The company revenue for the year 2008 was comprised solely of its demand response segment’s activities. The 2008 revenues reported were about twice the revenue for the year 2007. This year over year increase of $13,233,000 was the result of revenue generated by new participant transactions, increased revenue from existing participant transactions and increases in capacity revenue.
Revenue from continuing operations for the three months ended January 3, 2009 was $1,776,000 compared to $2,218,000 in the same period in 2007. Revenue for the quarter was negatively affected by soft electricity prices and by rule changes implemented by PJM on June 13, 2008 and again on November 4, 2008. The June rule change required recalculation of customer baselines. The November change, which delayed the settlement of transactions for a portion of our customers, required certain customers to file electricity curtailment plans for settlements to be processed.
At the end of 2008, the company reviewed the carrying value of the goodwill associated with the acquisition of EnergyConnect and as a result of current market conditions and internally prepared valuations, the company’s management concluded the balance of goodwill associated with its acquisition was impaired in its entirety and charged $29,354,000 to operations during the year ended January 3, 2009. Excluding this impairment charge, the company’s net loss from continuing operations would have been $4,712,000 or $0.05 per share compared to a net loss from continuing operations of $4,341,000 or $0.05 per share for the twelve months ended December 29, 2007. The net losses from continuing operations were $31,933,000 and $2,365,000 for the three months ended January 3, 2009 and December 29, 2007, respectively.
Operating expenses for the twelve months ended January 3, 2009 were $41,575,000, compared to $8,402,000 in the twelve months ended December 29, 2007. These numbers include stock-based compensation of $870,000 and $920,000 for 2008 and 2007, respectively and a goodwill impairment charge of $29,354,000 for 2008. Excluding these two non-cash charges, operating expenses were $11,351,000 and $7,482,000 for the years ended January 3, 2009 and December 29, 2007, respectively. This increase in overhead expense of $3,869,000 was due to increased sales and software development headcount to support the effort to build the company’s revenue base. Quarterly operating expenses totaled $32,253,000 and $2,687,000 in the three months ended January 3, 2009 and December 29, 2007, respectively, which included $226,000 and $252,000 of stock-based compensation for those same periods, respectively, and a goodwill charge of $29,354,000 in the fourth quarter of 2008. Excluding these non-cash charges, operating expenses for the fourth quarters in 2008 and 2007 were $2,673,000 and $2,435,000, respectively.
On January 5, 2009, the company appointed Kevin Evans as its new president and chief executive officer. Commenting on the 2008 results, Evans said, “While we more than doubled our revenue in 2008 compared to 2007, the second half and in particular the fourth quarter of the year were challenging due to continued rules changes in PJM’s Economic Demand Response Program and more fundamentally, lower overall electricity prices across PJM.” Evans continued, “That said, the Economic Demand Response Program remains an essential component of PJM’s Demand Response Program. Building the business of price responsive load management is our sweet spot. I am confident that EnergyConnect has the ability to successfully serve this market in the coming year.”
Addressing the company’s financing needs, Evans commented, “Last week we closed a $5 million convertible debt facility which provides the necessary funds to support the business for the foreseeable future.”
