financing, our sale of convertible notes in May 2009 (the “May
2009 Financing”) for gross proceeds of $400,000 and for borrowings of $282,464
in the first half of 2009 from an unrelated third party, we will need to raise
additional funds to pay outstanding vendor invoices and operating
expenses. Our future cash flows depend on our ability to enter into,
and be paid under, contracts for the construction of solar energy projects and
our ability to sell our debt and equity securities on terms satisfactory to
us. While management believes these can be accomplished, there can be
no assurance that we will be successful in entering into construction contracts
or selling our securities, in which case we will probably not be able to
continue as a going concern.
Nature of
Operations
Clear
Skies Group, Inc. (“CSG”) was formed in New York for the purpose of providing
turnkey solar electricity installations and renewable energy technology
solutions to commercial and residential customers across the United States. CSG
commenced operations in August 2005 and received its initial funding in
September 2005. The Company also has proprietary and patented remote
monitoring technology under the name XTRAX® with
applications in the solar electricity production industry and other potential
markets.
Unless
the context requires otherwise, references to the “Company” for periods prior to
the closing of the Reverse Merger (see Note 2) on December 20, 2007 refer
to Clear Skies Group, Inc., a private New York corporation that is now Clear
Skies Solar, Inc.’s wholly-owned subsidiary, and such references for periods
subsequent to the closing of the Reverse Merger on December 20, 2007, refer
to Clear Skies Solar, Inc., a publicly traded Delaware corporation formerly
known as Clear Skies Holdings, Inc. (“CSH”), together with its subsidiaries,
including Clear Skies Group, Inc.
F-27
2. Business combination and
subsequent financing
The reverse
merger
On
December 13, 2007, BIP Oil, Inc., a Nevada corporation (“BIP”), and Clear
Skies Holdings, Inc., a Delaware corporation (“CSH”) and wholly owned subsidiary
of BIP, entered into an Agreement and Plan of Merger. On December 18, 2007,
BIP merged with and into CSH, so that BIP and CSH became a single corporation
named Clear Skies Holdings, Inc., which exists under, and is governed by, the
laws of
the State of Delaware (the “Reincorporation”). Immediately following
the Reincorporation, there were 59,841,923 shares of Clear Skies Holdings, Inc.
issued and outstanding to stockholders of record.
On
December 20, 2007, Clear Skies Acquisition Corp., a newly formed wholly
owned subsidiary of Clear Skies Holdings, Inc., was merged with and into Clear
Skies Group, Inc. (the “Reverse Merger”), and Clear Skies Group, Inc., as the
surviving corporation, became a wholly owned subsidiary of Clear Skies Holdings,
Inc. Prior to the Reverse Merger, certain stockholders of Clear Skies Group,
Inc. agreed to surrender an aggregate of 60,000 shares of Clear Skies Group,
Inc. (exchangeable for an aggregate of 116,276 shares of common stock of Clear
Skies Holdings, Inc. in the Reverse Merger) for cancellation. Pursuant to the
Reverse Merger, the outstanding shares of common stock of Clear Skies Group,
Inc. were exchanged for an aggregate of 8,492,067 shares of Clear Skies
Holdings, Inc. at a conversion rate of 1.937943 shares of Clear Skies Holdings,
Inc. for each share of Clear Skies Group, Inc. In addition, pursuant to the
Reverse Merger, outstanding warrants to purchase an aggregate of 760,000 shares
of common stock of Clear Skies Group, Inc. were exchanged for an aggregate of
416,656 shares of common stock of Clear Skies Holdings, Inc.
Immediately
following the closing of the Reverse Merger, Clear Skies Holdings, Inc.
transferred all of its pre-Reverse Merger operating assets and liabilities to
its newly formed wholly owned subsidiary, BIP Holdings, Inc., a Delaware
corporation, and transferred all of BIP Holdings, Inc.’s outstanding capital
stock to Clear Skies Holdings, Inc.’s then-majority stockholders in exchange for
cancellation of 53,866,923 shares of Clear Skies Holdings, Inc. common stock
held by those stockholders (such transaction, the “Split-Off”). The remaining
pre-Reverse Merger stockholders of Clear Skies Holdings, Inc. continued to hold
5,975,000 shares of Clear Skies Holdings, Inc. after the split-off. After the
Reverse Merger, Clear Skies Holdings, Inc. succeeded to the business and
activities of Clear Skies Group, Inc. as its sole line of business and all of
Clear Skies Holdings, Inc.’s then-current officers and directors resigned and
were replaced by Clear Skies Group, Inc.’s officers and directors.
On
January 25, 2008, Clear Skies Holdings, Inc. changed its name to Clear
Skies Solar, Inc.
The
Reverse Merger was accounted for as a reverse acquisition and recapitalization
of Clear Skies Group, Inc. for financial accounting purposes. Consequently, the
assets and liabilities and the historical operations that are reflected in the
Company’s consolidated financial statements for periods prior to the Reverse
Merger are those of Clear Skies Group, Inc. and have been recorded at the
historical cost basis of Clear Skies Group, Inc., and the Company’s consolidated
financial statements for periods after completion of the reverse merger include
both the Company’s and Clear Skies Group, Inc.’s assets and liabilities, the
historical operations of Clear Skies Group, Inc. prior to the Reverse Merger and
the Company’s operations from the closing date of the Reverse
Merger.
The December 2007
private placement
Following
the business combination discussed above, the Company completed a private
placement offering of 16,000,000 shares of its common stock for an aggregate
gross purchase price of $8,000,000, including $745,000 of exchanged debt. The
cash costs of the private placement of common stock and the prior issuance of
$745,000 of bridge notes were approximately $1.2 million in the aggregate,
and the Company issued warrants expiring in December 2010 in connection
with both financings to the placement agent and its designees to purchase an
aggregate of up to 732,401 shares of the Company’s common stock at $.50 per
share. The common stock of Clear Skies Solar, Inc. trades on the over the
counter bulletin board under the symbol CSKH.OB.
F-28
3. Summary of significant accounting
policies
Accounts
Receivable and Allowance for Doubtful Accounts
The
Company regularly evaluates the collectability of its accounts receivable. The
Company carries its accounts receivable at cost less an allowance for doubtful
accounts. On a periodic basis, the Company evaluates its accounts receivable and
establishes an allowance for doubtful accounts, if necessary, based on a history
of past bad debts and collections and current credit
conditions. Accounts receivable are written-off as uncollectible on a
case-by-case basis at the discretion of management. Accounts
receivable consist of trade receivables and when applicable amounts due from
state agencies for rebates on state-approved solar systems installed. A total of
$29,542 of rebates was included in accounts receivable at June 30, 2009.
When the Company sells systems with a rebate component, the savings is passed
directly to the customer and the Company takes ownership of the rebate
receivable from the applicable state agency.
Inventories
Inventories
are valued at the lower of cost or market. Cost is determined by the first-in,
first-out method or the weighted average method. Inventory includes materials,
labor and manufacturing overhead costs and is recorded net of an allowance for
obsolete or unmarketable inventories. Such allowance is based upon both
historical experience and management’s understanding of market conditions and
forecasts of future product demand. In addition, items in inventories in excess
of one year’s usage are compared to the allowance for adequacy. If the actual
amount of obsolete or unmarketable inventories significantly exceeds the
estimated allowance, the Company’s cost of sales, gross profit and net earnings
would be significantly affected.
Revenue
Recognition
The
Company delivers turnkey solar electricity installations and renewable energy
technology solutions to commercial, industrial and residential developer
customers. The Company’s primary business is the design and installation of
photovoltaic (sometimes called “solar electric” or “PV” for short) solar power
systems for the commercial, industrial and residential developer markets. Based
on its design the Company orders components from manufacturers, has them shipped
to the job site and then completes the job. The Company will also order extra
solar panels for inventories and hold them until needed for a particular
job.
The
Company recognizes revenue from its contracts over the contractual period under
the percentage-of-completion (“POC”) method of accounting. Under the POC method
of accounting, sales and gross profit are recognized as work is performed based
on the relationship between actual costs incurred and total estimated costs at
the completion of the contract. Recognized revenue that will not be billed under
the terms of the contract until a later date is recorded as an asset captioned
“Costs and estimated earnings in excess of billings on uncompleted contracts.”
Contracts where billings to date have exceeded recognized revenue are recorded
as a liability captioned “Billings in excess of costs and estimated earnings on
uncompleted contracts.” Changes to the original estimates may be
required during the life of the contract. Estimates are reviewed
monthly and the effect of any change in the estimated gross margin percentage
for a contract is reflected in cost of sales in the period the change becomes
known. The use of the POC method of accounting involves considerable use of
estimates in determining revenue, costs and profits and in assigning the amounts
to accounting periods. As a result, there can be a significant disparity between
earnings (both for accounting and taxes) as reported and actual cash received by
the Company during any reporting period. The Company continually evaluates all
of the issues related to the assumptions, risks and uncertainties inherent with
the application of the POC method of accounting; however, it is not assured that
its estimates will be accurate. If the Company’s estimates are not accurate or a
contract is terminated, it will be forced to adjust revenue in later periods.
