UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the quarterly period ended: June 30, 2015

 

OR

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

Commission file number: 000-54080

 

JUHL ENERGY, INC.

(Name of small business issuer in its charter)

 

Delaware		20-4947667
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
1502 17th Street SE
Pipestone, Minnesota		56164
(Address of principal executive offices)		(Zip code)

 

Issuer's telephone number: (507) 562- 4310

 

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 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 ☒ 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 ☒ 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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☐		Smaller reporting company ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 

 

Common Stock:  36,864,430 shares outstanding as of August 10, 2015.

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION
	Item 1. Unaudited Financial Statements	3
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 3. Quantitative and Qualitative Analysis About Market Risk	37
	Item 4. Controls and Procedures	37
PART II - OTHER INFORMATION
	Item 1. Legal Proceedings	37
	Item 1A. Risk Factors	38
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38
	Item 3. Defaults Upon Senior Securities	38
	Item 4. Mine Safety Disclosures	38
	Item 5. Other Information	38
	Item 6. Exhibits	39
Signatures		40
Exhibits

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. UNAUDITED FINANCIAL STATEMENTS

 

The accompanying unaudited condensed consolidated financial statements of Juhl Energy, Inc. (“Juhl Energy” or the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (“Commission” or “SEC”). While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary in order to make the consolidated financial statements not misleading and for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto, for the fiscal year ended December 31, 2014, previously filed with the Commission, which are included in the Annual Report on Form 10-K filed on April 2, 2015. 

 

 

JUHL ENERGY, INC. 

CONDENSED CONSOLIDATED BALANCE SHEETS 

JUNE 30, 2015 AND DECEMBER 31, 2014

 

		JUNE 30, 2015				DECEMBER 31, 2014
		(unaudited)
ASSETS
CURRENT ASSETS
Cash		$	1,591,588			$	3,143,899
Restricted cash			82,032				82,032
Short-term investments - restricted			80,163				80,084
Accounts receivable, net of allowance for doubtful accounts			2,361,096				1,252,054
Work-in-progress			202,530				485,050
Inventory			121,118				114,418
Other current assets			118,611				183,144
Assets of discontinued operations - current			-				98,103
Total current assets			4,557,138				5,438,784
PROPERTY AND EQUIPMENT, Net			23,824,628				24,447,768
OTHER ASSETS
Escrow cash reserves for contractual commitments			1,531,380				1,340,209
Loan costs, net			234,329				257,050
Intangible assets, net			217,266				256,066
Goodwill			214,090				214,090
Assets of discontinued operations - noncurrent			47,553				51,144
Project development costs and other			55,989				153,088
Total other assets			2,300,607				2,271,647
TOTAL ASSETS		$	30,682,373			$	32,158,199
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable		$	1,493,758			$	1,713,823
Accrued liabilities			1,148,435				1,168,880
Billings in excess of costs			75,035				128,352
Deferred revenue - license arrangement and other			317,408				317,408
Current portion of notes payable			1,836,764				1,994,067
Share repurchase obligation			636,150				518,450
Liabilities of discontinued operations			30,950				264,007
Current portion of nonrecourse debt			1,080,192				1,140,207
Total current liabilities			6,618,692				7,245,194
LONG-TERM LIABILITIES
Nonrecourse debt, net of current portion			10,627,998				11,130,764
Notes payable, net of current portion			3,372,335				3,246,419
Other long-term liabilities			904,892				625,942
Deferred revenue - license arrangement and 1603 Grant, net of current portion			1,915,071				1,921,438
Deferred revenue - power purchase contract			4,347,563				4,245,402
Deferred income taxes			42,000				42,000
Total long-term liabilities			21,209,859				21,211,965
REDEEMABLE PREFERRED MEMBERSHIP INTERESTS			2,000,000				2,000,000
REDEEMABLE CUMULATIVE PREFERRED STOCK OF SUBSIDIARY			4,780,000				4,897,700
STOCKHOLDERS' EQUITY (DEFICIT)
Controlling interest in equity:
Preferred Stock, 20,000,000 shares authorized
Series B convertible preferred stock - $.0001 par value, 128,042 issued and outstanding as of June 30, 2015 and December 31, 2014, respectively			240,391				240,391
Common Stock - $.0001 par value; 100,000,000 shares authorized, 36,864,430 and 36,614,430 issued and 36,674,826 and 36,424,826 outstanding as of June 30, 2015 and December 31, 2014, respectively			3,686				3,661
Additional paid-in capital			23,323,439				22,970,796
Treasury stock, 189,604 shares held by the Company at June 30, 2015 and December 31, 2014			(218,965	)			(218,965	)
Accumulated deficit			(28,312,999	)			(27,247,365	)
Total equity (deficit) attributable to Juhl Energy, Inc.			(4,964,448	)			(4,251,482	)
Noncontrolling interest in equity			1,038,270				1,054,822
Total stockholders' equity (deficit)			(3,926,178	)			(3,196,660	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)		$	30,682,373			$	32,158,199

 

The following table presents information on assets and liabilities related to a VIE that is consolidated by the Company at June 30, 2015 and December 31, 2014. The difference between total VIE assets and liabilities represents the Company's interests in those entities, which were eliminated in consolidation.

 

		JUNE 30, 2015				DECEMBER 31, 2014
		(unaudited)
Cash		$	652,395			$	643,422
Accounts receivable and other current assets			115,098				190,062
Property and equipment, net			14,026,253				14,360,599
All other assets			711,020				674,210
Total assets		$	15,504,766			$	15,868,293
Accounts payable and accrued expenses		$	478,870			$	487,841
Deferred revenue- power purchase contract			53,348				45,602
Nonrecourse debt			9,174,881				9,465,703
Total liabilities		$	9,707,099			$	9,999,146

 

The assets of the consolidated VIEs are used to settle the liabilities of those entities. Liabilities are nonrecourse to the general credit of the Company.

 

The accompanying notes are an integral part of these consolidated statements. 

 

 

JUHL ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

FOR THE THREE MONTHS ENDED JUNE 30, 2015 AND 2014 

 

		2015								2014
		(unaudited)								(unaudited)
REVENUE		$	3,635,332				100.0	%		$	3,136,401				100.0	%
COST OF REVENUES			1,982,716				54.5				2,092,720				66.7
GROSS PROFIT			1,652,616				45.5				1,043,681				33.3
OPERATING EXPENSES
General and administrative expenses			516,612				14.2				781,839				24.9
Payroll and employee benefits			921,011				25.3				763,762				24.4
Wind farm management expenses			110,644				3.0				132,833				4.2
Total operating expenses			1,548,267				42.5				1,678,434				53.5
OPERATING INCOME (LOSS)			104,349				3.0				(634,753	)			(20.2	)
OTHER INCOME (EXPENSE)
Interest and dividend income			1,494				-				226				-
Interest expense			(226,014	)			(6.2	)			(207,598	)			(6.6	)
Wind farm administration expenses			-				-				-				-
Total other income (expense), net			(224,520	)			(6.2	)			(207,372	)			(6.6	)
INCOME (LOSS) BEFORE INCOME TAXES			(120,171	)			(3.2	)			(842,125	)			(26.8	)
INCOME TAX BENEFIT (EXPENSE)			-				-				-				-
INCOME (LOSS) FROM CONTINUING OPERATIONS			(120,171	)			(3.2	)			(842,125	)			(26.8	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS			11,801				0.3				(592,534	)			(18.9	)
NET INCOME (LOSS)			(108,370	)			(2.9	)			(1,434,659	)			(45.7	)
LESS NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST			15,427				0.4				60,671				1.9
NET INCOME (LOSS) ATTRIBUTABLE TO JUHL ENERGY, INC.		$	(123,797	)			(3.3	)%		$	(1,495,330	)			(47.6	)%
PREFERRED DIVIDENDS			185,789								119,339
NET INCOME (LOSS) ATTRIBUTABLE TO JUHL ENERGY COMMON STOCKHOLDERS		$	(309,586	)						$	(1,614,669	)
AMOUNT ATTRIBUTABLE TO JUHL ENERGY
Net income (loss) from continuing operations		$	(321,387	)						$	(1,022,135	)
Net income (loss) from discontinued operations, net of taxes			11,801								(592,534	)
NET INCOME (LOSS) ATTRIBUTABLE TO JUHL ENERGY		$	(309,586	)						$	(1,614,669	)
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED			36,652,848								25,613,803
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED
From continuing operations			(0.01	)							(0.04	)
From discontinued operations			0.00								(0.02	)
Net income (loss) per share- basic and diluted			(0.01	)							(0.06	)

 

The accompanying notes are an integral part of these consolidated statements.

 

 

JUHL ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 

 

		2015								2014
		(unaudited)								(unaudited)
REVENUE		$	7,057,438				100.0	%			6,265,058				100.0	%
COST OF REVENUES			4,134,803				58.6				4,153,153				66.3
GROSS PROFIT			2,922,635				41.4				2,111,905				33.7
OPERATING EXPENSES
General and administrative expenses			1,200,657				17.0				1,551,937				24.8
Payroll and employee benefits			1,674,242				23.7				1,471,857				23.5
Wind farm administration expenses			286,807				4.2				242,431				3.9
Total operating expenses			3,161,706				44.9				3,266,224				52.2
OPERATING INCOME (LOSS)			(239,071	)			(3.5	)			(1,154,319	)			(18.5	)
OTHER INCOME (EXPENSE)
Interest and dividend income			2,568				-				410				-
Interest expense			(445,391	)			(6.3	)			(407,358	)			(6.5	)
Gain (Loss) on fair value of interest rate swap			-				-				(74,673	)			(1.2	)
Total other income (expense), net			(442,823	)			(6.3	)			(481,621	)			(7.7	)
INCOME (LOSS) BEFORE INCOME TAXES			(681,894	)			(9.8	)			(1,635,940	)			(26.2	)
INCOME TAX BENEFIT (EXPENSE)			-				-				-				-
INCOME (LOSS) FROM CONTINUING OPERATIONS			(681,894	)			(9.8	)			(1,635,940	)			(26.2	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS			28,957				0.4				(1,109,841	)			(17.7	)
NET INCOME (LOSS)			(652,937	)			(9.4	)			(2,745,781	)			(43.9	)
LESS NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST			41,669				0.6				(305,565	)			(4.9	)
NET INCOME (LOSS) ATTRIBUTABLE TO JUHL ENERGY, INC.		$	(694,606	)			(10.0	)%		$	(2,440,216	)			(39.0	)%
PREFERRED DIVIDENDS			371,028								230,480
NET INCOME (LOSS) ATTRIBUTABLE TO JUHL ENERGY COMMON STOCKHOLDERS		$	(1,065,634	)						$	(2,670,696	)
AMOUNT ATTRIBUTABLE TO JUHL ENERGY
Net income (loss) from continuing operations		$	(1,094,591	)						$	(1,560,855	)
Net income (loss) from discontinued operations, net of taxes			28,957								(1,109,841	)
NET INCOME (LOSS) ATTRIBUTABLE TO JUHL ENERGY		$	(1,065,634	)						$	(2,670,696	)
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED			36,539,467								25,100,197
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED
From continuing operations		$	(0.03	)						$	(0.06	)
From discontinued operations			0.00							$	(0.05	)
Net income (loss) per share- basic and diluted		$	(0.03	)						$	(0.11	)

 

The accompanying notes are an integral part of these consolidated statements.

 

 

JUHL ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY 

FOR THE SIX MONTHS ENDED JUNE 30, 2015 

 

																														Total
										Convertible																				Stockholders'								Total
										Preferred Stock								Additional												Equity-								Stockholders'
		Common Stock								Series B								Paid-In				Treasury				Accumulated				(deficit)				Noncontrolling				Equity
		Shares				Amount				Shares				Amount				Capital				Stock				Deficit				Juhl Energy				Interest				(deficit)
BALANCE -December 31, 2014			36,614,430			$	3,661				128,042			$	240,391			$	22,970,796			$	(218,965	)		$	(27,247,365	)		$	(4,251,482	)		$	1,054,822			$	(3,196,660	)
Net income (loss)			-				-				-				-				-				-				(694,606	)			(694,606	)			41,669				(652,937	)
Stock-based compensation			-				-				-				-				302,668				-				-				302,668				-				302,668
Common stock issued as additional consideration for services			250,000				25				-				-				49,975				-				-				50,000				-				50,000
Dividends on subsidiary preferred stock paid in cash			-				-				-				-				-				-				(219,921	)			(219,921	)			-				(219,921	)
Dividends paid on preferred membership interests in wind farms and other distributions			-				-				-				-				-				-				(151,107	)			(151,107	)			(58,221	)			(209,328	)
BALANCE -June 30, 2015 (unaudited)			36,864,430			$	3,686				128,042			$	240,391			$	23,323,439			$	(218,965	)		$	(28,312,999	)		$	(4,964,448	)		$	1,038,270			$	(3,926,178	)

 

The accompanying notes are an integral part of these consolidated statements. 

