10-Q 1 f10q0614_genieenergyltd.htm QUARTERLY REPORT f10q0614_genieenergyltd.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


 
FORM 10-Q


 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014
 
or
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 1-35327
 

 
GENIE ENERGY LTD.
(Exact Name of Registrant as Specified in its Charter)


 
Delaware
 
45-2069276
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
     
550 Broad Street, Newark, New Jersey
 
07102
(Address of principal executive offices)
 
(Zip Code)
 
(973) 438-3500
(Registrant’s telephone number, including area code)


 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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
x
       
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
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  x
 
As of August 5, 2014, the registrant had the following shares outstanding:
 
Class A common stock, $.01 par value:
1,574,326 shares outstanding
Class B common stock, $.01 par value:
23,102,523 shares outstanding (excluding 75,740 treasury shares)
 


 
 

 
 
GENIE ENERGY LTD.
 
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
    3  
           
Item 1.
Financial Statements (Unaudited)
    3  
           
 
Consolidated Balance Sheets
    3  
           
 
Consolidated Statements of Operations
    4  
           
 
Consolidated Statements of Comprehensive Loss
    5  
           
 
Consolidated Statements of Cash Flows
    6  
           
 
Notes to Consolidated Financial Statements
    7  
           
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    18  
           
Item 3.
Quantitative and Qualitative Disclosures About Market Risks
    31  
           
Item 4.
Controls and Procedures
    31  
         
PART II. OTHER INFORMATION
    33  
           
Item 1.
Legal Proceedings
    33  
           
Item 1A.
Risk Factors
    33  
           
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    34  
           
Item 3.
Defaults upon Senior Securities
    34  
           
Item 4.
Mine Safety Disclosures
    34  
           
Item 5.
Other Information
    34  
           
Item 6.
Exhibits
    34  
         
SIGNATURES
    35  
 
 
 

 
 
PART I. FINANCIAL INFORMATION
 
Item 1.               Financial Statements (Unaudited)
 
GENIE ENERGY LTD.
 
CONSOLIDATED BALANCE SHEETS
 
   
June 30,
2014
   
December 31,
2013
 
   
(Unaudited)
   
(Note 1)
 
   
(in thousands)
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 67,796     $ 73,885  
Restricted cash—short-term
    10,404       14,429  
Certificates of deposit
    1,734       4,343  
Trade accounts receivable, net of allowance for doubtful accounts of $931 at June 30, 2014 and $930 at December 31, 2013
    29,927       42,926  
Inventory
    4,719       3,344  
Prepaid expenses
    3,212       3,408  
Deferred income tax assets, net
    920       840  
Other current assets
    2,630       2,917  
                 
Total current assets
    121,342       146,092  
                 
Property and equipment, net
    1,268       561  
Goodwill
    7,226       7,349  
Restricted cash—long-term
    1,139       1,127  
Other assets
    3,738       3,714  
                 
Total assets
  $ 134,713     $ 158,843  
                 
Liabilities and equity
               
Current liabilities:
               
Trade accounts payable
  $ 14,298     $ 25,302  
Accrued expenses
    9,017       9,856  
Advances from customers
    223       1,103  
Income taxes payable
    245       2,075  
Due to IDT Corporation
    255       541  
Other current liabilities
    1,269       1,457  
                 
Total current liabilities
    25,307       40,334  
                 
Other liabilities
    2,389       2,169  
                 
Total liabilities
    27,696       42,503  
                 
Commitments and contingencies
               
Equity:
               
Genie Energy Ltd. stockholders’ equity:
               
Preferred stock, $.01 par value; authorized shares—10,000:
               
Series 2012-A, designated shares—8,750; at liquidation preference, consisting of 2,322 and 1,917 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively
    19,743       16,303  
Class A common stock, $.01 par value; authorized shares—35,000; 1,574 shares issued and outstanding at June 30, 2014 and December 31, 2013
    16       16  
Class B common stock, $.01 par value; authorized shares—200,000; 19,435 and 19,755 shares issued and 19,376 and 19,696 shares outstanding at June 30, 2014 and December 31, 2013, respectively
    195       198  
Additional paid-in capital
    82,725       82,791  
Treasury stock, at cost, consisting of 59 shares of Class B common stock at June 30, 2014 and December 31, 2013
    (473 )     (473
Accumulated other comprehensive income
    822       745  
Retained earnings
    9,284       21,552  
                 
Total Genie Energy Ltd. stockholders’ equity
    112,312       121,132  
                 
Noncontrolling interests:
               
Noncontrolling interests
    (4,295 )     (3,792 )
Receivable for issuance of equity
    (1,000 )     (1,000 )
                 
Total noncontrolling interests
    (5,295 )     (4,792 )
                 
Total equity
    107,017       116,340  
                 
Total liabilities and equity
  $ 134,713     $ 158,843  
 
See accompanying notes to consolidated financial statements.
 
 
3

 
 
GENIE ENERGY LTD.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(in thousands, except per share data)
 
Revenues:
                       
     Electricity
  $ 39,956     $ 45,066     $ 135,990     $ 99,690  
     Natural gas
    8,854       10,068       43,168       40,775  
Total revenues
    48,810       55,134       179,158       140,465  
Direct cost of revenues
    (37,359 )     (45,168 )     (157,811 )     (111,480 )
Gross profit
    11,451       9,966       21,347       28,985  
Operating expenses and losses:
                               
Selling, general and administrative (i)
    13,426       12,137       27,715       24,906  
Research and development
    2,369       2,592       4,469       5,081  
Equity in the net loss of AMSO, LLC
          806             1,935  
Loss from operations
    (4,344 )     (5,569 )     (10,837 )     (2,937
Interest income
    99       127       192       292  
Financing fees
    (583 )     (789 )     (1,528 )     (1,795
Other expense, net
    (45 )     (18     (29 )     (185
Loss before income taxes
    (4,873 )     (6,249 )     (12,202 )     (4,625
(Provision for) benefit from income taxes
    (134 )     81       46       (1,640 )
Net loss
    (5,007 )     (6,168 )     (12,156 )     (6,265 )
Net loss (income) attributable to noncontrolling interests
    136       267       499       (1,146
Net loss attributable to Genie Energy Ltd.
    (4,871 )     (5,901 )     (11,657 )     (7,411 )
Dividends on preferred stock
    (306 )     (306 )     (611 )     (611 )
Net loss attributable to Genie Energy Ltd. common stockholders.
  $ (5,177 )   $ (6,207 )   $ (12,268 )   $ (8,022 )
                                 
Basic and diluted loss per share attributable to Genie Energy Ltd. common stockholders
  $ (0.24 )   $ (0.32 )   $ (0.58 )   $ (0.41 )
                                 
Weighted-average number of shares used in calculation of basic and diluted loss per share
    21,174       19,313       21,172       19,427  
(i) Stock-based compensation included in selling, general and administrative expenses
  $ 1,724     $ 1,134     $ 3,563     $ 2,091  
 
See accompanying notes to consolidated financial statements. 
 
 
4

 
 
GENIE ENERGY LTD.
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(in thousands)
 
Net loss
  $ (5,007 )   $ (6,168 )   $ (12,156 )   $ (6,265 )
Other comprehensive income (loss):
                               
Change in unrealized loss on available-for-sale securities, net of tax
          (10           (44 )
Foreign currency translation adjustments
    103       23       73       145  
Other comprehensive income
    103       13       73       101  
Comprehensive loss
    (4,904 )     (6,155 )     (12,083 )     (6,164 )
Comprehensive loss (income) attributable to noncontrolling interests
    142       277       503       (1,136 )
Comprehensive loss attributable to Genie Energy Ltd.
  $ (4,762 )   $ (5,878 )   $ (11,580 )   $ (7,300 )
 
See accompanying notes to consolidated financial statements. 
 
 
5

 
 
GENIE ENERGY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
Six Months Ended
June 30,
 
   
2014
   
2013
 
   
(in thousands)
 
Operating activities
           
Net loss
  $ (12,156 )   $ (6,265 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
               
Depreciation
    59       50  
Deferred income taxes
    (80 )      
Stock-based compensation
    3,563       2,091  
Loss on disposal of property
          37  
Equity in the net loss of AMSO, LLC
          1,935  
Change in assets and liabilities:
               
Restricted cash
    4,014       (1,069 )
Trade accounts receivable
    12,999       5,431  
Inventory
    (1,374 )     791  
Prepaid expenses
    195       2,076  
Other current assets and other assets
    330       (170 )
Trade accounts payable, accrued expenses and other current liabilities
    (11,656 )     (3,000 )
Advances from customers
    (880 )     (997 )
Due to IDT Corporation
    (286 )     (300 )
Income taxes payable
    (1,830 )     753  
                 
Net cash (used in) provided by operating activities 
    (7,102 )     1,363  
                 
Investing activities
               
Capital expenditures
    (766 )     (77 )
Capital contributions to AMSO, LLC
          (1,825 )
Payments for acquisition
    (574 )      
Issuance of note receivable
    (50 )     (125 )
Purchases of certificates of deposit
          (3,000 )
Proceeds from maturities of certificates of deposit
    2,600        
Proceeds from maturities and sale of marketable securities
          6,531  
                 
Net cash provided by investing activities
    1,210       1,504  
                 
Financing activities
               
Dividends paid
    (611 )     (521 )
Proceeds from exercise of stock options
    27       53  
Advance on sale of interest in subsidiary
    300        
Repurchases of Class B common stock from employees
          (126 )
                 
Net cash used in financing activities
    (284 )     (594 )
                 
Effect of exchange rate changes on cash and cash equivalents
    87       141  
                 
Net (decrease) increase in cash and cash equivalents
    (6,089 )     2,414  
Cash and cash equivalents at beginning of period
    73,885       69,409  
                 
Cash and cash equivalents at end of period
  $ 67,796     $ 71,823  
 
See accompanying notes to consolidated financial statements.
 