Furthermore, even if its estimates are accurate, the Company may have a
shortfall in its cash flow and it may need to borrow money to fund its work in
process or to pay taxes until the reported earnings materialize in actual cash
receipts.
F-29
From time
to time, the Company performs installation and other services as a
subcontractor. These services differ from contract revenue in that the Company
is entitled to be compensated for subcontractor work performed prior to
completion of the system, because the Company has no obligation or ownership of
the system so long as it completes its tasks satisfactorily. Revenues from
subcontractor projects are realized as they are completed.
Cost
Recognition
Contract
costs include all direct material, labor, and equipment costs and those indirect
costs related to contract performance such as indirect labor, supply, and tool
costs. The Company makes provisions for estimated losses on uncompleted
contracts in the period in which such losses are determined. Changes in job
performance, job conditions, and estimated profitability, including those
arising from contract penalty provisions, and final contract settlements may
result in revisions to costs and income and are recognized in the period in
which the revenues are determined.
The
Company carries inventories as it needs to buy materials in advance of
anticipated orders due to possible long lead times at vendors. In addition, the
Company will have purchased material at job sites prior to installation and
completion of the job.
Loss Per
Share
The
Company complies with SFAS No. 128, “Earnings Per Share.” SFAS No. 128
requires dual presentation of basic and diluted income/loss per share for all
periods presented. Basic income/loss per share excludes dilution and is computed
by dividing income/loss available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted income/loss per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then share in the income/loss of
the Company. The difference between the number of shares used to compute basic
income/loss per share and diluted income/loss per share relates to additional
shares to be issued upon the assumed exercise of stock options and warrants, net
of shares hypothetically repurchased at the average market price with the
proceeds of exercise. As the Company reported a net loss for the three and six
month periods ended June 30, 2009 and 2008, the effects of the 28,281,366
shares issuable on exercise of outstanding warrants and options and on the
conversion of notes and contractual obligations as of June 30, 2009 has not
been considered in the diluted net loss per common share since these dilutive
securities would reduce the loss per common share and become
anti-dilutive.
Recent Accounting
Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides a
new single authoritative definition of fair value and provides enhanced guidance
for measuring the fair value of assets and liabilities and requires additional
disclosures related to the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value, and the
effect of fair value measurements on earnings. SFAS 157 is effective as of
November 15, 2007. The adoption of this statement did not have a material
effect on the Company’s financial position or results of
operations.
In
February 2007, the FASB issued SFAS No. 159, ''The Fair Value Option
for Financial Assets and Liabilities, Including an amendment of FASB Statement
No. 115”, (''SFAS 159’’). This Statement permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. SFAS 159 is effective
as of the beginning of fiscal 2008. The adoption of this statement did not have
a material effect on our financial position or results of operations since the
Company did not elect to measure any applicable assets and liabilities at fair
value.
F-30
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations.” SFAS No. 141(R) provides companies with principles and
requirements on how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, liabilities assumed, and any
non-controlling interest in the acquiree as well as the recognition and
measurement of goodwill acquired in a business combination. SFAS No. 141(R)
also requires certain disclosures to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
Acquisition costs associated with the business combination will generally be
expensed as incurred. SFAS No. 141(R) is effective for business
combinations occurring in fiscal years beginning after December 15, 2008,
which will require the Company to adopt these provisions for business
combinations occurring in fiscal 2009 and thereafter. Early adoption of SFAS
No. 141(R) is not permitted.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements — An Amendment of ARB No. 51”. SFAS
No. 160 requires reporting entities to present noncontrolling
(minority) interests as equity as opposed to as a liability or mezzanine
equity and provides guidance on the accounting for transactions between an
entity and noncontrolling interests. SFAS No. 160 is effective the first
fiscal year beginning after December 15, 2008, and interim periods within
that fiscal year. SFAS No. 160 applies prospectively as of the beginning of
the fiscal year SFAS No. 160 is initially applied, except for the
presentation and disclosure requirements which are applied retrospectively for
all periods presented subsequent to adoption. The adoption of SFAS No. 160
will not have a material impact on the financial statements; however, it could
impact future transactions entered into by the Company.
In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles.” SFAS No. 162 identifies the sources of
accounting principles and provides entities with a framework for selecting the
principles used in preparation of financial statements that are presented in
conformity with GAAP. The current GAAP hierarchy has been criticized because it
is directed to the auditor rather than the entity, it is complex, and it ranks
FASB Statements of Financial Accounting Concepts, which are subject to the same
level of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The FASB believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. The adoption of FASB 162 is not expected
to have a material impact on the Company’s consolidated financial
statements.
On May
28, 2009, the FASB issued FASB Statement No. 165, “Subsequent Events” (“SFAS No.
165”). Statement 165 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. Specifically,
Statement 165 provides:
1.
|
The
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial
statements.
|
2.
|
The
circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial
statements.
|
3.
|
The
disclosures that an entity should make about events or transactions that
occurred after the balance sheet
date.
|
In
accordance with this Statement, an entity should apply the requirements to
interim or annual financial periods ending after June 15, 2009. Management of
the Company does not expect the adoption of this pronouncement to have material
impact on its financial statements.
Stock Based
Compensation
The FASB
issued SFAS No. 123(R), “Accounting for Stock-Based Compensation
(Revised).” SFAS No. 123(R) focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
SFAS 123(R) requires an entity to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair
value of the award (with limited exceptions). That cost will be recognized
during the period in which an employee is required to provide service in
exchange for the award. No compensation costs are recognized for equity
instruments for which employees do not render the requisite service. The Company
adopted SFAS No. 123(R) at commencement of operations.
4. Liquidity and capital
resources
Since
inception, the Company has incurred losses and negative cash flows from
operations and at June 30, 2009, the Company had an accumulated deficit of
approximately $13.8 million. At June 30, 2009 we had
approximately $18,000 in cash and cash equivalents. As of July 31,
2009, our available balance of cash and cash equivalents was approximately
$61,000, which amount is after the receipt of the $260,000 proceeds from the
July 2009 Financing, in which we sold (i) secured convertible promissory notes
in the aggregate principal amount of $286,000 and (ii) warrants to purchase up
to 4,085,714 shares of the Company’s common stock. The bulk of these
proceeds were to pay a portion of the overdue employee salaries and reimbursable
expenses as well as employee benefits and insurance costs. As part of
the July 2009 Financing, the conversion price of the convertible notes and the
purchase price of the warrants issued in the May 2009 Financing were reduced
from $.10 and $.15, respectively, to $.07. See our Form 8-K filed with the
Securities and Exchange Commission on August 3, 2009 and our Form 8-K/A filed
with the Securities and Exchange Commission on August 5, 2009.
Based on
our current plans and assumptions, which include our expectations relating to
the future sale of our equity and debt securities and entering into contracts
for the financing and installation of solar energy systems and the resulting
cash flows and revenues, we believe that we will have adequate resources to fund
our operations in 2009. While management believes these can be
accomplished, there can be no assurance that we will be successful in entering
into construction contracts or selling our securities, in which case we will
probably not be able to continue as a going
concern. Notwithstanding the July 2009 Financing, the May 2009
Financing and borrowings of $282,464 in the first half of 2009 from an unrelated
third party, we will need to raise additional funds to pay outstanding vendor
invoices and operating expenses.
F-31
5. Prepaid expenses and investor
relations fees
Prepaid
expenses and prepaid investor relation fees at June 30, 2009 and
December 31, 2008 are as follows:
June 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Payments
to US public and investor relations firms
|
$ | 141,667 | $ | 191,667 | ||||
Prepayment
to compensation to be amortized over the periods in which the services
will be rendered
|
360,000 | 0 | ||||||
Prepaid
– other
|
23,955 | 0 | ||||||
Prepaid
insurance premiums
|
0 | 3,606 | ||||||
Totals
|
$ | 525,622 | $ | 195,273 |
The
Company has entered into agreements with several firms in the US to provide it
with both public relations and investor relations advice and services over
periods from six months to three years. These agreements call for payments in
both cash and common stock and payments are being amortized over the period of
each agreement.
6. Stock-based compensation and
common stock issued and agreed to be issued
Upon
commencement of operations, the Company entered into multiple agreements in
which the Company received consulting and other services in exchange for the
Company’s common stock or options to purchase the Company’s common stock. The
Company complies with SFAS 123(R) and records compensation expense for the fair
value of these services over the periods in which they are
provided.
