Attached files
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EX-31.1 - EX-31.1 - Northern Power Systems Corp. | d785806dex311.htm |
EX-31.2 - EX-31.2 - Northern Power Systems Corp. | d785806dex312.htm |
EX-32.2 - EX-32.2 - Northern Power Systems Corp. | d785806dex322.htm |
EX-32.1 - EX-32.1 - Northern Power Systems Corp. | d785806dex321.htm |
EXCEL - IDEA: XBRL DOCUMENT - Northern Power Systems Corp. | Financial_Report.xls |
Table of Contents
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2014
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
Commission File Number 000-55184
NORTHERN POWER SYSTEMS CORP.
(Exact name of registrant as specified in its charter)
British Columbia, Canada | 98-1181717 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
29 Pitman Road
Barre, Vermont 05641
(Address of principal executive offices)
(802) 461-2955
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨
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 | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:
Common Shares, no par value per share | 15,797,202 | |
Class | Outstanding at November 13, 2014 |
Class B Common Shares, no par value per share | 6,937,361 | |
Class | Outstanding at November 13, 2014 |
Table of Contents
Table of Contents
FORM 10-Q
INDEX
Page No. | ||||||
Item 1. |
3 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
29 | ||||
Item 3. |
51 | |||||
Item 4. |
51 | |||||
Item 1. |
52 | |||||
Item 1A. |
52 | |||||
Item 2. |
52 | |||||
Item 3. |
52 | |||||
Item 4. |
52 | |||||
Item 5. |
52 | |||||
Item 6. |
52 | |||||
53 |
2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
NORTHERN POWER SYSTEMS CORP.
FORMERLY KNOWN AS WIND POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2014 AND DECEMBER 31, 2013
(In thousands, except share and per share amounts)
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
(Unaudited) | (Note 1) | |||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 16,318 | $ | 4,534 | ||||
Accounts receivable net of allowance for doubtful accounts of $260 and $103 at September 30, 2014 and December 31, 2013, respectively |
3,820 | 1,175 | ||||||
Unbilled revenue |
2,030 | 786 | ||||||
Inventories net (Note 4) |
15,000 | 11,682 | ||||||
Deferred costs |
951 | 1,443 | ||||||
Prepaid expenses and other current assets |
1,665 | 1,365 | ||||||
|
|
|
|
|||||
Total current assets |
39,784 | 20,985 | ||||||
Property, plant and equipment - net (Note 6) |
1,624 | 1,414 | ||||||
Intangible assets - net (Note 7) |
369 | 509 | ||||||
Goodwill |
722 | 722 | ||||||
Deferred income taxes (Note 13) |
281 | 2,384 | ||||||
Asset held for sale |
| 1,300 | ||||||
Other assets |
250 | 231 | ||||||
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|
|
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Total assets |
$ | 43,030 | $ | 27,545 | ||||
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|
The accompanying notes are an integral part of these consolidated financial statements. | (Continued) |
3
Table of Contents
NORTHERN POWER SYSTEMS CORP.
FORMERLY KNOWN AS WIND POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2014 AND DECEMBER 31, 2013
(In thousands, except share and per share amounts)
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
(Unaudited) | (Note 1) | |||||||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY) |
||||||||
CURRENT LIABILITIES: |
||||||||
Working capital revolving line of credit |
$ | 4,000 | $ | | ||||
Current portion of long-term debt (Note 8) |
| 141 | ||||||
Senior secured convertible notes (Note 8) |
| 12,107 | ||||||
Accounts payable |
2,004 | 2,148 | ||||||
Accrued expenses (Note 9) |
4,146 | 2,158 | ||||||
Accrued compensation |
2,195 | 2,207 | ||||||
Deferred revenue |
5,124 | 4,221 | ||||||
Deferred income taxes (Note 13) |
439 | 2,532 | ||||||
Customer deposits |
6,860 | 10,917 | ||||||
Liability for stock-based compensation (Note 11) |
| 598 | ||||||
Other current liabilities |
94 | 197 | ||||||
|
|
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|
|||||
Total current liabilities |
24,862 | 37,226 | ||||||
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|
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|
|||||
Deferred revenue, less current portion |
1,531 | 1,163 | ||||||
Long- term debt, less current portion (Note 8) |
| 300 | ||||||
Other long-term liability (Note 17) |
278 | 258 | ||||||
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|
|||||
Total Liabilities |
26,671 | 38,947 | ||||||
|
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|
|||||
Commitments and Contingencies (Note 17) |
||||||||
STOCKHOLDERS EQUITY (DEFICIENCY): |
||||||||
Voting common shares, no par value - Unlimited shares authorized; 14,893,981 shares issued and outstanding as of September 30, 2014, not authorized as of December 31, 2013. |
87,205 | | ||||||
Class B restricted voting common shares, no par value - Unlimited shares authorized; 7,840,582 shares issued and outstanding as of September 30, 2014, not authorized as of December 31, 2013. |
78,134 | | ||||||
Series X convertible preferred stock, 6,000,000 shares authorized and no shares issued and outstanding as of December 31, 2013, not authorized as of September 30, 2014. |
| | ||||||
Common stock, $0.01 par value - 44,000,000 shares authorized; 12,840,187 shares issued and outstanding as of December 31, 2013, not authorized as of September 30, 2014. |
| 128 | ||||||
Additional paid-in capital |
7,831 | 139,804 | ||||||
Accumulated deficit |
(156,811 | ) | (151,334 | ) | ||||
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|
|||||
Total Stockholders Equity (Deficiency) |
16,359 | (11,402 | ) | |||||
|
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|
|||||
Total Liabilities and Stockholders Equity (Deficiency) |
$ | 43,030 | $ | 27,545 | ||||
|
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|
|
The accompanying notes are an integral part of these consolidated financial statements. | (Concluded) |
4
Table of Contents
NORTHERN POWER SYSTEMS CORP.
FORMERLY KNOWN AS WIND POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(In thousands, except share and per share amounts)
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
REVENUES: |
||||||||||||||||
Product |
$ | 11,784 | $ | 4,352 | $ | 37,484 | $ | 9,858 | ||||||||
License |
1,955 | | 2,541 | | ||||||||||||
Design service |
709 | 522 | 1,063 | 522 | ||||||||||||
Service |
584 | 742 | 1,470 | 1,220 | ||||||||||||
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Total revenues |
15,032 | 5,616 | 42,558 | 11,600 | ||||||||||||
Cost of product revenues |
9,145 | 3,930 | 31,154 | 8,905 | ||||||||||||
Cost of service and design service revenues |
1,040 | 974 | 3,171 | 2,207 | ||||||||||||
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Gross profit |
4,847 | 712 | 8,233 | 488 | ||||||||||||
COSTS AND OPERATING EXPENSES: |
||||||||||||||||
Sales and marketing |
990 | 716 | 2,668 | 2,044 | ||||||||||||
Research and development |
1,321 | 834 | 3,537 | 2,845 | ||||||||||||
General and administrative |
2,312 | 1,696 | 6,793 | 4,729 | ||||||||||||
Restructuring charges |
| 4 | | 23 | ||||||||||||
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Total costs and operating expenses |
4,623 | 3,250 | 12,998 | 9,641 | ||||||||||||
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Income (loss) from operations |
224 | (2,538 | ) | (4,765 | ) | (9,153 | ) | |||||||||
Change in fair value of warrants |
| (488 | ) | | 173 | |||||||||||
Interest income |
| | 5 | | ||||||||||||
Interest expense |
(40 | ) | (101 | ) | (317 | ) | (230 | ) | ||||||||
Other income (expense) - net |
(61 | ) | (11 | ) | 41 | (36 | ) | |||||||||
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Income (loss) before provision (benefit) for income taxes |
123 | (3,138 | ) | (5,036 | ) | (9,246 | ) | |||||||||
Provision (benefit) for income taxes (Note 13) |
412 | (16 | ) | 441 | 13 | |||||||||||
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NET LOSS |
$ | (289 | ) | $ | (3,122 | ) | $ | (5,477 | ) | $ | (9,259 | ) | ||||
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Net loss applicable to common shareholders (Note 2) |
$ | (289 | ) | $ | (4,098 | ) | $ | (5,477 | ) | $ | (12,946 | ) | ||||
Net loss per common share |
||||||||||||||||
Basic and diluted |
$ | (0.01 | ) | $ | (1.84 | ) | $ | (0.29 | ) | $ | (15.21 | ) | ||||
Weighted average number of common shares outstanding |
||||||||||||||||
Basic and diluted |
22,720,090 | 2,226,096 | 18,919,146 | 850,950 |
5
Table of Contents
NORTHERN POWER SYSTEMS CORP.
FORMERLY KNOWN AS WIND POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIENCY)
FOR THE YEAR ENDED DECEMBER 31, 2013 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2014 (unaudited)
(All amounts in thousands except share amounts)
Voting | Class B Restricted Voting | Additional | Total | |||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Common Shares-No Par | Common Shares-No Par | Paid-In | Accumulated | Stockholders | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity (Deficiency) | ||||||||||||||||||||||||||||||||||
BALANCEJanuary 1, 2013 |
22,376,146 | $ | 135,073 | 15,072 | $ | | | $ | | | $ | | $ | 6,379 | $ | (137,206 | ) | $ | 4,246 | |||||||||||||||||||||||||
Stock based compensation expense |
| | | | | | | | 369 | | 369 | |||||||||||||||||||||||||||||||||
Change in the liability classification of stock-based compensation |
| | | | | | | | 266 | | 266 | |||||||||||||||||||||||||||||||||
April conversion of preferred stock to common stock |
(5,531,240 | ) | (34,166 | ) | 305,931 | 3 | | | | | 34,163 | | | |||||||||||||||||||||||||||||||
Warrant conversion |
2,734,390 | 3,095 | | | | | | | | | 3,095 | |||||||||||||||||||||||||||||||||
September automatic conversion of preferred stock to common stock |
(18,329,219 | ) | (86,907 | ) | 6,099,066 | 61 | | | | | 86,846 | | | |||||||||||||||||||||||||||||||
Series C-1 conversion to senior secured convertible notes |
(1,250,077 | ) | (17,095 | ) | 6,420,118 | 64 | | | | | 11,781 | | (5,250 | ) | ||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | (14,128 | ) | (14,128 | ) | |||||||||||||||||||||||||||||||
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BALANCEDecember 31, 2013 |
| | 12,840,187 | 128 | | | | | 139,804 | (151,334 | ) | (11,402 | ) | |||||||||||||||||||||||||||||||
Stock based compensation expense |
| | | | | | | | 746 | | 746 | |||||||||||||||||||||||||||||||||
Reclassification of liability for stock-based compensation to equity |
| | | | | | | | 598 | | 598 | |||||||||||||||||||||||||||||||||
Effect of reverse take over |
| | (12,840,187 | ) | (128 | ) | 4,306,076 | 43,703 | 8,893,486 | 90,260 | (133,937 | ) | | (102 | ) | |||||||||||||||||||||||||||||
Common stock issued at $3.64, net of expenses |
| | | | 6,125,000 | 19,003 | | | 620 | | 19,623 | |||||||||||||||||||||||||||||||||
Conversion of senior secured convertible notes to common stock |
| | | | 1,016,534 | 3,700 | 2,368,221 | 8,620 | | | 12,320 | |||||||||||||||||||||||||||||||||
Conversion of restricted class B voting common stock to common stock |
| | | | 3,421,125 | 20,746 | (3,421,125 | ) | (20,746 | ) | | | | |||||||||||||||||||||||||||||||
Proceeds from exercise of stock options |
| | | | 25,246 | 53 | | | | | 53 | |||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | (5,477 | ) | (5,477 | ) | |||||||||||||||||||||||||||||||
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BALANCESeptember 30, 2014 |
| $ | | | $ | | 14,893,981 | $ | 87,205 | 7,840,582 | $ | 78,134 | $ | 7,831 | $ | (156,811 | ) | $ | 16,359 | |||||||||||||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
6
Table of Contents
NORTHERN POWER SYSTEMS CORP.
FORMERLY KNOWN AS WIND POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(In thousands)
For the nine months ended | ||||||||
September 30, 2014 (Unaudited) |
September 30, 2013 (Unaudited) |
|||||||
OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (5,477 | ) | $ | (9,259 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Change in fair value of warrants |
| (173 | ) | |||||
Provision for inventory obsolescence |
125 | 35 | ||||||
Provision for (recovery of) doubtful accounts |
224 | (22 | ) | |||||
Stock-based compensation expense |
746 | 264 | ||||||
Depreciation and amortization |
763 | 771 | ||||||
Noncash restructuring charges |
| 23 | ||||||
Deferred income taxes |
10 | 10 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable and unbilled revenue |
(4,113 | ) | (37 | ) | ||||
Other current and noncurrent assets |
(317 | ) | (517 | ) | ||||
Inventories |
(3,581 | ) | (3,924 | ) | ||||
Deferred costs |
492 | (420 | ) | |||||
Accounts payable |
(146 | ) | 1,662 | |||||
Accrued expenses |
2,171 | 778 | ||||||
Customer deposits |
(4,057 | ) | 2,948 | |||||
Deferred revenue and other short term liabilities |
1,168 | 2,028 | ||||||
Other liabilities |
19 | (54 | ) | |||||
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Net cash used in operating activities |
(11,973 | ) | (5,887 | ) | ||||
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INVESTING ACTIVITIES: |
||||||||
Proceeds from sale of property, net |
1,218 | | ||||||
Purchases of property and equipment |
(696 | ) | (195 | ) | ||||
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Net cash provided by (used in) investing activities |
522 | (195 | ) | |||||
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FINANCING ACTIVITIES: |
||||||||
Proceeds private placement equity financing, net of offering costs |
19,623 | | ||||||
Proceeds from working capital revolving line of credit, net |
4,000 | | ||||||
Proceeds from exercise of stock options |
53 | | ||||||
Proceeds from issuance of convertible debt |
| 6,525 | ||||||
Net borrowing on line of credit agreement |
| 98 | ||||||
Debt principal payments |
(441 | ) | (34 | ) | ||||
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Net cash provided by financing activities |
23,235 | 6,589 | ||||||
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Change in cash and cash equivalents |
11,784 | 507 | ||||||
Cash and cash equivalents - beginning of the period |
4,534 | 4,456 | ||||||
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Cash and cash equivalents - end of the period |
$ | 16,318 | $ | 4,963 | ||||
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
Cash paid during the period for interest |
$ | 33 | $ | 30 | ||||
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Income taxes paid |
$ | 15 | $ | 58 | ||||
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Noncash financing activity: |
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Settlement of stock-based compensation liability awards with equity awards |
$ | 598 | $ | | ||||
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Conversion of debt to equity |
$ | 12,320 | $ | | ||||
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Issuance of options to placement agents |
$ | 620 | $ | | ||||
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7
Table of Contents
NORTHERN POWER SYSTEMS CORP.
FORMERLY KNOWN AS WIND POWER HOLDING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
AS OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 and 2013
(In thousands except share and per share amounts)
1. | DESCRIPTION OF BUSINESS |
The Company, as defined below, is a provider of advanced technology for the renewable energy sector. It designs, manufactures and services next-generation Permanent Magnet Direct-Drive (PM/DD) wind turbines for the distributed wind market, and licenses existing and evolving utility-scale wind turbine platforms to large manufacturers on a global basis. The Company also provides power technology products and engineering and development services for a wide variety of renewable energy applications.
The Companys headquarters are in Barre, Vermont, and it has sales offices in Zurich, Switzerland and Bari, Italy.
As of December 31, 2013, the parent holding company of the group was Wind Power Holdings, Inc. (WPHI), which had a wholly owned subsidiary, Northern Power Systems, Inc. (Northern). Northern has two wholly-owned subsidiaries, Northern Power Systems AG and Northern Power Systems Srl. WPHI was formed on August 12, 2008, and Northern was formed on July 14, 2008. WPHI previously had another wholly owned subsidiary, Northern Power Systems Utility Scale, Inc. (Utility Scale), which was formed on November 13, 2009. Utility Scale was merged into Northern effective December 31, 2013.
On April 16, 2014, Northern Power Systems Corp. completed a reverse takeover (RTO) transaction pursuant to a Merger Agreement and Plan of Reorganization dated as of March 31, 2014 (the Merger Agreement), between Northern Power Systems Corp. (formerly Mira III Acquisition Corp., a Canadian capital pool company (Mira III)), WPHI, Mira Subco Inc., and Mira Subco LLC. Under the Merger Agreement, Mira Subco Inc., a wholly-owned subsidiary of Mira III, merged with and into WPHI, with WPHI as the surviving corporation, and WPHI merged with and into Mira Subco LLC, a wholly-owned subsidiary of Mira III, with Mira Subco LLC as the surviving entity, as part of an integrated transaction (the Merger). In connection with the RTO, all of the equity securities of WPHI were exchanged for common shares of Mira III. Following the completion of the transaction, Mira III changed its name to Northern Power Systems Corp. (NPS Corp.). NPS Corp. and its subsidiaries or WPHI and its subsidiaries as applicable are referred to herein as the Company. The foregoing is only a brief description of the RTO, does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, a copy of which is included in Exhibit 10.9 to Amendment No. 2 to WPHIs Registration Statement on Form 10, filed with the Securities and Exchange Commission on April 14, 2014. On July 29,2014 Mira Subco LLC was liquidated. As a result, Northern became a direct, wholly-owned subsidiary of NPS Corp.