 
6

 
 
GENIE ENERGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1—Basis of Presentation
 
The accompanying unaudited consolidated financial statements of Genie Energy Ltd. and its subsidiaries (the “Company” or “Genie”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. The balance sheet at December 31, 2013 has been derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the U.S. Securities and Exchange Commission (the “SEC”).
 
Genie owns 99.3% of its subsidiary, Genie Energy International Corporation (“GEIC”), which owns 100% of IDT Energy and 92% of Genie Oil and Gas, Inc. (“GOGAS”). IDT Energy has outstanding deferred stock units granted to directors and employees that represent an interest of 1.4% of the equity of IDT Energy. Genie’s principal businesses consist of the following: 
 
·
IDT Energy, a retail energy provider (“REP”) supplying electricity and natural gas to residential and small business customers in the Northeastern United States; and
 
·
Genie Oil and Gas, which is pioneering technologies to produce clean and affordable transportation fuels from the world's abundant oil shales and other fuel resources, which consists of (1) American Shale Oil Corporation (“AMSO”), which holds and manages a 44.9% interest in American Shale Oil, L.L.C. (“AMSO, LLC”), the Company’s oil shale project in Colorado, (2) an 87.9% interest in Israel Energy Initiatives, Ltd. (“IEI”), the Company’s oil shale project in Israel, (3) an 88.5% interest in Afek Oil and Gas, Ltd. (“Afek”), the Company’s conventional oil and gas exploration project in the southern portion of the Golan Heights, and (4) an 89.9% interest in Genie Mongolia, the Company’s oil shale exploration project in Central Mongolia.

Seasonality and Weather
 
The weather and the seasons, among other things, affect IDT Energy’s revenues. Weather conditions can have a significant impact on the demand for natural gas and electricity used for heating and cooling. Typically, colder winters and hotter summers increase demand for natural gas and electricity, respectively. Milder winters and/or summers have the opposite effect. Natural gas revenues typically increase in the first quarter due to increased heating demands and electricity revenues typically increase in the third quarter due to increased air conditioning use. Approximately 49% and 47% of IDT Energy’s natural gas revenues were generated in the first quarter of 2013 and 2012, respectively, when demand for heating was highest. Although the demand for electricity is not as seasonal as natural gas, approximately 31% and 34% of IDT Energy’s electricity revenues were generated in the third quarter of 2013 and 2012, respectively. As a result, the Company’s revenues and income (loss) from operations are subject to material seasonal variations, and the interim financial results are not necessarily indicative of the estimated financial results for the full year.

Unusually cold weather in the three months ended March 31, 2014 that affected the overall demand for electricity and natural gas for heat caused a significant increase in IDT Energy’s revenues and direct cost of revenues in the three months ended March 31, 2014 compared to the same period in 2013. The cold weather caused the cost of electricity and natural gas to increase, which IDT Energy only partially reflected in its rates charged to customers due to competitive and regulatory pressures.
 
Note 2—Fair Value Measurements
 
The following table presents the balance of assets and liabilities at June 30, 2014 measured at fair value on a recurring basis:
 
   
Level 1 (1)
   
Level 2 (2)
   
Level 3 (3)
   
Total
 
   
(in thousands)
 
Assets:
                       
Derivative contracts
  $ 254     $ 603     $     $ 857  
Liabilities:
                               
Derivative contracts
  $ 12     $ 379     $     $ 391  
 
 
7

 
 
The following table presents the balance of assets and liabilities at December 31, 2013 measured at fair value on a recurring basis:
 
   
Level 1 (1)
   
Level 2 (2)
   
Level 3 (3)
   
Total
 
   
(in thousands)
 
Assets:
                       
Derivative contracts
  $ 390     $ 1,230     $ 62     $ 1,682  
Liabilities:
                               
Derivative contracts
  $ 13     $ 372     $     $ 385  

(1) – quoted prices in active markets for identical assets or liabilities
(2) – observable inputs other than quoted prices in active markets for identical assets and liabilities
(3) – no observable pricing inputs in the market

The Company’s derivative contracts consist of natural gas and electricity futures contracts, put and call options and swaps. The underlying asset in the Company’s put and call options is a forward contract. The Company’s swaps are agreements whereby a floating (or market or spot) price is exchanged for a fixed price over a specified period. The Company’s derivatives were classified as Level 1, Level 2 or Level 3. The Level 1 derivatives were valued using quoted prices in active markets for identical contracts. The Level 2 derivatives were valued using observable inputs based on quoted market prices in active markets for similar contracts. The fair value of the Level 3 derivatives was based on the value of the underlying contracts, estimated in conjunction with the counterparty and could not be corroborated by the market.
 
The Company’s subsidiary, GOGAS, issued a stock option in June 2011 that is exercisable until April 9, 2015 at an exercise price of $5.0 million. At June 30, 2014 and December 31, 2013, the fair value of the GOGAS stock option was nil.

The following table summarizes the change in the balance of the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and six months ended June 30, 2014. There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and six months ended June 30, 2014. There were no liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and six months ended June 30, 2014. There were no assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and six months ended June 30, 2013.

(in thousands)
     
Balance, December 31, 2013
  $ 62  
Total losses (realized or unrealized) included in earnings in “Direct cost of revenues”
    (62 )
         
Balance, June 30, 2014
  $  
         
The amount of total gains or losses for the period included in earnings in “Direct cost of revenues” attributable to the change in unrealized gains or losses relating to assets held at the end of the period
  $  

Fair Value of Other Financial Instruments
 
The estimated fair value of the Company’s other financial instruments was determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting this data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
 
Restricted cash—short-term, certificates of deposit, prepaid expenses, other current assets, advances from customers, due to IDT Corporation and other current liabilities. At June 30, 2014 and December 31, 2013, the carrying amounts of these assets and liabilities approximated fair value because of the short period to maturity. The fair value estimate for restricted cash—short-term was classified as Level 1 and certificates of deposit, prepaid expenses, other current assets, advances from customers, due to IDT Corporation and other current liabilities were classified as Level 2 of the fair value hierarchy.
 
Restricted cash—long-term. At June 30, 2014 and December 31, 2013, the carrying amount of restricted cash—long-term approximated fair value. The fair value was estimated based on the anticipated cash flows once the restrictions are removed, which was classified as Level 3 of the fair value hierarchy.
 
 
8

 
 
Other assets and other liabilities. At June 30, 2014 and December 31, 2013, other assets included an aggregate of $1.5 million and $1.4 million, respectively, in notes receivable. The carrying amounts of the notes receivable and other liabilities approximated fair value. The fair value of the notes receivable and other liabilities were estimated based on the Company’s assumptions, and were classified as Level 3 of the fair value hierarchy.
 
Note 3—Derivative Instruments
 
The primary risk managed by the Company using derivative instruments is commodity price risk, which is accounted for in accordance with ASC 815. Natural gas and electricity futures contracts, put and call options and swaps are entered into as hedges against unfavorable fluctuations in market prices of natural gas and electricity. The Company does not apply hedge accounting to these contracts, options or swaps, therefore the changes in fair value are recorded in earnings. By using derivative instruments to mitigate exposures to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company minimizes the credit or repayment risk in derivative instruments by entering into transactions with high-quality counterparties. At June 30, 2014, IDT Energy’s contracts, swaps and options were traded on the New York Mercantile Exchange. At December 31, 2013, IDT Energy’s contracts, swaps and options were traded on the New York Mercantile Exchange or were over-the-counter bilateral agreements with BP Energy Company.
 
The summarized volume of IDT Energy’s outstanding contracts and options as of June 30, 2014 was as follows (MWh – Megawatt hour and Dth – Decatherm):

Commodity
 
Settlement Dates
 
Volume
Electricity
 
July 2014
 
17,600 MWh
Electricity
 
August 2014
 
235,200 MWh
Electricity
 
October 2014
 
36,800 MWh
Electricity
 
November 2014
 
30,400 MWh
Electricity
 
December 2014
 
35,200 MWh
Natural gas
 
August 2014
 
1,632,500 Dth
Natural gas
 
September 2014
 
800,000 Dth
Natural gas
 
January 2015
 
155,000 Dth
Natural gas
 
July 2015
 
882,500 Dth
Natural gas
 
January 2016
 
155,000 Dth
Natural gas
 
July 2016
 
155,000 Dth

The fair value of outstanding derivative instruments recorded as assets in the accompanying consolidated balance sheets were as follows:
 
Asset Derivatives
 
Balance Sheet Location
 
June 30,
2014
   
December 31,
2013
 
       
(in thousands)
 
Derivatives not designated or not qualifying as hedging instruments:
               
Energy contracts and options
 
Other current assets
  $ 857     $ 1,682  

The fair value of outstanding derivative instruments recorded as liabilities in the accompanying consolidated balance sheets were as follows:
 
Liability Derivatives
 
Balance Sheet Location
 
June 30,
2014
   
December 31,
2013
 
       
(in thousands)
 
Derivatives not designated or not qualifying as hedging instruments:
               
Energy contracts and options
 
Other current liabilities
  $ 391     $ 385  
 
 
9

 
 
The effects of derivative instruments on the consolidated statements of operations were as follows:

   
Amount of Gain (Loss) Recognized on Derivatives
 
 
Derivatives not designated or not
 
 
Location of Gain (Loss)
  Three Months Ended
June 30,
    Six Months Ended
June 30,
 
qualifying as hedging instruments
 
 Recognized on Derivatives
 
2014
   
2013
   
2014
   
2013
 
       
(in thousands)
 
Energy contracts and options
 
Direct cost of revenues
 
$
(65
)
 
$
75
   
$
(100
)
 
$
32
 

Note 4—Investment in American Shale Oil, LLC
 
The Company accounts for its ownership interest in AMSO, LLC using the equity method since the Company has the ability to exercise significant influence over its operating and financial matters, although it does not control AMSO, LLC. AMSO, LLC is a variable interest entity, however, the Company has determined that it is not the primary beneficiary, as the Company does not have the power to direct the activities of AMSO, LLC that most significantly impact AMSO, LLC’s economic performance.
 
