SUMMER ENERGY HOLDINGS INC - Quarter Report: 2013 March (Form 10-Q)
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 March 31, 2013
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 001-35496
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Summer Energy Holdings, Inc.
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(Exact name of registrant as specified in charter)
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Nevada
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20-2722022
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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800 Bering Drive, Suite 260, Houston, Texas
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77057
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(Address of principal executive offices)
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(Zip Code)
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(713) 375-2790
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(Issuer’s telephone number, including area code)
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N/A
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(Former name, former address, and former fiscal year, if changed since last report)
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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 þ No o
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 þ No o
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 o Accelerated filer o
Non-accelerated filer o Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined by Section 12b-2 of the Exchange Act). Yes o No þ
The number of shares of the issuer’s common stock, $0.001 par value, outstanding as of May 14, 2013 was 12,979,863.
FORM 10-Q
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FOR THE QUARTER ENDED MARCH 31, 2013
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INDEX
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PART I – FINANCIAL INFORMATION
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Page
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| 4 | ||
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| 10 | ||
| 12 | ||
| 12 | ||
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PART II – OTHER INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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SUMMER ENERGY HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2013 AND DECEMBER 31, 2012
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March 31, 2013
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December 31, 2012
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(Unaudited)
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ASSETS
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Current Assets
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Cash
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$ | 142,767 | $ | 281,269 | ||||
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Restricted cash
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78,219 | 76,219 | ||||||
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Accounts receivable, net
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1,418,753 | 1,539,555 | ||||||
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Prepaid and other current assets
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289,514 | 201,235 | ||||||
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Total current assets
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1,929,253 | 2,098,278 | ||||||
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Property and Equipment, net
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390,440 | 215,527 | ||||||
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Certificates of Deposit – Restricted
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518,196 | 517,701 | ||||||
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Deferred Financing Costs, net
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111,103 | 127,772 | ||||||
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Total assets
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$ | 2,948,992 | $ | 2,959,278 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current Liabilities
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Accounts payable
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$ | 200,967 | $ | 104,881 | ||||
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Accrued wholesale power purchased
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622,766 | 417,085 | ||||||
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Accrued expenses
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583,797 | 576,823 | ||||||
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Total current liabilities
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1,407,530 | 1,098,789 | ||||||
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Commitments
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Stockholders' Equity
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Preferred Stock - $.001 par value, 10,000,000 shares authorized, no shares issued and
outstanding
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- | - | ||||||
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Common Stock - $.001 par value, 100,000,000 shares authorized, 12,979,863 shares
issued and outstanding at March 31, 2013 and 12,954,863 at December 31, 2012, respectively
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12,980 | 12,955 | ||||||
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Subscription receivable
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(52,000 | ) | (52,000 | ) | ||||
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Additional paid in capital
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3,851,461 | 3,844,592 | ||||||
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Accumulated deficit
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(2,270,979 | ) | (1,945,058 | ) | ||||
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Total stockholders’ equity
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1,541,462 | 1,860,489 | ||||||
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Total liabilities and stockholders' equity
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$ | 2,948,992 | $ | 2,959,278 | ||||
See accompanying notes to the consolidated financial statements.
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AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012
(UNAUDITED)
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For the Three Months Ended March 31, 2013
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For the Three Months Ended March 31, 2012
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Electricity Revenue
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$ | 2,890,845 | $ | 166,777 | ||||
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Cost of Goods Sold
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Power purchases and balancing/ancillary
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1,223,185 | 58,719 | ||||||
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Transportation and distribution providers charge
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1,111,592 | 52,068 | ||||||
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Total cost of goods sold
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2,334,777 | 110,787 | ||||||
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Gross Profit
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556,068 | 55,990 | ||||||
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General and Administrative
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865,836 | 707,614 | ||||||
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Operating Loss
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(309,768 | ) | (651,624 | ) | ||||
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Other Income (Expense)
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Financing costs
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(16,668 | ) | (16,668 | ) | ||||
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Interest income
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515 | 499 | ||||||
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Total other income (expense)
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(16,153 | ) | (16,169 | ) | ||||
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Net Loss Before Income Taxes
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(325,921 | ) | (667,793 | ) | ||||
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Income Taxes
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- | - | ||||||
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Net Loss
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$ | (325,921 | ) | $ | (667,793 | ) | ||
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Basic and diluted loss per share
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$ | (0.03 | ) | $ | (0.07 | ) | ||
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Weighted average number of shares – basic and diluted
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12,968,196 | 9,676,550 | ||||||
See accompanying notes to the consolidated financial statements.