Since the stockholders of WPHI received the majority of the voting shares of NPS Corp., the Merger was accounted for as a RTO whereby WPHI was the accounting acquirer (legal acquiree) and NPS Corp. was the accounting acquiree (legal acquirer) under reverse takeover accounting. The balance sheets consist of the net assets of the accounting acquirer at historical cost and the net assets of the legal acquirer which approximate fair value. The statements of operations include the operations of the accounting acquirer for the periods presented and the operations of the legal acquirer from the date of the Merger.
Under accounting principles generally accepted in the United States (U.S. GAAP), the Merger, as described, is considered to be a capital transaction in substance, rather than a business combination. The Merger is equivalent to the issuance of stock by WPHI for the net monetary assets of NPS Corp. accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the Merger was identical to that resulting from a reverse acquisition, except no goodwill was recorded. Under reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, NPS Corp., are those of the legal acquiree, WPHI, which is considered to be the accounting acquirer.
8
Table of Contents
Liquidity The Company disclosed a going-concern uncertainty in its consolidated financial statements for the year ended December 31, 2013. Management believes that, with the completion of its equity capital raise on April 16, 2014, the Company has adequate capital to fund operations for at least one year from the date of issuance of these financial statements. As described in Note 10, the Company closed a private equity placement in connection with the RTO. The private placement provided gross proceeds of CDN$ 24,500 (USD$ 22,273) which were received on April 16, 2014. The Company believes that the receipt of the private placement proceeds has mitigated the previously reported going concern uncertainty. As a result the Company issued updated audited financial statements for the year ended December 31, 2013, and the Companys former independent registered public accounting firm reissued its 2013 audit opinion to remove the going concern uncertainty. A complete description of the reissuance is included in Exhibit 99.1 to the Companys Current Report on Form 8-K (File No. 000-55184), filed on September 3, 2014.
Basis of Presentation-The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and, therefore, should be read in conjunction with the Companys 2013 consolidated financial statements and related notes included in the Registration Statement on Form 10 (File No. 001-36317) filed by WPHI. The condensed consolidated balance sheet as of December 31, 2013 and the condensed consolidated statement of changes in stockholders equity (deficiency) for the year ended December 31, 2013 were derived from the Companys annual audited financial statements. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the timing and amount of assets, liabilities, equity, revenue, and expenses reported and disclosed. Actual amounts could differ from these estimates. All adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods have been recorded. Actual amounts could differ from these estimates. Due to differing business conditions and seasonality, operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected in subsequent quarters or for the full year ending December 31, 2014.
2. | NET LOSS PER SHARE |
Basic loss per share is determined by dividing loss attributable to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share is determined by dividing loss attributable to common stockholders by diluted weighted average shares outstanding during the period. Diluted weighted average shares reflect the dilutive effect, if any, of potential common shares. To the extent their effect is dilutive, employee equity awards and warrants, based on the treasury stock method, are included in the calculation of diluted earnings per share. For the three and nine months ended September 30, 2014 and 2013, all potential common shares were anti-dilutive due to the net loss and were excluded from the diluted net loss per share calculations.
The calculations of net loss attributable to common stockholders and of basic and diluted net loss per share are as follows:
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Basic earnings per share calculation: |
||||||||||||||||
Numerator |
||||||||||||||||
Net loss |
$ | (289 | ) | $ | (3,122 | ) | $ | (5,477 | ) | $ | (9,259 | ) | ||||
Series A preferred stock dividends |
| (509 | ) | | (1,810 | ) | ||||||||||
Series B preferred stock dividends |
| (384 | ) | | (1,556 | ) | ||||||||||
Series C preferred stock dividends |
| (83 | ) | | (321 | ) | ||||||||||
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Net loss attributable to common stockholders |
$ | (289 | ) | $ | (4,098 | ) | $ | (5,477 | ) | $ | (12,946 | ) | ||||
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Denominator |
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Weighted average common shares outstanding- basic and diluted |
22,720,090 | 2,226,096 | 18,919,146 | 850,950 | ||||||||||||
Net loss per share- basic and diluted |
$ | (0.01 | ) | $ | (1.84 | ) | $ | (0.29 | ) | $ | (15.21 | ) |
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As described in Note 10, the Company completed a reverse stock split effective April 14, 2014. As such, the SECs Staff Accounting bulletin (SAB) 4c required the Company to retrospectively present and disclose the reverse stock split as if it were effective at each period presented. As a result, all share and per share data have been retroactively adjusted to give effect to this reverse stock split.
The following potentially dilutive securities were excluded from the calculation of diluted weighted average shares outstanding because they were considered anti-dilutive due to the Companys loss position. Preferred shares were convertible to common stock in the ratio of 1 share of common stock for every 11.609 shares of preferred stock. All of the outstanding preferred stock was converted to common stock during 2013:
September 30, 2014 | September 30, 2013 | |||||||
Common stock options |
2,461,275 | 11 | ||||||
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Total common stock equivalents |
2,461,275 | 11 | ||||||
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As described in Note 10 the Company has 367,500 placement agent options outstanding as of September 30, 2014. In addition, as described in Note 11, the Company has 2,057,837 and 35,938 options outstanding as of September 30,2014 related to the 2014 NPS Corp. and the Mira III plans, respectively. Such options are considered to be potentially dilutive securities.
3. | FAIR VALUE MEASUREMENTS |
Financial Instruments The Companys financial instruments consist primarily of cash and cash equivalents, accounts receivable, unbilled revenue, accounts payable, the working capital revolving line of credit and debt. The carrying amounts of cash, accounts receivable, unbilled revenue, accounts payable and the working capital revolving line of credit, as of September 30, 2014 and December 31, 2013, approximate fair value due to their short-term nature and are classified within Level 1 of the valuation hierarchy. The Company defines cash equivalents as highly liquid instruments with maturities of three months or less that are regarded as high quality, low risk investments. Cash equivalents consist of principally FDIC insured certificates of deposits.
Debt and Senior Secured Convertible Notes The carrying values of the Companys non-convertible debt approximate fair value. This is explained by the market value interest rates on such debt and the relatively low outstanding debt balances. In April 2014, as part of the reverse takeover, the Companys Senior Secured Convertible Notes were converted to common shares at the face value of the notes plus accrued interest, which equaled carrying value, at the then current share price. This supported a fair value equal to carrying value because the note holder received common shares with a fair value equal to the carrying value of the notes. Furthermore, the share price was determined through offers to buy and sell shares on a public equity exchange. The fair value as of December 31, 2013, was calculated via a Probability Estimated Weighted Return Method (PWERM) which utilized the Companys current overall valuation. The PWERM (Level 3) applied a range of probabilities to a set of possible outcomes and attributed a value applicable to the Senior Secured Convertible Notes and to the common stock (the only other material equity interest in the Company at that time) in the event of each outcome. The Company determined that the PWERM was the most reliable approach given the complexity of the terms of the Senior Secured Convertible Notes, which could participate in any distribution as a holder of a liquidation preference or an equity participant, depending on the circumstances. The probabilities and weightings used in the analysis were based on managements views of the opportunities available to the Company at that time for raising capital required to meet its plans, as well as a review of the outcomes to the Senior Secured Convertible Notes and common stock that would result from the selected scenarios. The PWERM was readily applicable to scenarios that resulted in immediate returns to the equity owners, so for those scenarios that would result in a continuing illiquid interest in the common stock, the option price method (or OPM) was employed. This combination of the OPM with the PWERM is sometimes referred to as a hybrid valuation method. The OPM treated the common stock interest as a call option on the Companys overall enterprise value, determining the residual value to the common stock in the event that the Company was successful enough to satisfy the obligations due on the senior securities in this case the holders of the Companys Senior Secured Convertible Notes.
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Fair value of the Companys debt as of December 31, 2013 follows:
Fair Value | Carrying Value | |||||||
Senior Secured Convertible Notes - Mature in less than 1 Year |
$ | 17,712 | $ | 12,107 | ||||
Current maturities of long-term debt |
141 | 141 | ||||||
Long-term debt |
300 | 300 | ||||||
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Total |
$ | 18,153 | $ | 12,548 | ||||
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The Company measures fair value using the framework specified in U.S. GAAP. This framework emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and establishes a fair value hierarchy that distinguishes between assumptions based on market data obtained from independent sources and those based on an entitys own assumptions. The hierarchy prioritizes the inputs for fair value measurement into three levels:
Level 1 Measurements utilizing unadjusted quoted prices in active markets that the entity has the ability to access for identical assets or liabilities.
Level 2 Measurements that include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and other observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 Measurements using unobservable inputs for assets or liabilities for which little or no market information exists, and are based on the best information available and might include the entitys own data.
In some valuations, the inputs used may fall into different levels of the hierarchy. In these cases, the financial instruments level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Nonrecurring Fair Value Measurements The Company holds certain assets and liabilities that are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.
Effective December 12, 2013, the Companys Barre, Vermont facility became an asset held for sale. Based upon the marketing of the facility as well as the indication of value from a potential buyer, the Company believed that the current fair value of the facility was $1,300 at December 31, 2013. As of the measurement date, the Company calculated an asset held for sale loss by taking the difference between the fair value and the carrying value of the building along with the estimated direct costs of a sale transaction which resulted in a loss of $768 in the fourth quarter of 2013. Due to the use of significant unobservable inputs to determine fair value this value falls within Level 3 of the fair value hierarchy at December 31, 2013. The Barre, Vermont facility was sold for $1,300 in June 2014 and is no longer disclosed on the balance sheet as an asset held for sale.
4. | INVENTORIES |
Inventories as of September 30, 2014 and December 31, 2013 consist of:
September 30, 2014 |
December 31, 2013 |
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Raw materials |
$ | 4,198 | $ | 2,511 | ||||
Work in process |
2,645 | 1,124 | ||||||
Finished goods |
8,310 | 8,610 | ||||||
Freight deferred costs |
292 | | ||||||
Allowance for obsolescence |
(445 | ) | (563 | ) | ||||
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Total inventory - net |
$ | 15,000 | $ | 11,682 | ||||
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For the three months ended September 30, 2014 and 2013, the Company recorded $32 and $0 inventory write-downs respectively. For the nine months ended September 30, 2014 and 2013, the Company recorded inventory write-downs of approximately $125, and $35, respectively.
5. | RESTRUCTURING |
In April 2012, the Company committed to a restructuring plan for its utility-scale wind business, changing the nature of its operations from being primarily a designer and developer of utility scale wind turbines to a provider of licensing and co-development for wind applications and engineering services for other applications. These actions resulted in the reduction of approximately 40% of the Companys total headcount and the closure of a manufacturing facility. The restructured business continued to operate in the Utility Scale legal entity through December 31, 2013, and after such date it transitioned to operate within Northern with the merger of those two subsidiaries effective on such date. In association with this restructuring, during the nine months ended September 30, 2014 and 2013, the Company recorded restructuring charges in the aggregate amount of $0 and $23, respectively, as detailed in the table below. Workforce-related activity includes stock compensation charges for certain modifications made to executive option grants as part of the restructuring. These options were accounted for as liability awards and marked to market though the statements of operations for subsequent changes in fair value for such time as they were liabilities in nature. These awards were exchanged for awards determined to be equity classification on January 1, 2014. As such there will be no additional expense associated with these options and the accrued liability of $246, which was classified as a stock based compensation liability, was reclassified to additional paid-in capital.
Activity for the nine months ended September 30, 2014 | ||||||||||||||||
Balance December 31, 2013 |
Expense | Equity Award Exchange |
Balance September 30, 2014 |
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Workforce - related |
$ | 246 | $ | | $ | (246 | ) | $ | | |||||||
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$ | 246 | $ | | $ | (246 | ) | $ | | ||||||||
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Activity for the nine months ended September 30, 2013 | ||||||||||||||||
Balance December 31, 2012 |
Expense | Utilization | Balance September 30, 2013 |
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Workforce-related |
$ | 198 | $ | 23 | $ | (22 | ) | $ | 199 | |||||||
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$ | 198 | $ | 23 | $ | (22 | ) | $ | 199 | ||||||||
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6. | PROPERTY, PLANT, AND EQUIPMENT |
Property, plant, and equipment at September 30, 2014 and December 31, 2013 consist of:
September 30, 2014 |
December 31, 2013 |
|||||||
Leasehold improvements |
$ | 66 | $ | 30 | ||||
Machinery and equipment |
1,854 | 1,710 | ||||||
Patterns and tooling |
1,410 | 880 | ||||||
Office furniture and equipment |
424 | 424 | ||||||
Information technology equipment and software |
1,271 | 1,149 | ||||||
Field service spare parts |
122 | 121 | ||||||
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5,147 | 4,314 | |||||||
Less accumulated depreciation |
(3,523 | ) | (2,900 | ) | ||||
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Total property, plant and equipment |
$ | 1,624 | $ | 1,414 | ||||
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Depreciation expense was $147 and $623, for the three months and nine months ended September 30, 2014, respectively. Depreciation expense was $187, and $631, for the three months and nine months ended September 30, 2013, respectively.
On December 12, 2013, the Board of Directors of the Company approved a plan to sell its corporate headquarters and production facility located at 29 Pitman Road, Barre, Vermont. The Company marketed such facility through a real estate broker which initially found three potential purchasers. The Company believes that effective December 12, 2013, the facility became an asset held for sale based upon the decision of the Companys Board of Directors at such time, as well as meeting the other criteria in Accounting Standards Codification (ASC) 360-10-45-8, Impairment and Disposal of Long-Lived Assets Other Presentation Matters Long-Lived Assets Classified as Held for Sale. Therefore, the Company had classified the land, building, and building improvements as assets held for sale as of December 31, 2013. Based upon the marketing of the facility, the building was sold for $1,300. In June 2014, the sale transaction closed and the Company leased the facility back from the buyer for up to a five year term. The Company has the right to terminate the lease without penalty upon at least six months prior notice effective at the end of the second, third or fourth year of the lease term. As such the Company considers the lease to be an operating lease in accordance with ASC 840. The Company may relocate to other more suitable production and technology space within the state of Vermont or may remain in the Barre facility for some or all of the duration of the lease term. See Note 17: Commitments and Contingencies for further details on this topic.
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Table of Contents
7. | INTANGIBLE ASSETS |
Intangible assets consist of:
September 30, 2014 | ||||||||||||||||
Average Remaining Amortization Period |
Cost | Accumulated Amortization |
Net Carrying Amount End of Period |
|||||||||||||
Core technology |
1.9 years | $ | 978 | $ | (649 | ) | $ | 329 | ||||||||
Trade name |
2.9 years | 89 | (49 | ) | 40 | |||||||||||
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$ | 1,067 | $ | (698 | ) | $ | 369 | ||||||||||
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December 31, 2013 | ||||||||||||||||
Average Remaining Amortization Period |
Cost | Accumulated Amortization |
Net Carrying Amount End of Year |
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Core technology |
2.7 years | $ | 978 | $ | (518 | ) | $ | 460 | ||||||||
Trade name |
3.7 years | 89 | (40 | ) | 49 | |||||||||||
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$ | 1,067 | $ | (558 | ) | $ | 509 | ||||||||||
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Amortization expense was $47 and $140, for the three months and nine months ended September 30, 2014, respectively. Amortization expense was $47, and $140, for the three months and nine months ended September 30, 2013, respectively.
8. | DEBT AND SENIOR SECURED CONVERTIBLE NOTES |
Debt at September 30, 2014 and December 31, 2013 consists of:
September 30, 2014 |
December 31, 2013 |
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VEDA Barre, Vermont facility mortgage |
$ | | $ | 346 | ||||
ICC insurance premium loan |
| 95 | ||||||
Working capital revolving line of credit |
4,000 | | ||||||
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Total debt |
4,000 | 441 | ||||||
Less current portion |
(4,000 | ) | (141 | ) | ||||
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Long-term debt |
$ | | $ | 300 | ||||
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Senior secured convertible notes, due June 30, 2014 |
$ | | $ | 12,107 | ||||
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Northern assumed mortgage debt with the Vermont Economic Development Authority (VEDA) related to a manufacturing facility in Barre, Vermont. The VEDA mortgage was a variable interest rate loan bearing interest of 3.75% as of December 31, 2013. The loan was collateralized by the Barre, Vermont property. The Company successfully completed a sale of the facility in June 2014 and used a portion of such proceeds to pay off the VEDA mortgage. There were no early payment penalties on the mortgage.
In February 2013, Northern entered into a one year renewal agreement for its foreign working capital revolving line of credit with Comerica Bank extending the maturity date to June 30, 2014. The renewal permitted Northern to borrow up to $4,000, with the available borrowing base being limited to the amount of collateral available at the time the line is drawn.
