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RVLT > SEC Filings for RVLT > Form 10-Q on 15-May-2013All Recent SEC Filings

Show all filings for REVOLUTION LIGHTING TECHNOLOGIES, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for REVOLUTION LIGHTING TECHNOLOGIES, INC.


15-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Recent Events

On February 21, 2013, the Company closed on an investment agreement whereby the Company issued 5,000 shares of Series E convertible redeemable preferred stock to RVL 1 LLC for cash of $5 million.

On March 8, 2013, the Company closed on an investment agreement with two affiliated institutional investors whereby the Company issued to each investor
(i) 2,136,752 shares of the Company's common stock and (ii) the right to receive an aggregate of up to an additional 1,250,000 shares of Common Stock for cash of $2.5 million each, for a total investment of $5 million. The proceeds from the Investment are to be used for general corporate and working capital purposes. The Investors will be entitled to receive up to an additional 1,250,000 shares of Common Stock (such number of shares is the maximum number issuable to both Investors in the aggregate) if the volume-weighted average price of a share of Common Stock as reported by Bloomberg Financial Markets for the 20 consecutive trading days ending on the last trading day prior to March 8, 2014 is less than $1.40.

On March 8, 2013, Lighting Integration Technologies, Inc. ("LIT") a wholly owned subsidiary of the Company, acquired certain assets of Elite LED Solutions, Inc. for $500,000 in cash and 300,000 of the Company's common shares in contingent consideration valued at approximately $356,000. In addition, the Company agreed to issue 850,000 shares of the Company's common stock to the sellers which vests over the five-year term of the agreement. Concurrently, the Company entered into a five-year sales consulting agreement with the principals of the sellers pursuant to which the Company is obligated to pay a $20,000 monthly fee plus additional fees based on achieving specified sales targets and 3% of the net profits of LIT as defined.

Overview

We design, manufacture, market and sell high-performance, commercial grade, LED replacement lamps, LED fixtures and LED-based signage, channel-letter and contour lighting products. We sell these products under the Seesmart, Array Lighting and Lumificient brand names. Our products incorporate many proprietary and innovative features. Our product offering and patented designs provide opportunities for significant savings in energy and maintenance costs without compromising the environment. We generate revenue by selling LED lighting products for use in the commercial market segment, which include vertical markets such as industrial and commercial facilities, hospitality, institutional, educational, healthcare and signage markets. We market and distribute our products globally, primarily through our network of distributors and independent sales representatives.

On December 20, 2012, we acquired Seesmart Technologies, Inc., headquartered in Simi Valley, California. Seesmart is a LED solutions provider with a broad range of solutions serving the commercial lighting market. We believe that Seesmart's strong management, combined with its exclusive network of experienced lighting distributors and sales representatives, provides us with a customer and solution-focused advantage. Seesmart has a growing group of 56 exclusive distributors in the United States and 300 sales representatives promoting Seesmart products, along with more distributors in selected international locations. In addition, it has established centers of excellence in key U.S. locations, which are used to provide distributor training and to demonstrate and develop state-of-the-art lighting solutions in realistic product environments. We believe that Seesmart has extensive end-to-end product line for both indoor (interior) and outdoor (exterior) applications that is highly complementary to our existing Array product line. With the recent acquisition of Seesmart by Revolution, the Array and Lumificient brands are now being merged into Seesmart's product categories and offered through Seesmart's sales channels.

We have also repositioned the Company's strategic focus from the consumer retail market to the larger commercial, industrial and municipal markets (municipal, university, schools and health care).

The Company's operations are principally managed on a product basis and are comprised of two reportable segments for financial reporting purposes: LED replacement lamps and fixtures and LED signage and lighting strips. The LED replacement lamps and fixtures segment include the Seesmart business and the Array business, which has been integrated with the Seesmart business. The LED signage and lighting strips segment is comprised of the Lumificient business. Throughout this report, we sometimes use "Seesmart" to refer to our LED replacement lamps and fixtures segment and "Lumificient" to refer to our LED signage and lighting strips segment.