In
September 2005, the Company agreed to grant 120,000 shares (exchanged for
232,553 shares in the Reverse Merger) to three individuals for agreeing to serve
on the Board of Directors for a three-year term. The fair value of these shares
at the date of such agreement was estimated to be approximately $96,000. For
the six months ended June 30, 2009 and 2008, the Company recorded Board of
Director fees and compensation expense, which are included in general and
administrative expenses, of approximately zero, and $21,333, respectively, for
these shares. The balance of these costs was charged to earnings
during 2008 and therefore there were no amounts on the balance sheets as at June
30, 2009 or December 31, 2008.
As a
result of the above transactions, capital advances of $310,000 in
September 2005 and $200,000 in April 2006, and services performed in
exchange for shares issued prior to 2006, the Company became contractually
obligated to issue shares in excess of its 200 authorized shares (“Old Shares of
Clear Skies Group, Inc.”). As a result, the Company recorded a liability of
approximately $894,000 as of December 31, 2006 for the value of the
contractual obligations. Due to the contractual obligation to issue the excess
shares, the Board of Directors, with stockholder approval, passed a resolution
to increase the number of authorized shares to 10,000,000. On January 30,
2007, the certificate of incorporation (the “Charter”) was officially amended to
authorize the Company to issue 10,000,000 shares (“New Shares of Clear Skies
Group, Inc.”) of $0.01 par value common stock. Concurrently with the amendment
to the Charter, the Company’s sole shareholder was issued 1,570,000 New Shares
of Clear Skies Group, Inc. (exchanged for 3,042,570 shares in the Reverse
Merger) in exchange for the Old Shares of Clear Skies Group, Inc. previously
issued. Upon the amendment to the Charter, the obligation to issue 1,042,500
shares of CSG common stock (exchanged for 2,020,297 in the Reverse Merger) was
fulfilled and the liability was reclassified to Stockholders’ Equity as Common
Stock to the extent of par value with the excess classified as Additional
Paid-In Capital. The Company was obligated under a contract with a public
relations consultant to issue $4,500 worth of its common stock to the consultant
each month during the term of the contract which expired on September 30,
2008. The Board determined the value of the shares for each month at the closing
price of the Company’s common stock on the last trading day of the prior
month.
F-32
7. Related party
transactions
In
April 2007, the Company issued 40,000 shares (exchanged for 77,517 shares
in the Reverse Merger) to an individual who was a director as compensation for
services rendered other than as a director. The fair value of these shares at
issuance was estimated to be approximately $33,000 which was recorded as service
fees and included in general and administrative expenses for the nine months
ended September 30, 2007. In June 2008, the Company issued an option
to an individual who was a director at that time as compensation for services
rendered other than as a director. The option allows the individual to purchase
up to 50,000 shares of the Company’s common stock at $1.21 per share and expires
in December 2009. The fair value of the option at issuance was estimated to
be $33,000 which was recorded as a service fee and included in general and
administrative expenses when the option was issued.
Several
of the Company’s officers and directors, or their affiliates, have from time to
time extended loans to the Company or agreed to defer compensation payable to
them in order to fund the Company’s operating expenses. In this regard:
(i) Quixotic Systems, Inc. (“Quixotic”) loaned $285,000 at 10% interest
compounded daily, which had been repaid in full as of December 31, 2007;
and (ii) Gelvin Stevenson loaned $20,000 all of which had been repaid in
full as of December 31, 2007. Furthermore, Ezra Green, the Company’s
Chairman and Chief Executive Officer, agreed to the deferral of $73,259 of his
compensation (of which $69,366 was unpaid and included in accrued expenses as of
December 31, 2007). As of March 18, 2008, Mr. Green’s deferred
compensation had been repaid in full. Mr. Green advanced $30,275 to the
Company in 2006 and an additional $70,037 in 2007 (which has been recorded as a
balance of $100,312 due to related party at December 31, 2007). This
related party balance was also repaid in full by March 18, 2008. Such loans
and other arrangements were interest free (except for Quixotic) and have not
been memorialized by written promissory notes. At December 31, 2007, there
were miscellaneous amounts due to related parties of approximately $4,000 which
were paid in March, 2008. As of June 30, 2009 and December 31,
2008 no related party loans were outstanding.
8. Stock Options and
Warrants
In
accordance with Statement on Auditing Standards ("SAS") No. 123(R), the
Company uses the Black-Scholes option pricing model to measure the fair value of
its Option awards granted in 2007 as part of or after the Reverse Merger
described in Note 1. All Option awards granted prior to the Reverse Merger
transaction described in Note 2 were exchanged for common stock as part of that
transaction. The Black-Scholes model requires the input of highly subjective
assumptions including volatility, expected term, risk-free interest rate and
dividend yield. As the Options were granted to non-employee consultants the
resulting fair value is recorded as consulting expense on a straight-line basis
over the period of service of the consultants, in this case one year. The amount
of this expense charged to earnings for the three and six month periods ended
June 30, 2009 and 2008 were zero, zero, $33,750 and $13,924, respectively. There
will be no charge against earnings in 2009.
F-33
In
December 2007, the Company’s shareholders approved its 2007 Equity
Incentive Plan which provides for the granting to both employees and
non-employees of up to 2,500,000 shares of the Company’s common stock pursuant
to awards of options and/or restricted stock. The 2007 Plan is administered by
the Company’s Board of Directors or a committee appointed by the Board. On
July 28, 2008, the Board adopted our 2008 Equity Incentive Plan and on
March 17, 2009 it adopted our 2009 Equity Incentive Plan. At June 30,
2009, the Company had outstanding options granted under the 2007, 2008 and 2009
Plans to purchase an aggregate of 6,000,000 shares of the Company’s common
stock. On May 1, 2008 the Company adopted the Clear Skies Solar, Inc. 2008
Non-Employee Director Compensation Plan, which it amended on November 12, 2008
and, pursuant to that Plan as amended, each of the non-employee directors were
granted options expiring in ten years to purchase 90,000 shares, 90,000 shares
and 220,000 shares at $1.30, $.2725 and $.12 per share, respectively. A summary
of the Company’s stock option activity in the first six months of 2009 for
employees and three non-employees is as follows:
Weighted
|
||||||||||||
Weighted
|
Average
|
|||||||||||
Average
|
Remaining
|
|||||||||||
Number
|
Exercise
|
Contractual
|
||||||||||
of
|
Price
per
|
Term
|
||||||||||
Options
|
Option
|
(Years)
|
||||||||||
Employees:
|
||||||||||||
Outstanding,
January 1, 2009
|
3,030,000 | $ | 0.99 | 7.40 | ||||||||
Granted
— March 17 - 2009
|
2,555,000 | $ | 0.12 | 9.02 | ||||||||
Cancelled/forfeited
|
-35,000 | $ | 0.49 | |||||||||
Outstanding,
June 30, 2009
|
5,550,000 | |||||||||||
Non-employees:
|
||||||||||||
Granted
— March 17 & April 14, 2009
|
450,000 | $ | 0.12 | 10.00 | ||||||||
Outstanding,
June 30, 2009
|
6,000,000 |
The
following table summarizes additional information about the assumptions used to
determine the fair value of stock options granted during the three and six
months ended June 30, 2009:
Risk
free rate
|
2.00%
- 2.64%
|
|
Stock
price volatility
|
121%
|
|
Dividend
yield
|
0
|
|
Term
|
4.5
- 6 years
|
The
estimated stock price volatility was derived based on the average volatility of
34 companies that the Company considered reasonably similar to it. The risk free
rate of return was based on the yield of US Treasury debt of comparable
maturities on the date of issuance of the Options.
During
the three and six month periods ended June 30, 2009 and 2008, the Company
recorded approximately $248,000, $476,000, $294,000 and $211,000, respectively,
of stock-based compensation for issuances under these Plans. The amount of
compensation expense not yet recognized is $1,744,445 which will be
recognized over the next three years.
On
July 28, 2008 and March 17, 2009, the Company’s Board of Directors adopted
the Clear Skies Solar, Inc. 2008 and 2009 Equity Incentive Plans, respectively,
each of which permits the granting of up to 2,500,000 shares of the Company’s
common stock pursuant to awards of incentive and non-qualified stock options
and/or restricted stock. The Company no longer plans to seek shareholder
approval of the 2008 Plan, as, in order for any awards thereunder to qualify as
incentive stock options, the Company would have had to obtain such approval by
July 27, 2009. The Company does plan to seek shareholder
approval of the 2009 Plan by March 16, 2010. Options granted under each of the
2008 and 2009 Plans must have a duration of not more than ten years and, if an
incentive stock option, then it must have an exercise price of not less than the
Fair Market Value (as defined in each Plan) on the date of
grant. Options granted under these Plans are included in the table
above.