 

 

JUHL ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 

 

		2015				2014
		(unaudited)				(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	(652,937	)			(2,745,781	)
Net (income) loss from discontinued operations			(28,957	)			1,109,841
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			735,988				693,472
Stock-based compensation			352,668				302,369
Change in allowance for doubtful accounts			(15,456	)			-
Write-off of unrecoverable development costs			117,257				-
Change in operating assets and liabilities:
Accounts receivable			(1,093,586	)			1,120,773
Work-in-progress			282,520				(150,398	)
Inventory			(6,700	)			(3,188	)
Costs and estimated earnings in excess of billings			-				849,241
Other current assets			64,533				43,560
Accounts payable			(220,065	)			(894,823	)
Promissory notes payable			77,250				77,249
Accrued liabilities			227,101				227,783
Billings in excess of costs			(53,317	)			-
Derivative instruments - interest rate swap			-				(460,000	)
Deferred revenue			124,064				98,414
Other long-term liabilities			31,404				28,053
Other			(79	)			(10,284	)
Cash from (used in) operating activities - continuing operations			(58,312	)			286,281
Cash from (used in) operating activities - discontinued operations			11,259				(588,526	)
Net cash provided by (used in) operating activities			(47,053	)			(302,245	)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for project development costs, net of reimbursements			(20,158	)			(95,253	)
Proceeds from sale of short-term investments			-				10,000
Payments for property and equipment			(79,596	)			(85,201	)
Cash from (used in) investing activities - continuing operations			(99,754	)			(170,454	)
Cash from (used in) investing activities - discontinued operations			-				(23,763	)
Net cash provided by (used in) investing activities			(99,754	)			(194,217	)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in restricted cash			-				406,683
Escrow deposits related to long-term debt, net			(191,171	)			289,250
Cash dividends and distributions paid			(429,249	)			(236,392	)
Payments for treasury stock			-				(15,000	)
Net proceeds from sale of preferred stock of subsidiary			-				642,700
Proceeds from notes payable			-				592,212
Principal payments on notes payable			(747,109	)			(291,778	)
Payments of loan costs			-				(195,930	)
Cash from (used in) financing activities - continuing operations			(1,367,529	)			1,191,745
Cash from (used in) financing activities - discontinued operations			(55,893	)			(253,380	)
Net cash provided by (used in) financing activities			(1,423,422	)			938,365
NET INCREASE (DECREASE) IN CASH			(1,570,229	)			441,903
CASH BEGINNING OF THE PERIOD			3,161,817				1,280,681
CASH END OF THE PERIOD			1,591,588				1,722,584
LESS CASH OF DISCONTINUED OPERATIONS			-				128,101
CASH END OF THE PERIOD- CONTINUING OPERATIONS		$	1,591,588			$	1,594,483
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest		$	377,610			$	213,053
NONCASH INVESTING AND FINANCING ACTIVITIES
Series A dividend payment in common stock		$	-			$	5,316
Issuance of common stock upon conversion of Series A preferred stock		$	-			$	131,035
Issuance of promissory note for Series A and B preferred stock						$	2,103,738
Issuance of promissory note for Series A preferred stock dividend		$	-			$	46,613
Issuance of common stock for PVPower acquisition		$	-			$	64,731
Costs of raising capital		$	-			$	164,755
Increase in share purchase obligation for redemption request		$	117,700			$	518,450
Debt of discontinued operations assumed by the Company		$	75,690			$	-

 

The accompanying notes are an integral part of these consolidated statements.

 

 

JUHL ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations.  These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2014 which was filed with the Securities and Exchange Commission on April 2, 2015.

 

In the opinion of management, the unaudited condensed consolidated interim financial statements reflect all adjustments considered necessary for fair presentation.  The adjustments made to these statements consist only of normal recurring adjustments.  The results reported in these condensed consolidated interim financial statements should not be regarded as necessarily indicative of results that may be expected for the year ended December 31, 2015.

 

Juhl Energy, Inc. (“Juhl Energy” or “the Company”) conducts business under the following subsidiaries, Juhl Energy Services, Inc. (“JES”), Juhl Energy Development, Inc. (“JEDI”), Juhl Renewable Assets, Inc. (“JRA”), Next Generation Power Systems, Inc. (“NextGen”), Juhl Renewable Energy Systems, Inc. (“JRES”), Power Engineers Collaborative, LLC (“PEC”), and ownership and operational duties over the following operating wind farms: Woodstock Hills LLC (“Woodstock Hills”), Winona County Wind, LLC (“Winona”), Valley View Transmission, LLC (“Valley View”) and 5045 Wind Partners LLC (“Iowa wind farms”). The JTS entity was dissolved in 2015 and is considered a discontinued operation for all periods presented.

 

Juhl Energy is an established leader in the renewable energy industry with a focus on community-based wind power development and ownership of clean energy assets throughout the United States and Canada. In addition, the Company provides engineering, asset management and maintenance services to the utility and telecommunication industries.

 

U.S. generally accepted accounting principles require certain variable interest entities (“VIE”) to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have sufficient powers, obligations, or rights or if the entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties.

 

All significant intercompany investments, balances, and transactions have been eliminated.

 

USE OF ESTIMATES

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for the following significant matters, among others: revenue recognition; realizability of accounts receivable; determination of the primary beneficiary of a variable interest entity; the assumptions used in the impairment analysis of long-lived assets and goodwill; the assumptions used in analysis of going concern, valuation of deferred tax assets, deferred power purchase contract revenue, stock-based compensation and warrants, asset retirement obligations, derivative instruments, assumptions used in the computation of contingent liabilities and estimating the fair value of acquired assets and liabilities, and other contingencies. It is at least reasonably possible that these estimates will change in the future. Actual amounts may differ from these estimates, and such differences may be material to the consolidated financial statements. The Company periodically reviews estimates and assumptions, and the effects of any such revisions are reflected in the period in which the revision is made.

 

GOODWILL AND OTHER INTANGIBLE ASSETS

The Company accounts for goodwill and intangible assets in accordance with the accounting guidance which requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. Finite life intangibles are amortized over their estimated useful lives using the straight-line method.

 

 

JUHL ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

Amortization expense, including amounts for deferred loan costs, for the six-month periods ended June 30, 2015 and 2014 was approximately $62,000 and $47,000, respectively. Amortization expense for the three-month periods ended June 30, 2015 and 2014 was approximately $31,000 and $27,000, respectively

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash, accounts receivable, and accounts payable, and other working capital items approximate fair value at June 30, 2015 and December 31, 2014 due to the short maturity nature of these instruments. The carrying value of restricted cash and short-term investments approximate their fair value based on quoted market prices. The Company believes the carrying amount of the long-term debt approximates the fair value due to refinancing a significant portion in 2014, bringing our interest rate to current market rates.

 

ACCRUED LIABILITIES/OTHER LONG-TERM LIABILITIES

In 2015, approximately $248,000 of accrued liabilities were reclassified to other long term liabilities as a result of a reduction in the expected amount of payments to be made over the next 12 months in connection with previous wind farm reimbursable cost advances that had made by unrelated third parties.

 

RECLASSIFICATIONS

Certain reclassifications were made to the previously issued 2014 financial statements in the consolidated financial statements in order to apply the presentation requirements to retrospectively present 2015 discontinued operations. These reclassifications of financial information related to discontinued operations have no effect on net income, operating cash flow or stockholders’ equity as previously reported.

 

 

2.	GOING CONCERN

 

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which contemplate continuation of the Company as a going concern. The Company currently has negative working capital, negative stockholder’s equity, a history of recurring losses and recurring negative cash flow from operating activities, and has not yet established a source of cash funding to retire obligations coming due within the next twelve months, namely the Company will need to find additional sources of capital to fund the balloon payment of Airdrie Partners note obligation. Additionally, the Company was unable to meet profitability and revenue growth expectations with its JTS subsidiary and, as a result, it was decided in late 2014 to discontinue the operations of this subsidiary. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management anticipates that the Company will be dependent, for the near term, on the proceeds from financing as a part of the acquisition of additional wind projects and the financing for construction of its larger scale development projects, fee income from development services and additional capital to fund operating activities. There is no assurance that such capital will be available.  The Company intends to position itself so that it may be able to raise additional funds through the capital markets. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

3.	REDEEMABLE CUMULATIVE PREFERRED STOCK OF SUBSIDIARY

  

Through 2014, our subsidiary, JRA, sold approximately $4,900,000 of its Series A Preferred Stock in private sales for the acquisition of wind farm assets, and for other purposes. The preferred stock provides for a 9% annual dividend to its holders, payable quarterly.  JRA has utilized the proceeds raised primarily to provide funding assistance for the acquisition of wind farm assets and to replenish previous advances made by the Company in acquiring its existing ownership interests in wind farms.

 

Holders of the JRA Preferred Stock will be entitled to receive, to the extent of legally available funds, a dividend of 9% per annum, payable quarterly. Dividends for the six months ended June 30, 2015 and 2014 were approximately $220,000 and $79,000, respectively. Dividends for the three months ended June 30, 2015 and 2014 were approximately $110,000 and $44,000, respectively. The preferred stock carries limited voting rights and has a liquidation preference over common stockholders of the subsidiary. The holders of the preferred stock can require JRA to redeem the shares after June 30, 2015 subject to the terms of the amended certificate of designation. Based on the designations and rights offered to preferred shareholders, the preferred stock is being carried outside of permanent equity on the consolidated balance sheets as Redeemable Cumulative Preferred Stock of Subsidiary at their current redemption value. Holders of the preferred stock had a put right to redeem the shares after December 31, 2014 subject to the terms of the amended certificate of designation. During the period ending June 30, 2015, certain holders exercised the put right and requested redemption of their shares totaling $117,700. At June 30, 2015, the Company reclassified $117,700 of subsidiary preferred stock to share purchase obligation, (a current liability) as a result.

 

 

JUHL ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

In July 2015, JRA commenced a new private sale of Series A Preferred Stock with the intention of raising up to $4,200,000 primarily for the acquisition of membership interests of wind farm entities, retirement of the share repurchase obligation, and for other corporate purposes.

 

 

4.	CONCENTRATIONS

 

The Company derived approximately 48% of its revenue for the six months ended June 30, 2015 from three customers primarily as a result of energy and field services (13%), renewable energy development and construction revenue (14%), and power plant ownership (21%). The Company derived approximately 50% of its revenue for the six months ended June 30, 2014 from three customers primarily as a result of energy and field services (24%) and power plant ownership (26%). At June 30, 2015 and December 31, 2014, 42% and 61% of the Company's accounts receivable were due from one and four customers, respectively.  

 

5.	ACCOUNTS RECEIVABLE

 

Accounts receivable consists of the following:

 

		June 30, 2015				December 31, 2014 *
Accounts receivable		$	2,369,320			$	1,273,155
Other receivables			17,000				19,579
Allowance for doubtful accounts			(25,224	)			(40,680	)
Total		$	2,361,096			$	1,252,054

 

  * Derived from the December 31, 2014 Financial Statements.

 

 

6.	PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following:

 

		June 30, 2015				December 31, 2014 *
Land and improvements		$	82,958			$	82,958
Building and improvements			292,690				292,690
Equipment, including vehicles			642,984				693,259
Turbines and improvements			27,917,188				27,914,093
Construction in process			-				-
Subtotal			28,935,820				28,983,000
Less accumulated depreciation			(5,111,192	)			(4,535,232	)
Total		$	23,824,628			$	24,447,768

 

 * Derived from the December 31, 2014 Financial Statements.