Except as set forth below, AMSO is responsible for funding 20% of the initial $50 million of AMSO, LLC’s expenditures, 35% of the next $50 million in approved expenditures and 40% of the costs of the one-time payment for conversion of AMSO, LLC’s research, development and demonstration lease to a commercial lease, in the event AMSO, LLC’s application for conversion is approved, with the remaining amounts of such expenditures to be funded by Total S.A. (“Total”). All other expenditures are to be borne in proportion to equity ownership. The percentages for expenditures are subject to adjustment in connection with certain changes in the equity ownership of AMSO LLC. As of June 30, 2014, the cumulative contributions of AMSO and Total to AMSO, LLC were $74.0 million. AMSO’s allocated share of the net loss of AMSO, LLC is included in “Equity in the net loss of AMSO, LLC” in the accompanying consolidated statements of operations.
 
AMSO has the right to decide at each capital call whether or not to fund AMSO, LLC, and will make a determination at that time. AMSO did not fund the capital calls for the first, second and third quarters of 2014. Total funded AMSO’s share in an aggregate amount of $2.7 million. Because of AMSO’s decisions not to fund its share of AMSO, LLC’s expenditures, AMSO’s ownership interest in AMSO, LLC was reduced to 44.9% and Total’s ownership interest increased to 55.1%. In addition, AMSO’s share of future funding of AMSO, LLC up to a cumulative $100 million was reduced to 31.4% and Total’s share increased to 68.6%. AMSO is evaluating its options with respect to funding AMSO, LLC during the remainder of 2014, and funding of less than its full share would result in further dilution of its interest in AMSO, LLC.
 
The agreements with Total provide for varying consequences for AMSO’s failure to fund its share at different stages of the project, including dilution of AMSO’s interest in AMSO, LLC or paying interest to Total for expenditures they fund on behalf of AMSO. Either Total or AMSO may terminate its obligations to make capital contributions and withdraw as a member of AMSO, LLC. Even if AMSO were to withdraw its interest in AMSO, LLC, it will remain liable for its share of expenditures for safety and environmental reclamation related to events occurring prior to its withdrawal.

The following table summarizes the change in the balance of the Company’s investment in AMSO, LLC:
 
   
Six Months Ended June 30,
 
   
2014
   
2013
 
   
(in thousands)
 
Balance, beginning of period
  $ (252 )   $ 242  
Capital contributions
          1,825  
Equity in the net loss of AMSO, LLC
          (1,935 )
                 
Balance, end of period
  $ (252 )   $ 132  
 
At June 30, 2014 and December 31, 2013, the liability for equity loss in AMSO, LLC was included in “Accrued expenses” in the consolidated balance sheet.

Because of AMSO’s decisions not to fund its share of AMSO, LLC’s expenditures, AMSO, LLC allocates its net loss beginning January 2014 as follows: the first $7.9 million of losses are allocated to Total, then it allocates any remaining losses proportionately such that AMSO and Total’s capital accounts as a percentage of AMSO, LLC’s total capital equals their ownership interests.
 
 
10

 
 
At June 30, 2014, the Company’s maximum exposure to additional loss because of its required investment in AMSO, LLC was $0.2 million, based on AMSO, LLC’s budget for the remainder of 2014. The Company’s maximum exposure to additional loss could increase based on the situations described above. The maximum exposure at June 30, 2014 was determined as follows:

   
(in thousands)
 
AMSO’s committed investment in AMSO, LLC based on the budget for the remainder of 2014
  $ 445  
Less: cumulative capital contributions to AMSO, LLC
     
Less: liability for equity loss in AMSO, LLC at June 30, 2014
    (252 )
         
MMaximum exposure to additional loss
  $ 193  

Summarized unaudited statements of operations of AMSO, LLC are as follows:
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(in thousands)
 
Operating expenses:
                       
General and administrative
 
$
111
   
$
124
   
$
234
   
$
273
 
Research and development
   
2,534
     
2,219
     
4,046
     
5,297
 
Loss from operations
   
2,645
     
2,343
     
4,280
     
5,570
 
Other income
   
     
41
     
     
41
 
Net loss
 
$
(2,645
)
 
$
(2,302
)
 
$
(4,280
)
 
$
(5,529
)

Note 5—Equity
 
Changes in the components of equity were as follows:
 
   
Six Months Ended
June 30, 2014
 
   
Attributable
 to Genie
   
Noncontrolling
Interests
   
Total
 
   
(in thousands)
 
Balance, December 31, 2013
  $ 121,132     $ (4,792 )   $ 116,340  
Dividends on preferred stock
    (611 )           (611 )
Exercise of stock options
    27             27  
Stock-based compensation
    3,344             3,344  
Comprehensive loss:
                       
Net loss
    (11,657 )     (499 )     (12,156 )
Foreign currency translation adjustments
    77       (4 )     73  
                         
Comprehensive loss
    (11,580 )     (503 )     (12,083 )
                         
Balance, June 30, 2014
  $ 112,312     $ (5,295 )   $ 107,017  

Dividend Payments
 
On February 15, 2014, the Company paid a quarterly Base Dividend of $0.1594 per share on its Series 2012-A Preferred Stock (“Preferred Stock”) for the fourth quarter of 2013. On May 15, 2014, the Company paid a quarterly Base Dividend of $0.1594 per share on the Preferred Stock for the first quarter of 2014. In July 2014, the Company’s Board of Directors declared a quarterly Base Dividend of $0.1594 per share on the Preferred Stock for the second quarter of 2014. The dividend will be paid on or about August 15, 2014 to stockholders of record as of the close of business on August 7, 2014. The aggregate dividends declared in the six months ended June 30, 2014 and 2013 were $0.6 million and $0.3 million, respectively, and the aggregate dividends paid in the six months ended June 30, 2014 and 2013 were $0.6 million and $0.5 million, respectively.
 
Exchange Offer
 
On May 22, 2014, the Company initiated an offer to exchange up to 5.0 million shares of its outstanding Class B common stock for the same number of shares of its Preferred Stock. The offer expired on June 23, 2014. Prior to this exchange offer, the Preferred Stock were redeemable, in whole or in part, at the option of the Company following October 11, 2016 at 101% of the liquidation preference of $8.50 (the “Liquidation Preference”) plus accrued and unpaid dividends, and 100% of the Liquidation Preference plus accrued and unpaid dividends following October 11, 2017. In conjunction with the closing of this exchange offer, the Company extended the periods related to redemption of the Preferred Stock from October 11, 2016 to October 11, 2017, and from October 11, 2017 to October 11, 2018. On June 27, 2014, the Company issued 404,732 shares of its Preferred Stock in exchange for an equal number of shares of Class B common stock tendered in the exchange offer. As a result of the issuance of additional shares of Preferred Stock, the aggregate quarterly Base Dividend will increase to $0.4 million from $0.3 million.
 
 
11

 
 
Sale of Shares to Howard S. Jonas
 
On July 30, 2014, the Company entered into a Second Amended and Restated Employment Agreement with Howard S. Jonas, the Company’s Chairman of the Board and Chief Executive Officer, and a Restricted Stock Sale Agreement. Pursuant to these agreements, (a) options to purchase 3.0 million shares of the Company’s Class B common stock previously granted to Mr. Jonas, with an exercise price of $10.30 per share were cancelled, (b) the term of the existing employment agreement between the Company and Mr. Jonas was extended for an additional one year period, expiring on December 31, 2019, and (c) Mr. Jonas committed to purchase an aggregate of 3.6 million shares of the Company’s Class B common stock from the Company at a price of $6.82 per share (the closing price per share of the Class B common stock on the day that the arrangement was approved by the Company’s Board of Directors and Compensation Committee). On July 30, 2014 and August 4, 2014, Mr. Jonas purchased an aggregate of 3.6 million shares of the Company’s Class B common stock from the Company for an aggregate purchase price of $24.6 million.
 
Stock Repurchase Program
 
On March 11, 2013, the Board of Directors of the Company approved a stock repurchase program for the repurchase of up to an aggregate of 7 million shares of the Company’s Class B common stock. At June 30, 2014, no repurchases had been made and 7 million shares remained available for repurchase under the stock repurchase program.
 
Variable Interest Entity
 
In 2011, an employee of IDT Corporation (“IDT”) until his employment was terminated effective December 30, 2011, incorporated Citizens Choice Energy, LLC (“CCE”), which is a REP that resells electricity and natural gas to residential and small business customers in the State of New York. Tari Corporation (“Tari”) is the sole owner of CCE. In addition, DAD Sales, LLC (“DAD”), which is 100% owned by Tari, used its network of door-to-door sales agents to obtain customers for CCE. In December 2012, DAD ceased to acquire customers for CCE. The Company provided CCE, DAD and Tari with substantially all of the cash required to fund their operations. The Company determined that at the present time it has the power to direct the activities of CCE, DAD and Tari that most significantly impact their economic performance and it has the obligation to absorb losses of CCE, DAD and Tari that could potentially be significant to CCE, DAD and Tari on a stand-alone basis. The Company therefore determined that it is the primary beneficiary of CCE, DAD and Tari, and as a result, the Company consolidates CCE, DAD and Tari within its IDT Energy segment. The Company does not own any interest in CCE, DAD or Tari and thus the net income or loss incurred by CCE, DAD and Tari was attributed to noncontrolling interests in the accompanying consolidated statements of operations.
 