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Table of Contents
As of October 23, 2013, the Company increased its foreign working capital revolving line of credit with Comerica to $6,000 to support exports of its distributed-class turbines. Effective with the merger of Utility Scale into Northern at December 31, 2013, the Companys foreign working capital line of credit was renegotiated with Comerica to allow for the combined business operations to be included.
The Company negotiated a revised credit facility prior to the maturity date in June 2014, whereby the Company renewed the existing foreign working capital revolving credit line with Comerica for the amount of $6,000 and extended the maturity date to June 30, 2015. The renegotiated loan agreement with Comerica contains a financial covenant which requires the Company to maintain unencumbered liquid assets having a value of at least $1,500 at all times.
At September 30, 2014, there was $4,000 outstanding on the revolving line of credit as well as an outstanding performance letter of credit guarantee of $1,000 issued to one customer and the Company had a net maximum supported borrowing base of $4,960. The Company was in compliance with all covenants under this credit facility in all periods.
The Company closed a $4,525 convertible note offering in April 2013, and then closed a further $2,000 convertible note offering in September 2013. In both the April and the September offerings, the notes were offered to existing stockholders. Upon the closing of the September offering, the shares of the Companys formerly outstanding Series C-1 preferred stock held by investors participating in this note financing were converted into additional notes at the rate of one dollar face amount of convertible note for every three dollars in liquidation preference of Series C-1 preferred stock (Series A, B and C-2 preferred stock were not converted into notes). This non-cash conversion increased total convertible notes outstanding by an additional $5,250.
The convertible notes bore interest at a rate of 6% per annum payable upon maturity or conversion to equity securities. The notes contained a provision by which the outstanding principal and accrued interest on these notes would automatically convert into equity securities issued by the Company in a subsequent Qualified Financing (defined as a future equity financing resulting in aggregate gross proceeds of at least $10,000 or any other future equity financing that is approved by the Company and holders of at least 60% of the aggregate principal amount of the convertible notes) at the same price at which the shares issued in the qualified financing are sold. Such a Qualified Financing occurred April 16, 2014 as described in Note 10 Capital Structure. In the event the notes were not converted, as outlined above, the principal balance along with any accrued interest would have become due and payable on June 30, 2014. The convertible notes were collateralized by a pledge of the capital stock of Northern and certain intellectual property of Northern. The Company determined that the embedded equity-linked component did not contain a net settlement provision as defined by ASC 815-10-15-00 and therefore, did not meet the definition of a derivative under ASC 815-10-15-83. As a result, under the guidance at ASC 815-15-25-1 the Company was not required to separate the equity-linked component from the debt host. These convertible notes had the characteristics of conventional debt described in ASC 470-20 as follows: (1) the conversion feature is settled in shares; (2) there is an absence of a cash conversion feature; (3) the note holders cannot obtain shares at below market price; and (4) the issuer must deliver shares upon conversion. Therefore, the Company accounted for these notes as traditional debt recorded at face value upon issuance. Due to the Qualified Financing reverse takeover transaction, these notes were converted to equity in April 2014.
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Table of Contents
9. | ACCRUED EXPENSES |
Accrued Expenses at September 30, 2014 and December 31, 2013 consist of:
September 30, 2014 |
December 31, 2013 |
|||||||
Accrued warranties |
$ | 1,590 | $ | 545 | ||||
Rebates, allowances and discounts |
1,056 | 12 | ||||||
Other accrued expenses |
1,500 | 1,601 | ||||||
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Total accrued expenses |
$ | 4,146 | $ | 2,158 | ||||
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Changes in the Companys product warranty accrual consisted of the following:
Three months ended September 30, |
Nine months ended September 30, |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Beginning balance |
$ | 1,047 | $ | 540 | $ | 545 | $ | 571 | ||||||||
Provisions, net of reversals |
811 | 113 | 1,535 | 207 | ||||||||||||
Settlements |
(268 | ) | (240 | ) | (490 | ) | (365 | ) | ||||||||
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Ending balance |
$ | 1,590 | $ | 413 | $ | 1,590 | $ | 413 | ||||||||
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10. | CAPITAL STRUCTURE |
Reverse Take Over Transaction - On April 16, 2014, WPHI consummated the Merger with NPS Corp. (formerly Mira III). Under the Merger Agreement, WPHI exchanged 12,840,187 its shares of common stock, constituting all of its outstanding shares for NPS Corp. common shares. As a result, holders of WPHI stock received 3,946,701 voting common shares and 8,893,486 class B restricted voting common shares which are convertible into voting common shares on a one-for-one basis at the option of the holder thereof at any time after July 15, 2014. During the third quarter 3,421,125 of class B restricted voting common shares were converted into the same number of voting common shares. At the time of the transaction Mira III had 359,375 common shares outstanding which were exchanged on a one-for-one basis for the same number of voting common shares of NPS Corp. WPHIs Senior Secured Convertible Notes with a carrying value of $12,320 were converted into 1,016,534 voting common shares and 2,368,221 class B restricted voting common shares. Finally, the outstanding stock options held by former directors and officers of Mira III and a placement agent from Mira IIIs initial public offering were split into 43,125 options.
Since the stockholders of WPHI received the majority of the voting shares of NPS Corp., the Merger was accounted for as a RTO whereby WPHI was the accounting acquirer (legal acquiree) and NPS Corp. was the accounting acquiree (legal acquirer) under reverse takeover accounting. The net assets of the combined entity have been included in the balance sheet at September 30, 2014. The statements of operations include the operations of the accounting acquirer for the periods presented and the operations of the legal acquirer from the date of the Merger. NPS Corp. has no stated par on its common shares and as such, all of the stated capital value of NPS Corp. and Mira III is presented as the resulting common share value of $133,963 in the caption effect of reverse takeover on the stockholder equity (deficiency) statement, and was reclassified into common share value. The remaining additional Paid-in Capital (APIC) included the accumulation of stock based compensation expense and the difference between the consideration issued to the Mira III shareholders and Mira IIIs net liabilities acquired of $1,410. The Company recorded the assets and liabilities of Mira III as follows:
Net assets of Mira III:
Prepaids |
$ | 4 | ||
Accounts payable and accrued liabilities |
(106 | ) | ||
|
|
|||
Net liabilities acquired |
(102 | ) | ||
Consideration paid- Mira III stock at fair value |
1,308 | |||
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Reduction in APIC |
$ | (1,410 | ) | |
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Private Placement-The Company completed a private placement on April 16, 2014, issuing 6,125,000 shares of no stated par value voting common shares at price per share of $3.64 for total gross proceeds, before placement commissions and expenses, of $22,273. The placement agent received cash commissions equal to 6% of the gross proceeds. Such commissions equaled $1,522 and were charged against the gross proceeds. The placement agent also received stock options to purchase the Companys common shares equal to 6% of shares (or 367,500 options) sold in the offering. Such stock options had a fair value of $620 and were fully vested as of April 16, 2014. Each option has an exercise price of $3.64 per share and is exercisable for two years. In calculating the value of the stock options with the Black-Scholes model, the Company assumed (i) a risk free rate equal to the rate of the two year treasury prevailing at April 16, 2014, (ii) a volatility of 87.0%, the average of a set of guideline companies determined to be representative of the Company at that time, and (iii) an expected term of two years. The Company charged $1,128 of direct legal, accounting and printing fees to the gross proceeds.
New Capital Structure
Common Shares-No Par- In connection with the RTO the Companys resulting authorized capital consists of an unlimited number of voting common shares and an unlimited number of class B restricted voting shares. As of September 30, 2014, there were 14,893,981 voting common shares issued and outstanding and 7,840,582 class B restricted voting shares issued and outstanding. The class B restricted voting shares are convertible into voting common shares on a one-for-one basis at the option of the holder thereof at any time after July 15, 2014. The holders of the class B restricted voting shares are entitled to receive notice of and to attend all meetings of the Companys shareholders and to vote on all matters properly presented at any such meeting, provided that the holders of the class B restricted voting shares are not entitled to vote for the election or removal of the Companys directors.
2014 Reverse Stock Split In conjunction with but prior to the reverse takeover transaction disclosed above, on April 14, 2014, each of the 20,000,075 shares of WPHI common stock issued and outstanding were automatically combined, reclassified and changed into 0.6420084 of one fully paid and non-assessable share of common stock resulting in a post-split total of 12,840,187 shares, without any action on the part of the holder thereof. All shares of common stock issued to any stockholder (including as a result of the conversion of senior secured convertible notes into common stock) were aggregated for the purpose of determining the number of shares of common stock to which such holder was entitled to receive. The effect of this transaction was retrospectively applied to the financial statements presented in this filing, as required by the SECs Staff Accounting Bulletin (SAB) 4c. As a result, all share and per share data have been retroactively adjusted to give effect to this reverse stock split.
The accounting effect of the 2014 reverse stock split resulted in the par value per share of the Companys common stock being the same after the reverse stock split. On the effective date, the stated capital on the Companys consolidated balance sheet attributable to common stock was reduced and the additional paid-in-capital account was increased by the amount of the stated capital reduction.
Capital Structure Prior to the RTO
2013 Stock Split On August 28, 2013, the Board of Directors approved the conversion of all outstanding Series A, B and C-2 preferred stock to common stock and a subsequent 1 for 11.6087 reverse split of the Companys outstanding common stock. The Board also approved recommending that the Companys stockholders approve amendments to the Companys Certificate of Incorporation to effect such activities. The Companys stockholders approved these amendments by written consent dated September 10, 2013. The split shares were effective on September 16, 2013. Relevant financial data has been retroactively adjusted in these financial statements to reflect the 1 for 11.6087 reverse stock-split.
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Table of Contents
2013 Recapitalization As presented in Note 8, Debt and Senior Secured Convertible Notes, the Company closed two offerings of convertible notes during 2013. Investors in the September offering also were issued an aggregate of approximately 6.4 million shares of common stock. Upon the closing of this offering, the shares of the Companys formerly outstanding Series C-1 preferred stock held by investors participating in this note financing were converted into additional notes at the rate of one dollar face amount of convertible note for every three dollars in liquidation preference of Series C-1 preferred stock. This non-cash conversion increased total convertible notes outstanding by an additional $5,250. The convertible notes bore interest at a rate of 6% per annum payable upon maturity at June 30, 2014 or conversion to equity securities. These notes were set up to automatically convert into equity securities issued by the Company in a subsequent Qualified Financing (defined as a future equity financing resulting in aggregate gross proceeds of at least $10,000 or any other future equity financing that is approved by the Company and holders of at least 60% of the aggregate principal amount of the convertible notes). Simultaneously with the convertible note offering described above, all outstanding shares of Series A, Series B and Series C-2 preferred stock, together with all accumulated dividends thereon, were converted into common stock based on an enterprise value of $50,000.
Preferred Stock Prior to the completion of the RTO, WPHI had 6,000,000 authorized shares of Preferred Stock, of which 3,000,000 were designated as Series X-1 Preferred Stock (Series X-1 preferred stock), and 3,000,000 were designated as Series X-2 Preferred Stock (Series X-2 preferred stock and together with the Series X-1 preferred stock, the Series X preferred stock). Such preferred stock was canceled as part of the completion of the reverse takeover transaction as explained above.
Series A Preferred Stock WPHI had issued 3,540,000 shares of Series A preferred stock and 14,683 shares of common stock to the founding investors in August 2008 for cash consideration of $17,700, all of which were converted in 2013 to common stock as described above in the section 2013 Recapitalization.
Series B Preferred Stock WPHI had issued 7,286,232 shares of Series B preferred stock in October and November 2009, at a face amount of $6.00 per share, for aggregate cash consideration of $43,532, net of issuance costs of $185. WPHI had issued an additional 2,121,707 shares of Series B preferred stock in December 2010 for aggregate cash consideration of $12,730 under the same terms as the 2009 offering. All of such Series B Preferred Stock was converted in 2013 to common stock as described above in the section 2013 Recapitalization.
Series C Preferred Stock In August 2011, WPHI sold units consisting of one share of Series C-1 preferred stock and a warrant to purchase four shares of Series C-2 preferred stock at an exercise price of $0.50 per share. The price per unit was $6.30. WPHI issued 1,608,322 shares of Series C-1 preferred stock, at a face amount of $6.30 per share, and warrants to purchase 6,433,288 shares of Series C-2 preferred stock (the Warrants) for aggregate cash consideration of $10,016, net of issuance costs of $115. All of such Series C-1, C-2 and Warrants were converted to common stock or convertible notes as described above in the section 2013 Recapitalization and Note 8 Debt and Senior Secured Convertible Notes.
Series X Preferred Stock The Series X-1 preferred stock was reserved for holders of options to purchase common stock of Northern, restricted stock units to acquire common stock of Northern, or common stock of Northern issued under Northerns 2011 Stock Option and Grant Plan. The Series X-2 preferred stock was reserved for holders of options to purchase common stock of Utility Scale, restricted stock units to acquire common stock of Utility Scale, or common stock of Utility Scale issued under Utility Scales 2011 Stock Option and Grant Plan. As a result of the termination of these stock option plans in connection with the option exchange offer described in Note 11, the Company will not be issuing any shares of Series X-1 or X-2 preferred stock. Such stock expired as of April 16, 2014.
Dividend Restrictions The Comerica line of credit prohibits the payment of any dividends without obtaining Comericas prior written consent.
Common Stock Prior to the completion of the RTO, WPHI had authorized 44,000,000 shares of common stock, par value $0.01 per share. None of these shares were outstanding at September 30, 2014 as a result of the RTO.
Investors Rights Agreement In August 2013, certain of WPHIs investors entered into a Fourth Amended and Restated Investors Rights Agreement providing such investors with certain registration and other investment rights at any time prior to the termination of the agreement. The Investors Rights Agreement was amended and restated on
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the closing of the reverse takeover transaction to provide certain former security holders of WPHI (the Rights Holders) or their permitted transferees with registration rights under the Securities Act of 1933, as amended, of certain common shares of the Company held by them. These rights include demand registration rights, short-form registration rights and piggyback registration rights. All fees, costs and expenses of underwritten registrations will be borne by the Company and all selling expenses, including underwriting discounts and selling commissions, will be borne by the holders of the shares being registered. The rights under the Investors Rights Agreement shall only become effective upon the listing of the Companys shares on a U.S. national securities exchange. Rights Holders which hold at least 50% of the shares covered by the agreement have the right to require the Company to list the common shares on a U.S. national securities exchange at any time after December 31, 2015.
Voting Agreement Investors in WPHI previously were party to a Fourth Amended and Restated Voting Agreement providing certain board representation rights, a drag-along right, as well as a right of first refusal and co-sale right in the event stockholders proposed to transfer WPHI stock while the Voting Agreement was in effect. The Voting Agreement was terminated on the closing of the reverse takeover transaction as described above.
11. | STOCK BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS |
2008 Equity Incentive Plan In October 2008, WPHI adopted the 2008 Equity Incentive Plan (the 2008 Plan). The 2008 Plan provided for the grant of incentive stock options, non-statutory stock options, and other types of stock awards to employees, consultants, and directors of the Company. The 2008 Plan, as amended in 2010, has reserved for issuance upon grant or exercise of awards up to 86 adjusted shares of the Companys common stock. As described below, in April 2014 all outstanding options were converted on a value-for-value basis to options in the 2014 NPS Corp Plan.
2011 Subsidiary Stock Option and Grant Plans In August 2011, the Companys two then operating subsidiaries adopted new plans. As such, Northern adopted the Northern Power Systems, Inc. 2011 Stock Option and Grant Plan (the Northern 2011 Plan) and Utility Scale adopted the Northern Power Systems Utility Scale, Inc. 2011 Stock Option and Grant Plan (the Utility Scale 2011 Plan, and together with the Northern 2011 Plan, the Subsidiary Plans). The Subsidiary Plans provided for the grant of incentive stock options, non-statutory stock options, and other types of stock awards to employees, consultants, and directors of the Company. The Subsidiary Plans each reserved for issuance upon grant or exercise of awards up to 3,000,000 shares of such subsidiarys common stock. In addition, 3,000,000 shares of each Series X-1 and Series X-2 of the Companys preferred stock had been reserved, respectively, for issuance upon exercise of the respective Subsidiary Plans options in the event of certain potential liquidation events of the Company. Based upon the provisions of the Subsidiary Plans option exercises into the Companys preferred stock, the Company had determined that these options should be accounted for as liability classified awards.
2013 Stock Option and Grant Plan In November 2013, WPHI adopted the Wind Power Holdings, Inc. 2013 Stock Option and Grant Plan (the 2013 WPHI Plan). This plan provided for the grant of incentive stock options, non-statutory stock options, and other types of stock awards to employees, consultants and directors of the Company. 4,000,000 shares of WPHI common stock were authorized for issuance under the 2013 WPHI Plan. The Company reviewed the guidance at ASC 718 and had classified the grants as equity awards.