 

Depreciation expense, including amounts for grant liability amortization, was approximately $329,000 and $326,000 for the three months ended June 30, 2015 and 2014, respectively, and was approximately $674,000 and $646,000 for the six months ended June 30, 2015 and 2014, respectively.

 

  

JUHL ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

7.	INCOME TAXES

 

The following represents the reconciliation of the statutory federal tax rate and the effective tax rate for the six months ended June 30:

 

		2015								2014
Statutory tax rate		$	(222,000	)			34.0	%		$	(933,000	)			34.0	%
States taxes, net of federal benefit			(38,000	)			5.9				(165,000	)			6.0
Nondeductible income/expenses			(76,000	)			12.6				(67,000	)			2.4
Increase in valuation allowance			322,000				(50.1	)			1,174,000				(42.7	)
Other, net			14,000				(2.4	)			(9,000	)			0.3
		$	-				-	%		$	-				-	%

 

 

JUHL ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

8.	NOTES PAYABLE

 

Notes payable consists of the following:

 

		June 30, 2015				December 31, 2014 *
Note payable to a turbine supplier, including interest at 6%; payable solely through 95% of net cash flows from a wind project; secured by Company’s first secured rights arising out of its Development and Construction Services Agreement with the underlying project. The note payable has been classified as long-term based on estimated payments from project cash flows. Increases in amounts represent accrued interest. See Note 13 for legal proceedings with the turbine supplier.		$	3,300,345			$	3,223,094
Note payable to Airdrie Partners I, LP for repurchase of preferred stock, originally due July 31, 2015, extended to October 31, 2015; interest at 8%; payable in monthly installments of $40,000; unsecured; subject to default interest rate of 15% in the event of non-payment of the monthly installments or the final payment.			1,630,419				1,797,839
Note payable to a bank, due September 2016; with interest at the Wall Street Journal prime rate plus 2.25% (5.5% at June 30, 2015); payable in monthly installments of $6,000 beginning August 1, 2015; collateralized by assets of Juhl Energy Services and a parent guaranty by Juhl Energy; note balance was assumed by JESI from a discontinued operation.			75,690				-
Note payable to bank, due December 2018, with interest at 5.75%; payable in monthly installments of approximately $1,400, and balloon payment of approximately $123,000 at maturity collateralized by land and building, rights to payment under leases, and guaranteed by Juhl Energy.			151,691				155,398
Note payable to bank, due April 2017, with interest at 4.75%; payable in monthly installments of approximately $2,400; collateralized by a restricted short-term investment.			50,954				64,155
Total Notes Payable			5,209,099				5,240,486
Less current portion			(1,836,764	)			(1,994,067	)
Long-term portion		$	3,372,335			$	3,246,419

 

 

* Derived from the December 31, 2014 Financial Statements.

 

 

JUHL ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

9.	NONRECOURSE DEBT

 

Nonrecourse debt obligations consist of the following:

 

		June 30, 2015				December 31, 2014 *
Note payable to bank, due January 2016, with interest at 5.5%; payable in quarterly installments of approximately $82,000, collateralized by Woodstock Hills assets including turbines and improvements, rights to payment under leases and the power purchase contract.		$	239,561			$	393,717
Note payable to bank, due in September 2026, payable in quarterly payments of principal and interest of approximately $265,000. Approximately 85% of the loan balance currently carries a fixed rate of 5.39%. Approximately 15% of the loan balance carries a variable interest rate at 300 basis points over the one month LIBO rate (currently 3.15%); interest rates will increase by 25 basis points every three years ; collateralized by all Valley View wind farm project assets and subject to restrictive covenants.			9,174,881				9,465,703
Note payable to bank, due in November 2021, payable in monthly payments of approximately $8,000; interest rate is 0%; collateralized by all assets associated with the Iowa wind farms and subject to restrictive covenants.			633,333				683,333
Note payable to bank, due in November 2021, payable in monthly payments of principal and interest of approximately $20,000, with a balloon payment obligation of approximately $614,000 at the due date; Interest rate floats at the New York prime lending rate plus 250 basis points (5.75% at June 30, 2015); interest rate will be fixed at a rate of 5.75% for the first four years, at which point the rate will be fixed at the NY prime lending rate plus 250 basis points, subject to a ceiling of 7.75% and a floor of 5.75%; collateralized by all assets associated with two wind farm entities located in Iowa and subject to restrictive covenants.			1,660,415				1,728,218
Total nonrecourse debt			11,708,190				12,270,971
Less current portion			(1,080,192	)			(1,140,207	)
Long-term portion		$	10,627,998			$	11,130,764

 

* Derived from the December 31, 2014 Financial Statements.

 

 

10.	STOCK-BASED COMPENSATION

 

The Company has an incentive compensation plan to provide stock options, stock issuances and other equity interests in the Company to employees, directors, consultants, independent contractors, and advisors of the Company and any other person who is determined by the Committee of the Board of Directors of the Company to have made (or expected to make) contributions to the Company. The maximum shares reserved under the plan is 4,500,000 shares. As of June 30, 2015, the Company had 3,560,000 shares available for award under the plan. The Company entered into an agreement with an outside vendor providing the vendor with 250,000 restricted stock shares and cash. The shares and expense of $50,000 were issued and recognized during the second quarter of 2015.

 

 

JUHL ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

Stock Options

 

The following table summarizes information for options outstanding and exercisable at June 30, 2015.

 

		Weighted Average Exercise Price				Option Shares
Outstanding at January 1, 2015		$	1.41				590,000
Granted		$	0.35				100,000
Exercised		$	-				-
Expired		$	-				-
Forfeited or canceled		$	-				-
Outstanding at June 30, 2015		$	1.26				690,000
Options exercisable at June 30, 2015		$	1.46				540,000

 

For option grants issued in 2015, the following Black-Scholes option-pricing model assumptions were used, underlying price of $0.35, dividend yield of 0%, expected volatility of 127%, risk-free interest rate of 2.13%, and average expected life of 5.25 years. Based on the pricing model, the stock options have a fair value of approximately $9,000.

 

 

Stock warrants

 

The following table summarizes information for warrants outstanding and vested at June 30, 2015:

 

Issue Date		Number of Warrants			Expiration Date		Exercise Price Per Share				Warrants Vested
September 2012			50,000		December 2015		$	0.50				50,000
February 2014			3,500,000		February 2024		$	0.21				2,187,500
March 2014			2,020,000		March 2024		$	0.35				1,262,500
April 2014			200,000		April 2024		$	0.40				100,000
August 2014			537,500		July 2019		$	0.23				537,500
Total			6,307,500									4,137,500

 

Stock compensation expense

 

For the three and six months ended June 30, 2015, the Company recognized approximately $198,000 and $353,000 of stock compensation expense, respectively, including approximately $138,000 and $276,000, respectively, for warrants issued to directors, officers and service providers, and approximately $60,000 and $77,000, respectively, for stock options and restricted stock. For the three and six months ended June 30, 2014, the company recognized approximately $157,000 and $302,000 of stock compensation expense, including approximately $138,000 and $267,000, respectively, for warrants issued to directors, officers and service providers, and approximately $19,000 and $35,000, respectively, for stock options and restricted stock. As of June 30, 2015, there was approximately $298,000 total unrecognized stock compensation expense. This cost is expected to be recognized over a weighted-average period of approximately one year.

 

 

11.	BUSINESS SEGMENTS

 

The Company’s reportable business segments are organized based on the nature of markets and customers and how we manage and view the business. The Company groups its operations into three business segments:

 

Renewable Energy Development	Wind, solar and cogeneration energy development, construction and related products and services.
Renewable Power Plant Ownership	Ownership and operations of consolidated wind farms or other clean energy investments.
Energy and Field Services	Business-to-business engineering consulting services, asset management, and turbine maintenance services.

 

 

JUHL ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

Segment reporting is intended to give financial statement users a better view of how the Company manages and evaluates its businesses.   The accounting policies for each segment are the same as those described in the summary of significant accounting policies. Segment income or loss does not include any allocation of shared-service costs.  Segment assets are those that are directly used in or identified with segment operations, including cash, accounts receivable, prepaid expenses, inventory, work-in-progress, property and equipment and escrow deposits. Unallocated assets include corporate cash and cash equivalents, short-term investments, deferred tax amounts and other corporate assets.  Inter-segment balances and transactions have been eliminated. Assets of discontinued operations have been combined with corporate/other.

 

Segment profit excludes results reported as discontinued operations and accounting changes. Segment profit also excludes the portion of earnings or loss attributable to noncontrolling interests of consolidated subsidiaries, and as such only includes the portion of earnings or loss attributable to our share of the consolidated earnings or loss of consolidated subsidiaries. The segment information presented below recasts 2014 information to remove the effect of discontinued operations of the tower services revenue and expenses.

 

The following tables summarize financial information by segment and provide a reconciliation of segment contribution to operating income:

 

		For the Six Months Ended
		June 30,
		2015				2014
Revenue:
Renewable energy development		$	2,065,395			$	786,284
Renewable power plant ownership			1,920,438				1,724,954
Energy & field services			3,323,936				3,998,069
Eliminations			(252,331	)			(244,249	)
Total Revenue		$	7,057,438			$	6,265,058
Income (loss) from operations:
Renewable energy development		$	756,035			$	(198,989	)
Renewable power plant ownership			470,128				488,005
Energy & field services			160,589				345,298
Corporate and other			(1,625,823	)			(1,788,633	)
Eliminations			-				-
Income (loss) from operations			(239,071	)			(1,154,319	)
Other income (loss), net			(442,823	)			(481,621	)
Income (loss) before income taxes from continuing operations		$	(681,894	)		$	(1,635,940	)

 

 

		As of				As of
		June 30,				June 30,
		2015				2014
Total Assets:
Renewable energy development		$	1,836,095			$	596,104
Renewable power plant ownership			26,229,511				25,063,222
Energy & field services			2,093,969				2,743,719
Corporate and other			522,797				1,293,500
Total assets		$	30,682,373			$	29,696,545

 

  

JUHL ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

12.	BUSINESS ACQUISITIONS

 

Iowa Wind Farms

In August 2014, the Company closed on the purchase of 100% of the membership interests of limited liability companies comprising 3.2 MW of wind energy facilities in Iowa (the “Iowa wind farms”). The total consideration was approximately $4,346,000.

 

Pro forma information:

 

The following unaudited pro forma summary presents consolidated information of Juhl Energy, Inc. as if the business combination had occurred on January 1, 2014:

 

		Three months ended June 30,
		2015				2014
Net revenue		$	3,635,000			$	3,345,000
Net income (loss) before taxes		$	(70,000	)		$	(747,000	)

 

		Six months ended June 30,
		2015				2014
Net revenue		$	7,057,000			$	6,801,000
Net income (loss) before taxes		$	(632,000	)		$	(1,355,000	)

 

 

Juhl Energy, Inc. did not have any material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. Costs of acquiring the Iowa Wind Farms is not considered material for purposes of the pro forma adjustments.

 

These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of the Iowa wind farms to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment, and intangible assets had been applied from January 1, 2014, with the consequential tax effects.

 

 

13.	LEGAL PROCEEDINGS

 

The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. While the ultimate outcome of these matters is not presently determinable, it is in the opinion of management that the resolution of outstanding claims will not have a material adverse effect on the financial position or results of operations of the Company. Due to the uncertainties in the settlement process, it is at least reasonably possible that management’s view of outcomes will change in the near term.

 

The Winona project is the subject of a lawsuit initiated in the U. S. District Court for the District of Minnesota in December 2013 by Unison Co., Ltd. against the Company, Juhl Energy Development, a Company subsidiary, the wind project ownership entities, members of management, and others. The Unison action arises out of the purchase of the wind turbine generators from Unison and purports to state causes of action for (i) fraudulent inducement, (ii) breach of the Financing Agreement with Unison: (iii) breach of the implied covenant of good faith and fair dealing; (iv) tortious interference with contractual relationship; and (v) unjust enrichment. The Company disputes the allegations and is vigorously defending the action. The Company has recorded the original turbine supply purchase obligation in its consolidated financial statements together with accrued interest thereon, and carries the amount in the current and long term liability sections under the original understanding with Unison that the turbine supplier would be paid out of project cash flows in the event that the project was unable to obtain financing. The project has been unable to successfully obtain debt financing or obtain any further equity proceeds as a result of limited operating history of this wind turbine model in the U.S. market, inconsistent operating performance and poor financial performance of the project. Although the Company believes it will prevail in the Unison action, an outcome of the Unison action could be divesting ownership of the project. The Company, together with all of the defendants, have filed a counterclaim in arbitration in accordance with the underlying transaction documents for breach of turbine warranty and other claims. The matter in District Court has been stayed pending the arbitration proceedings which are expected to be held later in 2015.