Net income (loss) of CCE, DAD and Tari and aggregate funding repaid to the Company by CCE, DAD and Tari from their operations were as follows:
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(in thousands)
 
Net income (loss):
                       
CCE
  $ 132     $ 72     $ 112     $ 1,663  
DAD
  $ (6 )   $ (10 )   $ (13 )   $ (35 )
Tari
  $     $ 1     $ (13 )   $ 10  
Aggregate funding repaid to the Company, net
  $ 813     $ 2,845     $ 616     $ 4,403  
 
 
12

 
 
Summarized combined balance sheets of CCE, DAD and Tari are as follows:
 
   
June 30,
2014
   
December 31,
2013
 
   
(in thousands)
 
Assets
           
Cash and cash equivalents
  $ 14     $ 434  
Restricted cash
    118       537  
Trade accounts receivable
    1,592       2,459  
Prepaid expenses
    91       364  
Other current assets
    277       353  
Other assets
    449       449  
                 
Total assets
  $ 2,541     $ 4,596  
                 
Liabilities and members’ interests
               
Current liabilities
  $ 1,412     $ 2,937  
Due to IDT Energy
    348       964  
Noncontrolling interests
    781       695  
                 
Total liabilities and noncontrolling interests
  $ 2,541     $ 4,596  
 
The assets of CCE, DAD and Tari may only be used to settle obligations of CCE, DAD and Tari, and may not be used for other consolidated entities. The liabilities of CCE, DAD and Tari are non-recourse to the general credit of the Company’s other consolidated entities.
 
Note 6—Loss Per Share
 
Basic earnings per share is computed by dividing net income (loss) attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings per share is computed in the same manner as basic earnings per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase is anti-dilutive.
 
The following securities that could potentially dilute basic earnings per share in the future were excluded from the diluted loss per share computations because their inclusion would have been anti-dilutive:
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(in thousands)
 
Stock options
    3,438       449       3,438       449  
Non-vested restricted Class B common stock
    166       1,785       166       1,785  
Shares excluded from the calculation of diluted earnings per share
    3,604       2,234       3,604       2,234  

The diluted loss per share equals basic loss per share in the three and six months ended June 30, 2014 and 2013 because the Company had a net loss and the impact of the assumed exercise of stock options and vesting of restricted stock would have been anti-dilutive.
 
An entity affiliated with Lord (Jacob) Rothschild has a one-time option through November 12, 2017 to exchange its GOGAS shares for shares of the Company with equal fair value as determined by the parties. The number of shares issuable in such an exchange is not currently determinable. If this option is exercised, the shares issued by the Company may dilute the earnings per share in future periods.
 
An employee of the Company, pursuant to the terms of his employment agreement, has the option to exchange his equity interests in IEI, Afek, Genie Mongolia and any equity interest that he may acquire in other entities that the Company may create, for shares of the Company. Employees and directors of the Company that were previously granted restricted stock of IEI, Afek and Genie Mongolia have the right to exchange the restricted stock, upon vesting of such shares, into shares of the Company’s Class B common stock. In addition, IDT Energy has the right to exchange the deferred stock units it previously granted to employees and directors of the Company, upon vesting of such units, into shares of the Company’s Class B common stock or to redeem the units for cash. These exchanges, if elected, would be based on the relative fair value of the shares exchanged. The number of shares of the Company’s stock issuable in an exchange is not currently determinable. If shares of the Company’s stock are issued upon such exchange, the Company’s earnings per share may be diluted in future periods.
 
 
13

 

Note 7—Related Party Transaction
 
The Company was formerly a subsidiary of IDT. On October 28, 2011, the Company was spun-off by IDT (the “Spin-Off”). The Company entered into various agreements with IDT prior to the Spin-Off including a Transition Services Agreement, which provides for certain services to be performed by the Company and IDT.

Following the Spin-off, IDT charges the Company for services it provides pursuant to the Transition Services Agreement. The charges for these services are included in “Selling, general and administrative” expense in the consolidated statements of operations.
 
Pursuant to the Transition Services Agreement, the Company provides specified administrative services to certain of IDT’s foreign subsidiaries. The Company’s charges for these services reduce the Company’s “Selling, general and administrative” expenses.
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(in thousands)
 
Amount IDT charged the Company
  $ 639     $ 705     $ 1,418     $ 1,450  
Amount the Company charged IDT
  $ 136     $ 49     $ 275     $ 107  

Note 8—Business Segment Information
 
The Company owns 99.3% of its subsidiary, GEIC, which owns 100% of IDT Energy and 92% of GOGAS. IDT Energy has outstanding deferred stock units granted to directors and employees that represent an interest of 1.4% of the equity of IDT Energy. The Company has two reportable business segments: IDT Energy, a REP supplying electricity and natural gas to residential and small business customers in the Northeastern United States, and Genie Oil and Gas, which is pioneering technologies to produce clean and affordable transportation fuels from the world's abundant oil shales and other fuel resources. The Genie Oil and Gas segment consists of (1) a 44.9% interest in AMSO, LLC, the Company’s oil shale project in Colorado, (2) an 87.9% interest in IEI, the Company’s oil shale project in Israel, (3) an 88.5% interest in Afek, the Company’s conventional oil and gas exploration project in the southern portion of the Golan Heights, and (4) an 89.9% interest in Genie Mongolia, the Company’s oil shale exploration project in Central Mongolia. Corporate costs include unallocated compensation, consulting fees, legal fees, business development expenses and other corporate-related general and administrative expenses. Corporate does not generate any revenues, nor does it incur any direct cost of revenues.
 
The Company’s reportable segments are distinguished by types of service, customers and methods used to provide their services. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker.
 
The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The Company evaluates the performance of its business segments based primarily on income (loss) from operations. There are no significant asymmetrical allocations to segments.
 
 
14

 
 
Operating results for the business segments of the Company were as follows:
 
(in thousands)
 
IDT
Energy
   
Genie Oil and Gas
   
Corporate
   
Total
 
Three Months Ended June 30, 2014
                       
Revenues
  $ 48,810     $     $     $ 48,810  
Income (loss) from operations
    940       (2,769 )     (2,515 )     (4,344 )
Research and development
          2,369             2,369  
Equity in the net loss of AMSO, LLC
                       
                                 
Three Months Ended June 30, 2013
                               
Revenues
  $ 55,134     $     $     $ 55,134  
Income (loss) from operations
    520       (3,888 )     (2,201 )     (5,569 )
Research and development
          2,592             2,592  
Equity in the net loss of AMSO, LLC
          806             806  
                                 
Six Months Ended June 30, 2014
                               
Revenues
  $ 179,158     $     $     $ 179,158  
Income (loss) from operations
    31       (5,206 )     (5,662 )     (10,837 )
Research and development
          4,469             4,469  
Equity in the net loss of AMSO, LLC
                       
                                 
Six Months Ended June 30, 2013
                               
Revenues
  $ 140,465     $     $     $ 140,465  
Income (loss) from operations
    9,375       (7,808 )     (4,504 )     (2,937 )
Research and development
          5,081             5,081  
Equity in the net loss of AMSO, LLC
          1,935             1,935  

Total assets for the business segments of the Company were as follows:
 
(in thousands)
 
IDT
Energy
   
Genie Oil and Gas
   
Corporate
   
Total
 
Total assets:
                       
June 30, 2014
  $ 67,678     $ 39,752     $ 27,283     $ 134,713  
                                 
December 31, 2013
  $ 76,691     $ 42,193     $ 39,959     $ 158,843  

Note 9—Commitments and Contingencies
 
Legal Proceedings
 
On March 13, 2014, named plaintiff, Anthony Ferrare, commenced a putative class-action lawsuit against IDT Energy, Inc. in the Court of Common Pleas of Philadelphia County, Pennsylvania. The complaint was not served on IDT Energy until July 16, 2014.  The plaintiff filed the suit on behalf of himself and other former and current electric customers of IDT Energy in Pennsylvania with variable rate plans, whom he contends were injured as a result of IDT Energy’s allegedly unlawful sales and marketing practices. IDT Energy’s response to the complaint is currently due on September 4, 2014. On August 7, 2014, IDT Energy removed the case to the United States District Court for the Eastern District of Pennsylvania. IDT Energy believes that the claims in this lawsuit are without merit and intends to vigorously defend the action. However, because the outcome of this matter is uncertain, the Company is unable to make an assessment of the final result and its impact on the Company.
 
On June 20, 2014, the Pennsylvania Attorney General’s Office (“AG”) and the Acting Consumer Advocate (“OCA”) filed a Joint Complaint against IDT Energy, Inc. with the Pennsylvania Public Utility Commission. In the Joint Complaint, the AG and the OCA allege, among other things, various violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law and the Telemarketing Registration Act. IDT Energy continues to respond to requests for information in connection with the proceeding, and is cooperating with the AG and OCA. IDT Energy denies that there is any merit to these claims, and the Company cannot estimate its potential damages.
 