On July
29, 2009 the Board of Directors agreed to grant employees and non-employee
directors ten year fully vested options to purchase our common stock equal to
the number of shares covered by existing options with an exercise price of $.50
or higher on the condition that the holders of the existing options agree to
their cancellation. The exercise price of options that would be
granted to employees would be $.09 and the exercise price of options that would
be granted to non-employee directors would be $.13, in both cases the fair
market value on July 29, 2009 as defined in the relevant option
plans. The maximum number of options that might be granted to
employees would be 1,955,000 and to non-employee directors would be
180,000.
As of
June 30, 2009, the Company’s outstanding options granted prior to July 1, 2009
had no intrinsic value due to the stock price on the date of grant.
As of
June 30, 2009, options granted to non-employees may be exercised to
purchase a total of 410,000 shares and options granted to employees may be
exercised to purchase a total of 485,000 shares.
F-34
9. Contracts
The
Company generates billings based on the fulfillment of milestones, which are set
forth in the signed contract for each project. Milestones may include, but are
not limited to, initial permits being obtained, delivery of materials, and when
installation is subsequently complete.
As
of June 30, 2009 and December 31, 2008
|
2009
|
2008
|
||||||
Costs
incurred on contracts
|
$ | 2,441,162 | $ | 2,381,574 | ||||
Estimated
earnings, less foreseeable losses
|
423,899 | 483,488 | ||||||
2,865,061 | 2,865,062 | |||||||
Billings
to date
|
(2,907,614 | ) | (2,905,394 | ) | ||||
Net
costs and estimated earnings/losses in excess of billings
|
$ | (42,553 | ) | $ | (40,332 | ) | ||
These
amounts are included in the accompanying June 30, 2009 and
December 31, 2008 balance sheets under the following
captions:
|
||||||||
Costs
and estimated earnings in excess of billings
|
$ | $ | ||||||
Billings
in excess of costs and estimated earnings
|
(42,553 | ) | (40,332 | ) | ||||
$ | (42,553 | ) | $ | (40,332 | ) |
10. Commitments and
Contingencies
Litigation
From time
to time, the Company is a party to various legal matters in the normal course of
business, the outcome of which, in the opinion of management, will not have a
material adverse effect on the financial position, results of operations or cash
flows of the Company.
Lease
commitments
The
Company occupies premises, since June 25, 2008, consisting of 3,356 square
feet in a modern office building pursuant to a seven year lease. Annual fixed
rent under this lease is $93,968 in the first year escalating to $115,510 in the
seventh year. Additional payments are due for electricity and tax escalation in
amounts to be determined in each future year. The Company has provided a letter
of credit as security under this lease in the initial amount of $113,634 which
reduces to $56,817 after two years and to $28,408 after four years.
Employment
agreements
The
Company has entered into three year employment agreements with several employees
providing for severance arrangements. The severance arrangements become Company
obligations if the Company terminates such contract without “cause” or if the
covered employee terminates his contract with “good reason” (as such terms are
defined in the relevant agreement) and vary in amount (based on the salary in
effect on such termination date) and duration from three months to the remainder
of the contract term.
F-35
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13.
Other Expenses of Issuance and Distribution
The
following table sets forth the costs and expenses, other than underwriting
discounts and commissions, if any, payable by us relating to the sale of common
stock being registered. All amounts are estimates except the SEC registration
fee.
SEC
registration fee
|
$
|
346.28
|
||
Legal
fees and expenses
|
$
|
25,000.00
|
||
Accounting
fees and expenses
|
$
|
0
|
||
Miscellaneous
|
$
|
250.00
|
||
Total
|
$
|
25,596.28
|
Item 14.
Indemnification of Directors and Officers
Section 145
of the Delaware General Corporation Law (“DGCL”) provides, in general, that a
corporation incorporated under the laws of the State of Delaware, such as we
are, may indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding
(other than a derivative action by or in the right of the corporation) by reason
of the fact that such person is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person’s conduct was unlawful. In the case of a
derivative action, a Delaware corporation may indemnify any such person against
expenses (including attorneys’ fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification will be made in respect of any claim, issue or matter as to
which such person will have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery of the State of Delaware or
any other court in which such action was brought determines such person is
fairly and reasonably entitled to indemnity for such expenses.
Our
Certificate of Incorporation and Bylaws provide that we will indemnify our
directors, officers, employees and agents to the extent and in the manner
permitted by the provisions of the DGCL, as amended from time to time, subject
to any permissible expansion or limitation of such indemnification, as may be
set forth in any stockholders’ or directors’ resolution or by
contract.
We also
have director and officer indemnification agreements with each of our executive
officers and directors that provide, among other things, for the indemnification
to the fullest extent permitted or required by Delaware law, provided that such
indemnitee shall not be entitled to indemnification in connection with any
“claim” (as such term is defined in the agreement) initiated by the indemnitee
against us or our directors or officers unless we join or consent to the
initiation of such claim, or the purchase and sale of securities by the
indemnitee in violation of Section 16(b) of the Exchange Act.
Any
repeal or modification of these provisions approved by our stockholders shall be
prospective only, and shall not adversely affect any limitation on the liability
of a director or officer of ours existing as of the time of such repeal or
modification.
We are
also permitted to apply for insurance on behalf of any director, officer,
employee or other agent for liability arising out of his actions, whether or not
the DGCL would permit indemnification.
II-1
Item 15.
Recent Sales of Unregistered Securities
During
the last three years, we have issued unregistered securities to the persons, as
described below. None of these transactions involved any underwriters,
underwriting discounts or commissions, or any public offering. The sales of
these securities were deemed to be exempt from the registration requirements of
the Securities Act of 1933 by virtue of Section 4(2) thereof, and/or
Rule 506 of Regulation D promulgated thereunder, as transactions by an
issuer not involving a public offering. The recipients of securities in each
such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the certificates
issued in such transactions. All purchasers of our securities were accredited or
sophisticated persons and had adequate access, through employment, business or
other relationships, to information about us.
Sales
by BIP Oil, Inc.
BIP Oil,
Inc. was incorporated in the State of Nevada in January 2007 and issued
5,000,000 shares of its common stock to its founders for $50 cash and services
rendered that were valued, in the aggregate, at $5,000 by its board of
directors. These shares were not registered under the Securities Act, or the
securities laws of any state, and were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) and Regulation D
(Rule 506) under the Securities Act and corresponding provisions of state
securities laws, which exempt transactions by an issuer not involving any public
offering.
In
March 2007, BIP Oil, Inc. completed a private placement of 1,510,000 shares
of its common stock to 55 investors, at a purchase price of $0.10 per share for
an aggregate offering price of $151,000. These shares were not registered under
the Securities Act, or the securities laws of any state, and were offered and
sold in reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding
provisions of state securities laws, which exempt transactions by an issuer not
involving any public offering.
Sales
by Clear Skies Solar, Inc.
As of
December 20, 2007, we accepted subscriptions for a total of 283.8 units in
a private placement, with each unit consisting of 50,000 shares of our common
stock, and as of December 24, 2007, we accepted subscriptions for another
36.2 units in such private placement. In total, we sold 320 units consisting of
an aggregate of 16,000,000 shares of our common stock in the December 2007
private placement for a purchase price of $25,000 per unit, pursuant to the
terms of a Confidential Private Placement Memorandum, dated November 12,
2007, as supplemented. We received gross proceeds from such closings of the
private placement, including $745,000 principal amount of bridge notes that were
exchanged in such private placement, of $8,000,000.
Our
December 2007 private placement was made solely to “accredited investors,”
as that term is defined in Regulation D under the Securities Act. The
securities sold in such private placement were not registered under the
Securities Act, or the securities laws of any state, and were offered and sold
in reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding
provisions of state securities laws, which exempt transactions by an issuer not
involving any public offering.
We agreed
to pay the following placement agent fees to Westminster Securities Corporation
or its designees in connection with our December 2007 private placement:
(i) a cash fee of $626,650 (equal to 8% of the aggregate cash purchase
price of units sold to investors in the private placement, or up to 9% for units
placed through selected dealers), and (ii) three-year warrants to purchase
640,000 shares of our common stock (equal to 4% of the common stock included in
units sold in the private placement) at an exercise price of $0.50 per share
(subject to adjustment).