In connection with the adoption of the 2013 WPHI Plan, the Board of Directors and stockholders of WPHI authorized the termination of the Wind Power Holdings, Inc. 2008 Equity Incentive Plan, the Northern Power Systems, Inc. 2011 Stock Option and Grant Plan, and the Northern Power Systems Utility Scale, Inc. 2011 Stock Option and Grant Plan, to be effective upon completion of certain exchange offers and recapitalizations. Options which were outstanding under the Wind Power Holdings, Inc. 2008 Equity Incentive Plan would remain outstanding under the terms of the applicable option agreements and such plan, but no further grants would be made under such plan. Options which were outstanding under the Northern Power Systems, Inc. 2011 Stock Option and Grant Plan, and the Northern Power Systems Utility Scale, Inc. 2011 Stock Option and Grant Plan and not tendered for exchange by the holders thereof were automatically converted to options to purchase WPHI common stock under the 2013 WPHI Plan as part of the merger of Utility Scale into Northern and the recapitalization of Northern.
The Company calculates the fair value of stock-based payment awards on the date of grant for equity awards and as of each reporting period for liability awards until a measurement date is established for such awards. The value of
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the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods. Option pricing model input assumptions such as expected term, expected volatility, risk-free interest rate, dividend rate, and the fair value of the Companys or, as applicable, the Subsidiarys common stock impact the fair value estimate. Further, the forfeiture rate impacts the amount of aggregate compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. The Company uses the simplified method for estimating expected term representing the midpoint between the vesting period and the contractual term. The Company estimates volatility based on the historical volatility of a peer group of publicly-traded companies. The risk-free interest rate is the implied yield currently available on U.S. treasury zero-coupon issues with a term equal to the expected vesting term. Estimated forfeitures are adjusted over the requisite service period based on the extent to which actual forfeitures differ from estimated forfeitures.
Effective on January 1, 2014, all options in the Subsidiary Plans automatically converted to options in the 2013 WPHI Plan on a value-for-value basis. At such time the Company considered the modification of such awards in accordance with ASC 718 and concluded that such transaction modified the Subsidiary Plan awards from liability accounting to equity treatment in nature. As such, as of such date, the measurement date for these awards was established and they would be accounted for as equity awards on a prospective basis. Awards that had originally been issued under the 2008 Plan, exchanged into options under the Subsidiary Plans, and then to the 2013 WPHI Plan, retained their original grant date fair value for purposes of calculating share-based compensation expense. The comparison of the fair value of the awards immediately before and after the modification resulted in the determination that no additional compensation expense was realized. Effective at such time the Company reclassified any values presented as liabilities for stock-based compensation to additional paid-in capital.
In November 2013 option holders of the Subsidiary Plans were granted an offer to exchange their awards for awards in the 2013 WPHI Plan receiving a lesser number of options than they would have received on the value-for-value basis, but at a lower exercise price as had been established in November 2013. Such exchange closed on January 28, 2014, and option holders who did not accept the exchange retained the value-for-value options that had converted on January 1, 2014. At such time the Company considered the fair value of such awards immediately before and after the closing of such exchange and determined that there was no additional compensation expense.
In March 2014, the Toronto Stock Exchange (TSX) informed the Company that it would be required to reprice the options issued in January 2014 upon completion of the option exchange described above, so that the exercise price for such options would be equal to the price per equity security sold in the private placement. The Board of Directors of the Company determined effective the end of March 2014 that it would reprice these options as required by the TSX and as permitted by the option exchange documents, but would not modify the number of shares issued to employees. The Company considered the fair value of such awards immediately before and after such repricing and determined that there was no additional compensation expense.
Immediately prior to the conversion described below, the Company had reserved 4,000,086 shares of common stock collectively in the 2008 Equity Incentive Plan and the 2013 WPHI Plan for both future exercise of outstanding stock options and shares available for future option grants. As described below in April 2014 all outstanding options were converted on a value-for-value basis to options in the 2014 NPS Corp Plan.
2014 Northern Power Systems Corp. Stock Option and Incentive Plan In April 2014 and as a result of the reverse takeover transaction, the Company adopted the Northern Power Systems Corp. 2014 Stock Option and Incentive Plan (the 2014 NPS Corp Plan) which reserved 4,000,000 shares of the Companys voting common stock for both future exercise of outstanding stock options and shares available for future outstanding grants. All options in the 2013 WPHI Plan and the 2008 Equity Incentive Plan were converted on a value-for-value basis to options in the 2014 NPS Corp plan. All other relevant terms and conditions remained the same. At such time the Company considered the modification of such awards in accordance with ASC 718 and concluded that such transaction did not result in additional compensation expense. The Company is accounting for grants under the 2014 NPS Corp Plan as equity awards.
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A summary of the stock option activity under the 2014 NPS Corp Plan for the nine months ended September 30, 2014 is as follows:
Shares | Weighted- Average Exercise Price |
Average Remaining Weighted-Average Contractual Term (in Years) |
Aggregate Intrinsic Value |
|||||||||||||
Outstanding December 31, 2013 |
| | | | ||||||||||||
Assumed in reverse takeover |
1,830,012 | $ | 1.78 | |||||||||||||
Granted |
250,500 | $ | 3.95 | |||||||||||||
Exercised |
(18,059 | ) | $ | 1.59 | ||||||||||||
Canceled |
(4,616 | ) | $ | 2.37 | ||||||||||||
|
|
|||||||||||||||
Outstanding September 30, 2014 |
2,057,837 | $ | 2.05 | 5.97 years | $ | 3,257 | ||||||||||
|
|
|||||||||||||||
Exercisable September 30, 2014 |
933,491 | $ | 2.30 | 5.67 years | $ | 1,270 | ||||||||||
|
|
|||||||||||||||
Shares vested and expected to vest September 30, 2014 |
1,928,634 | $ | 2.06 | 5.95 years | $ | 3,034 | ||||||||||
|
|
The aggregate intrinsic value in the table above represents the difference between the fair value of common stock and the exercise price of outstanding, in-the-money, stock options.
The weighted-average grant-date fair value of options granted under the 2014 NPS Corp Plan at the grant date was $2.34 per share. At September 30, 2014, unrecognized stock-based compensation expense related to non-vested stock options is $1,233 which is expected to be recognized over the weighted-average remaining vesting period of 2.2 years.
The Company estimated the grant-date fair values of stock options granted during the nine months ended September 30, 2014, using the Black-Scholes option pricing model and the following assumptions:
2014 | ||
Expected volatility |
77.0% - 83.0% | |
Risk-free interest rate |
1.05% - 1.54% | |
Expected life (years) |
3.5 - 4.5 | |
Dividend yield |
0.0% |
The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period. The forfeiture rate was 10% for the three and nine months ended September 30, 2014, respectively. Stock-based compensation expense, a non-cash expense, is included in each respective expense category as follows, for the three and nine months ended September 30, 2014 and 2013:
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Cost of revenue |
$ | 29 | $ | 8 | $ | 72 | $ | 29 | ||||||||
Sales and marketing |
47 | 4 | 68 | 12 | ||||||||||||
Research and development |
| 13 | | 37 | ||||||||||||
General and administrative |
68 | 60 | 606 | 186 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stock-based compensation expense |
144 | 85 | 746 | 264 | ||||||||||||
Restructuring |
| 4 | | 23 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 144 | $ | 89 | $ | 746 | $ | 287 | |||||||||
|
|
|
|
|
|
|
|
In 2012, the Company modified options held by certain executives as part of separation agreements to fully vest such options as well as extend the contractual terms. For the three and the nine months ended September 30, 2013 the
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Company recognized an additional restructuring expense of $4 and $23, respectively, reflecting the change in fair value of such options. Such options were converted to WPHI options on January 1, 2014 and are accounted for as equity awards. As such, there will be no additional expense associated with these options.
Mira III Stock Option Awards- The former officers and directors of Mira III have 35,938 stock options fully vested as of April 16, 2014 which provide the option to purchase shares of the Companys common stock at an exercise price of CDN$3.48 per share during a one year period ending on April 16, 2015. A placement agent from a previous offering had also been granted options to purchase 7,187 Mira III common shares which were exercised in April 2014 at an exercise price of CDN$3.48 per share. A summary of the former officers and directors of Mira III option activity for the nine months ended September 30, 2014 is as follows:
Shares | Weighted- (CDN) |
Average Remaining Weighted-Average Contractual Term (in Years) |
Aggregate Intrinsic Value (USD) |
|||||||||||||
Outstanding December 31, 2013 |
| | | | ||||||||||||
Assumed in Reverse Takeover |
43,125 | $ | 3.48 | 1 Year | | |||||||||||
Granted |
| |||||||||||||||
Exercised |
(7,187 | ) | $ | 3.48 | ||||||||||||
Canceled |
| |||||||||||||||
|
|
|||||||||||||||
Outstanding September 30, 2014 |
35,938 | $ | 3.48 | .6 Years | $ | 11 | ||||||||||
|
|
|||||||||||||||
Exercisable September 30, 2014 |
35,938 | $ | 3.48 | .6 Years | $ | 11 | ||||||||||
|
|
|||||||||||||||
Shares vested and expected to vest September 30, 2014 |
35,938 | $ | 3.48 | .6 Years | $ | 11 | ||||||||||
|
|
12. | 401(k) PLAN |
The Company has a defined contribution plan covering substantially all of its employees, subject to certain eligibility requirements. Under the plan, participating employees may defer up to 15% of their pre-tax compensation, as defined. The Company contributes 50% of the amount contributed by a participating employee, up to a maximum of 6% of the participants pre-tax compensation. Company matching contributions for the three and nine months ended September 30, 2014 were $46 and $145, respectively and $42 and $133 for the three and nine months ended September 30, 2013, respectively.
13. | INCOME TAXES |
For the three and nine months ended September 30, 2014, the Company recorded income tax expense of $412 and $441, respectively, which is comprised of $409 current expense and $3 deferred expense for the three months ended September 30, 2014 and is comprised of $431 current expense and $10 deferred expense for the nine months ended September 30, 2014. For the three and nine months ended September 30, 2013, the Company recorded income tax (benefit) expense of ($16) and $13, respectively, which is comprised of ($20) current benefit and $4 deferred expense for the three months ended September 30, 2013 and $2 current expense and $11 deferred expense for the nine months ended September 30, 2013.
For the three months ended September 30,2014 the current income tax expense included approximately $400 of foreign tax expense related to Brazilian witholding taxes. Such taxes are applicable to licensing, technology services and royalty revenues earned within Brazil. The tax rate for such taxes is between 15% -18% and is based upon the character of the revenue and the jurisdiction of where it was earned.
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As of December 31, 2013, the Company had $110,512 of federal net operating loss carryforwards that expire beginning in 2028, $72,307 of state net operating loss carryforwards that expire from 2014 through 2034, and $1,196 of research and development tax credits that expire beginning in 2028. The amount of the net operating loss and research and development tax credit carryforwards that may be utilized annually to offset future taxable income and tax liability may be limited as a result of certain ownership changes pursuant to Section 382 of the Internal Revenue Code. The Company has not completed a study to assess whether there have been one or more ownership changes since its inception due to the costs and complexities associated with such a study.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is established for any deferred tax asset for which realization is not more likely than not.
The Company recognizes in its consolidated financial statements only those tax positions that are more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. As of September 30, 2014, there are no uncertain tax positions. In addition, there are no amounts required to be included in the financial statements for interest or penalties on uncertain tax positions.
14. | RELATED-PARTY TRANSACTIONS |
In 2013, the Company issued convertible notes to Rockport Capital Partners, Allen & Company, LLC and CWE LLC. These notes were valued collectively at $8,399 which consisted of $4,765 in cash and $3,634 in non-cash ascribed to the conversion of the Series C-1 preferred shares (see Note 8: Debt and Senior Secured Convertible Notes). In connection with the private placement on April 16, 2014, such notes were automatically converted into 629,061 voting common shares and 1,678,786 class B restricted voting common shares in accordance with the terms of the notes. Interest expense related to such notes was $62 and $105 for the nine months ended September 30, 2014 and 2013, respectively.
15. | SEGMENT REPORTING |
The Companys segments are defined as components of the enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
The performance of the segments is evaluated based upon several factors, of which the primary financial measures are segment revenues, gross profits, and loss from operations. The disaggregated financial results of the segments reflect the allocation of certain functional expense categories consistent with the basis and manner in which management internally disaggregates financial information for the purpose of assisting in making internal operating decisions. In addition, certain expenses and other shared costs which management does not believe are specifically and directly attributable or allocable to any of the business segments have been excluded from the presented segment contribution margins. The accounting policies of the business segments are the same as those for the consolidated Company. The Company assigns revenues to individual countries based on the customers shipment location.
The Company manages its business with the four following segments:
| Product Sales and Service Included in this business segment are the Companys sales of distributed turbines along with related services, other products produced and sold to customers, as well as, in the future the Companys direct sales of utility-class turbines. |
| Technology Licensing Included in this business segment is the licensing of packages of the Companys developed technology. |
| Technology Development Included in this business segment is the Companys development of technology for customers. |
| Shared Services These costs and expenses are comprised mainly of the general and administrative departments including executive, finance and accounting, legal, human resources, and information technology support, as well as certain shared engineering, and in certain circumstances, sales and marketing activities. |
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Unallocated costs and expenses include depreciation and amortization, stock-based compensation, and certain other non-cash charges, such as restructuring and impairment charges.
Revenue by business segment is as follows:
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Product Sales and Services |
$ | 12,368 | $ | 5,094 | $ | 38,954 | $ | 11,078 | ||||||||
Technology Licensing |
1,955 | | 2,541 | | ||||||||||||
Technology Development |
709 | 522 | 1,063 | 522 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 15,032 | $ | 5,616 | $ | 42,558 | $ | 11,600 | ||||||||
|
|
|
|
|
|
|
|
Income (loss) from operations for the business segments and unallocated costs and expenses are as follows:
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Product Sales and Services |
$ | 604 | $ | (99 | ) | $ | 841 | $ | (2,448 | ) | ||||||
Technology Licensing |
1,756 | (980 | ) | 1,445 | (1,392 | ) | ||||||||||
Technology Development |
555 | 317 | 793 | 317 | ||||||||||||
Shared Services |
(2,190 | ) | (1,688 | ) | (6,102 | ) | (4,641 | ) | ||||||||
Unallocated costs and expenses |
(501 | ) | (88 | ) | (1,742 | ) | (989 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from operations |
$ | 224 | $ | (2,538 | ) | $ | (4,765 | ) | $ | (9,153 | ) | |||||
|
|
|
|
|
|
|
|
Unallocated cost and expenses consist of:
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Depreciation and amortization |
$ | (194 | ) | $ | (234 | ) | $ | (763 | ) | $ | (771 | ) | ||||
Stock-based compensation expenses |
(144 | ) | (85 | ) | (746 | ) | (264 | ) | ||||||||
Noncash restructuring charges |
| (4 | ) | | (23 | ) | ||||||||||
Other |
(163 | ) | 235 | (233 | ) | 69 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | (501 | ) | $ | (88 | ) | $ | (1,742 | ) | $ | (989 | ) | ||||
|
|
|
|
|
|
|
|
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Total business segment assets are as follows:
September 30, 2014 | December 31, 2013 | |||||||
Product Sales and Services |
$ | 25,817 | $ | 17,583 | ||||
Technology Licensing |
653 | 1,059 | ||||||
Technology Development |
111 | 274 | ||||||
Shared Services |
176 | 290 | ||||||
Unallocated assets |
16,273 | 8,339 | ||||||
|
|
|
|
|||||
Total |
$ | 43,030 | $ | 27,545 | ||||
|
|
|
|
Unallocated assets consist of the following:
September 30, 2014 | December 31, 2013 | |||||||
Cash |
$ | 15,956 | $ | 4,236 | ||||
Other current assets |
| 372 | ||||||
Property, plant and equipment, net |
36 | 47 | ||||||
Deferred tax assets |
281 | 2,384 | ||||||
Asset held for sale |
| 1,300 | ||||||
|
|
|
|
|||||
Total |
$ | 16,273 | $ | 8,339 | ||||
|
|
|
|
Geographic information about revenue, based on shipments and/or services to customers by region, is as follows:
For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
United States |
$ | 3,268 | $ | 2,112 | $ | 5,048 | $ | 3,576 | ||||||||
United Kingdom |
7,076 | 1,923 | 15,865 | 4,074 | ||||||||||||
Italy |
2,362 | 1,286 | 13,914 | 3,600 | ||||||||||||
Brazil |
2,169 | | 6,269 | | ||||||||||||
Asia |
110 | | 1,406 | | ||||||||||||
Rest of the world |
47 | 295 | 56 | 350 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 15,032 | $ | 5,616 | $ | 42,558 | $ | 11,600 | ||||||||
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2014 and 2013, 78% and 88% and 62% and 69% of revenues, respectively, were recognized from sales outside the United States.