 

 

JUHL ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

14.	COMMITMENT AND CONTINGENCIES

 

Share Purchase Obligation

 

One holder of redeemable preferred membership interests in the Valley View wind farm has exercised its put option (for approximately $518,000) in October 2013 and the Company was required to redeem such interests by June 1, 2014. The Company anticipates the redemption payment of approximately $518,000 will be made by the subsidiary during 2015 and has been recorded as a current liability. Since the Company is currently in default in the redemption of the redeemable membership interests in Valley View, the holder of the preferred membership interests has rights and remedies available to it including, but not limited to, the right to provide written demand to the Manager to sell assets of the limited liability company to which the preferred stock was issued. The 12% dividend payments on the redeemable preferred stock in Valley View have been kept current.

 

Guarantees

 

The Company agreed to guarantee certain payments to investors in the Valley View wind farm project as set forth below:

 

●

The timely payment of any and all guaranteed payments required to be paid to preferred membership investors (who contributed approximately $2.5 million) as they may become due under the respective LLC operating agreements, and the timely payment of any and all amounts payable upon exercise of a put right by such preferred members. The put right is outside the control of the Company and may occur either in two years or in certain cases, ten years. The Company does have up to six months from the date that to make such Put Right Payment, and should the Company fail to make the Put Right Payment within such six month period, the principal amount owed by the Company is subject to a penalty of an additional 10%.

●

The Company has agreed, with respect to a put right made available to one of the Preferred Members in the Valley View project (who contributed $500,000) to redeem any of its units then held by the Purchaser for a price in cash equal to the present value of the (i) estimated future distributions to be made to Purchaser net of (ii) estimated future income allocations for which no distributions are projected to be made. If the Company fails to pay in full the put right purchase amount in cash on the due date, the Company shall issue a promissory note with a maturity date not exceeding 36 months and pay interest thereon. The put right is only exercisable after January 1, 2017.

●

The Company has made certain representations and warranties with regard to indemnifications in conjunction with the funding activities of the Valley View and Grant County wind farms, including potential liabilities for Section 1603 Treasury Grant recapture or tax liabilities attributable to the period prior to the closing date.

 

 

15.	DISCONTINUED OPERATIONS

 

Discontinued operations is comprised of the operations of Juhl Tower Services, a company that performed cellular communication tower maintenance services until late 2014. The associated results of operations, financial position and cash flows are separately reported as discontinued operations for all periods presented.

 

Services were generally performed under master or other services agreements and were billed on a contractually agreed price per unit on a work order basis. Revenue from these services were recorded using the completed contract method of accounting because the duration of service orders is short in nature (typically two weeks or less). Under the completed contract method, revenues and costs related to the projects were recognized only upon completion of the services at a project site. Accordingly, during the period of performance, costs were accumulated on the balance sheet under work in progress, but no revenue or income was recorded before completion of the work.

 

 

JUHL ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

		2015				2014
Operations
Revenue		$	-			$	470,896
Income (loss) from discontinued operations before income taxes			28,957				(1,109,841	)
Benefit (provision) for income taxes			-				-
Income (loss) from discontinued operations, net of taxes		$	28,957			$	(1,109,841	)

 

Assets and liabilities of discontinued operations are reflected in separate classifications of current assets, non-current assets and current liabilities. Assets are valued based on estimated realizable values. Liabilities are reflected based on amounts at which the underlying obligations will be settled.

 

 

		June 30, 2015				December 31, 2014
Assets:
Current		$	-			$	98,000
Noncurrent			48,000				51,000
Liabilities:
Current			(31,000	)			(264,000	)
Net Assets (deficit)		$	17,000			$	(115,000	)

 

* Derived from the December 31, 2014 Financial Statements.

 

Liabilities include a bank line of credit obligation of $-0- and $132,000 at December 31, 2015 and 2014, respectively. The bank line was terminated in June 2015 and JESI assumed the remaining balance of approximately $76,000 under a new note arrangement as described in Note 8.

 

 

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto which appear elsewhere in this report. The results shown herein are not necessarily indicative of the results to be expected in any future periods. This discussion contains forward-looking statements based on current expectations, which involve uncertainties. Actual results and the timing of events could differ materially from the forward-looking statements as a result of a number of factors.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

 

This report contains “forward-looking statements”, which represent our projections, estimates, expectations or beliefs concerning among other things, financial items that relate to management’s future plans or objectives or to our future economic and financial performance. All statements, other than statements of historical facts, included in this report regarding our expectations, objectives, assumptions, strategy, future operations, financial position, estimated revenue or losses, projected costs, prospects and plans and objectives of management are forward-looking statements.  When used in this report, the words “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “plan” and similar expressions, or their opposites, are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Our actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of a number of factors that may tend to influence the accuracy of the statements, including those set forth in this report. Important factors that may cause actual results to differ from projections include, but are not limited to, for example:  adverse economic conditions, inability to raise sufficient additional capital to operate our business, delays, cancellations or cost overruns involving the development or construction of our wind farms, the vulnerability of our wind farms or tower services to adverse meteorological and atmospheric conditions, unexpected costs, lower than expected sales and revenues, and operating defects, adverse results of any legal proceedings, the volatility of our operating results and financial condition, inability to attract or retain qualified senior management personnel, expiration of certain governmental tax and economic incentives, and other specific risks that may be referred to in this report.  It is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained or implied in any forward-looking statement. These forward-looking statements should not be regarded as a representation by the Company or any other person that the events or plans of the Company will be achieved. Stockholders and potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, we cannot assure stockholders and potential investors that these plans, intentions or expectations will be achieved.  

 

All forward-looking statements speak only as of the date of this report. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

 

Information regarding market and industry statistics contained in this report is included based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services.  

 

 

DEFINITIONS
“We,” “Our,” “us” and similar expressions refer to the Company and its subsidiaries as the context requires:
Juhl Energy or the Company	Juhl Energy, Inc., a Delaware corporation (formerly known as Juhl Wind, Inc. name change effective January 2, 2013)  and MH & SC Incorporated (change effective June 20, 2008)
Juhl Energy Development	Juhl Energy Development, Inc., a Minnesota corporation
Juhl Energy Services	Juhl Energy Services, Inc.,
	a Minnesota corporation (formerly known as DanMar and Associates, Inc.)
	Juhl Energy Development and Juhl Energy Services are referred to separately prior to our share exchange transaction on June 24, 2008, in which Juhl Energy Development and Juhl Energy Services became wholly-owned subsidiaries and Juhl Energy (formerly known as Juhl Wind) became successor to the business of Juhl Energy Development and Juhl Energy Services, after giving effect to the share exchange transaction
NextGen	Next Generation Power Systems, Inc.,
	a South Dakota corporation, which we acquired on October 31, 2008 and which is now our wholly-owned subsidiary
Juhl Renewable Assets	Juhl Renewable Assets, Inc.,
	a Delaware corporation (formerly known as Juhl Wind Asset Investment, Inc. and Juhl Wind Project Lending, Inc.), our wholly-owned subsidiary formed on May 19, 2010
Juhl Renewable Energy Systems	Juhl Renewable Energy Systems, Inc.,
	a Delaware corporation, our wholly-owned subsidiary formed on February 2, 2012
Juhl Tower Services	Juhl Tower Services, Inc.,
	a Delaware corporation, a wholly-owned subsidiary of Juhl Energy Services formed on February 8, 2013, which we have discontinued operations, and dissolved the entity on February 6, 2015
Valley View	Valley View Transmission, LLC,
	a Minnesota limited liability company, of which Juhl Renewable Assets, Inc. indirectly holds a 32.6% interest
Woodstock Hills	Woodstock Hills, LLC,
	a Delaware limited liability company, of which we acquired a 99.9% interest on April 28, 2011, and which is now a subsidiary of Juhl Renewable Assets, Inc.
Winona Wind	Winona Wind Holdings, LLC,
	a Minnesota limited liability company which we acquired on October 13, 2011, and which is now a wholly-owned subsidiary of Juhl Energy Development, Inc. and which owns 100% of Winona County Wind, LLC (“Winona County”), the operator of the wind farm;
PEC or Power Engineers Collaborative	Power Engineers Collaborative, LLC,
	an Illinois limited liability company, which we acquired on April 30, 2012 and which is now our wholly-owned subsidiary
Iowa Wind Farms	5045 Wind Partners, LLC,
	an Iowa limited liability company acquired on August 11, 2014 of which Juhl Renewable Assets, Inc. directly holds a 100% interest, which owns two Iowa wind projects comprised of two 1.6 MW wind turbines in the Central Iowa region

 

 

ELECTRICAL POWER ABBREVIATIONS

 

Kw	kilowatt or 1,000 watts of electrical power
MW	megawatt or 1,000 kW of electrical power
GW	gigawatt or 1,000 MW of electrical power
TW	terawatt or 1,000 GW of electrical power;
kWh MWh GWh TWh	An hour during which 1kW, MW, GW or TW, as applicable, of electrical power has been continuously produced.
Capacity	Rated capacity
NCF	Net capacity factor, or the measure of a wind energy project’s actual production expressed as a percentage of the amount of power the wind energy project could have produced running at full capacity for a particular period of time
PTC	Production tax credit under the American Recovery and Reinvestment Act
REC	Renewable energy certificate or other renewable energy attribute, as the context requires

 

 

BUSINESS OVERVIEW

 

Overview

 

Juhl Energy is an established leader in the clean and renewable-energy industry and provides a full range of clean energy solutions with a focus on wind, solar, biomass and natural gas systems. Juhl Energy historically focused on community wind power development, management and ownership, throughout the United States. We are one of the few companies other than utility based conglomerates that handle all aspects of wind project development, through our operating subsidiaries, including full development and ownership of wind farms, general consultation on wind projects, construction management of wind farm projects and system operations and maintenance for completed wind farms, which results in multiple revenue streams. The primary focus of our wind power development business has been to build 5 MW to 80 MW wind farms jointly owned by local communities, farm owners, environmentally-concerned investors, and our Company. The wind farms are connected to the general utility electric grid to produce clean, environmentally-sound wind power. Our development of community wind power systems generally results in landowners owning a portion of the long-term equity in the wind farm that resides on their land. We pioneered community wind power systems in developing the currently accepted financial, operational and legal structure providing local ownership of medium to large scale wind farms. Since 1999, we have completed 24 wind farm projects, accounting for approximately 260 MW of wind power that currently operate in the Midwest region of the United States (which are over approximately $510 million in value), and we provide operation management and oversight to wind generation facilities generating approximately 88 MW, through our subsidiary, Juhl Energy Services. Currently, we have 25 projects in various stages of development with an aggregate wind power generating capacity of approximately 262 MW most of which are mid to early stage wind development opportunities.

 

Juhl Energy’s diversification strategy focuses upon the delivery of sustainable revenue growth outside of wind farm development and construction fee revenue. As such, the acquisition of additional energy assets remains a meaningful part or our focus on the growth of our revenue and net income. We anticipate closing on a 23.4 wind farm located in Minnesota in the third quarter of 2015.

  

We are expanding the scope of our business to include other alternative energy sources in addition to wind. Two illustrations of the Company’s broadening base of our services include (1) our acquisition of PEC to provide engineering services in the renewable energy field and (2) the expansion of Juhl Renewable Energy Systems to encompass small scale renewables in solar and small wind turbines to provide offerings to additional end customers.  While we continue to leverage our experience as leaders in the wind energy industry, we will look for opportunities for expansion in the broader arena of alternative energy.