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AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2013
AND MARCH 31, 2012
(UNAUDITED)
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For the Three Months Ended March 31, 2013
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For the Three Months Ended March 31, 2012
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Cash Flows from Operating Activities
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Net loss
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$ | (325,921 | ) | $ | (667,793 | ) | ||
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Adjustments to reconcile net loss to net cash provided by (used) in operating
activities:
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Stock compensation expense
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6,893 | 150,000 | ||||||
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Interest earned
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(495 | ) | (499 | ) | ||||
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Depreciation and amortization expense
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45,430 | 17,797 | ||||||
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Bad debt expense
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86,725 | 1,143 | ||||||
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Changes in operating assets and liabilities:
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Accounts receivable
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34,077 | (148,829 | ) | |||||
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Prepaid and other current assets
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(88,279 | ) | (71,428 | ) | ||||
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Accounts payable
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96,087 | 17,763 | ||||||
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Accrued wholesale power purchases
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205,681 | 64,499 | ||||||
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Accrued expenses
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6,974 | 170,478 | ||||||
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Net cash provided by (used) in operating activities
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67,172 | (466,869 | ) | |||||
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Cash Flows from Investing Activities
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Purchase of restricted cash
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(2,000 | ) | (830 | ) | ||||
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Purchase of certificate of deposit – restricted
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- | (15,000 | ) | |||||
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Recapitalization
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- | 565 | ||||||
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Purchase of property and equipment
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(203,674 | ) | (14,850 | ) | ||||
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Net cash used in investing activities
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(205,674 | ) | (30,115 | ) | ||||
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Net Change in Cash
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(138,502 | ) | (496,984 | ) | ||||
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Cash at Beginning of Period
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281,269 | 1,751,911 | ||||||
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Cash at End of Period
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$ | 142,767 | $ | 1,254,927 | ||||
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Supplemental Disclosure of Cash Flow Information:
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Income taxes paid
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$ | - | $ | - | ||||
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Interest paid
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$ | 794 | $ | - | ||||
See accompanying notes to the consolidated financial statements.
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AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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NOTE 1 - ORGANIZATION
The consolidated financial statements include the accounts of Summer Energy Holdings, Inc. (formerly Castwell Precast Corporation) (“Castwell”) and its wholly owned subsidiaries Summer Energy, LLC (“Summer LLC”), Castwell Precast, Inc. (“Precast Inc”) and Summer EM Marketing, LLC (“Marketing LLC”) (collectively referred to as the “Company,” “we,” “us,” or “our”). All significant intercompany transactions and balances have been eliminated in these consolidated financial statements.
On March 27, 2012, Summer LLC became a wholly-owned subsidiary of Summer Energy Holdings, Inc. (previously known as Castwell Precast Corporation) through a reverse acquisition transaction, which resulted in the former members of Summer LLC owning approximately 92.3% of Summer Energy Holdings, Inc.’s outstanding common stock. The operations of Summer LLC are the Company’s sole line of business. The transaction was treated as a recapitalization of Summer LLC, and Summer LLC (and its historical financial statements) is the continuing entity for financial reporting purposes.
Summer LLC is a retail electric provider in the state of Texas under a license with the Public Utility Commission of Texas (“PUCT”). Summer LLC procures wholesale energy and resells to commercial and residential customers. Summer LLC was organized on April 6, 2011, under the laws of the state of Texas.
Precast Inc is an inactive corporation which management intends to close.
Marketing, LLC was formed in the state of Texas on November 6, 2012 to provide marketing services to Summer LLC. As of March 31, 2013, Marketing LLC had no business activity.