Results of Operations

Revenue: Revenue is derived from sales of our advanced lighting products. These products consist of solid-state LED replacement lamps, lighting systems and controls. Revenue is subject to both quarterly and annual fluctuations as a result of product mix considerations.

We sell our products pursuant to purchase orders and do not have any long-term contracts with our customers. We recognize revenue upon shipment or delivery to our customers in accordance with the respective contractual arrangements. Delays in product orders or changes to the timing of shipments or deliveries could cause our quarterly revenue to vary significantly. The majority of our sales are to the North American market (which includes Canada, but excludes Mexico for our purposes), and we expect that region to continue to be a major source of revenue for us. However, we also derive a portion of our revenue from customers outside of the North American market. All of our revenue is denominated in U.S. dollars.

Cost of Goods Sold: Our cost of goods sold consists primarily of purchased components and products from our contract manufacturers and manufacturing-related overhead such as depreciation, rent and utilities. In addition, our cost of goods sold includes provisions for excess and obsolete inventory, freight and warranties. We source our manufactured products based on sales projections and customer orders. We purchase materials and supplies to support such demand.


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Gross Profit: Our gross profit has been and will continue to be affected by a variety of factors, including average sales prices of our products, product mix, our ability to reduce manufacturing costs and fluctuations in the cost of our purchased components. We define direct gross margin as revenue less direct material costs.

Operating Expenses: Operating expenses consist primarily of salaries and associated costs for employees in sales, engineering, finance, and administrative activities. In addition, operating expenses include charges relating to accounting, legal, insurance and stock-based compensation under the Financial Accounting Standards Board Accounting Standards Codification 718, "Compensation - Stock Compensation".

Summary of Results

For the three months ended March 31, 2013, the Company reported revenues of approximately $6.3 million and a net loss of approximately $5.3 million compared to revenues approximately $1.1 million and net loss of approximately $1.8 million for the corresponding period in 2012. The 2013 results reflect the acquisitions of Seesmart and LIT businesses that were acquired in December 2012 and March 2013, respectively. Revenues from the acquisitions totaled approximated $5.4 million. The Company's reported net loss of approximately $5.3 million included the following:

                                                         (in millions)
          Change in fair value of embedded derivative   $          (3.2 )
          Gain on bargain purchase of business                      0.7
          Severance and transition costs                           (0.9 )
          Acquisition related costs                                (1.1 )
          Depreciation and amortization                            (1.0 )
          Stock compensation costs                                 (0.2 )

          Total                                         $          (5.7 )

Three Months Ended March 31, 2013

Revenue



                                                (Unaudited)
                                        Three Months Ended March 31,
                                                                              %
                             2013            2012           Change         Change
          LED lamps       $ 5,461,269     $   290,146     $ 5,171,123        1,782 %
          Lumificient         850,132         858,101          (7,969 )         -1 %

          Total revenue   $ 6,311,401     $ 1,148,247     $ 5,163,154          450 %

Total revenue for the three months ended March 31, 2013 increased 450%, or approximately $5,163,000, to approximately $6,311,000 as compared to approximately $1,148,000 for the three months ended March 31, 2012. Sales of Lumificient products of approximately $850,000 were comparable to the first quarter of 2012. Revenues from LED lamps primarily represent sales of Seesmart and LIT, which were acquired in December 2012 and March 2013, respectively. Sales to one customer represented 62% of our revenue for the three months ended March 31, 2013.

Gross Profit



                                                   (Unaudited)
                                           Three Months Ended March 31,
                                                                                 %
                               2013             2012            Change         Change
      Revenue               $ 6,311,401      $ 1,148,247      $ 5,163,154          450 %
      Cost of sales           3,650,188        1,187,713        2,462,475          207 %

      Gross profit (loss)   $ 2,661,213      $   (39,466 )    $ 2,700,679          N/A

      Gross margin %                 42 %             -3 %

Gross profit for the three months ended March 31, 2013 was approximately $2,661,000, or 42% of revenue, as compared to gross loss of approximately $39,000, or -3% of revenue for the comparable period of 2012. Gross margin increased to 42% in the first quarter of 2013, which reflects sales to commercial and industrial customers. In addition, during the first quarter of 2012, sales of Array products generated negative gross margins as we began liquidating surplus and discontinued inventory. During the first quarter of 2013, the Company's acquisitions accounted for gross profit of approximately $2,375,000.