  

As we experience growth in small-scale solar through our acquisition of PV Power, the Company announced in July 2014 that Juhl Renewable Energy Systems was named as lead contractor for all rooftop installations completed through the “Solar Chicago Program”. The “Solar Chicago Program” provides affordable and efficient renewable energy solutions for its residential property owners throughout the Chicago metro area. Juhl Renewable Energy Systems has completed approximately 22 projects as of June 2015 and expects to complete up to 25 additional projects during the second half of 2015, using the assistance of qualified subcontractors. Further, PEC, our engineering subsidiary, will support the Company’s project management efforts including energy modeling, and the design and installation of the solar projects. In addition to the PVPower Platform and the design and installation of rooftop solar in Chicago, Juhl Renewable Energy Systems offers small wind and solar products for onsite energy generation and battery backup, such as SolarBank®, and is exploring additional battery storage partnerships, and intend to pioneer new wind/solar/storage hybrid renewable systems. Juhl Renewable Energy Systems has approximately 100 Kw of projects with a contract value of approximately $400,000, including the Solar Chicago program and other projects in Minnesota, excluding other outstanding sales proposals under consideration by potential customers.

 

 

Overall, Juhl Energy’s diverse business strategy has allowed us to remain well-positioned for future growth despite the uncertainty surrounding federal policy with respect to tax incentives which have impacted businesses operating in the wind industry. Our business and operating strategy, among other things, is to continue to develop into an innovative, diverse and balanced clean energy company. We will work to leverage our portfolio of existing community wind power projects, develop new wind farm projects, including at industrial plants to help reduce the carbon footprint of manufacturers, and take equity ownership positions in existing community-based wind farms. Further, we are continuing to diversify our business operations by expanding our product offerings to energy conscious consumers with the development of our small scale renewables, including wind turbines and solar products, and expanding our services offerings to provide engineering services for our clients.

  

One of our strategies for growth is to acquire complementary, higher-margin industry service providers. Notably, in 2012, we acquired Power Engineers Collaborative, LLC (“PEC”), which is an engineering services company. We believe that the expansion into engineering consulting services has significantly increased our ability to grow our revenues beyond development and construction of community wind projects into the full range of clean energy projects including natural gas, biomass, waste-to-energy, medium-to-large on-site solar, and support to larger wind farm construction. We have experienced growth in revenues for PEC and expect this to continue, complimented by our experience in wind farm development and construction. As our engineering arm, PEC participates as the owner's engineer throughout the development and execution of projects utilizing biomass, waste products, and other renewable sources including both wind and solar.

 

With regard to our entry into expansion of maintenance services to cellular towers to the U.S. telecommunication industry in the first quarter of 2013 through Juhl Tower Services, a wholly-owned subsidiary of Juhl Energy Services, we did not meet profitability or revenue expectations. Therefore, we discontinued operations in the fourth quarter of 2014, and such entity is now dissolved as of February 2015.

  

How We Operate

 

The Company's business segments are separate business units that offer different products.  A review of our business segments provides a better understanding of the how the Company manages and evaluates its businesses.   The Company groups its operations into three business segments:

 

Renewable Energy Development	Wind, solar and cogeneration energy development, construction and related products and services.
Renewable Power Plant Ownership	Ownership and operations of consolidated wind farms or other clean energy investments.
Energy and Field Services	Business-to-business engineering consulting services, asset management, and turbine maintenance services.

 

The accounting policies for each segment are the same as those described in the summary of significant accounting policies (as set forth in the notes to the condensed consolidated financial statements). Segment income or loss does not include any allocation of shared-service costs.  Segment assets are those that are directly used in or identified with segment operations, including cash, accounts receivable, prepaid expenses, inventory, work-in-progress, property and equipment and escrow deposits.  Unallocated assets include corporate cash, short-term investments, deferred tax amounts and other corporate assets.  Inter-segment balances and transactions have been eliminated. 

 

Our wind farm development projects most commonly involve fee contracts with entities specially formed by local farmers or business owners upon whose land the wind turbines are installed. Revenue is also derived from our services we provide throughout the development process.  Revenue is derived primarily from the following four major components: feasibility studies, development fees, operations and management oversight and construction contract revenue.

 

We hold contract rights, are involved with projects in development and under negotiation, and provide development activities in the wind power industry. After wind farms are operational, we seek administrative services agreements to provide for management and administrative services to operating wind farms, along with turbine and balance of plant maintenance services. Our current assets include four development services agreements, ownership of two project entities that carry power purchase contracts, twelve projects in early development stages, and three agreements to conduct wind power feasibility studies.

 

 

The renewable power plant ownership segment of our business primarily includes the sales of electricity generated from wind energy facilities with long-term, take-or-pay power purchase contracts with a utility purchaser.  The electricity sales are typically billed on a monthly basis to the utility.  The wind farms’ operational expenses generally include turbine and balance of plant maintenance fees, equipment repairs, land lease payments, administrative expenses, and debt service costs.

 

Due to the anticipated increased demand for electricity from alternative energy sources in 2015 and beyond, we believe the demand for wind energy developments and consumer-owned renewable energy products will be stable or will increase in the foreseeable future. Our revenues from wind farm development will continue to be subject to shifts in timing due to project development delays resulting from our ability to obtain financing and regulatory and permitting approvals among other reasons.  Thus, our strategy is to remain well-positioned for predictable revenue growth with the addition of new products and service offerings such as engineering consulting services and solar-powered installations that are outside the scope of wind farm development projects.

    

Factors Affecting Our Operating Results

 

We expect that our results of operations will be affected by a number of factors and will primarily depend on the size of our portfolio of wind farms and renewable assets, demand for renewable energy, governmental policies, general market conditions (including financing of renewable energy projects), site selection for our development projects and our discontinued operations in the telecommunications industry as of the beginning of the 2015 fiscal year.

 

Our Portfolio of Renewable Energy Projects

 

Our portfolio of renewable energy generating assets, including the wind farms that we own in whole or part, provides a significant and stable revenue source.  Through our acquisition subsidiary, Juhl Renewable Assets, we focus on acquisition and investment in existing renewable energy generating assets that fit our distributed generation model and are consistent with the size projects we typically develop, such as the acquisition of the Iowa Wind Farms in August 2014. We believe that ownership of such renewable energy generating assets (in part or in whole) provide us with the ability to expand services related to those assets and create recurring and predictable annual revenue streams for our business. Our portfolio of acquired ownership in wind farms and other renewable assets may grow at an uneven pace because acquisition opportunities are unpredictable. The level of new portfolio activity will fluctuate based on supply and demand for those assets, our ability to identity existing renewable energy generating assets that meet our criteria, the competitive nature of asset acquirers, and the volume of projects that are available for sale by equity owners. Our ability to acquire such existing renewable energy generating assets, in whole or in part, will directly impact future revenue.

 

Demand for Renewable Energy

 

Growth in wind power and other renewables is being driven by several environmental and socioeconomic factors including:

 

	●	ongoing increases in demand for electricity as a result of population growth and growth in energy consuming devices such as computers, televisions and air conditioning systems;
	●	the fluctuating costs of fuel required to operate existing conventional electric generation facilities such as coal, natural gas, nuclear and oil;
	●	uncertainty surrounding the growth potential of nuclear power plants and decommissioning of coal-fired power plants;
	●	the decrease in the costs associated with solar energy; and
	●	the increase in governmental incentive programs to encourage use of renewable energy products.

   

In light of these factors, we will continue to develop our capabilities in the renewable energy space with the development of distributed generation projects, such as wind/solar hybrid projects, onsite wind turbines for manufacturing companies seeking to reduce their carbon footprint and meet some of their own electricity demand and the development and sale of small scale renewable systems including wind and solar projects. If we are not able to diversify our offerings or if demand for renewable energy becomes less robust, our operating results may be negatively impacted.

 

 

Government Policies

 

Historically, our wind projects have been subject in part to various federal, state or local governmental policies that support or incentivize projects from an economic standpoint. Such policies include legislation that aims to reduce energy usage and dependence and promote the use of renewable energy. Incentives provided by the federal government may include tax credits (such as PTCs), tax deductions, accelerated depreciation, and federal grants and loan guarantees.  Incentives provided by state governments include renewable portfolio standards (RPS) which specify what portion of total energy utilized by local utilities that must be derived from sources of clean energy including wind and solar. A number of federal government incentives focused on reducing costs of wind energy production have expired. Specifically, the PTC was extended in January 2013 and applied to all wind projects that began construction in 2013, and then it was extended again in late December 2014 and applied to all wind projects that began construction in 2014, even if estimated completion was one to two years out. The PTCs have now expired for wind projects commencing construction in 2015. New proposed legislation has been introduced at the federal level to extend the PTC, but at this time it is not possible to predict whether such legislation will be enacted.

 

Overall, governmental failure to renew these or similar incentives in the future and the absence of a long-term stable energy policy that focuses on the sustainability of the renewable energy industry could have a material adverse impact on our business, results of operation, financial performance and future development of our wind energy projects.

  

Telecommunications Industry

 

In 2013, we entered into the telecommunications industry through Juhl Tower Services. During 2013 and 2014, we incurred significant costs for start-up and organizational purposes, establishing our presence in the market, and managing productivity, and we made a significant investment and incurred operating losses in 2013 and 2014 together with negative cash flow. Since we did not meet profitability and revenue expectations, in late 2014 we decided to significantly wind down the operations of Juhl Tower Services, and in February 2015 we dissolved the tower services entity. Juhl Tower Services is treated as a discontinued operation. See Note 15 to the condensed consolidated financial statements.

  

Debt and Equity Financing Markets

 

Although demand for wind power and other renewables is likely to continue to trend upward for reasons described above, arranging project financing, particularly construction financing, has become increasingly difficult.  The timing of our construction and turbine supply revenues associated with the development of wind farms is heavily impacted by our ability to complete debt and equity financing arrangements. Such financing may not be available in the future and would negatively affect our operations. 

 

At the initial stage of a project's development, we use a combination of our own balance sheet capital in combination with other financing made possible by equipment vendors and services companies to cover development expenses and equipment costs. Once a project moves to the construction phase, we use a combination of equity capital and construction loans to finance the construction of the project and also use our balance sheet capital and the resources of subcontractors for funding balance of plant and start-up costs. Proceeds from construction loans are typically used to fund construction and installation costs as well as to pay equipment costs such as wind turbines. Finally, once a project is complete and commercial operations begin, we permanently finance the project through a combination of term loans, tax equity financing transactions or other fixed-rate mezzanine capital, the proceeds of which are used to retire the construction loans and pay other service providers.

 

Many of these development projects do not come to fruition due to lack of funding. Thus, we continue to seek capital to allow us to pre-fund development costs. We believe that third party sponsoring arrangements will assist us in funding of our wind farm development costs, or obtaining additional balance sheet capital for pre-funding development costs until such time as construction financing becomes available. This will allow us to bring projects through the early development and construction stages more quickly by pre-funding development costs to secure the successful completion of projects and alleviate the uncertainty related to securing lender and third party financing commitments. We believe this will lead to sustainable revenue growth from development fees.

 

 

Results of Operations

 

Comparison of Three and Six-Month Periods Ended June 30, 2015 and June 30, 2014 

 

Overview

 

Our general activity during the second quarter of 2015 was primarily focused on the following activities (as broken down by our segments):

 

Renewable Energy Development  

Renewable Energy Development consists of wind farm development services efforts provided by Juhl Energy Development, together with construction revenue on certain projects that Juhl Energy Development may act as general contractor. In addition, Juhl Renewable Energy Systems has become more active in the installation of small scale solar systems together with the sale of related solar products sold through its PVPower website.

 

In the second quarter of 2015, we continued our active development, through Juhl Energy Development, of 25 wind farm projects comprising approximately 262 MW of development in Midwestern, western and eastern regions of the United States. This allows us to diversify our development portfolio by adding projects throughout North America and in the regions that generally experience higher electric rates.

 

As a result of investments made in the acquisition of PVPower in February 2014 along with establishing sales capabilities in the area of small commercial and residential solar installations, we are generating revenue streams from online solar product sales and have been building a pipeline of projects for residential and small commercial installations. Through the second quarter of 2015, the solar-related revenues were approximately $980,000. To date, Juhl Renewable Energy Systems has approximately 100 KW of projects of accepted sales proposals for solar projects with a completed project value of approximately $400,000, including the Solar Chicago program and other projects in Minnesota.

  

Renewable Power Plant Ownership 

We continued our focus on identifying existing renewable energy generating assets for purposes of acquiring ownership by our subsidiary, Juhl Renewable Assets.  With the acquisition of the Iowa Wind Farms in 2014, we now have ownership in approximately 25 MW of wind energy projects. In addition, we have entered into a non-binding term sheet in April 2015 for the acquisition of an additional 23 MW of wind energy facilities in the Upper Midwest. The acquisition is subject to the completion of due diligence activities, together with making financial arrangements with third parties for the payment of the purchase price and additional funding for working capital, cash reserves and other soft costs expected to be in the range of $6-7 million. We would expect a closing during the third quarter of 2015.