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Geographic information about long-lived assets associated with particular regions is as follows:
September 30, 2014 |
December 31, 2013 |
|||||||
United States |
$ | 2,497 | $ | 3,865 | ||||
Rest of the world |
218 | 80 | ||||||
|
|
|
|
|||||
Consolidated Total |
$ | 2,715 | $ | 3,945 | ||||
|
|
|
|
16. | RECENT ACCOUNTING PRONOUNCEMENTS |
In April 2014, the FASB issued Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08), which raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the new definition of a discontinued operation. It also allows an entity to present a discontinued operation even when it has continuing cash flows and significant continuing involvement with the disposed component. The amendments in ASU 2014-08 are effective prospectively for disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The impact of the adoption of this ASU on the Companys results of operations, financial position, cash flows and disclosures will be based on its future disposal activity.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification Topic No. 605, Revenue Recognition, most industry-specific guidance throughout the industry topics of the accounting standards codification, and some cost guidance related to construction-type and production-type contracts. ASU 2014-09 is effective for public entities for annual periods and interim periods within those annual periods beginning after December 15, 2016. Early adoption is not permitted. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company is currently evaluating the potential impact of adopting this guidance on the consolidated financial statements.
In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (ASU 2014-12). The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification Topic No. 718, Compensation Stock Compensation (ASC 718), as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in ASU 2014-12 either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The Company does not have any performance-based awards outstanding as of the reporting date. The Company is currently evaluating the potential impact of the adoption of this guidance on its consolidated financial statements, however does not expect there to be a material impact at this time.
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In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial StatementsGoing Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern (ASU 2014-15) which provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entitys ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entitys ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact this accounting standard update may have on its financial statements.
17. | COMMITMENTS AND CONTINGENCIES |
On March 31, 2011, the Company entered into an agreement to provide maintenance and repair services for an expected fifteen or more utility-scale wind turbines with a customer. This agreement obligated the Company to provide such services for up to a 12 year period. Since the Company anticipated multiple sales of utility-scale wind turbines under this agreement it created a service infrastructure to support such a deployment. The Company, in fact, has only sold two prototype turbines to this customer resulting in a potential cost to perform this obligation being in excess of expected revenue sources. As a separately priced maintenance agreement, accounting for this contract is under ASC 460 Guarantees, which requires that the measurement of a guarantee liability be the fair value of the obligation at the reporting period. If the consideration of the fair value of an obligation results in the potential of a contingent loss, consideration of the probable and estimable criteria of ASC 450-20-25 is appropriate. Furthermore, for longer-term obligations, such as this, the Company considers the use of a discount factor in determining the estimated liability is appropriate. The agreement was renegotiated in April 2014 and the liability was reduced by $80 in the second quarter of 2014. The total liability related to this exposure, as of September 30, 2014, is $333 of which $54 is recorded as a current liability.
In 2012, the Company was notified by the DOE of audits of the Companys incurred cost submissions associated with various contracts the Company has with the DOE. The Defense Contract Audit Agency (DCAA) completed its audit of 2003 in November of 2013 and the outcome of this audit did not result in a cost to the Company. The DCAA is currently auditing the years 2004 through 2007 and an external independent audit firm is auditing 2010. These audits are in various stages of completion and although the Company received information requests from the auditors in 2012, substantive audit procedures did not begin until June 2013. During the third quarter of 2014 there was limited activity on the 2004 audit although there has been no audit activity related to any other year. Although the Company has not received formal notification that such audits are on hold, management believes that as of the date of these financial statements these audits have been delayed or placed on hold. Based upon the lack of activity on these audits, the Company does not have adequate information at the date of issuance of these financial statements to determine if the outcome of any of these remaining open audits will result in a cost to the Company.
The Company has entered into several operating lease agreements, primarily for the lease of office facilities, and office equipment, expiring through 2019. Rental expense under these operating lease arrangements for the three and nine months ended September 30, 2014 was $47 and $132, respectively. Rental expense under these operating lease arrangements for the three and nine months ended September 30, 2013 was $35 and $147, respectively. As described in Note 6 the Company has leased its headquarters and production facility back from the buyer for a five year term. The Company can terminate the lease after two years without penalty. Therefore, only two years of rental expense are included in the table below.
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Future minimum lease payments under noncancelable lease agreements (with initial or remaining lease terms in excess of one year) are as follows:
As of September 30, 2014 | ||||
2014 |
$ | 137 | ||
2015 |
408 | |||
2016 |
202 | |||
2017 |
4 | |||
2018 |
4 | |||
Thereafter |
2 | |||
|
|
|||
Total |
$ | 757 | ||
|
|
If the Company continues to lease the Barre facility after the two year cancellation period, it would have the following additional annual lease payment obligation: 2016 $201, 2017 $345, 2018 $345 and 2019 $162.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited interim financial statements and audited consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the views of our management regarding current expectations and projections about future events and are based on currently available information. Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including those described in this discussion and analysis and elsewhere in this Quarterly Report on Form 10-Q and those set forth under Risk Factors in the Registration Statement on Form 10 (File No. 001-36317) filed by Wind Power Holdings, Inc., the predecessor to Northern Power Systems Corp. Other unknown or unpredictable factors also could have a material adverse effect on our business, financial condition and results of operations. Accordingly, readers should not place undue reliance on these forward-looking statements. The use of words such as anticipates, estimates, expects, intends, plans and believes, among others, generally identify forward-looking statements; however, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. We are not under any obligation to, and do not intend to, publicly update or review any of these forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized. Please carefully review and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.
Overview
We are a growing provider of advanced technology primarily for the wind energy sector. We design, manufacture and service next-generation Permanent Magnet Direct-Drive wind turbines for the distributed wind market, and we license our existing and evolving utility-scale wind turbine platform to large manufacturers on a global basis. We also provide engineering and development services for a wide variety of energy applications, including microgrids, generators, power conversion systems, advanced drive-train development, and wind and marine turbine solutions.
With origins dating back to 1974 and new turbine development starting in 1977, we have almost 40 years of experience in developing advanced, innovative wind turbines, as well as technology for other applications within clean-energy generation. Currently we are focused on commercializing sales of our next generation wind turbines which are built leveraging our Permanent Magnet Direct-Drive technology which is based on a vastly simplified architecture that utilizes a unique combination of a permanent magnet generator and direct-drive design. This revolutionary approach uses fewer moving parts, and we believe it delivers higher energy capture, and provides increased reliability due to reduced maintenance and downtime costs, all as compared to traditional geared turbines.
We began operations in August 2008 after acquiring the wind turbine business of Distributed Energy Systems Corporation, through a bankruptcy transaction. The acquired assets included technology and know-how for the design, manufacture, and marketing for a range of wind turbines from 60 kW to approximately 0.5 MW. Subsequent to the 2008 acquisition, we have invested more than $135 million to develop, manufacture and license our utility-class turbine platform and to expand our distributed wind turbine business.
Since the introduction of our advanced technology turbines in late 2008, we have sold over 500 distributed wind turbines in a combination of 60kW and 100kW models, and shipped more than 370 of such units which have run for an aggregate of over 5 million hours. We have also manufactured and commissioned two prototype 2.3 MW utility-class
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wind turbines which have several years of cumulative operation experiencing availability in excess of 95%. We have successfully licensed our utility-class technology, on a non-exclusive basis, to a China-based company, China First Heavy Industries (CFHI), and have entered into a strategic partnership with a Brazilian-based company, WEG Equipamentos Elétricos S.A. (WEG) . Our Brazilian partnership includes exclusive rights to certain components of our technology in Brazil and non-exclusive rights within the remainder of South America. We also enter into technology development service agreements in the renewable energy sector which include microgrid solutions, energy conversion systems, advanced drive-train development, and general technology in a number of related areas including marine turbine design. We accept these engagements when they provide an opportunity to enhance our intellectual patent portfolio and technical expertise, and when they offer meaningful economic benefits to us.
Our long-term goal is to be the leading provider of distributed wind turbines globally, and to participate in the utility-class wind turbine market through a combination of niche direct sales and licensing into high-growth regions. The distributed turbine market is a nascent market that we believe we can influence to optimize on our technology. The utility-class market is a large and well established market with dominant players and a generally low rate of growth. However it is generally recognized that certain regions of the world are experiencing significant growth with new local participants driving the expansion. Our licensing strategy, which we have successfully executed in China and Brazil, is to identify likely dominant participants in these markets and create strategic partnerships with these companies. These partnerships include the licensing of our technology and our ability to source turbine components as well as entire turbines from such partners to support our direct sales into niche installations in other parts of the world. Although we believe that we have a unique and competitive technology offering to licensees, the market for licensing wind turbine technology is relatively nascent and our experience in this market is limited, and we therefore may not be successful in entering into future license arrangements. However, we believe this overall business strategy optimizes the value we can create from our core competency in wind turbine technology.
How We Conduct Our Business
We manage our business under four business segments:
| Product Sales and Service Included in this business line are our sales of distributed-class turbines along with related services, other products produced and sold to customers, as well as, in the future our direct sales of utility-class turbines. This business line reflects 82% and 92% of our revenues for the three and nine months ended September 30, 2014, respectively, and 91% and 95% for the three and nine months ended September 30, 2013. |
| Technology Licensing Included in this business line is the licensing of packages of our developed technology. This business line reflects 13% and 6% of our revenues for the three and nine months ended September 30, 2014, respectively. We did not recognize any revenue in this business line during the three and nine months ended September 30, 2013. |
| Technology Development Included in this business line is our development of technology for customers. This business line reflects 5% and 2% of our revenues for the three and nine months ended September 30, 2014, respectively, and 9% and 5% for the three and nine months ended September 30, 2013. |
| Shared Services These costs and expenses are comprised mainly of the general and administrative departments including executive, finance and accounting, legal, human resources, and information technology support, as well as certain shared engineering, and in certain circumstances, sales and marketing activities. |
We have certain customer segments that are specific to each of our business offerings but we also have customers that see significant value in our ability to bring full suite licensing, development and prototype production of projects and therefore leverage offerings across potentially all of these capabilities.
Our international revenue was $11.8 million and $37.5 million for the three and nine months ended September 30, 2014, respectively, and $3.5 million and $8.0 million for the three and nine months ended September 30, 2013, respectively, representing 78% and 88% and 62% and 69% of our revenues for those periods, respectively. We
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expect the majority of our revenue to continue to be outside of the United States for the foreseeable future. A proportion of our revenues continue to be denominated in a currency other than our reporting currency, the United States Dollar, decreasing to 22% of total revenues for the three months ended September 30, 2014 as compared to 23% for the same period in 2013; and decreasing to 12% of total revenues for nine months ended September 30, 2014 as compared to 31% of total revenues for the same periods in 2013. We expect to see an increasing proportion of our revenues denominated in Euros and other non-U.S. Dollar currencies over time as we continue to expand our international sales. We do not currently use any instruments to hedge our currency risk, which could therefore subject our results to variation in performance from the fluctuation of such currencies. In the future, we may consider employing hedging strategies to reduce currency fluctuation risk.
We are headquartered in Barre, Vermont with a European sales headquarters in Zurich, Switzerland.
How We Evaluate Our Operations
In managing our business we use a variety of financial and operational metrics to assess our performance, including:
Backlog value of our offerings;
Deferred revenues;
Segment revenue, gross profits, and income (loss) from operations; and
Non-GAAP adjusted EBITDA.
Backlog Value of Our Offerings
We track the value of turbine product orders executed with our customers during a period, as well as the cumulative balance of backlog for all of our offerings as leading indicators of our revenue performance. We consider an order executed when a contract has been duly signed and a deposit for such contract has been received.
| Turbine Sales We determine order value for our turbine backlog as the turbine sale price along with our best estimate of other services expected to be rendered such as shipping, installation and other services to ensure the effective initial operation of the turbine. Our backlog of orders for distributed turbines generally, but not always, converts to revenue within a one year period. The timing of such revenue recognition is impacted by customer specific installation conditions such as site preparation and readiness by local utilities for grid connection. We do not include the value of subsequent services such as operations and maintenance support that we might provide for such turbines. |
| Other Product Sales We track order value of other products that we sell based upon our proprietary technologies in aggregate. Other products include non-turbine products such as maintenance kits, generators, and converters we assemble and sell to customers. |
Deferred Revenues
We believe that deferred revenue is a leading indicator of our revenue performance. We present values on our balance sheet as deferred revenue at such time as cash has been collected from our customer and certain aspects of the earnings process have been completed but recognition as revenue has not been achieved in conformity with Generally Accepted Accounting Principles in the United States, or U.S. GAAP. Each of our three customer facing lines typically has deferred revenue balances, including:
| Product Sales and Services When sales of our products involve transferring title of the equipment at delivery, which we have determined to be the correct point for recognition of revenue, we present products which have been produced and shipped but not delivered as deferred revenue. We also defer the recognition of revenue for our operations and maintenance services that are performed over a period of time; revenue from such contracts is recognized ratably over the contract period. We present cash values collected from customers of such contracts, net of the related recognized revenue, as deferred revenue. |
| Technology Licensing and Technology Development Our license and technology development agreements frequently result in our collection of cash for our delivery of certain milestones, however, such milestones do not always reflect the culmination of the earnings process and we therefore present the related cash collections as deferred revenue. |
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Segment Revenues, Gross Profits, and Income (Loss) from Operations
We define segment gross profit as segment revenues less certain direct cost of sales and services. We define segment income (loss) from operations as segment gross profit less operating expenses excluding non-cash items such as depreciation, amortization, impairments, stock based compensation, and/or restructuring charges. We use these profitability measures internally to track our business performance.
Non-GAAP adjusted EBITDA
We define non-GAAP adjusted EBITDA as earnings before interest expense, income taxes, depreciation, amortization, non-cash compensation expense, changes in the fair valuation of certain liability classified instruments, and certain other one-time non-cash charges.
Non-GAAP adjusted EBITDA is a key financial measure used by our management and by external users of our financial statements, such as investors, commercial banks and others, to:
| assess our operating performance as compared to that of other companies in our industry, without regard to financing methods, capital structure or historical cost basis; |
| assess our ability to incur and service debt and fund capital expenditures; and |
| generate future operating plans and make strategic decisions. |
Non-GAAP adjusted EBITDA should not be considered an alternative to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. Our non-GAAP adjusted EBITDA may not be comparable to similarly titled measures of another company because all companies may not calculate non-GAAP adjusted EBITDA in the same manner. Some of the limitations in non-GAAP adjusted EBITDA are:
| although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; |
| non-GAAP adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
| non-GAAP adjusted EBITDA does not include the impact of stock-based compensation; |
| non-GAAP adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to us; and |
| other companies, including companies in our industry, may calculate non-GAAP adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure. |
We believe it is useful to exclude non-cash charges, such as depreciation and amortization and stock-based compensation, from our non-GAAP adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.
Because of the aforementioned limitations, you should consider non-GAAP adjusted EBITDA alongside other financial performance measures, including net income (loss), cash flow metrics and our financial results presented in accordance with U.S. GAAP.
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Factors Affecting Our Results of Operations
We believe that the most significant factors that affect our financial performance and results of operations are as follows:
Demand for Renewable Energy and Specifically for Wind Power Energy
Changes in prices of oil, coal, natural gas and other conventional energy sources influence the demand for electricity and for alternative energy sources. Our business expansion and revenue growth has depended, and will continue to depend, on demand for renewable energy, specifically wind power energy products and future growth of the wind turbine market which will be affected by the growth of the global and regional economies, the stability of financial markets and the ability of wind turbine manufacturers to further expand production capacity and reduce manufacturing costs.
Wind Turbine Sales to Customers
We began commercial delivery of our platform of distributed-class wind turbines in 2008. We recognize revenue based on the value of the turbine product when title is transferred assuming all other criteria for revenue recognition have been met.
Consequently, our results of operations have been and will continue to be significantly affected by the number of units of wind turbines we sell and the timing of revenue recognition on such sales at any given period. In addition, since certain of our wind turbine products are sold at different prices and we are developing other models of wind turbines, we expect changes to our product mix will also affect our results of operations and margins.
Government Policies Including Incentives, Tariffs, Taxes and Duties Affecting the Wind Power Sector
Government incentives continue to be one of the main drivers for developing wind energy technology and increasing capacity. Although government support programs differ from country to country, a number of countries have implemented incentive schemes, thus providing various types of subsidies to wind power developers and long-term tariffs. Historically, we and our customers have benefited from fiscal benefits applicable to investments in the wind power industry by state and local governments in the US and Europe. Changes in these policies have affected, and will continue to affect, the investment plans of our customers and us, as well as our business, financial condition, and results of operations.
Currently there are certain feed-in-tariff regimes in Italy and the United Kingdom supporting the installation and operation of distributed-class wind turbines. Since these regimes were clarified recently relative to the sales cycles of our turbines and our distributed-class turbines are well suited for these installations, our orders for distributed-class turbines have increased in 2013 and 2014 as compared to prior periods. Published information from the United Kingdom indicates that the feed-in-tariff rates have declined by 10% as of October 2014 and may decline further in April 2015. Italian feed-in-tariff rates will not change through 2015. Recent indications provided by the Italian authorities indicate the feed-in-tariff may be extended until 2020. During this period we expect to continue to expand our product offering and sales force to increase our sales in other regions.
Development of the Distributed Wind Market
Applications for distributed energy, and as a subset distributed wind, continue to evolve globally. Many regions of the world have notable proportions of their population with either no access to electrical power or with unstable power access. It is important to the growth of our business to have offerings that are well suited to support such distributed energy needs. We expect to continue to invest in both research and development to refine our distributed-class turbine offerings as well as in our sales force to develop opportunities globally for the sales of our turbines.