Operating Expenses



                                                                    (Unaudited)
                                                            Three Months Ended March 31,
                                                                                                   %
                                                2013             2012            Change         Change
Selling, general and administrative:
Severance and transition costs               $   805,299      $        -       $   805,299           -
Acquisition related expenses                   1,054,607               -         1,054,607           -
Amortization and stock based compensation      1,142,169           89,863        1,052,306        1,171 %
Other selling, general and administrative      2,091,481        1,397,857          693,624           50 %
Research and development                         459,438          197,172          262,266          133 %

Total operating expenses                     $ 5,552,994      $ 1,684,892      $ 3,868,102          230 %


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Selling, general and administrative (SG&A) expenses were approximately $5,094,000 for the quarter ended March 31, 2013 as compared to approximately $1,488,000 for the same period in 2012, an increase of approximately $3,606,000, or 242%. The first quarter of 2013 includes severance expense of approximately $564,000 relating to the transition of our corporate office to Stamford, Connecticut. Also, we experienced an increase in operating costs as we incurred expense for both our North Carolina and Connecticut offices during the quarter. In addition, we incurred approximately $1,055,000 of expense relating to our acquisitions of Seesmart and LIT. We incurred non-cash amortization and stock based compensation expense of approximately $1,142,000 for the three months ended March 31, 2013, an increase of approximately $1,052,000 for the same period 2012. This increase is primarily related to amortization of intangibles acquired in the acquisitions of Seesmart and LIT. Other SGA increased approximately $694,000, or 50%, primarily as a result of the acquisitions of Seesmart and LIT.

As a result of the acquisition of Seesmart, research and development costs increased approximately $262,000, or 133%, to approximately $459,000 during the three months ended March 31, 2013, compared to the same period in 2012.

Non-operating Income and Expense



                                                                  (Unaudited)
                                                         Three Months Ended March 31,
                                                                                                  %
                                             2013             2012             Change          Change
Change in fair value of embedded
derivative                               $ (3,169,083 )     $      -        $ (3,169,083 )          -
Gain on bargain purchase of business          742,750              -             742,750            -
Other income (expense)                             31         (46,828 )           46,859          -100 %

Total non-operating expense, net         $ (2,426,302 )     $ (46,828 )     $ (2,379,474 )         N/A

In connection with the acquisition of Elite we recognized a bargain purchase gain of $743,000. We recorded a charge related to an increase in value of the embedded conversion feature of our Series E preferred stock as a result of the increase in the common stock price. We have changed the terms of our Series E preferred stock to eliminate the requirement to separate the embedded derivative and record changes in fair value through earnings.

Income Taxes

No income tax benefit was recorded for the three months ended March 31, 2013 and 2012 since the tax benefits of the losses incurred were offset by a corresponding increase in the related deferred tax valuation allowance.

Net Loss

Net loss for the three months ended March 31, 2013 and 2012 was approximately $5,318,000 and $1,771,000, respectively. Net loss attributable to common stockholders for the three months ended March 31, 2013 was approximately $7,766,000 and includes the effects of the accretion to redemption value of the Series E preferred stock and accrual of preferred stock dividends. Basic and diluted loss per common share was $0.11 for the three months ended March 31, 2013 and 2012.

Liquidity and Capital Resources

At March 31, 2013, we had working capital of approximately $7,073,000, including cash and cash equivalents of approximately $5,960,000, an increase of approximately $10,179,000 compared to negative working capital of approximately $3,106,000, including cash and cash equivalents of approximately $4,434,000, at December 31, 2012. The increase in working capital primarily results from the issuance of equity securities during the quarter ended March 31, 2013.