NOTE 2 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America (“GAAP”) for interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2013, are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed with the Securities and Exchange Commission (“SEC”) on March 28, 2013.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during the reporting period. Actual results may differ from these estimates.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Our electricity revenue is recognized by our Company upon delivery of electricity to a customer’s meter. This method of revenue recognition is commonly referred to as the flow method. The flow method of revenue relies upon Electric Reliability Council of Texas (“ERCOT”) settlement statements to determine the estimated revenue for a given month. Supply delivered to customers for the month, measured on a daily basis, provides the basis for revenues. Electricity revenue consists of proceeds from energy sales, including, pass through charges from the Transmission and Distribution Providers (“TDSPs”) billed to the customer at cost.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Unbilled Revenue and Accounts Receivable
Electric services not billed by month-end are accrued based upon estimated deliveries to customers as tracked and recorded by ERCOT multiplied by our average billing rate per kilowatt hour (“kWh”) in effect at the time. At the end of each calendar month, revenue is accrued to unbilled receivables based on the estimated amount of power delivered to customers using the flow technique. Unbilled revenue also includes accruals for estimated TDSP charges and monthly service charges applicable to the estimated electricity usage for the period. All charges that were physically billed to customers in the calendar month are recorded from the unbilled account to the customer receivable account. Unbilled accounts as of March 31, 2013, were estimated at $767,113. Accounts receivable are customer obligations billed at the customer’s monthly meter read date for that period’s electricity usage and due within 16 days of the date of the invoice. Balances past due are subject to a late fee that is assessed on that billing.
Cost Recognition
Direct energy costs are recorded when the electricity is delivered to the customer’s meter.
Cost of Goods Sold (“COGS”) include electric power purchased and pass through charges from the TDSP’s in the areas serviced by the Company. TDSP charges are costs for metering services and maintenance of the electric grid. TDSP charges are established by regulation of the PUCT.
The energy portion of our COGS is comprised of two components: bilateral wholesale costs and balancing/ancillary costs. These two cost components are incurred and recognized differently as follows:
§ Bilateral wholesale costs are incurred through contractual arrangements with wholesale power suppliers for firm delivery of power at a fixed volume and fixed price. We are invoiced for these wholesale volumes at the end of each calendar month for the volumes purchased for delivery during the month, with payment due 20 days after the end of the month.
§ Balancing/ancillary costs are based on the customer load and are determined by ERCOT through a multiple step settlement process. Balancing costs/revenues are related to the differential between supply that we provided through our bilateral wholesale supply and the supply required to serve our customer load. The Company endeavors to minimize the amount of balancing/ancillary costs through our load forecasting and forward purchasing programs.
NOTE 4 – 2012 STOCK OPTION AND STOCK AWARD PLAN
During 2012, the Company approved the 2012 Stock Option and Stock Award Plan (“Plan”) established to advance the interest of the Company and its shareholders by providing an incentive to attract, retain and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of the Company.
The maximum aggregate number of (i) shares of stock that may be issued under the Plan, and (ii) shares of stock with respect to which stock appreciation rights may be granted is 785,000, and consists of authorized but unissued or reacquired shares of stock or any combination thereof. Such number of shares of stock may be may be issued under the Plan pursuant to Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock Grants, Stock Appreciation Right Grants or any combination thereof, so long as the aggregate number of shares so issued does not exceed such number of shares, as adjusted.
The Plan continues in effect until the earlier of its termination by the Board or the date on which all the shares of stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms on the Plan and the agreement evidencing awards granted under the Plan have lapsed. However, all awards shall be granted, if at all, within ten (10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved by the Shareholders of the Company.
NOTE 4 – 2012 STOCK OPTION AND STOCK AWARD PLAN (CONTINUED)
On December 6, 2012, a Form S-8 Registration Statement was filed with the United States Securities and Exchange Commission regarding the Plan.