International Expansion
We intend to invest in the expansion of our international sales and marketing efforts as we see opportunities for us to expand direct turbine sales, and technology licensing and development offerings. Certain regions are expanding wind power as a source of energy driven either by the natural cost of energy in such regions or by certain incentive regimes. We currently derive a significant proportion of our revenues outside of the United States, and we expect this to continue. We currently intend to increase our sales and marketing investment on targeted regions with strong wind resource within any of Asia, Europe, China, India and Russia.
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Pricing of Wind Turbines
Pricing of our wind turbines is principally affected by the overall demand and supply in the wind power equipment industry and by the average wind turbine manufacturing cost. We price our wind turbines with reference to the prevailing market prices when we enter into sales contracts with our customers, taking into consideration our estimated costs and an appropriate expected gross profit margin.
Prices of Raw Materials and Components and Their Availability
Raw materials and components used in the production of our wind turbines are sourced from domestic suppliers as well as international suppliers, and their prices are dependent on various factors in addition to supply and demand. The fluctuations in prices of such raw materials and components and their availability will affect our operating results.
We generally engage two suppliers for each of our major components in order to minimize the dependency on any single supplier. We currently have certain critical components for which we only have a single source supplier but believe that most components and raw materials we require for our production are generally available.
In addition, the primary raw materials used in some of our components include steel and copper. Consequently, the prices we pay to our suppliers for such components may be affected by movements in prices for these raw materials.
Ability to Design and Market Technologically Advanced and Cost-Competitive Turbine Models
Although we have successfully launched three generations of our distributed wind turbines, our operating results and future growth depend on our ability to continue to develop and license technologies, and market technologically advanced and cost competitive wind turbines. We expect to continue to optimize the performance of our products under diverse operating conditions such as in low and high temperatures, low wind velocity and coastal areas, as well as reduce the cost of our offerings. Our ability to design and develop new products that meet these changing requirements has been and will continue to be critical to our ability to maintain and increase our installed capacity sold and profitability. As a result, we expect to continue to make significant investments in research and development, particularly with respect to designing and developing more technologically advanced and cost-competitive products and core components.
Our Ability to Source and Manage Working Capital Requirements
Our business operations require significant working capital. Our operating results and future growth depend on our ability to optimize the working capital cycle time and to source adequate working capital commensurate with the size of our business. Some of our suppliers require us to make prepayments in advance of shipment. We have currently started providing our customers with alternative payment options, such as letters of guarantee. Historically, we have managed to optimize our working capital cycle time and to source the required working capital from banks and capital financings.
Seasonality in Our Operations
Wind turbine sales in the regions in which we currently sell our turbines are affected by seasonal variations and the timing of government incentive structures. In order to satisfy the delivery schedules, we manufacture most of our wind turbines during the second and third quarters of each year for delivery and installation in the third and fourth quarters. This schedule is due primarily to the weather conditions which are more favorable in these quarters for installation in northern areas to which we supply most of our wind turbines. We expect that the seasonality will gradually lessen as we obtain more purchase orders for sale of wind turbines in additional geographies.
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Investment in People
We intend to invest in hiring and retaining talented employees to grow our business and increase our revenue. As of September 30, 2014, we had 116 full-time employees, an increase of 14 full-time employees, or approximately 14%, from September 30, 2013. We expect to grow headcount for the foreseeable future as we continue to invest in our business. In addition, we must retain our high-performing personnel in order to continue to develop, sell and market our products and services and manage our business.
Basis of Presentation
These consolidated financial statements have been prepared in accordance with U.S. GAAP.
On April 16, 2014, the merger (the Merger) contemplated by that certain Merger Agreement and Plan of Reorganization, dated as of March 31, 2014 (the Merger Agreement), by and among Mira III Acquisition Corp. (Mira III), Wind Power Holdings, Inc. (WPHI), Mira Subco Inc., and Mira Subco LLC was consummated. Upon the filing of Certificates of Merger with the Secretary of State of the State of Delaware on April 16, 2014 (the Effective Time), (i) Mira Subco Inc., a wholly-owned subsidiary of Mira III, merged with and into WPHI, with WPHI as the surviving corporation, and (ii) WPHI merged with and into Mira Subco LLC, a wholly-owned subsidiary of Mira III, with Mira Subco LLC as the surviving entity, as part of an integrated transaction. In connection with the consummation of the Merger, Mira III changed its name to Northern Power Systems Corp. Also in connection with the Merger, WPHI completed a private placement (the Private Placement) of 6,125,000 subscription receipts (the Subscription Receipts) on March 17, 2014 for aggregate gross proceeds of CDN$24.5 million (US$22.3 million) at a price of CDN$4.00 per Subscription Receipt. Immediately prior to the Effective Time, (i) each Subscription Receipt converted into one share of WPHI common stock (a WPHI Share), after the consolidation of WPHI Shares on the basis of one-post consolidated WPHI Share for every 1.557612 pre-consolidated WPHI Shares (the WPHI Consolidation) (and ultimately entitling the holder thereof to acquire one NPS Corp common share) and (ii) all of WPHIs outstanding senior secured convertible notes automatically converted into an aggregate of 3,384,755 WPHI Shares. Upon completion of these transactions, WPHIs business became Mira IIIs operating business and WPHIs directors and officers became Mira IIIs directors and officers. Mira III also succeeded to WPHIs status as a reporting company under the Exchange Act pursuant to a Registration Statement on Form 10 (File No. 001-36317) filed with the Securities and Exchange Commission, which permits us to continue to prepare our financial statements in accordance with U.S. generally accepted accounting principles. Northern Power Systems Corp. common shares are currently listed for trading on the Toronto Stock Exchange under the symbol NPS.
Under U.S. GAAP, the Merger, as described above, is considered to be a capital transaction in substance, rather than a business combination. That is, the Merger is equivalent to the issuance of stock by Mira III for the net monetary assets of WPHI accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the Merger was identical to that resulting from a reverse acquisition, except no goodwill was recorded. Under share reverse takeover accounting, the post reverse acquisition comparative historical financial statements are those of the legal acquiree, WPHI, which is considered to be the accounting acquirer.
Stock-Based Compensation
In 2011, we had completed an options exchange in which employees accepted new, at the money, options to purchase Northern and/or Utility Scale common stock in exchange for certain options that had previously been issued to purchase WPHI common stock, along with additional fair value grants at the subsidiary level. We determined that these options should be accounted for as liability awards, which results in such options, when outstanding, being recorded on our balance sheet at their fair value as of each reporting date.
In November 2013, we adopted the Wind Power Holdings, Inc. 2013 Stock Option and Grant Plan (the 2013 WPHI Plan). This plan provided for the grant of incentive stock options, non-statutory stock options, and other types of stock awards to employees, consultants and directors of our company. 4,000,000 shares of WPHI common stock were authorized for issuance under the 2013 WPHI Plan and no options were outstanding as of September 30, 2014 due to the conversion described below.
In December 2013, we commenced an offer to holders of options in our subsidiary option plans to exchange them for options to purchase WPHI common stock to be issued under the 2013 WPHI Plan. The exercise price for the newly-issued stock options for holders accepting the exchange offer was equal to the fair market value of WPHI common stock at the date of the closing of the exchange offer. The newly-issued options were vested to the extent
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that the exchanged options were vested and will terminate on the same date as the exchanged options. This exchange offer closed in January 2014, and was accepted by virtually all option holders. Holders not accepting such exchange had their awards converted at a value-for-value basis to options in the 2013 WPHI plan and, therefore, at such time the Northern Power Systems, Inc. and Northern Power Systems Utility Scale, Inc., 2011 Stock Option Grant Plans were terminated. Effective with these transactions in January 2014 we no longer had any liability awards and we reclassified any values presented as liabilities for stock-based compensation to additional paid-in capital.
In March 2014, the Toronto Stock Exchange (the TSX) informed us that we would be required to reprice the options issued in January 2014 under the 2013 WPHI Plan upon completion of the option exchange described above, so that the exercise price for such options would be equal to the price per equity security sold in our March 2014 private placement, as described below under Liquidity and Capital Resources Financing Activities. Our Board of Directors determined effective the end of March 2014 that they would reprice these options as required by the TSX and as permitted by the option exchange documents, but would not modify the number of shares issued to employees.
As a result of the completion of the exchange offer and the repricing of such offer, we have not incurred any stock compensation modification charges because the comparison of the fair value of the awards immediately before and after the modification resulted in the determination that no such charge existed.
The fair value of new options granted under the 2013 WPHI Plan increased from $1.59 per share at December 31, 2013, to $1.78 per share at March 31, 2014, at which time the plan was terminated. As described below, in April 2014 all outstanding options in the 2013 WPHI Plan were converted to options in the 2014 NPS Corp Plan. During the three months ended September 30, 2014, shares were granted at an average exercise price of $3.63 per share under such plan. Total stock-based compensation expense for these plans is $144 and $746, and $89 and $287 for the three and nine months ended September 30, 2014 and 2013, respectively.
In April 2014, Northern Power Systems Corp. adopted the Northern Power Systems Corp. 2014 Stock Option and Incentive Plan (the NPS Corp Plan). The NPS Corp Plan provides for the grant of incentive stock options, non-statutory stock options, and other types of share awards to our officers, employees, non-employee directors and consultants. 4,000,000 common shares are reserved for issuance upon the grant or exercise of awards under this plan. All shares in the 2013 WPHI Plan and the WPHI 2008 Equity Incentive Plan were converted to options in the NPS Corp Plan on a value-for-value basis.
Emerging Growth Company
We qualify as an emerging growth company pursuant to the provisions of the Jumpstart Our Business Startups Act, or the JOBS Act, which was enacted on April 5, 2012. Section 102(b)(1) of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period, and as a result of this election, our financial statements may not be comparable to those of companies that comply with public company effective dates for new or revised accounting standards for U.S. public companies.
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the 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 may differ under different assumptions or conditions. There were no significant changes in the critical accounting policies during the three and nine months ended September 30, 2014, that were disclosed in the Registration Statement on Form 10 (File No. 001-36317) filed by Wind Power Holdings, Inc., the predecessor to Northern Power Systems Corp.
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Results of Operations for the three months ended September 30, 2014 compared to the three months ended September 30, 2013
Overview
Our general activity during the third quarter of 2014 was primarily focused on: expanding our order backlog of distributed turbines in key European markets, continuing to expand our technology licensing and development business, commercializing our next generation platform of our distributed class turbine which is projected to reduce our cost of the turbine while increasing energy capture, and expanding our key leadership resources to expand our sales efforts into new geographies.
Our general activity during the third quarter of 2013 was primarily focused on: transitioning our distributed turbine sales from the United States to Europe, and reducing the cost and increasing the dependability of our distributed-class turbines.
Revenue, Orders and Deferred Revenue
Total revenues from Product Sales and Service, Technology Licensing and Technology Development increased by $9.4 million, or 168%, to $15.0 million for the quarter ended September 30, 2014 from $5.6 million for the quarter ended September 30, 2013. Our overall backlog increased by approximately $11 million or 31% to approximately $47 million at September 30, 2014 as compared to approximately $36 million at September 30, 2013. Our backlog of orders generally, but not always, converts to revenue for us within a one year period. The timing of such revenue recognition is impacted by customer specific installation conditions such as site preparation and readiness by local utilities for grid connection.
A comparison of our revenues for the three months ended September 30, 2014 and 2013 is as follows (dollars in millions):
Three Months Ended September 30, |
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2014 | 2013 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 12.4 | $ | 5.1 | $ | 7.3 | 143 | % | ||||||||
Technology Licensing |
1.9 | | 1.9 | | ||||||||||||
Technology Development |
0.7 | 0.5 | 0.2 | 40 | ||||||||||||
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Total |
$ | 15.0 | $ | 5.6 | $ | 9.4 | 168 | % | ||||||||
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Product Sales and Service
Product Sales and Service revenue increased by $7.3 million for the three month period ended September 30, 2014 from $5.1 million for the same period in 2013. The increase in our Product Sales and Service revenue was primarily attributed to increased sales of our distributed-class turbine sales which totaled $10.9 million and an increase in sales of non-turbine products which totaled $0.9 million for the three months ended September 30, 2014. In addition related service revenue totaled $0.6 million for the same period. We recognized revenue on fewer sales of our distributed-class turbines which totaled $5.1 million for the three months ended September 30, 2013. There were no sales of non-turbine products for the same period in 2013. The increase in turbine sales period over period is reflective of growth in the business.
During the third quarter ended September 30, 2014, we executed more new distributed-class turbine sales orders in comparison to the same period in 2013. Our deferred revenue balance associated with product sales and related service at September 30, 2014 was $3.8 million which is included in the backlog value disclosed above. At December 31, 2013, such balance was $3.6 million.
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Technology Licensing Revenue
Technology Licensing revenue increased by $1.9 million for the three month period ended September 30, 2014 from $0 million for the same period in 2013. This increase is attributed to recognizing $1.5 million in license revenues related to our licensing agreement with WEG along with $0.3 million of associated royalty revenue, as well as $0.1 million in license revenue from other smaller agreements. As of September 30, 2014, $0.5 million of cash collected for the completion of certain milestones associated with our WEG license agreement was recorded on our balance sheet as deferred revenue. Our contract with WEG allows for us to ultimately earn $3.4 million in license fees and in excess of $10 million in royalty revenues over time, for the license of our 2.1MW platform exclusively in Brazil and non-exclusively in the rest of South America. Our deferred revenue balance associated with Technology Licensing was $0.9 million as of September 30, 2014 which is included in the backlog value as disclosed above. At December 31, 2013, such balance was $1.7 million.
Technology Development Revenue
Technology Development revenue increased to $0.7 million for the three month period ended September 30, 2014 from $0.5 million for the same period in 2013. This increase is attributed to recognizing a small proportion of revenue related to our contract with WEG, to develop a 3.3 MW turbine and other contract technology development activities during the period. We determined that the contract payment milestones were non-substantive because they did not correlate with the level of effort expended. Therefore, we are recognizing revenue on the contract using the percentage of completion method. The degree of completion is determined based on costs incurred, excluding costs that are not representative of progress to completion, as a percentage of total costs anticipated for the contract. As of September 30, 2014, $1.8 million of cash collected for certain milestones was recorded as deferred revenue. Our deferred revenue balance associated with Technology Development was $1.9 million as of September 30, 2014 which is included in the backlog value as disclosed above. At December 31, 2013, such balance was $0.
Cost of Goods Sold and Cost of Service Revenues
Cost of goods sold and cost of services revenues collectively increased by $5.3 million or 108% in the three months ended September 30, 2014 to $10.2 million as compared to $4.9 million in the three months ended September 30, 2013.
A comparison of our costs of goods sold and cost of services for the three months ended September 30, 2014 and 2013 is as follows (dollars in millions):
Three Months Ended September 30, |
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2014 | 2013 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 9.7 | $ | 4.5 | $ | 5.2 | 116 | % | ||||||||
Technology Licensing |
0.1 | | 0.1 | | ||||||||||||
Technology Development |
0.2 | 0.1 | 0.1 | 100 | ||||||||||||
Shared Service |
| 0.1 | (0.1 | ) | (100 | ) | ||||||||||
Unallocated |
0.2 | 0.2 | | | ||||||||||||
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Total |
$ | 10.2 | $ | 4.9 | $ | 5.3 | 108 | % | ||||||||
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Product Sales and Service Cost of Goods and Costs of Service Sold
The increase in product sales and service cost is primarily attributed to the recognition of more sales of our distributed-class turbine and increased sales of non-turbine products for the three months ended September 30, 2014 as compared to the same period in 2013. Our cost of goods sold was $9.0 million for product sales along with $0.7 million of related service costs for the three months ended September 30, 2014 compared to $3.7 million for product sales along with $0.8 million of related service costs for the same period in 2013.
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Technology Licensing Cost of Service
Technology licensing cost of services for the three month period ended September 30, 2014 increased by $0.1 million to $0.1 million from $0 for the same period in 2013. The increase reflects higher costs associated with increased license technology activity in the three months ended September 30, 2014.
Technology Development Cost of Service
Technology development cost of services was $0.2 million and $0.1 million for the three months ended September 30, 2014 and 2013. This change reflects increasing technology development activities related to the WEG 3.3 MW agreement.
Shared Service
Shared service for the three month period ended September 30, 2014 decreased by $0.1 million to $0 million from $0.1 million for the same period in 2013 principally driven by slightly lower information technology expenses.
Unallocated
The costs from unallocated expenses were unchanged at $0.2 million for the three months ended September 30, 2014 and 2013.
Segment Gross Profit (Loss) (dollars in millions)
Three Months Ended September 30, |
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2014 | 2013 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 2.7 | $ | 0.6 | $ | 2.1 | 350 | % | ||||||||
Technology Licensing |
1.8 | | 1.8 | | ||||||||||||
Technology Development |
0.5 | 0.4 | 0.1 | 25 | ||||||||||||
Shared Service |
| (0.1 | ) | 0.1 | 100 | |||||||||||
Unallocated |
(0.2 | ) | (0.2 | ) | | | ||||||||||
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Total |
$ | 4.8 | $ | 0.7 | $ | 4.1 | 586 | % | ||||||||
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Product Sales and Service
Gross profit from product sales and service for the three months ended September 30, 2014 increased by $2.1 million to $2.7 million compared to $0.6 million for the same period in 2013 principally due to an increase in sales of distributed-class turbines and non-turbine products of $7.3 million partially offset by higher cost of goods sold of $5.2 million in the three months ended September 30, 2014.