 

Energy & Field Services

We continue our efforts in growing revenues in our engineering consulting area where we focus our engineering services to the power industry and commercial central plant facilities. The engineering consulting services are largely focused on projects involving the utility industry and central plants. We have had a decrease in revenue in 2015 as a result of the roll-off of a large project that existed in the prior year, but we expect that there are existing sales proposals that will allow us to keep growing the engineering consulting services.

 

We look to obtain long-term wind farm maintenance and operational services contracts from wind farm developments that we bring into commercial operation. We maintain field services personnel and have subcontract relationships to support field services to operational wind farms.

 

 

Revenue

 

Total revenue increased by approximately $499,000, or 15.9%, from approximately $3,136,000 for the quarter ended June 30, 2014, to approximately $3,635,000 for the quarter ended June 30, 2015. Total revenue increased by approximately $792,000 or 12.6% from approximately $6,265,000 for the six months ended June 30, 2014 to approximately $7,057,000 for the six months ended June 30, 2015.

 

A comparison of our revenue for the three and six months ended June 30, 2015 and 2014 is as follows:

 

 

		For the Three Months Ended June 30,
		2015				2014				$ Change				% Change
Revenue:
Renewable energy development		$	1,371,000			$	266,000			$	1,105,000				415.4	%
Renewable power plant ownership			931,000				897,000				34,000				3.8	%
Energy & field services			1,459,000				2,073,000				(614,000	)			(29.6	)%
Eliminations			(126,000	)			(100,000	)			(26,000	)			26.0	%
Total Revenue		$	3,635,000			$	3,136,000			$	499,000				15.9	%

 

 

		For the Six Months Ended June 30,
		2015				2014				$ Change				% Change
Revenue:
Renewable energy development		$	2,065,000			$	786,000			$	1,279,000				162.7	%
Renewable power plant ownership			1,920,000				1,725,000				195,000				11.3	%
Energy & field services			3,324,000				3,998,000				(674,000	)			(16.9	)%
Eliminations			(252,000	)			(244,000	)			(8,000	)			3.3	%
Total Revenue		$	7,057,000			$	6,265,000			$	792,000				12.6	%

 

 

The Company’s revenue comparisons above have been changed from prior presentations to adjust for the reclassification of tower services to discontinued operations.

 

Renewable Energy Development:

Revenue in the Renewable Energy Development segment increased by approximately $1,105,000 for the quarter ended June 30, 2015 compared to the quarter ended June 30, 2014, and increased by approximately $1,279,000 for the six months ended June 30, 2015 compared to the six months ended June 30, 2014. The increases in revenue were primarily a result of approximately the recognition of a $1 million development fee associated with a wind farm closing in June 2015 and increased revenue from online solar product sales and small renewable energy projects.

 

Our revenues from wind farm development and construction are normally dependent upon a number of factors including project financing arrangements, our ability to reach contractual agreements for turbine supply and construction services, permitting and variable interest entity rules.

 

Renewable Power Plant Ownership:

Revenue for electricity sales for the quarter ended June 30, 2015 increased by approximately $34,000, or 3.8%, over 2014, and revenue for electricity sales for the six months ended June 30, 2015 increased by approximately $195,000, or 11.3%, over 2014. The revenue relates to the five wind farms in which the Company maintains controlling ownership or is considered the primary beneficiary under variable interest entity accounting rules. The increase was primarily related to the revenues attributable to the Iowa wind farms acquired in August 2014 for which no revenue had been recognized during the prior quarter ended June 30, 2014. Revenues will fluctuate as a result of wind speeds in the geographical areas of these wind farms and therefore revenues will vary accordingly. In addition, electricity sales revenue is adjusted based on the use of an accounting revenue recognition policy that reduces the current billing amounts to the average rate over the term of the power purchase contract. We have entered into a non-binding term sheet in April 2015 for the acquisition of an additional 23 MW of wind energy facilities in the Upper Midwest. The acquisition is subject to the completion of due diligence activities, together with making financial arrangements with third parties for the payment of the purchase price and additional funding for working capital, cash reserves and other soft costs expected to be in the range of $6-7 million. We would expect a closing during the third quarter of 2015.   

 

 

Energy & Field Services:

Revenue in the Energy & Field Services segment decreased by approximately $614,000, or 29.6%, from approximately $2,073,000 for the quarter ended June 30, 2014, to approximately $1,459,000 for the quarter ended June 30, 2015, and revenue in the Energy & Field Services segment decreased by approximately $674,000, or 16.9%, from approximately $3,998,000 for the six months ended June 30, 2014, to approximately $3,324,000 for the six months ended June 30, 2015. We have observed an increase in our field services as a result of an additional wind farm maintenance agreement offset by decrease in engineering revenues attributable to a wind down of certain large service agreements that required more service involvement in 2014 and reduced amount of services related to commercial building systems.

 

 

We expect that our revenues for the remainder of 2015 will increase as a result of the acquisition from the Iowa Wind Farms acquired in 2014, possible acquisition of additional wind farm facilities during the remainder of 2015, and wind and solar project installations. Our completed wind farm developments typically result in new revenue streams for management services.  In addition, we expect to make bid proposals on existing wind farms for maintenance services and to the extent we are successful in our bids, our revenues will grow accordingly. We have opportunities for additional revenue increases in the renewable energy development segment with regard to wind farm development for 2015, but at this time it is not possible to be assured of the timing of such revenue, if any. 

 

Cost of Revenues 

 

Cost of revenues decreased by approximately $110,000, or 5.3% from approximately $2,093,000 for the quarter ended June 30, 2015 to approximately $1,983,000 for the quarter ended June 30, 2015. Cost of revenues decreased by approximately $18,000, or 0.4% from approximately $4,153,000 for the quarter ended June 30, 2014, to approximately $4,135,000 for the quarter ended June 30, 2015.

   

The comparison of cost of revenues for the six months ended June 30, 2015 to June 30, 2014 is affected by four primary factors:

 

	●	cost of revenues in 2015 includes an increase of approximately $569,000 in increased costs related to the additional revenue attributable to solar products and installation services;
	●	cost of revenues in 2015 includes an increase of approximately $173,000 for acquired wind farms that did not have such costs a year ago;
	●	cost of revenues in 2015 includes a decrease of approximately $554,000 for cost fluctuations in engineering personnel and subcontracted capabilities as compared to 2014; and
	●	cost of revenues in 2015 includes a decrease of approximately $271,000 of construction costs to complete the wind farm project at Honda in Ohio, whereas there were no construction costs in 2015.

 

Gross margins for the six month period ended June 30, 2015 were approximately $811,000 higher than the same period a year ago. The increased margins were primarily attributable to approximately $140,000 from solar product and installation sales margins and $823,000 from development and construction activities; and offset by decreased margins of approximately $275,000 from engineering services.

 

 

Operating Expenses

 

General and Administrative Expenses. General and administrative expenses decreased by approximately $265,000, or 33.9%, from approximately $782,000 for the quarter ended June 30, 2014 to approximately $517,000 for the quarter ended June 30, 2015. General and administrative expenses decreased by approximately $351,000, or 22.6%, from approximately $1,552,000 for the six month period ended June 30, 2014 to approximately $1,201,000 for the six month period ended June 30, 2015. The decrease in general and administrative expenses was primarily attributable to lower legal fees and advertising costs in comparison to levels incurred in 2014.

 

Payroll and Employee Benefits. Payroll and employee benefits expenses increased by approximately $157,000, or 20.6%, from approximately $764,000 for the quarter ended June 30, 2014 to approximately $921,000 for the quarter ended June 30, 2015. Payroll and employee benefits increased by approximately $202,000, or 13.8%, from approximately $1,472,000 for the six month period ended June 30, 2014 to approximately $1,674,000 for the six month period ended June 30, 2015. The increase in payroll and employee benefits is primarily related to salary rate increases, conversion of a consultant to payroll compensation, and increase in non-cash stock compensation expense.

 

The payroll expenses related to engineering consulting employees who are directly performing engineering activities are recorded in cost of revenues.  Payroll related to maintenance services employees are also considered as a part of cost of revenues.

 

Wind Farm Administration Expenses. Wind farm administration expenses decreased by approximately $22,000, or 16.7%, from approximately $133,000 for the quarter ended June 30, 2014 to approximately $111,000 for the quarter ended June 30, 2015. Wind farm administrative expenses increased by approximately $45,000, or 18.3%, from approximately $242,000 for the six month period ended June 30, 2014 to approximately $287,000 for the six month period ended June 30, 2015. Wind farm administration expenses represent costs that we incur to perform administrative services with respect to our management services contracts, as well as the general and administrative expenses incurred directly within the wind farm entities (Valley View, Winona Wind, Woodstock Hills and the Iowa Wind Farms) that we are consolidating. The increase in expenses was primarily attributable to legal expenses with respect to legal actions taken against a turbine supplier for turbine performance issues.

  

Operating Income (Loss)

 

Our operating income represents an increase of approximately $739,000, from an operating loss of approximately $635,000 for the quarter ended June 30, 2014 compared to operating income of approximately $104,000 for the quarter ended June 30, 2015. Our operating loss represents decrease of approximately $915,000, from an operating loss of approximately $1,154,000 for the six months ended June 30, 2014 to an operating loss of approximately $239,000 for the six months ended June 30, 2015.

 

The increase in our operating income for the quarter ended June 30, 2015 as compared to 2014 is primarily attributable to the increase in gross margins achieved from our Renewable Energy Development segment and the Iowa wind farm acquisition, while our operating expenses decreased by approximately 7.8%.

 

The decrease in our operating loss for the six months ended June 30, 2015, as compared to 2014 is primarily attributable to the increase in development fees from our Renewable Energy Development segment, while our operating expenses decreased by about 3.2%.

 

Other Income (Expense) 

 

Other expense increased approximately $17,000 for the quarter ended June 30, 2015 compared to June 30, 2014 primarily due to an increase in interest expense of approximately $18,000 as we added the Iowa wind farm loan for 2015 whereas it did not exist at this time in 2014.

 

Other expenses decreased approximately $39,000 during the six months ended June 30, 2015 and the decrease is primarily due to the fair value loss adjustment for an interest rate swap arrangement of approximately $74,000 for the same period a year ago versus no fair value loss adjustment in the current period, offset by increased interest expense related to the Iowa wind farm loans. The interest rate swap arrangement was terminated in March 2014 and no further adjustments were required. 

 

 

Discontinued Operations

 

Discontinued operations include the net operating results of the tower maintenance services subsidiary, Juhl Tower Services. During the six month period ended June 30, 2015, we recognized income of approximately $29,000 in the winding up of the Juhl Tower Services affairs. Juhl Tower Services incurred a net loss of approximately $1,110,000 for the six month period ended June 30, 2014. A summary of these operating results is provided in the financial statement Note 15 included in the report. There may be some ongoing impact of discontinued operations in 2015 as a result of the dissolution and winding up the affairs of Juhl Tower Services. However, we do not expect such impact to be material.

  

Net Income (Loss)

 

Net loss decreased by approximately $1,326,000, or 92.4%, from a net loss of approximately $1,434,000 for the quarter ended June 30, 2014 to net loss of approximately $108,000 for the quarter ended June 30, 2015. Net loss decreased by approximately $2,093,000, or 76.2% from a net loss of approximately $2,746,000 for the six months ended June 30, 2014 to a net loss of approximately $653,000 for the six months ended June 30, 2015.

 

The decrease in the net loss for the quarter ended and six months ended June 30, 2015 and 2014 is primarily attributable to the reduction in losses of the tower services subsidiary together with the reasons noted in the Operating Income (Loss) above for gross margin increases.