During the three months ended March 31, 2013, the Company granted 250,000 employee stock options to a key employee. Options covering a total of 125,000 shares will vest one year from the date of grant and options covering a total of 125,000 shares will vest two years from the date of grant. The stock options have an exercise price of $1.00 per share and will expire ten (10) years from the date of grant. The options covering 250,000 shares that were granted during the three months ended March 31, 2012 are estimated to have had a value of approximately $35,942 on the date of grant. The options vest ratably over the vesting period of two years and stock compensation expense of approximately $3,838 was expensed during the three months ended March 31, 2013.
During the three months ended March 31, 2013, the Company granted 20,000 employee stock options to a key employee. Options covering a total of 20,000 shares will vest over two years from the date of grant. The stock options have an exercise price of $1.50 per share and will expire ten (10) years from the date of grant. The options covering 20,000 shares that were granted during the three months ended March 31, 2012 are estimated to have had a value of approximately $655 on the date of grant. The options vest ratably over the vesting period of two years and stock compensation expense of approximately $55 was expensed during the three months ended March 31, 2013.
Also during the three months ended March 31, 2013, the Company issued 25,000 shares of restricted common stock to an officer of the Company. These shares vest one year from the date of grant. The 25,000 restricted shares are estimated to have had a value of $24,000 on the date of grant. The restricted shares vest ratably over the vesting period of one year and stock compensation expense of approximately $3,000 was expensed during the three months ended March 31, 2013.
As of March 31, 2013, 420,000 securities had been awarded from the Plan with a remaining balance of 365,000 shares.
NOTE 5 – EMPLOYMENT AGREEMENTS
In January 2013, the Company entered into employment agreements with certain key employees. The agreements require annual base compensation of $461,000 and provide the ability for the key employees to receive certain option or stock grants (see Note 4) based on the achievement of performance goals. The agreements provide an average of 7 1/2 months of severance for Termination Without Cause or Change of Control totaling $308,500 along with the acceleration and immediate vesting of all unvested stock options, warrants and/or restricted stock granted.
These employment agreements are described in detail, and copies are filed as exhibits, in our Current Report on Form 8-K filed on January 23, 2013 and our Current Report on Form 8-K filed on February 14, 2013.
NOTE 6 – REGULATORY COMMITMENT
On February 6, 2012, an application for an amendment to our Retail Electric Provider Certification was submitted to PUCT which sought prior approval of a transaction by and between us and Castwell. The application for amendment was requested to reflect a change in ownership in contemplation of a merger with Castwell. On February 27, 2012, the application to amend our Retail Electric Provider Certification was approved.
We are required to maintain stockholders’ equity, determined in accordance with generally accepted accounting principles in the United States, of not less than one million dollars for the purpose of obtaining certification and we or our guarantor must provide and maintain an irrevocable stand-by letter of credit with a face value of $500,000 for the purpose of maintaining certification. We will remain subject to these minimum capital standards until February 2014. We are in compliance with this requirement as of March 31, 2013.
NOTE 7 – SUBSEQUENT EVENTS
On April 17, 2013, the Company redeemed the certificate of deposit collateral which supported the irrevocable stand-by letter of credit (see Note 6) with a face value of $500,000 issued to PUCT for the purpose of maintaining regulatory certification. The certificate of deposit supporting the irrevocable stand-by letter of credit was replaced with credit under credit facility agreements.
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ITEM 2.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act, and is subject to the safe harbors created by those sections. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements.
Due to possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this Quarterly Report, which speak only as of the date of this Quarterly Report, or to make predictions about future performance based solely on historical financial performance. We disclaim any obligation to update forward-looking statements contained in this Quarterly Report.
Readers should carefully review the risk factors described below under the heading “Risk Factors” and in other documents we file from time to time with the SEC, including our Form 10-K for the fiscal year ended December 31, 2012. Our filings with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those filings, pursuant to Sections 13(a) and 15(d) of the Exchange Act, are available free of charge at www.summerenergy.com, when such reports are available via the EDGAR system maintained by the SEC at www.sec.gov.
Recent Developments
The consolidated financial statements include the accounts of Summer Energy Holdings, Inc., a Nevada corporation and its wholly-owned subsidiaries Summer Energy, LLC, a Texas limited liability company (“Summer LLC”), Castwell Precast Inc., a Utah corporation (“Precast Inc.”) and Summer EM Marketing (“Marketing LLC”) (collectively referred to as the “Company,” “we,” “our,” or “us”).