Technology Licensing
Gross profit from technology licensing for the three month period ended September 30, 2014 increased by $1.8 million to $1.8 million from a gross profit of $0 for the same period in 2013. The increase in gross profit is principally due to the $1.9 million increase in revenue from license fees partially offset by $0.1 million higher cost of sales in 2014.
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Technology Development
Gross profit from technology development in the three months ended September 30, 2014 increased by $0.1 million to $0.5 million compared to $0.4 million for the same period in 2013. The increase in gross profit is principally due to a $0.2 million increase in revenue from contract development activities.
Shared Service
Gross loss from shared services decreased by $0.1 million to $0 million in the three months ended September 30, 2014 compared to ($0.1) million for the same period in 2013.
Unallocated
The gross loss from unallocated expenses was unchanged at $(0.2) million for the three months ended September 30, 2014 and 2013.
Operating Expenses
Research and Development Expenses
Research and development expenses increased by $0.5 million or 63% to $1.3 million for the three months ended September 30, 2014 from $0.8 million for the same period in 2013. The increase in research and development expenses is due in part to a higher proportion of our engineering workforce providing research and development support to manufacturing for our next generation distributed class turbine as compared to the prior period.
Sales and Marketing
Sales and marketing expenses increased by $0.3 million or 43% to $1 million for the three months ended September 30, 2014 from $0.7 million for the same period in 2013. The increase in sales and marketing expenses was driven by a net expansion in global sales and marketing resources.
General and Administrative Expenses
General and administrative expenses increased by $0.6 million or 35% to $2.3 million for the three months ended September 30, 2014 from $1.7 million for the same period in 2013. The increase in our general and administrative expenses is primarily explained by an increase of $0.3 million in professional fees and consultant expenses and a $0.3 million increase in other operating expenses.
Income (Loss) from Operations
Income from operations was $0.2 million for the three months ended September 30, 2014 compared to ($2.5) million for the same period in 2013, an improvement of $2.7 million. The improvement is principally due to the increase in gross profit of $4.1 million partially offset by increases in R&D expense of $0.5 million, consulting and professional fees of $0.4 million, compensation of benefits of $0.2 million along with increases in other operating expenses of $0.3 million due to business expansion.
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Segment Income (Loss) from Operations (dollars in millions)
Three Months Ended September 30, |
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2014 | 2013 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 0.6 | $ | (0.1 | ) | $ | 0.7 | 700 | % | |||||||
Technology Licensing |
1.7 | (1.0 | ) | 2.7 | 270 | |||||||||||
Technology Development |
0.6 | 0.3 | 0.3 | 100 | ||||||||||||
Shared Service |
(2.2 | ) | (1.6 | ) | (0.6 | ) | (38 | ) | ||||||||
Unallocated |
(0.5 | ) | (0.1 | ) | (0.4 | ) | (400 | ) | ||||||||
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Income (loss) from operations |
$ | 0.2 | $ | (2.5 | ) | $ | 2.7 | 108 | % | |||||||
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Product Sales and Service
Income from operations from product sales and service for the three months ended September 30, 2014 increased by $0.7 million to $0.6 million compared to income from operations of ($0.1) million for the same period in 2013 principally due to the improved gross profits from increased sales partially offset by increased operating expenses attributable to product sales and service.
Technology Licensing
Income from operations from technology licensing for the three months ended September 30, 2014 increased by $2.7 million to $1.7 million compared to a loss from operations of ($1.0) million for the same period in 2013 principally due to higher gross profit offset by higher research and development and sales and marketing expenses attributable to technology licensing in the three months ended September 30, 2014.
Technology Development
Income from operations from technology development for the three months ended September 30, 2014 increased by $0.3 million to $0.6 million compared to $0.3 million for the same period in 2013, principally due to higher gross profit from contract technology development services in 2014.
Shared Service
Corporate shared general and administrative loss for the three months ended September 30, 2014 increased by $0.6 million to ($2.2) million compared to ($1.6) million for the same period in 2013 principally due to increased professional fees and consulting expenses of $0.2 million, an increase of $0.1 million in compensation and benefits expense, and $0.3 million increase in other shared service expenses related to increased business activity.
Unallocated
The loss from unallocated expenses for the three months ended September 30, 2014 were ($0.5) million compared to ($0.1) million for the same period in 2013 principally due to an increase in international sales tax related payments in 2014 of $0.2 million as well as an increase in other unallocated expenses of $0.2 million attributable to increased business activity
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The table below breaks out the unallocated expenses by category for the periods reported:
Three Months Ended September 30, |
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2014 | 2013 | Change | % Change | |||||||||||||
Depreciation and amortization |
$ | 0.2 | $ | 0.3 | $ | (0.1 | ) | (33 | )% | |||||||
Stock-based compensation |
0.1 | 0.1 | | | ||||||||||||
Other |
0.2 | (0.3 | ) | 0.5 | 167 | |||||||||||
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Total charges |
$ | 0.5 | $ | 0.1 | $ | 0.4 | 400 | % | ||||||||
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Other Expense and Income Tax Expense
Other expense decreased by $0.5 million or 83% to $0.1 million for the three months ended September 30, 2014 as compared to $0.6 million for the three months ended September 30, 2013. This decrease is primarily the result of no expense related to the fair value of our Series C-2 warrant liability in the three months ended September 30, 2014 when compared to the same period in 2013, as the warrants were converted to equity in September of 2013.
Income taxes were $0.4 million for the three months ended September 30, 2014 and $0 for the same period in 2013. The increase is the result of Brazilian tax expense incurred on certain types of revenue earned within Brazil.
Net Loss
Net loss decreased by $2.8 million or 90%, to ($0.3) million for the three months ended September 30, 2014 from a net loss of ($3.1) million for the same period in 2013. The decrease is primarily due to the decrease in loss from operations of $2.7 million and a decrease in other income expense and income tax expense of of $0.1 million.
Non-GAAP Measures
Generally, a non-GAAP financial measure is a numerical measure of a companys performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with U.S. GAAP. The non-GAAP measures included in this Form 10-Q, however, should be considered in addition to, and not as a substitute for or superior to the comparable measure prepared in accordance with U.S. GAAP. We utilize the non-GAAP measure of non-GAAP adjusted EBITDA which we define as earnings before interest expense, income taxes, depreciation, amortization, non-cash compensation expense, changes in the fair valuation of certain liability classified instruments, and certain other one-time non-cash charges.
Non-GAAP adjusted EBITDA Income (Loss) (dollars in millions)
Three Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
Net loss |
$ | (0.3 | ) | $ | (3.1 | ) | ||
Provision for income tax |
0.4 | | ||||||
Interest expense |
0.1 | 0.1 | ||||||
Depreciation and amortization |
0.2 | 0.2 | ||||||
Stock-based compensation |
0.1 | 0.1 | ||||||
Change in fair value of warrants |
| 0.5 | ||||||
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Total noncash addbacks (reductions) |
0.8 | 0.9 | ||||||
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Adjusted EBITDA Income (loss) |
$ | 0.5 | $ | (2.2 | ) | |||
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Non-GAAP adjusted EBITDA was income of $0.5 million for the three months ended September 30, 2014 and a loss of ($2.2) million for the same period in 2013. The change in non-GAAP adjusted EBITDA Loss is primarily attributable to the decrease in net loss resulting from higher sales in 2014.
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Results of Operations for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013
Overview
Our general activity during the first nine months of 2014 was primarily focused on: concluding our capital raise and public listing on the TSX, expanding our order backlog of distributed turbines in key European markets, continuing to expand our technology licensing and development business including closing a 3.3 MW development agreement with WEG, building our first prototypes of our next generation platform of our distributed class turbine which is projected to reduce our cost of the turbine while increasing energy capture, and expanding our key leadership resources to expand our sales efforts into new geographies.
Our general activity during the first nine months of 2013 was primarily focused on: transitioning our distributed turbine sales from the United States to Europe, reducing the cost and increasing the dependability of our distributed-class turbines, and executing certain significant licensing and development contracts.
Revenue, Orders and Deferred Revenue
Total revenues from Product Sales and Services, Technology Licensing and Technology Development increased by $31.0 million, or 267%, to $42.6 million for the nine months ended September 30, 2014 from $11.6 million for the nine months ended September 30, 2013. Our overall backlog increased by approximately $11 million or 31% to approximately $47 million at September 30, 2014 as compared to approximately $36 million at September 30, 2013. Our backlog of orders generally, but not always, converts to revenue for us within a one year period. The timing of such revenue recognition is impacted by customer specific installation conditions such as site preparation and readiness by local utilities for grid connection.
A comparison of our revenues for the nine months ended September 30, 2014 and 2013 is as follows (dollars in millions):
Nine Months Ended September 30, |
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2014 | 2013 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 39.0 | $ | 11.1 | $ | 27.9 | 251 | % | ||||||||
Technology Licensing |
2.5 | | 2.5 | | ||||||||||||
Technology Development |
1.1 | 0.5 | 0.6 | 120 | ||||||||||||
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Total |
$ | 42.6 | $ | 11.6 | $ | 31.0 | 267 | % | ||||||||
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Product Sales and Service
Product Sales and Service revenue increased by $27.9 million for the nine month period ended September 30, 2014, from $11.1 million for the same period in 2013. The increase in our Product Sales and Service revenue was primarily attributed to recognizing revenue on higher sales of our distributed-class turbines which totaled $32.8 million and an increase in sales of our non-turbine products which totaled $4.7 million for the nine months ended September 30, 2014 as compared to $10.4 million and $0 million for turbines and non-turbine products, respectively, for the nine months ended September 30, 2013. In addition related service revenue totaled $1.5 million for the nine month period ended September 30, 2014, and $0.7 million for the same period in 2013. The increase in turbine sales period over period is reflective of growth in the business as well as the recognition of revenue for certain distributed-class turbines which were delivered just after the end of our 2013 year-end.
During the nine months ended September 30, 2014, we executed more new distributed-class turbine sales orders in comparison to the same period in 2013. Our deferred revenue balance associated with Product Sales and Service at September 30, 2014 was $3.8 million which is included in the backlog value disclosed above. At December 31, 2013 such balance was $3.6 million.
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Technology Licensing Revenue
Technology Licensing revenue increased by $2.5 million for the nine month period ended September 30, 2014 from $0 million for the same period in 2013. This increase is attributed to recognizing $1.5 million in revenues related to our licensing agreement with WEG along with $0.3 million of associated royalty revenue, the license fees related to a $0.6 million generator development agreement entered into in 2013, as well as $0.1 million in license fees from other smaller license agreements. As of September 30, 2014, we recorded $0.5 million in deferred revenue for cash collected for certain milestones associated with our WEG license, which will be recognized as revenue when the milestones are complete. Our contract with WEG allows for us to ultimately earn $3.4 million in license fees and in excess of $10 million in royalty revenues over time, for the license of our 2.XMW platform exclusively in Brazil and non-exclusively in the rest of South America. Our deferred revenue balance associated with Technology Licensing was $0.9 million as of September 30, 2014 which is included in the backlog value as disclosed above. At December 31, 2013, such balance was $1.7 million.
Technology Development Revenue
Technology Development revenue increased by $0.6 million for the nine month periods ended September 30, 2014 from $0.5 million for the same period in 2013. This increase is attributed to recognizing various contract technology development revenue as well as a proportion of revenue related to a contract with WEG, to develop a 3.3 MW turbine in 2014. We determined that the contract milestones were non-substantive because they did not correlate with the level of effort expended. Therefore, we are recognizing revenue on the contract using the percentage of completion method. The degree of completion is determined based on costs incurred, excluding costs that are not representative of progress to completion, as a percentage of total costs anticipated for the contract. As of September 30, 2014, $1.5 million of cash collected for certain milestones was recorded as deferred revenue. Our deferred revenue balance associated with Technology Development was $1.9 million as of September 30, 2014 which is included in the backlog value as disclosed above. At December 31, 2013, such balance was $0.
Cost of Goods Sold and Cost of Service Revenues
Cost of goods sold and cost of services revenues collectively increased by $23.2 million or 209% in the nine months ended September 30, 2014 to $34.3 million as compared to $11.1 million in the nine months ended September 30, 2013.
A comparison of our costs of goods sold and cost of services for the nine months ended September 30, 2014 and 2013 is as follows (dollars in millions):
Nine Months Ended September 30, |
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2014 | 2013 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 32.6 | $ | 9.9 | $ | 22.7 | 229 | % | ||||||||
Technology Licensing |
0.6 | 0.3 | 0.3 | 100 | ||||||||||||
Technology Development |
0.3 | 0.1 | 0.2 | 200 | ||||||||||||
Shared Service |
0.1 | 0.2 | (0.1 | ) | (50 | ) | ||||||||||
Unallocated |
0.7 | 0.6 | 0.1 | 17 | ||||||||||||
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Total |
$ | 34.3 | $ | 11.1 | $ | 23.2 | 209 | % | ||||||||
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Product Sales and Service Cost of Goods and Costs of Service Sold
The increase in product sales and service cost is primarily attributed to the recognition of a higher volume related to our distributed-class turbine sales and increase sales of non-turbine products for the nine months ended September 30, 2014 as compared to the same period in 2013. Our cost of goods sold was $30.6 million for product sales along with $2.0 million of related service costs for the nine months ended September 30, 2014 and $8.5 million for product sales and $1.4 million for related service costs for the same period in 2013.
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Technology Licensing Cost of Service
Technology licensing cost of services for the nine month period ended September 30, 2014 increased by $0.3 million to $0.6 million from $0.3 million for the same period in 2013. The increase reflects higher costs associated with increased license technology activity in the nine months ended September 30, 2014.
Technology Development Cost of Service
Technology development cost of services for the nine month period ended September 30, 2014 increased by $0.2 million to $0.3 million from $0.1 million for the same period in 2013. This increase is related to beginning work on development of a 3.3 MW turbine for WEG and an increase in other development activity.
Shared Service
Shared service for the nine month period ended September 30, 2014 decreased by $0.1 million to $0.1 million from $0.2 million for the same period in 2013 principally driven by slightly lower information technology expense allocation in 2014.
Unallocated
The costs from unallocated expenses increased by $0.1 million to $0.7 million compared to $0.6 million for the nine months ended September 30, 2014 and 2013, respectively principally driven by slightly higher depreciation expense related to the abandonment of an asset used as service equipment.
Segment Gross Profit (Loss) (dollars in millions)
Nine Months Ended September 30, |
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2014 | 2013 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 6.4 | $ | 1.2 | $ | 5.2 | 433 | % | ||||||||
Technology Licensing |
1.9 | (0.3 | ) | 2.2 | 733 | |||||||||||
Technology Development |
0.8 | 0.4 | 0.4 | 100 | ||||||||||||
Shared Service |
(0.1 | ) | (0.2 | ) | 0.1 | 50 | ||||||||||
Unallocated |
(0.7 | ) | (0.6 | ) | (0.1 | ) | (17 | ) | ||||||||
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Total |
$ | 8.3 | $ | 0.5 | $ | 7.8 | 1,560 | % | ||||||||
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Product Sales and Service
Gross profit from product sales and service for the nine months ended September 30, 2014 increased by $5.2 million to $6.4 million compared to $1.2 million for the same period in 2013 principally due to an increase in sales of distributed-class turbines and non-turbine products of $27.9 million offset by higher cost of goods sold of $22.7 million in the nine months ended September 30, 2014.
Technology Licensing
Gross profit from technology licensing for the nine month period ended September 30, 2014 increased by $2.2 million to $1.9 million from a loss of ($0.3) million for the same period in 2013. The improvement is principally due to higher revenue recognition in 2014.
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Technology Development
Gross profit from technology development for the nine months ended September 30, 2014 increased by $0.4 million to $0.8 million compared to $0.4 million for the same period in 2013, principally due to higher revenues from contract technology development services in 2014.
Shared Service
Gross loss from shared service for the nine month period ended September 30, 2014 decreased by $0.1 million to ($0.1) million from ($0.2) million for the same period in 2013 principally driven by slightly lower information technology expense allocation in 2014.
Unallocated
Gross loss from unallocated expenses increased by $0.1 million to ($0.7) million compared to ($0.6) million for the nine months ended September 30, 2014 and 2013, respectively principally driven by slightly higher depreciation expense related to the abandonment of an asset used as service equipment.
Operating Expenses
Research and Development Expenses
Research and development expenses increased by $0.7 million or 25% to $3.5 million for the nine months ended September 30, 2014 from $2.8 million for the same period in 2013. The increase in research and development expenses is due in part to a higher proportion of our engineering workforce providing research and development support to manufacturing for our next generation distributed class turbine as compared to the prior period.
