Organization, Nature of Operations, and Principles of Consolidation

3 Months Ended

Mar. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Nature of Operations, and Principles of Consolidation

1. Organization, Nature of Operations, and Principles of Consolidation

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

These consolidated financial statements have been prepared on the going concern basis, which presumes the realization of assets and the settlement of liabilities in the normal course of operations. The application of the going concern basis is dependent upon the Company achieving profitable operations to generate sufficient cash flows to fund continued operations, or, in the absence of adequate cash flows from operations, obtaining additional financing. The Company has reported losses from operations for the three months ended March 31, 2018 and 2017, and has an accumulated deficit of $204.8 million at March 31, 2018. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management continues to review operations in order to identify additional strategies designed to generate cash flow, improve the Company's financial position, and enable the timely discharge of the Company's obligations. If management is unable to identify sources of additional cash flow in the short term, it may be required to further reduce or limit operations.

Principles of Consolidation

We have prepared our unaudited interim condensed consolidated financial statements included herein pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to these rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, the unaudited interim financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, our condensed consolidated financial position as of March 31, 2018, the interim results of operations for the three months ended March 31, 2018 and 2017, and cash flows for the three months ended March 31, 2018 and 2017. These interim statements have not been audited. The balance sheet as of December 31, 2017 was derived from our audited consolidated financial statements included in our 2017 10-K. The interim condensed consolidated financial statements contained herein should be read in conjunction with our audited financial statements, including the notes thereto, for the year ended December 31, 2017.

Discontinued Operations

During 2014, we committed to a plan to sell certain contracts and rights comprising our large commercial installations business, otherwise known as our former Commercial segment. At the same time, we determined not to enter into further large commercial installation contracts in the mainland United States. Most contracts in process at December 31, 2014 were substantially completed during 2015 and remaining work was completed during 2016. We report this business as a discontinued operation, separate from our continuing operations. See Note 12. Discontinued Operations.

Liquidity and Financial Resources Update

The Company has experienced recurring operating losses and negative cash flow from operations which have necessitated: (i) developing plans to grow revenue to generate positive cash flow and (ii) raising additional capital. No assurances can be given that the Company will be successful with its plans to grow revenue for profitable operations or, if necessary, raising additional capital. See Note 6, Shareholders Equity, Note 7, Convertible Debt and Note 13, Subsequent Events for transactions raising capital during the first quarter of 2018.

The Company’s plans to grow revenue are:

· Invest in the POWERHOUSE™ license by obtaining UL certification for POWERHOUSE™ 3.0, a prerequisite for commercialization of the product and, upon achieving UL certification, manufacture, market and sell POWERHOUSE™ 3.0 to roofing companies and new home builders;

· Leverage the POWERHOUSE™ brand to generate leads and revenue for the Residential and Sunetric segments;

· Leverage the Company’s investment in RGS 365™ customer-centric software for the POWERHOUSE™ and Solar Divisions;

· Expand the Company’s digital marketing program to generate customer leads while achieving its desired cost of acquisition;

· Make available to the Company’s customers additional third-party providers to finance customer acquisitions of its solar energy systems; and

· Expand the Company’s network of authorized third-party installers.

During February 2018, the Company completed a strategic realignment to scale back the Company’s residential solar homeowner business. While the Company has made progress during 2017 in growing solar sales and backlog, growth has not met initial expectations. The realignment reduced the number of outside sales personnel. The Company plans to maintain the areas of core competencies meeting expectations, such as its e-sales call center and commercial sales organization.

Until the Company is successful in implementing its plans to increase revenue for profitable operations, the Company expects to have a cash outflow from operating activities. The Company expects to obtain UL certification for POWERHOUSE™ 3.0 in 2018 and, if it determines to proceed at that time with the commercialization of POWERHOUSE™, the Company expects to have cash outflow from operating activities for commercialization of POWERHOUSE™, prepayments with supply chain manufacturers and working capital as sales of the product commence. Additionally, the Company would be required to make the remaining “Initial License” payment of $2 million, which would be recorded as a cash outflow in investing activities.

To provide funds to grow the Company’s revenue, on March 30, 2018, the Company entered into the Securities Purchase Agreement for the 2018 Note Offering (as defined and further discussed in Note 7, Convertible Debt). The 2018 Note Offering may result in gross proceeds of $10.0 million, before placement agent fees and other expenses associated with the transaction. At the closing on April 9, 2018 the Company received $5 million of the gross proceeds and Investor Notes (as defined and further discussed in Note 7, Convertible Debt) in an aggregate amount of $5 million secured by cash and/or securities held in investor accounts. Investors are required to prepay the Investor Notes as they convert their Series B Notes (as defined and further discussed in Note 7, Convertible Debt) issued in the 2018 Note Offering and, upon satisfaction of Equity Conditions and certain other conditions, upon the occurrence of a specified mandatory prepayment event. The 2018 Notes (as defined and further discussed in Note 7, Convertible Debt) are convertible into Class A common stock and mature on April 9, 2019. If the 2018 Notes have not been fully converted into shares of Class A common stock at maturity, the Company would seek to refinance any remaining balance at that time from: (i) negotiations with the holders of the 2018 Notes, (ii) funds obtained in a public or private offering of securities, or (iii) funds received upon common stock warrant exercises including after reducing the exercise price of common stock warrants to induce conversion. No assurances can be given that should a balance remain on the 2018 Notes at maturity the Company will be successful in meeting the obligation under the 2018 Notes.

If the Company proceeds with commercialization of POWERHOUSE™ 3.0, it will require additional capital which could be met from the Investor Notes. In the event capital from the Investor Notes are not received by the Company, the Company would seek to obtain the capital from other transactions such as a private or public offering of securities, and common stock warrant exercises including the Company reducing the exercise price of common stock warrants to induce conversion. No assurances can be given that, should the Company determine to proceed with commercialization of POWERHOUSE™ 3.0, it will have available to it the additional capital necessary, either from the Investor Notes or an alternative transaction.