On July 2, 2014, named plaintiff, Louis McLaughlin, filed a putative class-action lawsuit against IDT Energy, Inc. in the United States District Court for the Eastern District of New York, contending that he and other class members were injured as a result of IDT Energy’s allegedly unlawful sales and marketing practices. The plaintiff filed the suit on behalf of himself and two subclasses: all IDT Energy customers who were charged a variable rate for their energy from July 2, 2008, and all IDT Energy customers who participated in IDT Energy’s rebate program from July 2, 2008. IDT Energy’s response to the complaint is currently due on September 5, 2014.  IDT Energy believes that the claims in this lawsuit are without merit and intends to vigorously defend the action. However, because the outcome of this matter is uncertain, the Company is unable to make an assessment of the final result and its impact on the Company.
 
 
15

 
 
On July 15, 2014, named plaintiff, Kimberly Aks, commenced a putative class-action lawsuit against IDT Energy, Inc. in New Jersey Superior Court, Essex County, contending that she and other class members were injured as a result of IDT Energy’s alleged unlawful sales and marketing practices. The plaintiff filed the suit on behalf of herself and all other New Jersey residents who were IDT Energy customers at any time between July 11, 2008 and the present. IDT Energy’s response to the complaint is currently due on August 20, 2014. IDT Energy believes that the claims in this lawsuit are without merit and intends to vigorously defend the action. However, because the outcome of this matter is uncertain, the Company is unable to make an assessment of the final result and its impact on the Company.
 
In addition to the foregoing, the Company may from time to time be subject to other legal proceedings that have arisen in the ordinary course of business. Although there can be no assurance in this regard, the Company does not expect any of those legal proceedings to have a material adverse effect on its results of operations, cash flows or financial condition. 
 
Purchase and Other Commitments
 
The Company had purchase commitments of $7.2 million as of June 30, 2014.
 
Renewable Energy Credits
 
IDT Energy must obtain a certain percentage or amount of its power supply from renewable energy sources in order to meet renewable portfolio standards in the states in which it operates. This requirement may be met by obtaining renewable energy credits that provide evidence that electricity has been generated by a qualifying renewable facility or resource. At June 30, 2014, IDT Energy had commitments to purchase renewable energy credits of $15.9 million.
 
Tax Audits
 
The Company is subject to audits in various jurisdictions for various taxes. At June 30, 2014, the Company accrued $0.2 million for the estimated loss from audits for which it is probable that a liability has been incurred. Amounts asserted by taxing authorities or the amount ultimately assessed against the Company could be greater than the accrued amount. Accordingly, additional provisions may be recorded in the future as estimates are revised or underlying matters are settled or resolved. Imposition of assessments as a result of tax audits could have an adverse effect on the Company’s results of operations, cash flows and financial condition.

Letter of Credit
 
As of June 30, 2014, the Company had letters of credit outstanding totaling $7.6 million primarily for the benefit of regional transmission organizations that coordinate the movement of wholesale electricity and for certain utility companies. The letters of credit outstanding as of June 30, 2014 expire in the twelve months ending June 30, 2015.

Performance Bonds
 
IDT Energy has performance bonds issued through a third party for the benefit of various states in order to comply with the states’ financial requirements for retail energy providers. At June 30, 2014, IDT Energy had aggregate performance bonds of $3.8 million outstanding.

Other Contingencies
 
Since 2009, IDT Energy has been a party to a Preferred Supplier Agreement with BP Energy Company (“BP”), pursuant to which BP is IDT Energy’s preferred provider of electricity and natural gas. The agreement’s termination date is June 30, 2015. Under the arrangement, IDT Energy purchases electricity and natural gas at market rate plus a fee. IDT Energy’s obligations to BP are secured by a first security interest in deposits or receivables from utilities in connection with their purchase of IDT Energy’s customer receivables, and in any cash deposits or letters of credit posted in connection with any collateral accounts with BP. IDT Energy’s ability to purchase electricity and natural gas under this agreement is subject to satisfaction of certain conditions including the maintenance of certain covenants. At June 30, 2014, the Company was in compliance with such covenants. As of June 30, 2014, restricted cash—short-term of $0.3 million and trade accounts receivable of $27.1 million were pledged to BP as collateral for the payment of IDT Energy’s trade accounts payable to BP of $11.3 million as of June 30, 2014.
 
 
16

 
 
Note 10—Revolving Line of Credit
 
As of April 23, 2012, the Company and IDT Energy entered into a Loan Agreement with JPMorgan Chase Bank for a revolving line of credit for up to a maximum principal amount of $25.0 million. On April 30, 2014, the Loan Agreement was modified to extend the maturity date from April 30, 2014 to April 30, 2015. The proceeds from the line of credit may be used to provide working capital and for the issuance of letters of credit. The Company agreed to deposit cash in a money market account at JPMorgan Chase Bank as collateral for the line of credit equal to the greater of (a) $10.0 million or (b) the sum of the amount of letters of credit outstanding plus the outstanding principal under the revolving note. The Company is not permitted to withdraw funds or exercise any authority over the required balance in the collateral account. The principal outstanding will bear interest at the lesser of (a) the LIBOR rate multiplied by the statutory reserve rate established by the Board of Governors of the Federal Reserve System plus 1.0% per annum, or (b) the maximum rate per annum permitted by whichever of applicable federal or Texas laws permit the higher interest rate. Interest is payable at least every three months and all outstanding principal and any accrued and unpaid interest is due on the maturity date. The Company pays a quarterly unused commitment fee of 0.08% per annum on the difference between $25.0 million and the average daily outstanding principal balance of the note. In addition, as of April 23, 2012, GEIC issued a Corporate Guaranty to JPMorgan Chase Bank whereby GEIC unconditionally guarantees the full payment of all indebtedness of the Company and IDT Energy under the Loan Agreement. At June 30, 2014 and December 31, 2013, there were no amounts borrowed under the line of credit, and cash collateral of $10.0 million was included in “Restricted cash—short-term” in the consolidated balance sheet. In addition, at June 30, 2014 and December 31, 2013, letters of credit of $7.6 million and $5.7 million, respectively, were outstanding.
 
Note 11—Recently Issued Accounting Standard Not Yet Adopted
 
In May 2014, the Financial Accounting Standards Board and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition standard that will supersede most of the current revenue recognition guidance under U.S. GAAP and International Financial Reporting Standards (“IFRS”). The goals of the revenue recognition project were to clarify and converge the revenue recognition principles under U.S. GAAP and IFRS and to develop guidance that would streamline and enhance revenue recognition requirements. The Company will adopt this standard on January 1, 2017. Entities have the option of using either a full retrospective or modified retrospective approach for the adoption of the standard. The Company is evaluating the impact that the standard will have on its consolidated financial statements.
 
 
17

 
 
Item 2.             Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following information should be read in conjunction with the accompanying consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the U.S. Securities and Exchange Commission (or SEC).
 
As used below, unless the context otherwise requires, the terms “the Company,” “Genie,” “we,” “us,” and “our” refer to Genie Energy Ltd., a Delaware corporation, and its subsidiaries, collectively.
 
Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words “believes,” “anticipates,” “expects,” “plans,” “intends,” and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those discussed under Item 1A to Part I “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013 as well as under Item 1A to Part II “Risk Factors” in this Quarterly Report on Form 10-Q. The forward-looking statements are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the SEC pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our Annual Report on Form 10-K for the year ended December 31, 2013.
 
Overview
 
We own 99.3% of our subsidiary, Genie Energy International Corporation, or GEIC, which owns 100% of IDT Energy and 92% of Genie Oil and Gas, Inc., or GOGAS. IDT Energy has outstanding deferred stock units granted to directors and employees that represent an interest of 1.4% of the equity of IDT Energy. Our principal businesses consist of the following:
 
·
IDT Energy, a retail energy provider, or REP, supplying electricity and natural gas to residential and small business customers in the Northeastern United States; and
 
·
Genie Oil and Gas, which is pioneering technologies to produce clean and affordable transportation fuels from the world's abundant oil shales and other fuel resources, which consists of (1) American Shale Oil Corporation, or AMSO, which holds and manages a 44.9% interest in American Shale Oil, L.L.C., or AMSO, LLC, our oil shale project in Colorado, (2) an 87.9% interest in Israel Energy Initiatives, Ltd., or IEI, our oil shale project in Israel, (3) an 88.5% interest in Afek Oil and Gas, Ltd. or Afek, our conventional oil and gas exploration project in in the southern portion of the Golan Heights, and (4) an 89.9% interest in Genie Mongolia, our oil shale exploration project in Central Mongolia.
 
As part of our ongoing business development efforts, we continuously seek out new opportunities, which may include complementary operations or businesses that reflect horizontal or vertical expansion from our current operations. Some of these potential opportunities are considered briefly and others are examined in further depth. In particular, we seek out acquisitions to expand the geographic scope and size of our REP business, and additional energy exploration projects to diversify our GOGAS unit’s operations, among geographies, technologies and resources.
 
IDT Energy

Seasonality and Weather
 
The weather and the seasons, among other things, affect IDT Energy’s revenues. Weather conditions have a significant impact on the demand for natural gas and electricity used for heating and cooling. Typically, colder winters and hotter summers increase demand for natural gas and electricity, respectively. Milder winters and/or summers have the opposite effect. Natural gas revenues typically increase in the first quarter due to increased heating demands and electricity revenues typically increase in the third quarter due to increased air conditioning use. Approximately 49% and 47% of IDT Energy’s natural gas revenues were generated in the first quarter of 2013 and 2012, respectively, when demand for heating was highest. Although the demand for electricity is not as seasonal as natural gas, approximately 31% and 34% of IDT Energy’s electricity revenues were generated in the third quarter of 2013 and 2012, respectively. As a result, our revenues and income (loss) from operations are subject to material seasonal variations, and the interim financial results are not necessarily indicative of the estimated financials results for the full year.
 
