Restatement of Financial Statements

3 Months Ended

Mar. 31, 2012

Restatement of Financial Statements [Abstract]

Restatement of Financial Statements

2. Restatement of Financial Statements

The Company accounts for the correction of an error in its previously issued financial statements in accordance with the provisions of ASC Topic 250, “Accounting Changes and Error Corrections.” In accordance with the disclosure provisions of ASC 250, when financial statements are restated to correct an error, an entity is required to disclose that its previously issued financial statements have been restated along with a description of the nature of the error, the effect of the correction on each financial statement line item and any per share amount affected for each prior period presented, and the cumulative effect on retained earnings or other appropriate component of equity or net assets in the statement of financial position, as of the beginning of the earliest period presented.

The Company’s Board of Directors, based on the recommendation of the Audit Committee of the Company’s Board of Directors and in consultation with management, concluded that the financial statements contained in Form 10-Q for the quarterly period ended March 31, 2012 should no longer be relied upon and must be restated to properly record revenue from commissions earned by its mid-market product line.

The Company concluded that the timing of revenue recognition for certain commission payments was recorded incorrectly. This incorrect treatment related to the Company’s revenue recognition policy for its mid-market product line, an area the Company entered with its acquisition of GSE Consulting, LP (“GSE”, see Note 17) on October 31, 2011. Under its accounting policies in effect at the time, the Company recognized revenue from up-front commissions as cash was received from the energy supplier, beginning with the quarter ended December 31, 2011. As a result of its review, the Company has determined that it was required to record these revenues upon contract completion, or earlier to the extent that actual energy usage data is received from the energy supplier or can be reliably estimated. The difference between recognizing these commissions upon cash receipt and over the energy flow period is a matter of timing.

In addition, the Company has adjusted its accounts receivable and goodwill balances related to the acquisition of GSE. The Company had assigned a fair value of approximately $490,000 to accounts receivable related to the acquisition of GSE on October 31, 2011. Based on its revised revenue recognition policy, the Company has determined that there should be no value assigned to accounts receivable at October 31, 2011. As a result, the Company has reduced accounts receivable and increased goodwill by approximately $490,000 as of December 31, 2011.

Throughout this Amendment No. 1, all amounts presented from prior periods and prior period comparisons that have been revised are labeled “As Restated” and reflect the balances and amounts on a restated basis.

The following table presents the cumulative effect of adjustments resulting from the reviews described above for the periods shown.

	Three Months Ended March 31, 2012
Net income as originally reported	$	349,920
Adjustments related to revenue		(1,132,984	)
Net income as restated	$	(783,064	)
Cumulative effect to accumulated deficit	$	(1,695,002	)

The tables below set forth the effect of the adjustments as of March 31, 2012 and for the three month period ended March 31, 2012 as applicable:

Balance sheet items affected:
	At March 31, 2012
	As Reported			Adjustment			As Restated
Trade accounts receivable, net	$	5,099,472		$	(506,582	)	$	4,592,890
Prepaid expenses and other current assets		529,824			19,108			548,932
Total current assets		8,464,471			(487,474	)		7,976,997
Goodwill		11,817,236			490,019			12,307,255
Other assets, net		99,079			239,219			338,298
Total assets	$	34,204,979		$	241,764		$	34,446,743
Deferred revenue and customer advances	$	228,882		$	341,271		$	570,153
Total current liabilities		9,201,543			341,271			9,542,814
Deferred revenue and customer advances, net of current portion		—			1,595,495			1,595,495
Total liabilities		12,478,187			1,936,766			14,414,953
Accumulated deficit		(21,215,577	)		(1,695,002	)		(22,910,579	)
Total stockholders’ equity		21,726,792			(1,695,002	)		20,031,790
Total liabilities and stockholders’ equity	$	34,204,979		$	241,764		$	34,446,743

WORLD ENERGY SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended March 31, 2012
	As Reported			Adjustment			As Restated
Revenue:
Brokerage commissions, transaction fees and efficiency projects	$	7,673,768		$	(1,132,984	)	$	6,540,784
Management fees		252,623			—			252,623
Total revenue		7,926,391			(1,132,984	)		6,793,407
Cost of revenue		1,823,413			—			1,823,413
Gross profit		6,102,978			(1,132,984	)		4,969,994
Operating expenses:
Sales and marketing		3,814,183			—			3,814,183
General and administrative		1,875,037			—			1,875,037
Total operating expenses		5,689,220			—			5,689,220
Operating income (loss)		413,758			(1,132,984	)		(719,226	)
Interest expense, net		(89,444	)		—			(89,444	)
Other income		53,106			—			53,106
Income before income taxes		377,420			(1,132,984	)		(755,564	)
Income tax expense		27,500			—			27,500
Net income (loss)	$	349,920		$	(1,132,984	)	$	(783,064	)
Net income (loss) per share:
Net income (loss) per common share — basic and diluted	$	0.03		$	(0.10	)	$	(0.07	)
Weighted average shares outstanding — basic		11,869,648						11,869,648
Weighted average shares outstanding — diluted		11,983,573						11,869,648