II-2
On
March 24, 2008, April 3, 2008, May 2, 2008 and June 1, 2008,
we issued 41,374 shares (equal to $49,648.80 based on the fair market value at
the time of issuance), 3,750 shares (equal to $4,687.50 based on the fair market
value at the time of issuance), 3,461 shares (equal to $4,118.59 based on the
fair market value at the time of issuance) and 3,913 shares (equal to
$4,499.95 based on the fair market value at the time of issuance), respectively,
of our common stock to a investor relations firm for services provided to us. On
April 3, 2008, we issued 200,000 shares of our common stock (equal to
$250,000 based on the fair market value at the time of issuance) to a public
relations firm for services provided to us in accordance with an agreement dated
November 28, 2007. On April 3, 2008, we issued 105,000 shares (equal to
$131,250 based on the fair market value at the time of issuance) and 43,000
shares (equal to $53,750 based on the fair market value at the time of
issuance), respectively, of our common stock to an employee and a consultant,
respectively, for services rendered to us. On each of April 11, 2008 and
June 9, 2008, we issued 25,000 shares (equal to $39,000 and $33,500,
respectively, based on the fair market value at the time of issuance) of our
common stock to an investor relations consultant for services provided to us in
accordance with an agreement dated March 15, 2008. On June 6, 2008, we
issued 100,000 shares (equal to $122,000 based on the fair market value at the
time of issuance) to a financial consultant for services provided to us in
accordance with an agreement dated May 12, 2008. These securities
were not registered under the Securities Act, or the securities laws of any
state, and were offered and sold in reliance on the exemption from registration
afforded by Section 4(2) under the Securities Act and corresponding provisions
of state securities laws, which exempt transactions by an issuer not involving
any public offering.
On
July 1, 2008 and August 11, 2008, we issued 3,813 shares and 6,428
shares, respectively, of our common stock to an investor relations firm as
compensation for services provided to us pursuant to the Letter Agreement, dated
October 7, 2007, between Clear Skies Group, Inc. and Avalanche Strategic
Communications. Each issuance to Avalanche was due on the first day of each
month and was valued at $4,500 based on the closing price of the Company’s
common stock on the last trading day of the preceding month.
On
August 12 and 18, 2008, we issued a total of 30,280 shares of our common
stock upon the exercise of a warrant issued in connection with our Private
Placement.
On
August 14, 2008, we issued 187,991 shares of our common stock to purchasers
of common stock in our Private Placement as liquidated damages due to the late
filing and late effectiveness of a registration statement.
On
October 7, 2008 we issued 8,333 shares of our common stock to an investor
relations firm as compensation for services provided to us pursuant to the
Letter Agreement, dated October 7, 2007, between Clear Skies Group, Inc.
and Avalanche Strategic Communications. Each issuance to Avalanche was due on
the first day of each month and was valued at $4,500 based on the closing price
of the Company’s common stock on the last trading day of the preceding
month.
On
October 8, 2008, we issued 25,000 shares (equal to $6,225 based on the fair
market value at the time of issuance) of our common stock to an investor
relations consultant for services provided to us in accordance with an agreement
dated March 15, 2008.
On
January 6 and 13, 2009, we issued 25,000 shares and 200,000 shares,
respectively, of our common stock to an investor relations firm and to a law
firm, respectively, as compensation for services provided to us pursuant to
agreements dated March 15, 2008, and January 5, 2009. Each issuance
was valued at the closing price of the Company’s common stock on the last
trading day preceding the date of issue. Each certificate carries a restricted
stock legend on its face.
On May
8, July 28 and September 16, 2009, the Company entered into subscription
agreements, by and among the Company and certain “accredited investors,” as that
term is defined in Regulation D under the Securities Act. The subscription
agreements provided for, among other things, the sale by the Company of (i)
secured convertible promissory notes in the original aggregate principal amount
of $400,000, $286,000 and $275,000, respectively, (ii) warrants to purchase up
to 4,000,000, 4,085,714 and 1,718,750 shares, respectively, of the Company’s
common stock and (iii) 1,250,000 shares of common stock in connection with the
September transaction. These securities were not registered under the Securities
Act, or the securities laws of any state, and were offered and sold in reliance
on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding
provisions of state securities laws, which exempt transactions by an issuer not
involving any public offering. In addition, in connection with the May, July and
September, 2009 private placements we issued 150,000, 550,000 and 200,000
shares, respectively, to Grushko & Mittman, PC, counsel to the investors. We
also issued 300,000 and 200,000 shares, respectively, in connection with the
July and September private placements, to Sichenzia Ross Friedman Ference LLP,
counsel to the Company.
The
notes will mature one year from the issuance date and will accrue
interest at the rate of 6% per annum, payable on the maturity date, except for
the September notes that mature on October 31, 2009 and have an interest
rate of 5% per annum. During an event of default (as defined in the notes),
the interest rate of the notes will be increased to 18% per annum until paid in
full. In addition, upon the occurrence of an event of default, all
principal and interest then remaining unpaid shall immediately become due and
payable upon demand. Events of default include but are not limited to (i) the
Company’s failure to make payments when due, (ii) breaches by the Company of its
representations, warranties and covenants, and (iii) delisting of the Company’s
common stock from the OTC Bulletin Board.
II-3
Pursuant
to the terms of the notes, the subscribers have the right, so long as the notes
are not fully repaid, to convert the notes into shares of the Company’s common
stock at a conversion price of $.07 per share, and the September note holders at
$.16 per share, as may be adjusted. The notes contain anti-dilution
provisions, including but not limited to if the Company issues shares of its
common stock at less than the then existing conversion price, the conversion
price of the notes will automatically be reduced to such lower price. The notes
contain limitations on conversion, including the limitation that the holder may
not convert its note to the extent that upon conversion the holder, together
with its affiliates, would own in excess of 4.99% of the Company’s outstanding
shares of common stock (subject to an increase upon at least 61-days’ notice by
the subscriber to the Company, of up to 9.99%). If the
Company does not consummate a sale of its common stock that nets at least
$700,000 (the “Additional Funding”) within twenty-eight days after the issuance
date (September 16, 2009), then the conversion price of the September Notes
shall be reduced to $0.07, or if the Additional Funding is not consummated
within fifty-six days after the issuance date, then the conversion price
will be further reduced to $0.04.
The notes
are secured by a security interest in certain assets of the Company, pursuant to
a security agreement.
The
warrants are exercisable for a period of three (3) years at an exercise price of
$.07 per share, as may be adjusted. The warrants contain
anti-dilution provisions, including but not limited to if the Company issues
shares of its common stock at less than the then existing exercise price,
the exercise price of the Warrants will automatically be reduced to such lower
price. The warrants contain limitations on exercise, including the
limitation that the holders may not convert their Warrants to the extent that
upon exercise the holder, together with its affiliates, would own in excess of
4.99% of the Company’s outstanding shares of common stock (subject to an
increase upon at least 61-days’ notice by the Subscriber to the Company, of up
to 9.99%). If the
Company does not consummate a sale of its common stock that nets at least
$700,000 (the “Additional Funding”) within twenty-eight days after the issuance
date (September 16, 2009), then the exercise price of the September Warrants
shall be reduced to $0.07, or if the Additional Funding is not consummated
within fifty-six days after the issuance date, then the exercise price will be
further reduced to $0.04.
The
warrants may be exercised on a “cashless” basis commencing ninety-one (91) days
after their issuance, only with respect to underlying shares not
included for unrestricted public resale in an effective registration statement
on the date notice of exercise is given by the holder.
In
connection with a series of loans from the Green Energy Trust (the “Trust”), a
non-affiliated third party, we issued unsecured two year notes (the “GET Notes”)
in an aggregate face amount of $257,464, bearing interest at a rate of 8% per
annum, payable quarterly in cash or stock at our option and, if stock, at $.15
per share. The GET Notes are convertible into shares of our common
stock with the conversion price of each note originally set at $.03 below the
closing price per share of our common stock on the day before the issuance of
each note. During an event of default (as defined in the GET Notes),
their interest rate will be increased to 12% per annum until paid in
full. In addition, upon the occurrence of an event of default, all
principal and interest then remaining unpaid shall immediately become due and
payable upon demand in an amount equal to 115% thereof. Events of default
include but are not limited to (i) the Company’s failure to make payments when
due and (ii) change of control of the Company as defined
therein.
Simultaneously
with the issuance of the GET Notes we issued warrants to the
Trust. The warrants are exercisable for a period of five (5) years at
an exercise price of $.05 per share higher than the closing price per share of
our common stock on the day before the issuance of each note, as may be
adjusted. The Warrants contain anti-dilution provisions including in the event
of a recapitalization, reclassification, subdivision or combination of shares, a
stock dividend is declared or a stock and rights offering is made to
shareholders.
The
Warrants may be exercised on a “cashless” basis only with respect to underlying
shares not included for unrestricted public resale in an effective registration
statement on the date notice of exercise is given by the
holder.