Sales and Marketing
Sales and marketing expenses increased by $0.7 million or 35% to $2.7 million for the nine months ended September 30, 2014 from $2.0 million for the same period in 2013. The increase in sales and marketing expenses was driven by a net expansion in global sales and marketing resources.
General and Administrative Expenses
General and administrative expenses increased by $2.1 million or 45% to $6.8 million for the nine months ended September 30, 2014 from $4.7 million for the same period in 2013. The increase in our general and administrative expenses is primarily explained by an increase of $1.0 million increase in professional fees and consultant expenses, as well as a $0.5 million in compensation and benefits along with a $0.6 million increase in travel expenses and other expenses.
Loss from Operations
Our loss from operations decreased by $4.4 million to ($4.8) million for the nine months ended September 30, 2014 compared to ($9.1) million for the same period in 2013. The decrease in loss is principally due to the increase in gross profit of $7.8 million partially offset by a $1.6 million increase in professional fees and consulting expense, a $1.0 million increase in R&D expense, a $0.4 million increase in compensation and benefits, and a $0.4 million increase in other operating expenses.
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Segment Income (Loss) from Operations (dollars in millions)
Nine Months Ended September 30, |
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2014 | 2013 | Change | % Change | |||||||||||||
Product Sales and Service |
$ | 0.8 | $ | (2.4 | ) | $ | 3.2 | 133 | % | |||||||
Technology Licensing |
1.4 | (1.4 | ) | 2.8 | 200 | |||||||||||
Technology Development |
0.8 | 0.3 | 0.5 | 167 | ||||||||||||
Shared Service |
(6.1 | ) | (4.6 | ) | (1.5 | ) | (33 | ) | ||||||||
Unallocated |
(1.7 | ) | (1.0 | ) | (0.7 | ) | (70 | ) | ||||||||
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Loss from operations |
$ | (4.8 | ) | $ | (9.1 | ) | $ | 4.3 | 47 | % | ||||||
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Product Sales and Service
Income from operations from product sales and service for the nine months ended September 30, 2014 increased by $3.2 million to income of $0.8 million compared to a ($2.4) million loss for the same period in 2013 principally due to the increase in gross profit of $5.2 million from increased sales partially offset by increased operating expenses of $2.2 million attributable to product sales and service, to support the increase in business activity in 2014.
Technology Licensing
Income from operations from technology licensing for the nine months ended September 30, 2014 increased by $2.8 million to income of $1.4 million compared to a ($1.4) million loss for the same period in 2013 due to higher gross profit and lower operating expenses for research and development expenses attributable to technology licensing, in the nine months ended September 30, 2014.
Technology Development
Income from operations from technology development for the nine months ended September 30, 2014 increased by $0.5 million to $0.8 million compared to $0.3 million for the same period in 2013 principally due to higher gross profit in 2014.
Shared Service
Corporate shared general and administrative loss for the nine months ended September 30, 2014 increased by $1.5 million to ($6.1) million compared to ($4.6) million for the same period in 2013 principally due to increased consulting and professional fee expenses of $1.0 million and other corporate and shared service expenses of $0.5 million.
Unallocated
The loss from unallocated expenses for the nine months ended September 30, 2014 increased by $0.7 million to ($1.7) million compared to ($1.0) million in the same period in 2013 due to an increase of $0.4 million in stock compensation expense related to option grants to our board of directors and depreciation expense and an increase of $0.3 million in other unallocated expense.
The table below breaks out the unallocated expenses by category for the periods reported.
Nine Months Ended September 30, |
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2014 | 2013 | Change | % Change | |||||||||||||
Depreciation and amortization |
$ | 0.8 | $ | 0.8 | $ | | | % | ||||||||
Stock-based compensation |
0.7 | 0.3 | 0.4 | 133 | ||||||||||||
Other |
0.2 | (0.1 | ) | 0.3 | 300 | |||||||||||
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Total charges |
$ | 1.7 | $ | 1.0 | $ | 0.7 | 70 | % | ||||||||
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Other Expense and Income Tax Expense
Other expense increased by $0.2 million or 200% to $0.3 million of other expense for the nine months ended September 30, 2014 as compared to $0.1 million of other income for the nine months ended September 30, 2013. This increase is primarily the result of a $0.2 million reduction in the benefit related to change in the fair value of our Series C-2 warrant liability.
Income tax expense was $0.4 million for the nine months ended September 30, 2014 and $0 for the same period in 2013. The increase is the result of Brazilian tax expense incurred on certain types of revenue earned within Brazil.
Net Loss
Net loss decreased by $3.8 million or 40%, to ($5.5) million for the nine months ended September 30, 2014 from a net loss of ($9.3) million for the same period in 2013.
The decrease in our net loss for the nine months ended September 30, 2014, is primarily due to the decrease in loss from operations of $4.3 million partially offset by an increase in other expense of $0.7 million.
Non-GAAP Measures
Generally, a non-GAAP financial measure is a numerical measure of a companys performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with U.S. GAAP. The non-GAAP measures included in this Form 10-Q, however, should be considered in addition to, and not as a substitute for or superior to the comparable measure prepared in accordance with U.S. GAAP. We utilize the non-GAAP measure of non-GAAP adjusted EBITDA which we define as earnings before interest expense, income taxes, depreciation, amortization, non-cash compensation expense, changes in the fair valuation of certain liability classified instruments, and certain other one-time non-cash charges.
Non-GAAP adjusted EBITDA (Loss) (dollars in millions)
Nine Months Ended September 30, |
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2014 | 2013 | |||||||
Net loss |
$ | (5.5 | ) | $ | (9.3 | ) | ||
Provision for income tax |
0.4 | | ||||||
Interest expense |
0.4 | 0.2 | ||||||
Depreciation and amortization |
0.8 | 0.8 | ||||||
Stock-based compensation |
0.7 | 0.3 | ||||||
Change in fair value of warrants |
| (0.2 | ) | |||||
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Total noncash addbacks |
2.3 | 1.1 | ||||||
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Adjusted EBITDA Loss |
$ | (3.2 | ) | $ | (8.2 | ) | ||
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Non-GAAP adjusted EBITDA was a loss of ($3.2) million for the nine months ended September 30, 2014 and ($8.2) million for the same period in 2013. The change in non-GAAP adjusted EBITDA loss is primarily attributable to a decrease in net loss resulting from higher sales in 2014.
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Liquidity and Capital Resources
Consolidated Statements of Cash Flows Data
Nine Months Ended September 30, |
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2014 | 2013 | |||||||
Net loss |
$ | (5.5 | ) | $ | (9.3 | ) | ||
Net cash used in operating activities |
(12.0 | ) | (5.9 | ) | ||||
Net cash provided by (used in) investing activities |
0.5 | (0.2 | ) | |||||
Net cash provided by financing activities |
23.2 | 6.6 |
Cash and Cash Equivalents
Effective September 30, 2014, we had cash and cash equivalents of $16.3 million of which $0.3 million was held by a foreign holding company and subsidiary. We had cash but no cash equivalents for the same period in 2013.
Prior to April 16, 2014, our principal source of liquidity had been private sales of convertible preferred stock. From inception to December 31, 2013, we completed four rounds of equity financing through issuance of our convertible preferred stock with total cash proceeds to us of $123.0 million. We also issued convertible notes totaling $6.5 million in two offerings during the year ended December 31, 2013. During the nine months ended September 30, 2014, we closed on a $19.6 million private placement in connection with a reverse takeover transaction. Proceeds from our financing transactions have been used primarily to fund working capital needs and our operations. With the closure of our capital raise transaction as described below in Financing Activities and the receipt of the gross proceeds of $22.3 million on April 16, 2014, along with the availability of a $6 million working capital line of credit as of September 30, 2014, we believe that our available cash and availability under our line of credit will be sufficient to satisfy our working capital and planned investments to support our long-term growth strategy, for at least one year from the date of issuance of these financial statements.
Operating Activities
Cash used in operating activities consists of net loss adjusted for certain non-cash items including depreciation and amortization, impairment losses, stock based compensation, and changes in working capital and other activities.
For the nine months ended September 30, 2014, net cash used in operating activities increased by $6.1 million to $12.0 million from $5.9 million for the nine months ended September 30, 2013. The increase in cash used in operating activities for 2014 is primarily due to the effect of changes in operating assets and liabilities resulting in a cash outflow of $8.4 million. Included in these changes were a $3.6 million increase in inventory driven by higher order volume, a $2.8 million increase in accounts receivable and an increase in unbilled revenues of $1.3 million which is partially offset by an increase in related rebates of $1.1 million, and a decrease of $4.1 million in customer deposits resulting from higher revenue recognition and the reclassification of some deposits to deferred revenue due to achieving shipment milestones. This increase of working capital was offset by an increase in deferred revenue and accrued expenses.
Investing Activities
Net cash provided by (used in) investing activities was $0.5 million and ($0.2) million for the nine months ended September 30, 2014 and 2013, respectively. Cash provided by investing activities in 2014 consisted of gross proceeds of $1.3 million from the sale of our manufacturing facility in June 2014. A portion of such proceeds were used to payoff of the VEDA mortgage balance as described below. The increase in cash provided by investing activities for the first nine months of 2014 was partially offset by a $0.7 million increase in fixed asset purchases. Cash used in investing activities consisted of purchasing certain equipment required to maintain operations.
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Financing Activities
Our primary financing activities through December 31, 2013 consisted of private sales of convertible preferred stock and convertible notes. All of the convertible preferred stock was converted to common stock and additional convertible notes in a recapitalization completed in September 2013. On December 7, 2013, we signed an engagement letter with Beacon Securities Limited (Beacon), under which Beacon agreed to act as our agent to complete a private placement offering of our equity securities to raise aggregate gross proceeds of approximately $20 to $25 million. On January 15, 2014, we signed a letter of intent to be acquired by Mira III Acquisition Corp. (Mira III), a Canadian capital pool company, in a reverse takeover transaction. On March 17, 2014, we closed on the above-referenced private placement for gross proceeds of $22.3 million. The proceeds were placed in escrow until the closing of the reverse takeover transaction which occurred on April 16, 2014. Upon the closing of the reverse takeover transaction, Mira III changed its name to Northern Power Systems Corp., and the equity securities issued to the private placement investors were automatically exchanged for common shares of Northern Power Systems Corp. Also upon the closing of the acquisition, all of our outstanding common stock was exchanged for common shares of Northern Power Systems Corp., and all of our outstanding convertible notes were converted into common shares of Northern Power Systems Corp. The exchange ratio for the common stock and the conversion ratio for the convertible notes was based upon the price of our securities issued in the above-referenced private placement. The resulting common shares are listed for trading on the Toronto Stock Exchange under the symbol NPS. As a result of the closing of these transactions and the payoff of the VEDA mortgage referenced below, as of the date hereof, our outstanding debt has been reduced to zero.
Certain equity proceeds were deposited with a financial institution totaling $14 million, of which $7.4 million was put into FDIC insured bank deposits and the remaining $6.6 million was put into FDIC insured Certificates of Deposits. The balance of certificates of deposits with said financial institutions was $9.3 million as of September 30, 2014. These funds are recorded on our balance sheet at September 30, 2014 as an element of cash and cash equivalents. We define cash equivalents are defined as highly liquid instruments with maturities of three months or less that are regarded as high quality, low risk investments.
For the nine months ended September 30, 2014, net cash provided by financing activities was $23.2 million compared to net cash provided of $6.6 million for the nine months ended September 30, 2013. The change was due to the proceeds from our equity transaction as described above partially offset by payoff of the VEDA mortgage balance. Further, we borrowed $4.0 million on our working capital revolving line during the nine months ended September 30, 2014.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements and did not have any such arrangements at September 30, 2014 or December 31, 2013.
Contractual Obligations
As described below our long-term debt obligations were zero as of September 30, 2014. We have $4.0 million outstanding on our working capital revolving line of credit and a $1.0 million outstanding performance letter of credit guarantee which is described below in the Comerica Credit Facility section.
On April 16, 2014, at the closing of our reverse takeover transaction our convertible note obligations met the automatic conversion criteria contained within the note agreement of an equity financing resulting in aggregate gross proceeds of at least $10.0 million. As a result, these notes converted to capital stock upon such closing. The convertible notes were collateralized by a pledge of the capital stock of the Company and certain intellectual property of the Company.
Our mortgage on our production facility is with the Vermont Economic Development Authority (VEDA). The VEDA mortgage was a variable interest rate loan bearing interest of 3.75%, maturing on October 6, 2015. During June 2014 we sold the facility and paid off the mortgage obligation. There were no early payment penalties on the mortgage. Contemporaneously, we leased the facility back from the buyer for a five year term. We have the right to terminate the lease without penalty upon at least six months prior notice effective at the end of the second, third or fourth year of the lease term.
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Comerica Credit Facility
During the fourth quarter of 2013, we had increased our foreign working capital revolving line with Comerica Bank to $6.0 million. This line is guaranteed by the U.S. Export-Import Bank, as well as by the Company. At September 30, 2014, we had a net maximum supported borrowing base of $5.0 million. We borrowed $4.0 million during the nine months ended September 30, 2014. We borrowed and repaid a total of $2.5 million during the year ended December 31, 2013. The foreign working capital revolving line of credit with Comerica was scheduled to mature on June 30, 2014. We negotiated a revised credit facility prior to such maturity date with Comerica for the amount of $6.0 million. The renewed facility matures on June 30, 2015. In order to facilitate certain financing arrangements that our Italian customers have with third parties, we have agreed to provide performance and warranty letters of credit to such customers. The performance letters of credit are payable if we fail to meet contractual terms such as delivery schedules. The warranty letter of credit guarantees uptime and power curve performance over a one year period starting at commissioning date. Our performance and warranty letters of credit reduce the borrowing base by 25% and 75% of face value, respectively. In addition, the company must provide 25% cash collateral for the warranty letters of credit. At September 30, 2014 we had $1.0 million of such performance guarantees outstanding with one customer.
The loan agreement with Comerica contains a financial covenant which requires us to maintain an encumbered liquid assets having a value of at least $1.5 million at all times.
The loan agreement also contains various covenants that limit or prohibit our ability, among other things, to:
| incur or guarantee additional indebtedness; |
| pay dividends on our capital stock or redeem, repurchase, retire or make distributions in respect of our capital stock or subordinated indebtedness or make certain other restricted payments; |
| make certain loans, acquisitions, capital expenditures or investments; |
| create or incur certain liens; |
| consolidate, merge, sell, transfer or otherwise dispose of all or substantially all of our assets; and |
| enter into certain transactions with our affiliates. |
For the nine months ended September 30, 2014, we were in compliance with all covenants under this credit facility. Our MIRA III reverse takeover did not change our bank covenants.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable for Smaller Reporting Company as defined by 229.10(f)(1)
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2014. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2014, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. | Legal Proceedings |
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings, incidental to the normal course of our business. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
Item 1A. | Risk Factors |
There are no material changes in our risk factors from those disclosed in Part I, Item 1A of Amendment No. 2 to the Registration Statement on Form 10 (File No. 001-36317) filed by with the Securities and Exchange Commission on April 14, 2014 by Wind Power Holdings, Inc., the predecessor to Northern Power Systems Corp.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None
Item 3. | Defaults Upon Senior Securities |
Not applicable
Item 4. | Mine Safety Disclosures |
Not applicable
Item 5. | Other Information |
None
Item 6. | Exhibits |
See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this quarterly report, which Exhibit Index is incorporated herein by this reference.
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.
Northern Power Systems Corp. | ||||||
(Registrant) | ||||||
Date: November 13, 2014 | By: | /s/ Troy C. Patton | ||||
Troy C. Patton | ||||||
Chief Executive Officer | ||||||
Date: November 13, 2014 | By: | /s/ Ciel R. Caldwell | ||||
Ciel R. Caldwell | ||||||
Chief Financial Officer |
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EXHIBIT INDEX
Incorporated by Reference |
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Exhibit Number |
Exhibit Description |
Form |
File No. |
Exhibit |
Filing Date |
Filed Herewith |
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31.1 |
Chief Executive OfficerCertification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||||||||||||
31.2 |
Chief Financial OfficerCertification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||||||||||||
32.1 |
Chief Executive OfficerCertification pursuant to Rule13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | * | ||||||||||||
32.2 |
Chief Financial OfficerCertification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | * | ||||||||||||
101.INS |
XBRL Instance Document. | ** | ||||||||||||
101.SCH |
XBRL Taxonomy Extension Schema Document. | ** | ||||||||||||
101.CAL |
XBRL Taxonomy Calculation Linkbase Document. | ** | ||||||||||||
101.DEF |
XBRL Definition Linkbase Document. | ** | ||||||||||||
101.LAB |
XBRL Taxonomy Label Linkbase Document. | ** | ||||||||||||
101.PRE |
XBRL Taxonomy Presentation Linkbase Document. | ** |
* | Furnished herewith |
** | Submitted electronically herewith |
Attached as Exhibits 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 and (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2014 and 2013, (iii) Condensed Consolidated Statements of Changes in Stockholders Equity (Deficiency) for the year ended December 31, 2013 and the nine months ended September 30, 2014, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013, and (v) Notes to Condensed Consolidated Financial Statements.
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