 
18

 
 
Concentration of Customers and Associated Credit Risk
 
IDT Energy reduces its customer credit risk by participating in purchase of receivable, or POR, programs for a majority of its receivables. In addition to providing billing and collection services, utility companies purchase IDT Energy’s receivables and assume all credit risk without recourse to IDT Energy. IDT Energy’s primary credit risk is therefore nonpayment by the utility companies. Certain of the utility companies represent significant portions of our consolidated revenues and consolidated gross trade accounts receivable balance and such concentrations increase our risk associated with nonpayment by those utility companies.

The following table summarizes the percentage of consolidated revenues from customers by utility company that equal or exceed 10% of our consolidated revenues in the period (no other single utility company accounted for more than 10% of our consolidated revenues in these periods):

   
Six Months Ended
June 30,
 
   
2014
   
2013
 
Con Edison
    22 %     23 %
West Penn Power
    13 %     10 %
National Grid USA
 
na
      12 %
 
na-less than 10% of consolidated revenue in the period

The following table summarizes the percentage of consolidated gross trade accounts receivable by utility company that equal or exceed 10% of consolidated gross trade accounts receivable at June 30, 2014 and December 31, 2013:

   
June 30,
2014
   
December 31,
2013
 
Con Edison
    23 %     23 %
West Penn Power
    13 %     13 %
Penelec
    11 %     12 %

Winter 2014 Price Volatility and Customer Complaints

Because of dramatic increases in wholesale electricity prices, the retail electricity prices that IDT Energy and many other variable rate electricity suppliers charged to their customers also increased sharply in January and February 2014. These retail electricity price increases resulted in large numbers of customers filing informal and formal complaints to state utility commissions, state attorneys general, and state legislators. IDT Energy was served with several thousand formal and informal customer complaints to state utility commission and state attorneys general related to the winter retail price increases. IDT Energy has responded to each customer complaint it has received and attempted to resolve each complaining customer’s concerns. IDT Energy has also paid $4.7 million in rebates to affected customers in the six months ended June 30, 2014. IDT Energy was under no obligation to provide such rebates and did so in order to mitigate the impact of the price increases on its customers notwithstanding that the underlying cause of the price increase was beyond IDT Energy’s control.

IDT Energy has also responded to formal and informal information requests from state utility commissions, state attorneys general, and state legislators related to the wholesale and retail electricity price increases in the winter of 2014. In addition, the Pennsylvania Attorney General’s Office and the Acting Consumer Advocate filed a Joint Complaint against IDT Energy with the Pennsylvania Public Utility Commission in connection with such events. IDT Energy has also been sued in separate putative class action suits in New York, New Jersey and Pennsylvania, partially related to the price increases during the winter of 2014.

IDT Energy does not believe that it was at fault or acted in any way improperly with respect to the events of winter 2014.  However, we cannot predict the outcome of the regulatory or putative class action litigation or the impact on us of these or other actions, or whether there will be other impacts from the conditions that existed in winter 2014. Further, although we have taken action to insulate us and our customers from future similar events, we cannot assure that those actions will be effective.
 
Investment in American Shale Oil, LLC
 
AMSO, LLC holds a research, development and demonstration lease awarded by the U.S. Bureau of Land Management that covers an area of 160 acres in western Colorado (the RD&D Lease). The RD&D Lease runs for a ten-year period beginning on January 1, 2007, and is subject to an extension of up to five years if AMSO, LLC can demonstrate that a process leading to the production of commercial quantities of shale oil is diligently being pursued. If AMSO, LLC can demonstrate the economic and environmental viability of its technology, it will have the opportunity to submit a one-time payment pursuant to the applicable regulations and convert its RD&D Lease to a commercial lease on 5,120 acres, which overlap and are contiguous with the 160 acres covered by its RD&D Lease.
 
 
19

 

We account for our ownership interest in AMSO, LLC using the equity method since we have the ability to exercise significant influence over its operating and financial matters, although we do not control AMSO, LLC. AMSO, LLC is a variable interest entity, however, we have determined that we are not the primary beneficiary.
 
Except as set forth below, AMSO is responsible for funding 20% of the initial $50 million of AMSO, LLC’s expenditures, 35% of the next $50 million in approved expenditures and 40% of the costs of the one-time payment for conversion of AMSO, LLC’s RD&D Lease to a commercial lease, in the event AMSO, LLC’s application for conversion is approved, with the remaining amounts of such expenditures to be funded by Total S.A., or Total. All other expenditures are to be borne in proportion to equity ownership. The percentages for expenditures are subject to adjustment in connection with certain changes in the equity ownership of AMSO LLC. As of June 30, 2014, the cumulative contributions of AMSO and Total to AMSO, LLC were $74.0 million. AMSO’s allocated share of the net loss of AMSO, LLC is included in “Equity in the net loss of AMSO, LLC” in the accompanying consolidated statements of operations.
 
AMSO has the right to decide at each capital call whether or not to fund AMSO, LLC, and will make a determination at that time. AMSO did not fund the capital calls for the first, second and third quarters of 2014. Total funded AMSO’s share in an aggregate amount of $2.7 million. Because of AMSO’s decisions not to fund its share of AMSO, LLC’s expenditures, AMSO’s ownership interest in AMSO, LLC was reduced to 44.9% and Total’s ownership interest increased to 55.1%. In addition, AMSO’s share of future funding of AMSO, LLC up to a cumulative $100 million was reduced to 31.4% and Total’s share increased to 68.6%. AMSO is evaluating its options with respect to funding AMSO, LLC during the remainder of 2014, and funding of less than its full share would result in further dilution of its interest in AMSO, LLC.
 
The agreements with Total provide for varying consequences for AMSO’s failure to fund its share at different stages of the project, including dilution of AMSO’s interest in AMSO, LLC or paying interest to Total for expenditures they fund on behalf of AMSO. Either Total or AMSO may terminate its obligations to make capital contributions and withdraw as a member of AMSO, LLC. Even if AMSO were to withdraw its interest in AMSO, LLC, it will remain liable for its share of expenditures for safety and environmental reclamation related to events occurring prior to its withdrawal.
 
Because of AMSO’s decisions not to fund its share of AMSO, LLC’s expenditures, AMSO, LLC allocates its net loss beginning January 2014 as follows: the first $7.9 million of losses are allocated to Total, then it allocates any remaining losses proportionately such that AMSO and Total’s capital accounts as a percentage of AMSO, LLC’s total capital equals their ownership interests.
 
At June 30, 2014, our maximum exposure to additional loss because of our required investment in AMSO, LLC was $0.2 million, based on AMSO, LLC’s budget for the remainder of 2014. Our maximum exposure to additional loss could increase based on the situations described above. The maximum exposure at June 30, 2014 was determined as follows:
 
   
(in millions)
 
AMSO’s committed investment in AMSO, LLC based on the budget for the remainder of 2014
  $ 0.5  
Less: cumulative capital contributions to AMSO, LLC
     
Less: liability for equity loss in  to AMSO, LLC at June 30, 2014
    (0.3 )
         
    Maximum exposure to additional loss
  $ 0.2  

Israel Energy Initiatives, Ltd.

IEI holds an exclusive Shale Oil Exploration and Production License awarded in July 2008 by the Government of Israel. The license covers approximately 238 square kilometers in the south of the Shfela region in Central Israel. Under the terms of the license, IEI is to conduct a geological appraisal study across the license area, characterize the resource and select a location for a pilot plant in which it will demonstrate its in-situ technology. The initial term of the license was for three years until July 2011. The license was extended until July 2015. IEI has discussed securing its rights beyond July 2015 with the Ministry of Energy and Water, and expects a satisfactory resolution of this matter. IEI submitted its application for the construction and operation of its oil shale pilot test facility to the Jerusalem District Building and Planning Committee, and the review of the application including a review of the environmental documents by the Ministry of Environment has been concluded. The District Planning Committee held a meeting on the application on August 4, 2014, which meeting was adjourned after partially completing the agenda. We fully expect the permitting process to extend for at least several more months until a final determination on the application is made.

Afek Oil and Gas, Ltd.

In 2013, the Government of Israel finalized the award to Afek of an exclusive three-year petroleum exploration license covering 396.5 square kilometers in the southern portion of the Golan Heights. Afek has retained oil and gas exploration professionals and has contracted with internationally recognized vendors to provide the services required for its exploration program. In 2013, Afek completed preliminary geophysical work including electromagnetic survey and the reprocessing of 2D seismic data to characterize the subsurface prior to drilling exploration wells. Afek subsequently began the analysis of the acquired data internally and with outside exploration experts. In addition, Afek submitted a permit application to conduct a ten-well exploration drilling program. On July 24, 2014, Afek received notice that Israel’s Northern District Planning and Building Committee had voted to approve the application, although the drilling permit has not yet been issued. Also in July 2014, the Supreme Court of Israel denied a motion filed by groups seeking to prevent the Committee from approving the project. Provided that the permit is issued on a timely basis and no legal obstacles arise, Afek plans to begin exploratory drilling in the second half of 2014 and could take up to three years to complete.
 
 
20

 

Genie Mongolia

In April 2013, Genie Mongolia and the Petroleum Authority of Mongolia entered into an exclusive oil shale development agreement to explore and evaluate the commercial potential of oil shale resources in a 34,470 square kilometer area in Central Mongolia. The five year agreement allows Genie Mongolia to explore, identify and characterize the oil shale resource in the exclusive survey area and to conduct a pilot test using in-situ technology on appropriate oil shale deposits. To date, Genie Mongolia is the only recipient of an exclusive oil shale survey contract in Mongolia. During 2013, Genie Mongolia conducted initial surface and subsurface exploration work. To date in 2014, Genie Mongolia continued surface mapping and other geophysical evaluation work of the area. Any subsequent commercial operations would be contingent upon implementation of a regulatory framework by the government for the permitting and licensing of commercial oil shale operations. We continue to evaluate our operations in Mongolia in light of regulatory factors.