On March 27, 2012, Summer LLC became a wholly-owned subsidiary of Summer Energy Holdings, Inc. (formerly known as Castwell Precast Corporation) through a reverse acquisition transaction, which resulted in the former members of Summer LLC owning approximately 92.3% of the Summer Energy Holdings, Inc. outstanding common stock. Our sole operations are conducted through Summer LLC.
Precast Inc. is an inactive corporation which management intends to close.
Marketing, LLC was formed in the state of Texas on November 6, 2012 to provide marketing services to Summer LLC.
Plan of Operation
Our wholly owned subsidiary, Summer LLC, is a licensed Retail Electricity Provider (REP) in the State of Texas. In general, Texas regulatory structure permits REPs, such as Summer LLC, to procure and sell electricity at unregulated prices. REPs pay the local transmission and distribution utilities a regulated tariff rate for delivering electricity to their customers. As a REP, we sell electricity and provide the related billing, customer service, collections and remittance services to residential and commercial customers. We offer retail electricity to commercial and residential customers in designated target markets within the State of Texas. In the commercial market, the primary target is small to medium-sized customers (less than one megawatt of peak usage), but we will also selectively pursue larger commercial customers through management’s existing, historical relationships. Residential customers are a secondary target market. We anticipate that a majority of our customers will be located in the Houston and Dallas-Fort Worth metropolitan areas; although, we anticipate a growing number will be located in a variety of other metropolitan and rural areas within Texas.
We began delivering electricity to customers in mid-February 2012, beginning with a group of friends and family residential accounts, one large commercial customer, and several small commercial customers.
Results of Operations
Quarter Ended March 31, 2013, compared to the Quarter ended March 31, 2012
Revenue – For the quarter ended March 31, 2013, we generated $2,746,342 in electricity revenue primarily from one large commercial customer, several small commercial customers and from the addition of various long and short-term residential customers. The majority of our revenue comes from the flow of electricity to customers. However, we also generated revenues from contract cancellation fees, disconnection fees and late fees of $144,503. Revenues for the quarter ended March 31, 2012 were $166,777. Management plans to continue to acquire portfolios of commercial and residential customers when offered at reasonable prices. Management also plans to continue to execute on its sales and marketing program to solicit individual commercial and residential customers.
Cost of Goods Sold and Gross Margin – For the quarter ended March 31, 2013, cost of goods sold and gross profit totaled $2,334,777 and $556,068, respectively. Cost of goods sold and gross profit were recorded in the quarter ended March 31, 2012 were $110,787 and $55,990. Management expects to experience economies of scale, and a resulting increase in the gross margin percentage, as electricity revenue ramps up.
Operating expenses – Operating expenses for the quarter ended March 31 2013, totaled $865,836, consisting primarily of general and administrative expenses of $662,701, stock compensation of $6,893, bank service fees of $44,342, collection fees/sales verification fees of $12,587, professional fees of $95,507 and $43,806 of billing fees. Billing fees are primarily costs paid to third party Electronic Data Inter-Chain (EDI) provider to handle transactions between us, ERCOT and the TDSPs in order to produce customer bills.
Operating expenses for the quarter ended March 31, 2012, totaled $707,614 consisting of general and administrative and start-up expenses of $495,757, acquisition of residential customers of $28,180 and professional fees associated with the reverse merger of $183,677.
Net loss – Net loss for the quarter ended March 31, 2013 and 2012, totaled $325,921 and $667,793, respectively relating primarily to operating expenses and cost of goods sold incurred in excess of revenue as we attempt to obtain economies of scale.
Liquidity and Capital Resources
At March 31, 2013 and December 31, 2012, our cash totaled $142,767 and $281,269, respectively. Our principal cash requirements for the quarter ended March 31, 2013, were for operating expenses and cost of goods sold (including power purchases, employee cost, and customer acquisition) and capital expenditures. During the quarter ended March 31, 2013, the primary source of cash was from electricity revenues. Our principal cash requirements for the quarter ended March 31, 2012, were for startup activities. Our primary source of cash during the quarter ended March 31, 2012 was from the capital received pursuant to a private placement of our common stock and warrants.