 

Changes in the Financial Condition for the Period ended June 30, 2015

 

Accounts Receivable

 

Traditional credit terms are extended to customers in the normal course of business. We perform ongoing credit evaluations of our customers’ financial condition and generally require no collateral. Accounts receivable of approximately $2,361,000 at June 30, 2015 included approximately $703,000 for engineering consulting, approximately $1,000,000 from wind farm development fees, and approximately $397,000 related to receivables from selling electrical power to a credit-rated utility companies. The receivables include allowances for doubtful accounts of approximately $25,000 which we believe are sufficient to cover any potential uncollectible amounts. Accounts receivable of approximately $1,252,000 at December 31, 2014 included approximately $701,000 for engineering consulting, and approximately $383,000 related to receivables from selling electrical power to a credit-rated utility company. 

 

Property and Equipment

 

As of June 30, 2015 and December 31, 2014, we held approximately $23,825,000 and $24,448,000 in net book value of property and equipment, respectively.  The assets include approximately $27,989,000 (at recorded cost) in wind turbine assets of Woodstock Hills, Valley View, Winona County and Iowa Wind Farms. The wind farm assets were booked at fair value at the time of the acquisition for the Woodstock Hills, Valley View and Iowa Wind Farm entities, and at book value for Winona County due to common control. Other assets included in property and equipment includes land, buildings, office equipment, shop equipment and service vehicles. The Winona Wind assets have been impaired by $1,830,000 through an adjustment made in 2014.

 

Liquidity and Capital Resources 

 

Juhl Energy, as a holding company, does not directly operate or have any ownership in any revenue-producing generation facilities. Thus, it has no material assets other than the stock of its subsidiaries and depends upon intercompany services agreements or other transfers of funds from its subsidiaries to meet its obligations.

  

Liquidity is a measure of our ability to meet potential short-term (within one year) and long-term cash requirements, which includes our ability to repay debt, fund and maintain our services offerings and projects, and other general business needs.

 

 

At June 30, 2015, we carried approximately $1,592,000 in cash on the balance sheet (excluding restricted cash).  Our unrestricted cash balances decreased by approximately $1,552,000 during the six months ended June 30, 2015. The decrease in cash resources since the beginning of the year is primarily related to payment of approximately $300,000 to vendors following our collection of a $1.5 million development fee in late 2014, together with cash payments for other bank loan payments and funding of our operating loss during the period. In addition, we manage accounts payable balances commensurate with collection of our receivables, and have maintained our operating expenses relatively flat on a comparative basis with 2014. Further explanation of the changes within our cash balances is included in the commentary below regarding operating, investing and financing activities.

 

The Company currently has negative working capital, a history of recurring losses, a stockholders’ equity deficit, and has not yet established a source of cash funding to retire debt obligations coming due within the next twelve months, particularly the October 2015 balloon payment obligation of approximately $1.6 million with respect to a securities purchase note obligation (which has now been assigned and is payable to Airdrie Partners as described below under Note Obligation). These factors raise substantial doubt about the Company's ability to continue as a going concern (see Note 2 to the condensed consolidated financial statements). The Company is currently working to sustain a stabilized source of revenues, operating income and cash flow sufficient to cover operating costs over an extended period of time. This includes bringing consistency of fee revenue and profitability to the highly cyclical nature of the wind farm development and construction aspects of our business model, which are subject to risks and uncertainties surrounding project timing, financing and legislated energy policy. Critical elements of these steps include identifying opportunities for acquisition of operating wind farms, and balancing its Renewable Energy Development segment activities between those acquisition activities and new wind energy development opportunities. The Company has generally completed its wind down of the telecommunications tower services business entity which was the source of approximately $3.1 million of cash flow operating losses since inception in February 2013. The Company has not yet obtained an agreement with its liability insurance carrier with respect to coverage of defense costs associated with the legal proceedings on the Winona Wind project (see Turbine Supply Note and Legal Proceedings below), which have negatively impacted cash flow by approximately $480,000 since early 2014. Management has taken measures and believes it has established annual profitability in the Energy and Field Services and Power Plant Ownership segments.

 

Juhl Renewable Assets preferred stock and other redeemable preferred membership interests

 

Our subsidiary, Juhl Renewable Assets, has sold approximately $4.8 million of its Series A Preferred Stock, net of costs of raising the capital, in private sales for the acquisition of specific wind farm assets of comparable value, and for other purposes. The preferred stock provides for a 9% annual dividend to its holders, payable quarterly. These shares of preferred stock provide for certain redemption rights for the respective stockholders in the event that Juhl Renewable Assets did not file a registration statement by June 30, 2015, or upon such other later date as approved by the Board of Directors of Juhl Renewable Assets in the best interest of Juhl Renewable Assets, to cover a certain number of such shares as deemed reasonable by Juhl Renewable Assets, or in certain cases, certain subscription agreements of approximately $3.2 million contain a provision that allows a put right to Juhl Renewable Assets for a redemption of a portion of their stockholdings ratably over ten years. At the end of May 2015, the Board of Directors of Juhl Renewable Assets agreed to indefinitely delay the filing of the registration statement covering certain shares of the Series A Preferred beyond the June 30, 2015 date.

  

In addition, one holder of redeemable preferred membership interests in the Valley View wind farm has exercised its put option (for approximately $518,000) in October 2013 and the Company was obligated to repurchase such interests by June 1, 2014. The Company anticipates the share repurchase obligation of approximately $518,000 will be made by Juhl Renewable Assets during 2015. Since the Company is in default in this repurchase of the redeemable membership interests in Valley View, the holder of the preferred membership interests has rights and remedies available to it at law or in equity including, but not limited to, the right to provide written demand to the Manager to sell assets of the limited liability company to which the preferred stock in Valley View was issued. The 12% dividend payments on the redeemable preferred stock of Valley View have been kept current.

 

In the second half of 2015, Juhl Renewable Assets commenced a private placement sale of additional shares of its Series A Preferred Stock with the intention to raise up to $4.2 million for the primary purpose of (i) acquiring a 23 MW wind farm in combination with new bank debt, (ii) to provide for the funding of the $518,000 put option exercise discussed above and (iii) for other general corporate purposes, including paying offering expenses, redemption requests and increasing the dividend payment reserve.

 

 

Note Obligation

 

In February 2014, the Company entered into a Securities Purchase Agreement with the primary Series A Preferred stockholder whereby the Company agreed to purchase 10,398,750 shares of Preferred Stock of the Company held by Vision Opportunity Master Fund, Ltd. (“Vision”) (consisting of 4,560,000 shares of Series A Preferred Stock and 5,838,750 shares of Series B Preferred Stock) for a total purchase price of approximately $2,184,000 (the “Purchase Price”).  The Company agreed to pay the purchase price in the following manner: (i) pay a non-refundable $40,000 deposit on date of execution of the Purchase Agreement; (ii) pay a non-refundable payment of $40,000 on or before March 15, 2014; and (iii) issue Seller an amortizing promissory note on April 1, 2014, with a principal sum of approximately $2,104,000 for the remaining balance of the Purchase Price, with an interest rate of 8% and a maturity date of May 1, 2015 (the “Note”).  The Purchase Price was satisfied and the conditions were met, and the transaction closed on April 1, 2014.  The outstanding balance on the Note, as amended, at June 30, 2015 is approximately $1,630,000, including accrued interest, and requires monthly payments of $40,000 until the maturity date.  The Company has been making each of the $40,000 monthly payments. 

  

On August 18, 2014, the Company and Vision entered into an amendment agreement with respect to the Note (the “Amendment No. 1”), whereby among other things, Vision agreed to extend the maturity date of the Note to July 31, 2015. The Amendment No. 1 to the Note does not change the requirement for the Company to make minimum cash payments of $40,000 per month through the new maturity date.

  

On October 31, 2014, Vision sold all of its outstanding Juhl Energy securities to Airdrie Partners, LP (“Partners”) including assigning the Note, as amended by Amendment No. 1, to Airdrie Partners. On that date, we entered into a second amendment agreement to the Note with Airdrie Partners I, LP (“Airdrie Partners”) changing the name of the holder from Vision to Airdrie Partners and addressing other administrative matters (the “Amendment No. 2”).

 

On July 23, 2015, the Company and Airdrie Partners entered into an amendment agreement with respect to the Note (the “Amendment No. 3”), whereby Airdrie agreed to extend the maturity date of the Note to October 31, 2015. All other terms of the Note remain the same. For purposes hereof, the Note, Amendment No. 1 to the Note, Amendment No. 2 to the Note and Amendment No. 3 are referred to as the “Amended Note”.

 

The Company is currently investigating funding options with respect to the payment of the Amended Note due October 31, 2015. The Company will need to find additional sources of capital to fund the balloon payment of the Amended Note which is expected to be approximately $1.5 million including interest and assuming that the Company makes all monthly $40,000 payments until the due date. There are no assurances that additional sources of capital will be available to refinance the Amended Note when due.

 

Turbine Supply Note and Legal Proceedings

   

Our balance sheet at June 30, 2015 includes a promissory note payable of approximately $3,300,000 to a turbine supplier for amounts due for turbines on the Winona County wind project.  The note was initially payable in April 2012 assuming that the project was able to raise permanent project debt financing. It has proven difficult for the underlying project to obtain outside debt or equity financing as a result of the nature of turbines being a new introduction to the U.S. market together with turbine performance issues. Until such time that debt or other sources of outside financing is achieved, the note is payable through free cash flows available from the Winona County wind project, and as such, approximately $3,204,000 has been classified as long-term based on our assessment of future cash flows that are expected beyond one year. The Company has a secured interest in the Winona County wind project.

 

The turbine supplier has filed a suit against the Winona County wind project and the Company (and other defendants) for non-payment of the note, among other claims, which the defendants, including the Company, dispute such allegations (as described more fully under “Legal Proceedings”). We do not expect that our liquidity will be affected other than the ongoing defense costs related to the suit and costs to arbitrate our counterclaims for breach of contract. We are currently working with the insurance carrier for coverage of defense costs and to-date we have not received reimbursements under the applicable liability policy. The insurance carrier has offered to cover a portion of the costs, however, the Company feels the entire cost should be covered. Discussions with the carrier are ongoing.

 

 

Working Capital Financing

 

We have established a $600,000 bank line of credit for the engineering services business to assist in the funding of business activities using accounts receivable as a borrowing base; however, the bank line is subject to the amount of open receivables and eligibility requirements, and must be renewed annually.

 

Our ability to continue our operations is dependent on management’s plans, which include new development revenue, the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, until such time that funds provided by operations are sufficient to fund working capital requirements. We may need to incur additional liabilities with certain related parties to sustain our existence. If we were not to continue as a going concern, we would likely not be able to realize our assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of our financial statements.

 

There can be no assurances that the Company will be successful in generating additional cash from equity or debt financings or other sources to be used for operations. Should the Company not be successful in generating cash resources from new development revenue, current contractual agreements, cost controls, and strategic funding, the Company would need to curtail certain or all operational activities and/or contemplate the sale of its assets, if necessary.

   

Future Growth and Financing

 

We are currently analyzing existing wind farm or solar portfolios of owners who may be interested in selling their ownership interests in such portfolios. We would anticipate that we may sell equity securities such as Juhl Renewable Assets Series A Preferred Stock in combination with resources that we believe will be available to us from outside debt or tax equity investment resources in order to finance these initiatives. We have entered into a non-binding term sheet in April 2015 for the acquisition of an additional 23 MW of wind energy facilities in the Upper Midwest. The acquisition is subject to the completion of due diligence activities, together with making financial arrangements with third parties for the payment of the purchase price and additional funding for working capital, cash reserves and other soft costs expected to be in the range of $6-7 million. We would expect a closing during the third quarter of 2015. We have identified various projects for further analysis, but it is difficult to predict with any certainty whether we will be successful in any negotiations for the acquisition of any further projects.

  

We will continue our internal efforts to assist project owners in arranging financing terms for each wind farm and solar project under development, and also to acquire energy assets.  The ability to assist project owners with obtaining debt and equity financing, or obtaining financing for asset purchases, is a material factor in producing our future development fee and electricity sales revenue streams and cash flow. Further, our goal is to be able to use our capitalization resulting from our subsidiaries such as Juhl Renewable Assets, a preferred renewable asset equity vehicle, to pre-fund development costs to help alleviate the dependence on third parties to loan money to project owners and to help secure development fees from such projects to stabilize revenue streams and cash flow.

 

Despite the political climate which has resulted in uncertainty around federal energy policy, we have been able to secure development rights for late stage wind farm development opportunities that could enable us to complete wind farm projects for large corporations or small utilities who desire to purchase electricity from these projects.  We will seek to obtain additional sources of recurring revenue from maintenance, administrative and services businesses through securing new business or undertaking additional mergers or acquisitions, and offset the inconsistent revenue patterns that we see in our wind farm development business.