Critical Accounting Policies
 
Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Our significant accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to the allowance for doubtful accounts, goodwill and income taxes. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For additional discussion of our critical accounting policies, see our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2013.
 
Recently Issued Accounting Standard Not Yet Adopted
 
In May 2014, the Financial Accounting Standards Board and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition standard that will supersede most of the current revenue recognition guidance under U.S. GAAP and International Financial Reporting Standards, or IFRS. The goals of the revenue recognition project were to clarify and converge the revenue recognition principles under U.S. GAAP and IFRS and to develop guidance that would streamline and enhance revenue recognition requirements. We will adopt this standard on January 1, 2017. Entities have the option of using either a full retrospective or modified retrospective approach for the adoption of the standard. We are evaluating the impact that the standard will have on our consolidated financial statements.
 
Results of Operations
 
We evaluate the performance of our operating business segments based primarily on income (loss) from operations. Accordingly, the income and expense line items below income (loss) from operations are only included in our discussion of the consolidated results of operations.
 
 
21

 
 
Three and Six Months Ended June 30, 2014 Compared to Three and Six Months Ended June 30, 2013
 
IDT Energy Segment
 
   
Three months ended
June 30,
   
Change
   
Six months ended
June 30,
   
Change
 
   
2014
   
2013
    $        %       2014       2013     $       %  
   
(in millions)
 
Revenues:
                                                       
Electricity
  $ 40.0     $ 45.1     $ (5.1 )     (11.3 )%   $ 136.0     $ 99.7     $ 36.3       36.4 %
Natural gas
    8.8       10.1       (1.3 )     (12.1 )     43.1       40.8       2.3       5.9  
Total revenues
    48.8       55.2       (6.4     (11.5 )     179.1       140.5       38.6       27.6  
Direct cost of revenues
    37.4       45.2       (7.8 )     (17.3 )     157.8       111.5       46.3       41.6  
Gross profit
    11.4       10.0       1.4       14.9       21.3       29.0       (7.7     (26.4
Selling, general and administrative expenses
    10.5       9.5       1.0       11.3       21.3       19.6       1.7       8.7  
Income from operations
  $ 0.9     $ 0.5     $ 0.4       80.8 %   $     $ 9.4     $ (9.4 )     (99.7 )%

Revenues. IDT Energy’s revenues decreased in the three months ended June 30, 2014 compared to the same period in 2013 because of a significant decrease in consumption, primarily due to a decrease in meters enrolled. As described below, the unusually cold weather and resultant high energy costs in the three months ended March 31, 2014 adversely affected IDT Energy’s customer churn in the three and six months ended June 30, 2014 compared to the same periods in 2013.
 
IDT Energy’s electricity revenues decreased in the three months ended June 30, 2014 compared to the same period in 2013 because of a significant decrease in consumption, primarily due to a decrease in meters enrolled. Electricity consumption decreased 29.6% in the three months ended June 30, 2014 compared to the same period in 2013, and meters enrolled decreased 22.3% in the three months ended June 30, 2014 compared to the same period in 2013. Average electricity consumption per meter also decreased 9.4% in the three months ended June 30, 2014 compared to the same period in 2013, primarily because of the significant churn of relatively high average consumption meters in Pennsylvania territories. The average rate charged to customers for electricity increased 25.9% in the three months ended June 30, 2014 compared to the same period in 2013. The increase in the average rate charged to customers for electricity was partially due to an increase in the underlying commodity cost.
 
IDT Energy's natural gas revenues decreased in the three months ended June 30, 2014 compared to the same period in 2013 because of a decrease in consumption, primarily due to a decrease in meters enrolled. Natural gas consumption decreased 11.8% in the three months ended June 30, 2014 compared to the same period in 2013, and meters enrolled decreased 18.9% in the three months ended June 30, 2014 compared to the same period in 2013. These decreases were partially offset by an increase in average natural gas consumption per meter, which increased 8.8% in the three months ended June 30, 2014 compared to the same period in 2013. The average rate charged to customers for natural gas decreased 0.3% in the three months ended June 30, 2014 compared to the same period in 2013.
 
IDT Energy’s revenues increased in the six months ended June 30, 2014 compared to the same period in 2013. A confluence of issues in January and February 2014 associated with this past winter’s polar vortex resulted in extraordinarily large spikes in the prices of wholesale electricity and natural gas in markets where IDT Energy and other retail providers purchase their supply. These factors included sustained, extremely cold weather in much of IDT Energy’s service area, the failure of the Independent System Operators (ISO) to deliver peak power, and unusually volatile commodity trading in the financial markets. IDT Energy responded by reducing its target margins in order to mitigate the severity of the commodity price increases on its customers and subsequently issued an aggregate of $1.2 million and $4.7 million in rebates to customers in the three and six months ended June 30, 2014, respectively. The colder weather adversely affected IDT Energy’s customer churn, gross margins and results of operations in the six months ended June 30, 2014 compared to the same period in 2013.
 
IDT Energy’s electricity revenues increased in the six months ended June 30, 2014 compared to the same period in 2013 because of a 67.8% increase in the average rate charged to customers, which is tied to the higher commodity costs. This increase was partially offset by an 18.7% decrease in electricity consumption. The increase in the average rate charged to customers for electricity was mostly due to a 74.2% increase in the underlying commodity cost in the six months ended June 30, 2014 compared to the same period in 2013. The decrease in electricity consumption was primarily the result of a decrease in meters enrolled, which decreased 18.5% in the six months ended June 30, 2014 compared to the same period in 2013, coupled with a 0.3% decrease in average consumption per meter in the six months ended June 30, 2014 compared to the same period in 2013.
 
 
22

 
 
IDT Energy's natural gas revenues increased in the six months ended June 30, 2014 compared to the same period in 2013 because of a 10.6% increase in the average rate charged to customers, partially offset by a 4.3% decrease in natural gas consumption. The increase in the average rate charged to customers for natural gas was mostly due to a 47.7% increase in the underlying commodity cost in the six months ended June 30, 2014 compared to the same period in 2013. The decrease in natural gas consumption was primarily the result of a 16.7% decrease in meters enrolled, although average consumption per meter increased 15.0% in the six months ended June 30, 2014 compared to the same period in 2013.
 
IDT Energy’s customer base as measured by meters enrolled consisted of the following:

   
June 30,
2014
   
March 31,
2014
   
December 31,
2013
   
September 30,
2013
   
June 30,
 2013
 
   
(in thousands)
 
Meters at end of quarter:
                             
Electricity customers
    238       256       282       300       314  
Natural gas customers
    126       135       145       156       161  
                                         
Total meters
    364       391       427       456       475  

Gross meter acquisitions in the three and six months ended June 30, 2014 were 55,000 and 102,000, respectively, compared to 71,000 and 137,000 in the three and six months ended June 30, 2013, respectively, which reflects an intentional slowing of acquisitions in the territories most impacted by the rising commodity costs during the polar vortex. During the three months ended June 30, 2014, IDT Energy accelerated acquisitions of new customers in Illinois, and reengaged its marketing efforts in certain Pennsylvania utility territories where it had suspended activities in the prior quarter, which contributed to the increase in sequential gross meter acquisitions. Net meters enrolled decreased by 27,000 or 6.9% in the three months ended June 30, 2014 compared to a decrease of 10,000 meters or 2.1% in the three months ended June 30, 2013, and decreased by 63,000 meters or 14.6% in the six months ended June 30, 2014 compared to a decrease of 27,000 meters or 5.4% in the six months ended June 30, 2013, as gross meter acquisitions in the three and six months ended June 30, 2014 were more than offset by higher rates of customer churn. Average monthly churn increased from 6.3% in the three months ended June 30, 2013 to 8.1% in the three months ended June 30, 2014, and from 6.3% in the six months ended June 30, 2013 to 7.6% in the six months ended June 30, 2014, as some customers migrated back to the incumbent utility because of the large increase in the rates charged to customers due to the extreme increase in our costs to procure the commodities.
 
IDT Energy has license applications pending to enter into additional territories, primarily gas and dual meter territories, in Pennsylvania, Maryland and the District of Columbia. Management continues to evaluate additional, deregulation-driven opportunities in other states, including Massachusetts and Connecticut. During the six months ended June 30, 2014, efforts in Illinois and the District of Columbia started to gain traction. In addition, IDT Energy has developed several significant initiatives to drive growth in gross meter additions. Most notably, Epiq Energy, LLC, or Epiq, which IDT Energy acquired in December 2013, provides independent representatives with the opportunity to build sales organizations and to profit from both residential and commercial energy. Epiq is expected to begin meter acquisition efforts in certain IDT Energy utility territories by September 2014. In addition, IDT Energy has developed and begun to market a twelve-month guaranteed rate residential offering in some utility territories, and has created a new brand, Residents Energy, to focus on marketing and sales of guaranteed rate offerings. IDT Energy expects these initiatives to contribute meaningfully to gross meter additions by December 2014.
 
The average rates of annualized energy consumption, as measured by residential customer equivalents, or RCEs, are presented in the chart below. An RCE represents a natural gas customer with annual consumption of 100 mmbtu or an electricity customer with annual consumption of 10 MWh. Because different customers have different rates of energy consumption, RCEs are an industry standard metric for evaluating the consumption profile of a given retail customer base. The RCE decrease at June 30, 2014 compared to December 31, 2013 and June 30, 2013 primarily reflects the decline in meters enrolled. In addition, the Pennsylvania utility territories hardest hit by the polar vortex have relatively high per meter consumption rates. They experienced higher than average levels of churn and customer acquisition programs in some of these territories were briefly suspended.
 