The
dates of the loans from the Trust are: February 12, 19, 24 and 27, 2009, March
12, 20, 25, 26 and 30, 2009, April 3, 17, 27 and 29, 2009 and May 5,
2009. On
August 26, 2009 we issued 46,786 shares of our common stock in
payment of interest on outstanding promissory notes held by Green Energy Trust
valued in accordance with the terms of the notes at $.15 per share.
On August 26, 2009 we and the Trust entered into an agreement whereby
the conversion price of the GET Notes was reduced to $.05, the Trust surrendered
for cancellation warrants to purchase 1,922,957 shares of our common stock and
the Trust waived its registration rights beyond two million shares of our common
stock underlying the GET Notes. The Trust then entered into
agreements with two other trusts, both non-affiliated third parties, for the
sale of the GET Notes. One of those trusts has converted the GET
Notes into our common stock. On
September 4, 2009 we issued 2,520,000 shares of our common stock on the
conversion of outstanding convertible promissory notes with an aggregate
principal amount of $126,000.
On
April 1, June 8, July 24 , July 30 and August 7, 2009 we issued 177,778,
378,601,183,908, 35,714 and 171,429 shares, respectively, of our common stock to
Harvey Kesner as nominee of Sichenzia Ross Friedman Ference LLP, counsel to the
Company, for legal services rendered. The shares were issued based on
75% of the average market price during the last ten trading days of each month
for which services were rendered.
On
April 3, 2009 we issued 3,000,000 shares of common stock to Ezra Green, our
Chairman and Chief Executive Officer, as a bonus for services
rendered.
On
April 7, 2009 we issued 250,000 shares of common stock to a marketing
consultant valued at $0.10 per share, the closing price on the day before
issuance.
On May
8 and June 10, 2009 we issued 1,000,000 and 975,000 shares, respectively, of our
common stock to investor relations consultants valued $.08 and $.07,
respectively, per share, the closing prices on the day before
issuance.
On
June 9, 2009 we issued 150,500 shares of our common stock to an attorney for
services rendered at the closing price on the day before issuance of $.07 per
share.
On
August 12, 2009 we issued 100,000 shares of our common stock to a
consultant for web development services valued at $0.18 per share, the closing
price on the day before issuance.
In
August 2009 we issued a total of 2,228,174 shares of our common stock on
the cashless exercise of warrants issued in connection with the May and July
2009 financings.
Sales
by Clear Skies Group, Inc.
On
September 30, 2005 and April 18, 2006, Clear Skies Group, Inc. sold
shares of its common stock and warrants to Rudd-Klein for aggregate gross
proceeds of $410,000. In addition, on April 25, 2006, Clear Skies Group, Inc.
sold its common stock in a private placement transaction that raised gross
proceeds of $100,000. Furthermore, on April 26, 2007 and July 26,
2007, Clear Skies Group, Inc. sold shares of its common stock and warrants in a
series of private placements to two separate purchasers, for aggregate gross
proceeds of $75,000 and $20,000, respectively. The offerings were made solely to
“accredited investors,” as that term is defined in Regulation D under the
Securities Act. The securities sold in the offerings were not registered under
the Securities Act, or the securities laws of any state, and were offered and
sold in reliance on the exemption from registration afforded by
Section 4(2) and Regulation D (Rule 506) under the Securities Act
and corresponding provisions of state securities laws, which exempt transactions
by an issuer not involving any public offering.
II-4
From time
to time, Quixotic, Gelvin Stevenson and Ezra Green extended loans to Clear Skies
Group, Inc. or agreed to defer compensation payable to them in order to fund
Clear Skies Group, Inc.’s operating expenses. In consideration for the extension
and maintenance of such credit and deferral of salary, on May 7, 2007,
Clear Skies Group, Inc. granted Mr. Green, Quixotic and Dr. Stevenson
shares of its common stock that were exchanged for 639,521, 242,242 and 77,518
shares of our common stock, respectively, in our reverse merger. Such shares of
Clear Skies Group, Inc.’s common stock were not registered under the Securities
Act, or the securities laws of any state, and were offered and sold in reliance
on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding
provisions of state securities laws, which exempt transactions by an issuer not
involving any public offering.
On
August 31, 2007 and September 12, 2007, Clear Skies Group, Inc. sold
an aggregate of $745,000 principal amount of 10% secured bridge notes. The
purchasers of such bridge notes paid an aggregate gross purchase price of
$745,000 for such bridge notes and shares of common stock of Clear Skies Group,
Inc., which common stock was exchanged for an aggregate of 2,310,029 shares of
our common stock in the reverse merger. Pursuant to the bridge notes, the
holders had the right to exchange such bridge notes for an amount of securities
that could be purchased in Clear Skies Group, Inc.’s next offering that met
certain criteria for a purchase price equal to the outstanding principal and
accrued interest on such bridge notes. Accordingly, each holder of bridge notes
was entitled to elect whether to be repaid upon consummation of our
December 2007 private placement or to exchange its bridge notes for units
sold in such private placement. As a result of such elections, upon the closing
of our December 2007 private placement, we issued an aggregate of 1,490,000
shares of our common stock in exchange for $745,000 principal amount of bridge
notes. The bridge notes and related Clear Skies Group, Inc. common shares were
not registered under the Securities Act, or the securities laws of any state,
and were offered and sold in reliance on the exemption from registration
afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws, which
exempt transactions by an issuer not involving any public offering.
In
connection with the issuance of the bridge notes and related Clear Skies Group,
Inc. common shares, we issued to designees Westminster Securities Corporation,
Clear Skies Group, Inc.’s placement agent for such offering, three-year warrants
to purchase an aggregate of 92,401 shares of our common stock at an exercise
price of $0.50 per share (subject to adjustment).
Item 16.
Exhibits and Financial Statement Schedules
Exhibit
No.
|
Description
|
|
2.1
|
Agreement
of Merger and Plan of Reorganization, dated as of December 19, 2007,
by and among Clear Skies Holdings, Inc., Clear Skies Group, Inc. and Clear
Skies Acquisition Corp. (2)
|
|
2.2
|
Certificate
of Merger, merging Clear Skies Acquisition Corp. with and into Clear Skies
Group, Inc., filed with the Secretary of State of the State of Delaware on
December 19, 2007 (2)
|
|
2.3
|
Certificate
of Merger, merging Clear Skies Acquisition Corp. with and into Clear Skies
Group, Inc., filed with the Department of State of the State of New York
on December 20, 2007 (2)
|
|
3.1(a)
|
Certificate
of Incorporation (1)
|
|
3.1(b)
|
Certificate
of Amendment to Certificate of Incorporation (3)
|
|
3.2
|
By-laws
(1)
|
|
5.1**
|
Form
of Opinion of Sichenzia Ross Friedman Ference LLP
|
|
10.1
|
Form
of Subscription Agreement (2)
|
|
10.2
|
Form
of Placement Warrant
(2)
|
II-5
Exhibit
No.
|
Description
|
|
10.3
|
Form
of Registration Rights Agreement (2)
|
|
10.4
|
Form
of Lock-Up Agreement (2)
|
|
10.5
|
Placement
Agent Agreement, dated November 14, 2007, between Clear Skies Group,
Inc. and Westminster Securities Corporation (2)
|
|
10.6
|
Form
of Directors and Officers Indemnification Agreement (2)
|
|
10.7
|
Employment
Agreement, dated December 20, 2007, by and between Clear Skies
Holdings, Inc. and Ezra J. Green (2)
|
|
10.8
|
Amended
and Restated Executive Employment Agreement, dated November 12, 2008 by
and between Clear Skies Solar, Inc. and Ezra J. Green
(11)
|
|
10.9
|
Employment
Agreement, dated December 20, 2007, by and between Clear Skies
Holdings, Inc. and Robert Parker (2)
|
|
10.10
|
Clear
Skies Holdings, Inc. 2007 Equity Incentive Plan (2)
|
|
10.11
|
Form
of 2007 Incentive Stock Option Agreement (2)
|
|
10.12
|
Form
of 2007 Non-Qualified Stock Option Agreement (2)
|
|
10.13
|
Clear
Skies Solar, Inc. 2008 Equity Incentive Plan (9)
|
|
10.14
|
Form
of 2008 Incentive Stock Option Agreement (11)
|
|
10.15
|
Form
of 2008 Non-Qualified Stock Option Agreement (11)
|
|
10.16
|
Agreement
of Conveyance, Transfer and Assignment of Assets and Assumptions of
Obligations, dated as of December 20, 2007, between Clear Skies
Holdings, Inc. and BIP Holdings, Inc. (2)
|
|
10.17
|
Stock
Purchase Agreement, dated as of December 20, 2007 among Clear Skies
Holdings, Inc., Bobby Stanley and Joseph I. Lewis (2)
|
|
10.18
|
Settlement
Agreement and Mutual Release among Alpha Energy, Clear Skies Group, Inc.