Net cash used in operating activities increased approximately $3,952,000 to approximately $5,009,000 for the three months ended March 31, 2013, as compared to approximately $1,057,000 for the three months ended March 31, 2012. Net loss adjusted for non-cash items for the three months ended March 31, 2013 increased by approximately $172,000, as compared to the same period in 2012. Cash used for operating assets and liabilities was approximately $3,298,000 for the three months ended March 31, 2013 compared to cash generated from operating assets and liabilities of approximately $483,000 for the same period in 2012, which reflects the timing of cash receipts and disbursements relative to the periods the corresponding amounts are reflected in the results of operations.

Net cash used in investing activities for the three months ended March 31, 2013 and 2012 was approximately $3,255,000 and $43,000, respectively. The increase in cash used in investing activities of approximately $3,212,000 is primarily the result of


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approximately $2,751,000 of cash used for acquisitions in the three months ended March 31, 2013. Cash used for the purchase of property and equipment, net of proceeds from the sale of property and equipment, decreased by approximately $8,000 for the three months ended March 31, 2013, as compared to the same period in 2012, and cash used for patents, trademarks and other intangible assets costs decreased by approximately $31,000 in three months ended March 31, 2013 compared to the same period in 2012.

Net cash provided by financing activities increased by approximately $9,790,000 for the three months ended March 31, 2013 as compared to the same period in 2012. This increase is the result of the issuance of equity securities during the quarter ended March 31, 2013.

At March 31, 2013, we had cash on hand of approximately $5,960,000. In the first quarter or 2013 we had negative cash flow from operations of approximately $5,009,000. During 2012, we issued convertible preferred stock to RVL for net cash proceeds aggregating approximately $15,132,000 which was used to fund the cash portion of the purchase price of Seesmart, to repay pre-existing debt and other liabilities and for working capital. In the first quarter of 2013, we issued convertible redeemable preferred stock to RVL for cash of $5 million and common stock to unaffiliated investors for an additional $5 million in cash and settled the assumed convertible obligations of Seesmart of approximately $3,422,000. While we expect to generate negative cash flow from operations in 2013 as we integrate Seesmart, invest in the growth of the Company and implement our growth strategy, we believe we have adequate resources to meet our cash requirements in the near future.

We face significant challenges in order to achieve profitability and there can be no assurance that we will achieve or sustain positive cash flows from operations or profitability. Our ability to meet our obligations in the ordinary course of business is dependent upon our ability to establish profitable operations or raise additional capital through public or private debt or equity financing, or other sources of financing to fund operations. There can be no assurance such financing will be available on terms acceptable to us, if at all, or that any financing transaction will not be dilutive to our current stockholders.

In addition, to accelerate the growth of our operations in response to new market opportunities or to acquire other technologies or businesses, we may need to raise additional capital. Additional capital may come from several sources, including the incurrence of indebtedness or the issuance of additional common stock, preferred stock, debt (whether convertible or not) or other securities. Increased indebtedness could negatively affect our liquidity and operating flexibility. The issuance of any additional securities could, among other things, result in substantial dilution of the percentage ownership of our stockholders at the time of issuance, result in substantial dilution of our earnings per share, and adversely affect the prevailing market price for our common stock. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If additional funds become necessary and are not available on terms favorable to us, or at all, we may be unable to expand our business or pursue an acquisition and our business, results of operations and financial condition may be materially adversely affected.

Contractual Obligations

Except for the repayment of the Seesmart notes payable obligations described elsewhere in the Quarterly Report on Form 10-Q there have been no material changes to the contractual obligations described in our Annual Report on form 10-K.

Critical Accounting Policies

As of March 31, 2013, there have been no material changes to our critical accounting policies disclosed in the Management's Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2012.

Critical Accounting Estimates

Management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, income taxes, goodwill and intangibles, accounts receivable, inventory, stock-based compensation, warranty obligations and purchase price allocation. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The critical accounting estimates are those that we believe are the more significant judgments and estimates used in the preparation of our financial statements. As of March 31, 2013, there have been no material changes to the critical


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accounting estimates as described in our Management's Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.

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