 

Subject to our ability to address our current liquidity issues as referenced above, our future growth strategy is dependent upon diversifying our service offerings in the renewable energy space through the integration of our operating subsidiaries to generate a predictable revenue stream.  Specific to wind, we will continue to pursue new wind farm developments in order to maintain an active backlog of projects, including distributed generation projects that involve corporate businesses that, like utilities, express a desire to purchase electricity produced by wind farms on long-term contracts. However, we cannot assure that actions will be successful. Should revenue decline to a level significantly below our current expectations, we would reduce capital expenditures and implement cost-reduction initiatives which we believe will be sufficient to ensure that funds generated from operations, together with existing cash and funds available from borrowing under any open credit agreement. We expect to increase our engineering services revenue through organic growth by focusing on the utility and energy sector. The capital required to achieve services growth can be accommodated within our existing working capital and bank line capability.

  

 

In conjunction with our financing activities as described above, we believe that we would be able to more quickly bring wind farm or solar projects through the early development and construction stages if we were able to access a funding mechanism that we could utilize in sponsoring wind farm developments.  We will continue to seek this type of sponsoring arrangement, and one that could possibly work in tandem with our current project ownership entity, Juhl Renewable Assets. Through Juhl Renewable Assets, this provides us with the ability to acquire ownership positions in energy assets. We intend to raise funds to purchase additional wind and other energy-related assets through the selling of preferred stock in Juhl Renewable Assets in order to fund our acquisition opportunities.  By securing our own funding for ownership positions, this may avoid delays and difficulties of obtaining financing from traditional lending sources and continue to provide access to financing.

 

Net Cash – Operating Activities

Net cash from operating activities increased by approximately $255,000, from the net cash used in operating activities of approximately $302,000 for the six months ended June 30, 2014 to net cash used in operating activities of approximately $47,000 for the six months ended June 30, 2015.

 

The increase in net cash from operating activities of $255,000 for the six months ended June 30, 2015 is primarily due to a decrease in our operating loss incurred in 2015 from tower services, fluctuations in receivables and payables from development and construction projects, and offset by an interest rate swap termination payment that occurred in 2014. We will continue to manage operating expenses for cash flow control as we seek to diversify our revenue base and develop more consistent cash flows from the Renewable Energy Development segment. 

   

Net Cash – Investing Activities

Net cash used in investing activities decreased by approximately $94,000, from the net cash used in investing activities of approximately $194,000 for the six months ended June 30, 2014 to net cash used in investing activities of approximately $100,000 for the six months ended June 30, 2015. The change is primarily attributable to higher project development costs made in 2014.

 

Net Cash – Financing Activities

Net cash flow used in financing activities increased by approximately $2,362,000, from the net cash flow provided by financing activities of approximately $938,000 for the six months ended June 30, 2014 to net cash used in financing activities of approximately $1,424,000 for the six months ended June 30, 2015.  The increase in cash used in financing activities is primarily attributable to an increase in dividends and distributions paid of approximately $193,000, the sale of approximately $643,000 of shares of Juhl Renewable Assets preferred stock in 2014, proceeds of notes payable of approximately $592,000 in 2014, and net decrease of $886,000 in our restricted and escrow reserve cash balances in 2014 primarily from the nonrecourse debt refinancing.

 

 

 Reconciliation of Non-GAAP Financial Measure

EBITDA is a non-GAAP financial measure and as used herein represents net income before interest expense, depreciation and amortization, and other charges including unrealized gain/loss on an interest rate swap arrangement, revenue levelization accounting on power purchase contracts, stock compensation expense, asset impairment charges, and discontinued operations. We present EBITDA because we believe it is an important supplemental measure of our performance that is frequently used by others in evaluating companies in our industry. EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measure derived in accordance with GAAP or as an alternative to net cash provided by operating activities as a measure of our profitability or liquidity. EBITDA has significant limitations, including that it does not reflect our cash requirements for capital expenditures, contractual commitments, working capital or debt service. In addition, other companies may calculate EBITDA differently than we do, limiting their usefulness as comparative measures.

  

 

The following table sets forth a reconciliation of net income (loss) as determined in accordance with GAAP to EBITDA for the periods indicated:

 

		Six Months Ended
		June 30,
		2015				2014
Net income (loss)		$	(652,937	)			(2,745,781	)
Interest expense, net of interest income			442,823				413,306
Depreciation, depletion and amortization			735,990				693,472
(Gain) loss on fair value of interest rate swap			-				74,673
Power purchase contract accounting			102,161				127,665
Stock compensation expense			352,668				302,369
Contingent payment accrual			38,116				(9,644	)
Discontinued operations			(28,957	)			1,103,484
EBITDA		$	989,864			$	(40,456	)

 

 

Impact of Inflation

 

We expect to be able to pass inflationary increases on to our customers through price increases, as required, and do not expect inflation to be a significant factor in our business.

  

Seasonality

 

We do not believe our services are seasonal except for future wind farm construction and operating revenue, which may be impacted by climate in the Upper Midwest.

 

Off-Balance Sheet Arrangements

 

We have made certain guarantees of indebtedness or offered indemnifications of warranties and representations in conjunction with the funding activities of the Valley View wind farm.

 

In conjunction the closing of an equity commitment on the Honda project in November 2013, the Company has made certain parent company guarantees to the equity investor involving the satisfactory performance of its subsidiaries for the completion of the project construction and the warranty obligations under the construction agreement. If such guarantees would result in amounts due under the guarantees to be more than 50% of the approximate $10 million project cost, the Company would have the option to repurchase the project from the equity investor for the project cost.

 

The Company agreed to guarantee certain payments to investors in the Valley View wind farm project as set forth below:

 

●

The timely payment of any and all guaranteed payments required to be paid to preferred membership investors (who contributed approximately $2.5 million) as they may become due under the respective LLC operating agreements, and the timely payment of any and all amounts payable upon exercise of a put right by such preferred members. The put right is outside the control of the Company and may occur either in two years or in certain cases, ten years. The Company does have up to six months from the date that to make such put right payment, and should the Company fail to make the put right payment within such six month period, the principal amount owed by the Company is subject to a penalty of an additional 10%. In October 2013, one of the parties representing $518,000 of the preferred membership investors, exercised their put right and the Company expects that it will redeem such interests during 2015.

 

 

●

The Company has agreed, with respect to a put right made available to one of the Common Members in the Valley View wind farm project (who contributed $500,000) to redeem any of its units then held by the respective individual investor for a price in cash equal to the present value of the (i) estimate future distributions to be made to Purchaser net of (ii) estimated future income allocations for which no distributions are projected to be made (“Put Right Purchase Amount”). If the Company fails to pay in full the Put Right Purchase Amount in cash on the due date, the Company shall issue a promissory note with a maturity date not exceeding 36 months and pay interest thereon.

 

Aside from these arrangements, we believe that there are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

 

Variable Interest Entities

 

The Company has determined that one of its wind farm projects is variable interest entity (“VIE”). The footnotes to our consolidated financial statements in this report provide our analysis and judgments with respect to whether or not the Company should consider consolidation of these VIE’s into our financial statements. We have consolidated one VIE because we believe that we had implicit power to significantly impact the economic performance of the limited liability company associated with that wind farm project.

 

Item 3. QUANTITATIVE AND QUALITATIVE ANALYSIS ABOUT MARKET RISK

 

Not applicable.

  

Item 4. CONTROLS AND PROCEDURES 

 

Evaluation of disclosure controls and procedures

 

Our management, with the participation of our Principal Executive Officer and our Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2015, the end of the period covered by this report. Based upon management’s evaluation, our Principal Executive Officer and our Principal Financial Officer concluded that, as of June 30, 2015, our disclosure controls and procedures were not effective at a reasonable assurance level, based on the material weakness defined below, to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Principal Executive Officer and our Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our last fiscal quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.   

  

PART II - OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

 

The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. While the ultimate outcome of these matters is not presently determinable, the company believes that the resolution of outstanding claims will not have a material adverse effect on the Company.  Due to the uncertainties in the settlement process, it is at least reasonably possible that management’s view of outcomes will change in the near term.

 

  

On December 5, 2013, Unison Co., Ltd. (“Plaintiff”) filed a civil complaint against Juhl Energy, Juhl Energy Development, Winona Wind Holdings, LLC, Winona County Wind, LLC, members of management, and others (the “Defendants”) in the U.S. District Court for the District of Minnesota. The lawsuit arises out of the purchase of two wind turbine generators from Plaintiff, whereby Juhl Energy Development financed the cost of the wind turbines by obtaining a loan from Plaintiff. The wind turbines were installed at a wind farm project in Winona County, Minnesota. The complaint purports to state causes of action for (i) fraudulent inducement, (ii) breach of Juhl Energy Development’s Financing Agreement with Unison: (iii) breach of the implied covenant of good faith and fair dealing; (iv) tortious interference with contractual relationship; and (v) unjust enrichment. Plaintiff is seeking the following: (i) awarding Plaintiff money damages in amount in excess of $75,000 together with pre-judgment and post-judgment interest as allowable by law; (ii) awarding Plaintiff amounts by which Defendants were unjustly enriched; and (iii) awarding Plaintiff its attorney fees, costs, and disbursements by law or equity. The Company sought to compel arbitration of this matter under the terms and conditions of the various agreements. The Company was initially unsuccessful in this pursuit, but appealed the District Court’s order and was successful on appeal. The Defendants, including the Company, dispute all allegations in the complaint and are defending the action. The Defendants, including the Company, have filed a counterclaim in arbitration in accordance with transaction documents for breach of turbine warranty and other claims.   The matter in District Court has been stayed pending the arbitration proceedings which are expected to be held later in 2015.

 

 

Item 1A. RISK FACTORS

 

Not applicable.

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Effective May 28, 2015, we granted options to purchase an aggregate of 100,000 shares of common stock which vest over a three-year period to a new employee and a consultant at an exercise price of $0.35 per share. The options were granted pursuant to Stock Option Agreements under the Company’s Amended and Restated 2008 Incentive Compensation Plan, the form of which is attached as Exhibit 10.1 to this Report. The options and the underlying common stock were not registered under the Securities Act, or the securities laws of any state, and were issued in reliance on the exemption from registration afforded by Section 4(a)(2) under the Securities Act and corresponding provisions of state securities laws. Such securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements and certificates evidencing such shares contain a legend stating the same.

 

On July 22, 2015, the Board of Directors of the Company authorized management of the Company to implement a stock repurchase program (the “Repurchase Program”).  The Repurchase Program shall be implemented in accordance with Rule 10b-18 of the Securities Exchange Act, including the manner of purchase, timing, pricing and volume conditions thereof.  The Company will publicly announce the Repurchase Program through a press release at the time the Repurchase Program becomes effective, if at all. 

  

Item 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

Item 4. MINE SAFETY DISCLOSURES.

 

None.

 

Item 5. OTHER INFORMATION.

 

a)	None
b)	None

 

 

Item 6. EXHIBITS

 

Exhibits required by Item 601 of Regulation S-K:

   

						Incorporated by Reference Herein
Exhibit No.		Exhibit Description		Filed Here-with		Exhibit No.		Form/File No.		Filing Date
3.1		Composite Certificate of Incorporation of Juhl Energy, Inc.				3.1		Form S-1 File No. 333-195636		May 1, 2014
3.2		Amended and Restated Bylaws				3		Form 8-K File No. 000-54080		August 22, 2011
10.1		Form of Option Award Agreement under Amended and Restated 2008 Incentive Compensation Plan				10.2		Form 10-K File No. 000-54080		April 1, 2013
31.1		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		X
31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		X
32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
32.2		Certification of Principal Financial Officer Pursuant 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
101.INS		XBRL Instance Document*		X
101.SCH		XBRL Taxonomy Extension Schema Document*		X
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*		X
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*		X
101.LAB		XBRL Taxonomy Extension Label Linkbase Document*		X
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*		X

  

* Pursuant to Rule 406T of Regulation S-T, the interactive files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 

SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	JUHL ENERGY, INC.
	(Registrant)
Date: August 14, 2015
	/s/ John Mitola
	John Mitola
	President

 

 

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