and Quixotic Systems, Inc., dated as of August 30, 2007
(2)
|
|
10.19
|
Indemnity
and Guaranty Agreement, dated as of August 25, 2007, by Ezra Green
and Clear Skies Group, Inc., jointly and severally, in favor of Quixotic
Systems, Inc. (2)
|
|
10.20
|
Form
of Note Purchase Agreement, dated as of November 7, 2007, between
Clear Skies Group, Inc. and each purchaser of 8% Promissory Notes of Clear
Skies Group, Inc. (2)
|
|
10.21
|
Form
of 8% Promissory Notes of Clear Skies Group, Inc., dated November 7,
2007 (2)
|
|
10.22
|
Settlement
Agreement and Release, dated as of November 8, 2007, among Clear
Skies Group, Inc., Sustainable Profitability Group, Inc. and Mayur
Subbarao (2)
|
|
10.23
|
Resignation
Letter from Bobby Stanley, dated December 20, 2007
(2)
|
|
10.24
|
Employment
Agreement, dated December 31, 2007, by and between Clear Skies
Holdings, Inc. and Arthur L. Goldberg (4)
|
|
10.25
|
Amended
and Restated Executive Employment Agreement, dated November 12, 2008 by
and between Clear Skies Solar, Inc. and Arthur L. Goldberg
(11)
|
|
10.26
|
Summary
sheet of amendment, dated February 6, 2008, to the terms of
Employment Agreement, dated December 20, 2007, by and between Clear
Skies Holdings, Inc. and Ezra J. Green (4)
|
|
10.27
|
Employment
Agreement, dated March 19 2008, by and between Clear Skies Solar,
Inc. and Thomas Oliveri (5)
|
|
10.28
|
Amended
and Restated Executive Employment Agreement, dated November 12, 2008 by
and between Clear Skies Solar, Inc. and Thomas Oliveri
(11)
|
|
10.29
|
Letter
Agreement, dated October 7, 2007, between Clear Skies Group, Inc. and
Avalanche Strategic Communications (6)
|
|
10.30
|
Client
Service Agreement, dated as of November 28, 2007, between Clear Skies
Group, Inc. and PR Financial Marketing, LLC (6)
|
|
10.31
|
Clear
Skies Solar, Inc. 2008 Non-Employee Director Compensation
Plan
|
|
10.32
|
Amendment
Number One to the Clear Skies Solar, Inc. 2008 Non-Employee Directors
Compensation Plan (11)
|
|
10.33
|
Form
of 2008 Non-Employee Director Compensation Plan Non-Qualified Stock Option
Agreement (11)
|
|
10.34
|
Lease
between Hub Properties Trust and Clear Skies Solar, Inc., dated
May 30, 2008 (8)
|
|
10.34
|
Lease
of new office space dated May 30, 2008 (8)
|
|
10.35
|
Consulting
Services Agreement, dated as of April 30, 2009 between the Company and Ice
Cold
Stocks (10)
|
II-6
Exhibit
No.
|
Description
|
|
10.36
|
Consulting
Agreement, dated as of May 8, 2009, between the Company and Barry Honig
(10)
|
|
10.37
|
Amendment
to Consulting Agreement, dated as of May 8, 2009, between the Company and
Barry Honig (10)
|
|
10.38
|
Subscription
Agreement, dated as of May 8, 2009, by and among the Company and the
subscribers listed therein (10)
|
|
10.39
|
Form
of Convertible Promissory Note (10)
|
|
10.40
|
Form
of Warrant to Purchase Common Stock (10)
|
|
10.41
|
Security
Agreement, dated as of May 8, 2009, by and among the Company and the
signatories thereon (10)
|
|
10.42
|
Form
of Warrant issued to Kim Davis, Nominee of Ice Cold
Stocks (11)
|
|
10.43
|
Clear
Skies Solar, Inc. 2009 Equity Incentive Plan (14)
|
|
10.44
|
Form
of 2009 Incentive Stock Option Agreement (14)
|
|
10.45
|
Form
of 2009 Non-Qualified Stock Option Agreement (14)
|
|
10.46 | Form of Subscription Agreement, dated as of July 28, 2009, by and among the Company and the subscribers listed therein (13) | |
10.47 | Form of Convertible Promissory Note (13) | |
10.48 | Form of Warrant to Purchase Common Stock (13) | |
10.49* | Form of convertible note issued to Green Energy Trust. | |
16
|
Letter
from J.H. Cohn, LLP, dated April 29, 2009 (12)
|
|
21.1
|
List
of Subsidiaries (11)
|
|
23.1*
|
Consent
of Davis Accounting Group P.C.
|
|
23.2*
|
Consent
of Sichenzia Ross Friedman Ference LLP (included in
Exhibit 5.1)
|
|
24.1
|
Power
of Attorney (included on the signature page hereto)
(14)
|
* Filed
herewith
** To be filed by amendment
(1)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
our Current Report on Form 8-K filed on December 19,
2007.
|
|
(2)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
our Current Report on Form 8-K filed on December 26,
2007.
|
|
(3)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
our Current Report on Form 8-K filed on January 30,
2008.
|
|
(4)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
our Registration Statement on Form S-1 filed on March 27,
2008.
|
|
(5)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
our Annual Report on Form 10-KSB filed on March 31,
2008.
|
|
(6)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
Amendment No. 1 to our Registration Statement on Form S-1 filed on
May 23, 2008.
|
|
(7)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
Amendment No. 3 to our Registration Statement on Form S-1 filed on
July 15, 2008.
|
|
(8)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
Amendment No. 2 to our Registration Statement on Form S-1 filed on
June 24, 2008.
|
|
(9)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
our Form 10-Q for the three months ended June 30, 2008 filed on August 12,
2008.
|
|
(10)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
our Form 8-K filed on May 13,
2009.
|
II-7
(11)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
our Form 10-K filed on May 15, 2009.
|
|
(12)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
Amendment No. 1 to our Form 8-K filed on April 29,
2009.
|
|
(13) |
Incorporated
herein by reference to the copy of such document included as an exhibit to
our Form 8-K filed on August 3, 2009.
|
|
(14) |
Incorporated
herein by reference to the copy of such document included as an exhibit to
our Registration Statement on Form S-1 filed on June 4,
2009.
|
Item 17.
Undertakings
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the “Calculation of Registration Fee”
table in the effective registration statement;
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such
issue.
II-8
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Mineola, state of New
York, on October 8, 2009.
CLEAR
SKIES SOLAR, INC.
|
||||
By:
|
/s/
Ezra J. Green
|
|||
Name:
|
Ezra
J. Green
|
|||
Title:
|
Chief
Executive Officer
|
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE
|
TITLE
|
DATE
|
||
/s/
Ezra J. Green
|
Chief
Executive Officer and Chairman of the Board
|
October
8, 2009
|
||
Ezra
J. Green
|
of
Directors (Principal Executive Officer)
|
|||
/s/
Arthur L. Goldberg
|
Chief
Financial Officer, Vice President, Secretary and
Treasurer
|
October
8, 2009
|
||
Arthur
L. Goldberg
|
(Principal
Financial and Accounting Officer)
|
|||
*
|
Director
|
October
8, 2009
|
||
Gelvin
Stevenson, PhD
|
||||
*
|
Director
|
October
8, 2009
|
||
Pamela
J. Newman, PhD
|
*
Signed by Ezra J. Green , as attorney-in-fact
II-9
EXHIBIT
INDEX
Exhibit
No.