   
June 30,
2014
   
March 31,
2014
   
December 31,
2013
   
September 30,
2013
   
June 30,
2013
 
   
(in thousands)
 
RCEs at end of quarter:
                             
Electricity customers
    174       198       228       246       263  
Natural gas customers
    86       90       87       91       94  
                                         
Total RCEs
    260       288       315       337       357  
 
 
23

 
 
Direct Cost of Revenues and Gross Margin Percentage. IDT Energy’s direct cost of revenues and gross margin percentage were as follows:
 
   
 Three months ended
June 30,
    Change    
  Six months ended
June 30,
      Change  
    2014     2013      $     %     2014     2013      $     %  
Direct cost of revenues:
                          (in millions)                                  
Electricity
 
$
29.8
   
$
38.4
   
$
(8.6
   
(22.4
)%
 
$
117.0
   
$
82.6
   
$
34.4
     
41.6
%
Natural gas
   
7.6
     
6.8
     
0.8
     
11.6
     
40.8
     
28.9
     
11.9
     
41.4
 
Total direct cost of revenues
 
$
37.4
   
$
45.2
   
$
(7.8
)
   
(17.3
)%
 
$
157.8
   
$
111.5
   
$
46.3
     
41.6
%
 
   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2014
   
2013
   
Change
   
2014
   
2013
   
Change
 
Gross margin percentage:
                                   
Electricity
   
25.6
%
   
14.9
%
   
10.7
%
   
14.0
%
   
17.1
%
   
(3.1
)%
Natural gas
   
13.9
     
32.2
     
(18.3
   
5.4
     
29.2
     
(23.8
Total gross margin percentage
   
23.5
%
   
18.1
%
   
5.4
%
   
11.9
%
   
20.6
%
   
(8.7
)%

Direct cost of revenues for electricity decreased in the three months ended June 30, 2014 compared to the same period in 2013 primarily because of the 29.6% decrease in electricity consumption, partially offset by a 10.2% increase in the average unit cost of electricity. Gross margin on electricity sales increased in the three months ended June 30, 2014 compared to the same period in 2013 because the average rate charged to customers for electricity increased substantially more than the average unit cost of electricity in the three months ended June 30, 2014 compared to the same period in 2013. Additionally, the three months ended June 30, 2013 were impacted by the effects of an internal pricing system issue that constrained our ability to make timely adjustments to electric rates in some newer territories, which did not repeat. Direct cost of revenues for electricity increased and gross margin on electricity sales decreased in the six months ended June 30, 2014 compared to the same period in 2013 primarily because the average unit cost of electricity increased 74.2% in the six months ended June 30, 2014 compared to the same period in 2013. The increase in direct cost of revenues for electricity was partially offset by an 18.7% decrease in electricity consumption in the six months ended June 30, 2014 compared to the same period in 2013.
 
Direct cost of revenues for natural gas increased and gross margins on natural gas sales decreased in the three and six months ended June 30, 2014 compared to the same periods in 2013 primarily due to the 26.5% and 47.7% increases in the average unit cost of natural gas in the three and six months ended June 30, 2014, respectively, compared to the same periods in 2013. The increase in direct cost of revenues for natural gas was partially offset by decreases of 11.8% and 4.3% in natural gas consumption in the three and six months ended June 30, 2014, respectively, compared to the same periods in 2013.
 
Selling, General and Administrative. The increase in selling, general and administrative expenses in the three and six months ended June 30, 2014 compared to the same periods in 2013 was due to increases in payroll and benefits, consulting and professional fees and computer software licenses expense, all of which related to the acquisition of Diversegy, LLC, or Diversegy, and Epiq Energy, LLC. In December 2013, IDT Energy acquired 100% of the outstanding membership interests of Diversegy, a retail energy advisory and brokerage company that serves commercial and industrial customers, and its network marketing channel, Epiq. In addition, the increase in selling, general and administrative expenses in the six months ended June 30, 2014 compared to the same period in 2013 was due to an increase in purchase of receivable fees because of the increase in revenues, partially offset by a decrease in customer acquisition costs due to the significant decrease in the number of new customers acquired. As a percentage of IDT Energy’s total revenues, selling, general and administrative expenses increased from 17.1% in the three months ended June 30, 2013 to 21.5% in the three months ended June 30, 2014, and decreased from 14.0% in the six months ended June 30, 2013 to 11.9% in the six months ended June 30, 2014.
 
 
24

 
 
Genie Oil and Gas Segment
 
Genie Oil and Gas does not currently generate any revenues, nor does it incur any direct cost of revenues.
 
   
  Three months ended
June 30,
      Change    
  Six months ended
June 30,
      Change  
      2014       2013        $       %       2014       2013       $       %  
                            (in millions)                                  
General and administrative expenses
  $ 0.4     $ 0.5     $ 0.1       18.3 %   $ 0.7     $ 0.8     $ 0.1       7.0 %
Research and development
    2.4       2.6       0.2       8.6       4.5       5.1       0.6       12.0  
Equity in net loss of AMSO, LLC
          0.8       0.8       100.0             1.9       1.9       100.0  
Loss from operations
  $ (2.8 )   $ (3.9 )   $ 1.1       28.8 %   $ (5.2 )   $ (7.8 )   $ 2.6       33.3 %

General and Administrative. General and administrative expenses decreased in the three months ended June 30, 2014 compared to the same period in 2013 primarily due to a decrease in stock-based compensation expense, which decreased $0.1 million in the three months ended June 30, 2014 compared to the same period in 2013. In May 2013, we granted an aggregate of 1.0% of the equity in IEI to certain of our employees. The grants vested immediately on the date of the grant. The fair value on the date of the grant was estimated to be $0.2 million, which was recognized in May 2013. General and administrative expenses decreased in the six months ended June 30, 2014 compared to the same period in 2013 primarily due to decreases in legal, consulting and professional fees.
 
Research and Development. Research and development expenses consist of the following:
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2014
   
2013
 
2014
   
2013
 
 
(in millions)
 
IEI
$ 0.7     $ 1.0     $ 1.3     $ 2.1  
Genie Mongolia
  0.6       0.7       1.1       1.7  
Afek
  1.1       0.8       2.0       1.1  
Other
        0.1       0.1       0.2  
Total research and development expenses
$ 2.4     $ 2.6     $ 4.5     $ 5.1  
 
During the three and six months ended June 30, 2014, the environmental documents portion of IEI’s permit application for the construction and operation of its oil shale pilot test facility was under review by the Ministry of Environment. In addition, as per the required permitting process, IEI continued laboratory work, engineering work and associated preparation of environmental permit applications related to the planned pilot.
 
Genie Mongolia’s expenses in the three and six months ended June 30, 2014 and 2013 related to the joint geological survey agreement with the Republic of Mongolia, which was executed in April 2013, to explore certain of that country’s oil shale deposits. In the three and six months ended June 30, 2014, Genie Mongolia continued surface mapping and other geophysical evaluation work of the area. The exploratory well program is intended to identify a site suitable for a pilot test and subsequent commercial operations. Any subsequent commercial operations would be contingent upon implementation of a regulatory framework by the government for the permitting and licensing of commercial oil shale operations.
 
After receiving the award of a 36-month petroleum exploration license in the Southern portion of the Golan Heights in 2013, Afek has been preparing permit applications, contracting with international service providers to assist in exploration activities, and staffing up for operations. During 2013, Afek completed preliminary geophysical work including an electromagnetic survey and the reprocessing of 2D seismic data to characterize the subsurface prior to drilling exploration wells. Afek subsequently began the analysis of the acquired data. In addition, Afek applied to Israel’s Northern District Planning and Building Committee for a permit to conduct a ten-well oil and gas exploration drilling program. In July 2014, the Committee voted to approve the application, although the drilling permit has not yet been issued. Provided that the permit is issued on a timely basis and no legal obstacles arise, Afek plans to begin exploratory drilling in the second half of 2014 and could take up to three years to complete. 
 
Equity in the Net Loss of AMSO, LLC. AMSO has the right to decide at each capital call whether or not to fund AMSO, LLC, and will make a determination at that time. AMSO did not fund the capital calls for the first, second, and third quarters of 2014. Total funded AMSO’s share in an aggregate amount of $2.7 million. Because of AMSO’s decisions not to fund its share of AMSO, LLC’s expenditures, AMSO, LLC allocates its net loss beginning January 2014 as follows: the first $7.9 million of losses are allocated to Total, then it allocates any remaining losses proportionately such that AMSO and Total’s capital accounts as a percentage of AMSO, LLC’s total capital equals their ownership interests. As a result, equity in the net loss of AMSO, LLC was nil in the three and six months ended June 30, 2014. Equity in the net loss of AMSO, LLC was $0.8 million and $1.9 million in the three and six months ended June 30, 2013, respectively, which was 35% of AMSO, LLC’s net loss of $2.3 million and $5.5 million in the three and six months ended June 20, 2013, respectively.
 
 
25

 

Corporate
 
Corporate does not generate any revenues, nor does it incur any direct cost of revenues. Corporate costs include unallocated compensation, consulting fees, legal fees, business development expenses and other corporate-related general and administrative expenses.
 
   
Three months ended
June 30,
   
Change
   
Six months ended
June 30,
   
Change
 
   
2014
   
2013
    $     %     2014     2013     $     %  
   
(in millions)
 
General and administrative expenses and loss from operations
  $ 2.5