General – The Company’s decrease in net cash flow during the first three months of 2013 is attributable to $67,172 cash provided by operating activities and $205,674 cash used in investing activities which includes $203,674 for the purchase of property and equipment. In 2012, the net cash decrease was a result in net cash used in operations of $466,869 and a net loss of $677,793 offset by changes in working capital accounts and no-cash expenses.
The Company has no present agreements or commitments with respect to any material acquisitions of other businesses, products, product rights or technologies. However, we will continue to evaluate acquisitions of and/or investments in products, technologies, or companies that complement our business and may make such acquisitions and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any such acquisitions and/or investments. We may not be able to obtain such financing on commercially reasonable terms, if at all. If we are able to obtain additional financing, such financing may result in restrictions on our operations, in the case of debt financing, or substantial dilution for stockholders, in the case of equity financing.
Cash Outflows for Capital Assets, Customer Acquisition and Deposits
We expect to expend funds for capital assets, customer acquisition and deposits in connection with the expansion of our business during the remainder of the current fiscal year. The anticipated source of funds will be cash on hand and the capital raised through the year ended December 31, 2013.
Future Financing Needs
The Company did not commence operations and the generation of revenue until middle of the three month period ended March 31, 2012. Our cash position may not be significant enough to support daily operations. Management believes that we have adequate liquidity to support operations during the short-term, but this belief is based upon many assumptions and is subject to numerous risks. However, we may require additional capital in order to meet minimum capital standards imposed by licensing authorities. Those capital standards require us to maintain stockholders’ equity, determined in accordance with generally accepted accounting principles in the United States, of not less than one million dollars and to maintain an irrevocable stand-by letter of credit with a face value of $500,000. We will remain subject to these minimum capital standards until February 2014.
While we believe in the viability of our plan of operations and strategy to generate revenues and in our ability to obtain additional funds, there can be no assurances that our plan of operations or ability to raise capital will be successful. The ability to grow is dependent upon our ability to further implement our business plan, generate revenues, and obtain additional financing, as needed.
Off-Balance Sheet Arrangements
Our existing wholesale power purchase agreement provides that we will provide additional credit support to cover mark-to-market risk in connection with the purchase of long term power. A mark-to-market credit risk occurs when the price of previously purchased long term power is greater than the current market price for power purchased for the same term. While we believe that the current environment of historically low power prices limits our exposure to risk, a collateral call, should it occur, could limit our working capital and, if we fail to meet the collateral call, could cause liquidation of power positions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a “small reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide this information.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report, were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the period of time covered by this Quarterly Report has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.
PART II – OTHER INFORMATION
ITEM 1A. RISK FACTORS
As of the date of this filing, there have been no material changes to the Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on March 28, 2013 (the “2012 Form 10-K”). The Risk Factors set forth in the 2012 Form 10-K should be read carefully in connection with evaluating our business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any of the risks described in the 2012 Form 10-K could materially adversely affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. These are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 6. EXHIBITS
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No.
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Item
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31.1
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Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
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31.2
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Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
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32.1*
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Certification of the CEO and CFO pursuant to Rule 13a-14(b) and Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
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101.INS**
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XBRL Instance Document
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101.SCH**
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XBRL Taxonomy Extension Schema Document
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101.CAL**
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF**
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB**
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE**
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XBRL Taxonomy Extension Presentation Linkbase Document
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* In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934 or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
** Pursuant to Rule 406T of Regulation S-T, this XBRL information will not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section, nor will it be deemed filed or made a part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, or otherwise subject to liability under those sections.
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SUMMER ENERGY HOLDINGS, INC. | |||
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Date: May 15, 2013
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By:
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/s/ Neil Leibman | |
| Neil Leibman | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) | |||
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Date: May 15, 2013
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By:
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/s/ Jaleea P. George | |
| Jaleea P. George | |||
| Chief Financial Officer | |||
| (Principal Accounting Officer) |
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