|
Description
|
|
2.1
|
Agreement
of Merger and Plan of Reorganization, dated as of December 19, 2007,
by and among Clear Skies Holdings, Inc., Clear Skies Group, Inc. and Clear
Skies Acquisition Corp. (2)
|
|
2.2
|
Certificate
of Merger, merging Clear Skies Acquisition Corp. with and into Clear Skies
Group, Inc., filed with the Secretary of State of the State of Delaware on
December 19, 2007 (2)
|
|
2.3
|
Certificate
of Merger, merging Clear Skies Acquisition Corp. with and into Clear Skies
Group, Inc., filed with the Department of State of the State of New York
on December 20, 2007 (2)
|
|
3.1(a)
|
Certificate
of Incorporation (1)
|
|
3.1(b)
|
Certificate
of Amendment to Certificate of Incorporation (3)
|
|
3.2
|
By-laws
(1)
|
|
5.1**
|
Form
of Opinion of Sichenzia Ross Friedman Ference LLP
|
|
10.1
|
Form
of Subscription Agreement (2)
|
|
10.2
|
Form
of Placement Warrant (2)
|
|
10.3
|
Form
of Registration Rights Agreement (2)
|
|
10.4
|
Form
of Lock-Up Agreement (2)
|
|
10.5
|
Placement
Agent Agreement, dated November 14, 2007, between Clear Skies Group,
Inc. and Westminster Securities Corporation (2)
|
|
10.6
|
Form
of Directors and Officers Indemnification Agreement (2)
|
|
10.7
|
Employment
Agreement, dated December 20, 2007, by and between Clear Skies
Holdings, Inc. and Ezra J. Green (2)
|
|
10.8
|
Amended
and Restated Executive Employment Agreement, dated November 12, 2008 by
and between Clear Skies Solar, Inc. and Ezra J. Green
(11)
|
|
10.9
|
Employment
Agreement, dated December 20, 2007, by and between Clear Skies
Holdings, Inc. and Robert Parker (2)
|
|
10.10
|
Clear
Skies Holdings, Inc. 2007 Equity Incentive Plan (2)
|
|
10.11
|
Form
of 2007 Incentive Stock Option Agreement (2)
|
|
10.12
|
Form
of 2007 Non-Qualified Stock Option Agreement (2)
|
|
10.13
|
Clear
Skies Solar, Inc. 2008 Equity Incentive Plan (9)
|
|
10.14
|
Form
of 2008 Incentive Stock Option Agreement (11)
|
|
10.15
|
Form
of 2008 Non-Qualified Stock Option Agreement (11)
|
|
10.16
|
Agreement
of Conveyance, Transfer and Assignment of Assets and Assumptions of
Obligations, dated as of December 20, 2007, between Clear Skies
Holdings, Inc. and BIP Holdings, Inc. (2)
|
|
10.17
|
Stock
Purchase Agreement, dated as of December 20, 2007 among Clear Skies
Holdings, Inc., Bobby Stanley and Joseph I. Lewis (2)
|
|
10.18
|
Settlement
Agreement and Mutual Release among Alpha Energy, Clear Skies Group, Inc.
and Quixotic Systems, Inc., dated as of August 30, 2007
(2)
|
|
10.19
|
Indemnity
and Guaranty Agreement, dated as of August 25, 2007, by Ezra Green
and Clear Skies Group, Inc., jointly and severally, in favor of Quixotic
Systems, Inc. (2)
|
|
10.20
|
Form
of Note Purchase Agreement, dated as of November 7, 2007, between
Clear Skies Group, Inc. and each purchaser of 8% Promissory Notes of Clear
Skies Group, Inc. (2)
|
|
10.21
|
Form
of 8% Promissory Notes of Clear Skies Group, Inc., dated November 7,
2007 (2)
|
|
10.22
|
Settlement
Agreement and Release, dated as of November 8, 2007, among Clear
Skies Group, Inc., Sustainable Profitability Group, Inc. and Mayur
Subbarao (2)
|
|
10.23
|
Resignation
Letter from Bobby Stanley, dated December 20, 2007
(2)
|
|
10.24
|
Employment
Agreement, dated December 31, 2007, by and between Clear Skies
Holdings, Inc. and Arthur L. Goldberg (4)
|
|
10.25
|
Amended
and Restated Executive Employment Agreement, dated November 12, 2008 by
and between Clear Skies Solar, Inc. and Arthur L. Goldberg
(11)
|
|
10.26
|
Summary
sheet of amendment, dated February 6, 2008, to the terms of
Employment Agreement, dated December 20, 2007, by and between Clear
Skies Holdings, Inc. and Ezra J. Green (4)
|
|
10.27
|
Employment
Agreement, dated March 19 2008, by and between Clear Skies Solar,
Inc. and Thomas Oliveri
(5)
|
II-10
Exhibit
No.
|
Description
|
|
10.28
|
Amended
and Restated Executive Employment Agreement, dated November 12, 2008 by
and between Clear Skies Solar, Inc. and Thomas Oliveri
(11)
|
|
10.29
|
Letter
Agreement, dated October 7, 2007, between Clear Skies Group, Inc. and
Avalanche Strategic Communications (6)
|
|
10.30
|
Client
Service Agreement, dated as of November 28, 2007, between Clear Skies
Group, Inc. and PR Financial Marketing, LLC (6)
|
|
10.31
|
Clear
Skies Solar, Inc. 2008 Non-Employee Director Compensation
Plan
|
|
10.32
|
Amendment
Number One to the Clear Skies Solar, Inc. 2008 Non-Employee Directors
Compensation Plan (11)
|
|
10.33
|
Form
of 2008 Non-Employee Director Compensation Plan Non-Qualified Stock Option
Agreement (11)
|
|
10.34
|
Lease
between Hub Properties Trust and Clear Skies Solar, Inc., dated
May 30, 2008 (8)
|
|
10.34
|
Lease
of new office space dated May 30, 2008 (8)
|
|
10.35
|
Consulting
Services Agreement, dated as of April 30, 2009 between the Company and Ice
Cold Stocks (10)
|
|
10.36
|
Consulting
Agreement, dated as of May 8, 2009, between the Company and Barry Honig
(10)
|
|
10.37
|
Amendment
to Consulting Agreement, dated as of May 8, 2009, between the Company and
Barry Honig (10)
|
|
10.38
|
Subscription
Agreement, dated as of May 8, 2009, by and among the Company and the
subscribers listed therein (10)
|
|
10.39
|
Form
of Convertible Promissory Note (10)
|
|
10.40
|
Form
of Warrant to Purchase Common Stock (10)
|
|
10.41
|
Security
Agreement, dated as of May 8, 2009, by and among the Company and the
signatories thereon (10)
|
|
10.42
|
Form
of Warrant issued to Kim Davis, Nominee of Ice Cold
Stocks (11)
|
|
10.43
|
Clear
Skies Solar, Inc. 2009 Equity Incentive Plan (14)
|
|
10.44
|
Form
of 2009 Incentive Stock Option Agreement (14)
|
|
10.45
|
Form
of 2009 Non-Qualified Stock Option Agreement (14)
|
|
10.46 | Form of Subscription Agreement, dated as of July 28, 2009, by and among the Company and the subscribers listed therein (13) | |
10.47 | Form of Convertible Promissory Note (13) | |
10.48 | Form of Warrant to Purchase Common Stock (13) | |
10.49* | Form of convertible note issued to Green Energy Trust. | |
16
|
Letter
from J.H. Cohn, LLP, dated April 29, 2009 (12)
|
|
21.1
|
List
of Subsidiaries (11)
|
|
23.1*
|
Consent
of Davis Accounting Group P.C.
|
|
23.2*
|
Consent
of Sichenzia Ross Friedman Ference LLP (included in
Exhibit 5.1)
|
|
24.1
|
Power
of Attorney (included on the signature page hereto)
(14)
|
* Filed
herewith
** To be filed by amendment
(1)
|
Incorporated herein by reference
to the copy of such document included as an exhibit to our Current Report
on Form 8-K filed on December 19,
2007.
|
(2)
|
Incorporated herein by reference
to the copy of such document included as an exhibit to our Current Report
on Form 8-K filed on December 26,
2007.
|
(3)
|
Incorporated herein by reference
to the copy of such document included as an exhibit to our Current Report
on Form 8-K filed on January 30,
2008.
|
(4)
|
Incorporated herein by reference
to the copy of such document included as an exhibit to our Registration
Statement on Form S-1 filed on March 27,
2008.
|
(5)
|
Incorporated herein by reference
to the copy of such document included as an exhibit to our Annual Report
on Form 10-KSB filed on March 31,
2008.
|
(6)
|
Incorporated herein by reference
to the copy of such document included as an exhibit to Amendment
No. 1 to our Registration Statement on Form S-1 filed on May 23,
2008.
|
II-11
(7)
|
Incorporated herein by reference
to the copy of such document included as an exhibit to Amendment
No. 3 to our Registration Statement on Form S-1 filed on
July 15, 2008.
|
(8)
|
Incorporated herein by reference
to the copy of such document included as an exhibit to Amendment
No. 2 to our Registration Statement on Form S-1 filed on
June 24, 2008.
|
(9)
|
Incorporated herein by reference
to the copy of such document included as an exhibit to our Form 10-Q for
the three months ended June 30, 2008 filed on August 12,
2008.
|
(10)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
our Form 8-K filed on May 13, 2009.
|
(11)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
our Form 10-K filed on May 15,
2009.
|
(12)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
Amendment No. 1 to our Form 8-K filed on April 29,
2009.
|
(13)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
our Form 8-K filed on August 3,
2009.
|
(14)
|
Incorporated
herein by reference to the copy of such document included as an exhibit to
our Registration Statement on Form S-1 filed on June 4,
2009.
|
II-12