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RVLT > SEC Filings for RVLT > Form 10-Q on 7-Aug-2013All Recent SEC Filings

Show all filings for REVOLUTION LIGHTING TECHNOLOGIES, INC.

Form 10-Q for REVOLUTION LIGHTING TECHNOLOGIES, INC.


7-Aug-2013

Quarterly Report


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

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 integrated 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.

Recent Events

On May 17, 2013, the Company increased its authorized number of shares of common stock from 120,000,000 to 150,000,000 shares.

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 from domestic and Asia manufacturers.


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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.

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 June 30, 2013, the Company reported revenues of approximately $7.4 million and a net loss of approximately $5.1 million compared to revenues of approximately $1.1 million and net loss of approximately $5.7 million for the corresponding period in 2012, which included an impairment charge of $3.4 million. The 2013 results reflect the acquisitions of the Seesmart and LIT businesses that were acquired in December 2012 and March 2013, respectively. The Company's reported net loss of approximately $5.1 million for the quarter ended June 30, 2013 included the following:

  Transactions reflected in three months ended June 30, 2013    (in millions)
  Change in fair value of embedded derivative                  $          (3.8 )
  Severance and transition costs                                          (0.2 )
  Acquisition related costs                                               (0.5 )
  Depreciation and amortization                                           (1.1 )
  Stock compensation costs                                                (0.5 )

  Total                                                        $          (6.1 )

For the six months ended June 30, 2013, the Company reported revenues of approximately $13.7 million and a net loss of approximately $10.5 million compared to revenues of approximately $2.2 million and net loss of approximately $7.5 million for the corresponding period in 2012, which included an impairment charge of $3.4 million. The 2013 results reflect the acquisitions of Seesmart and LIT businesses. The Company's reported net loss of approximately $10.5 million for the six months ended June 30, 2013 included the following:

   Transactions reflected in six months ended June 30, 2013    (in millions)
   Change in fair value of embedded derivative                $          (7.0 )
   Gain on bargain purchase of business                                   0.7
   Severance and transition costs                                        (1.1 )
   Acquisition related costs                                             (1.6 )
   Depreciation and amortization                                         (2.1 )
   Stock compensation costs                                              (0.7 )

   Total                                                      $         (11.8 )

The change in fair value of the embedded derivative relates to the Series E preferred stock (see Note 8 to the financial statements). For the period from its issuance on February 21, 2013 to its modification on May 14, 2013, the Company recorded the changes in fair value of the embedded derivative in earnings. Following the modification, the Company ceased to record changes in fair values of the embedded derivative in earnings and reclassified the carrying amount of the embedded derivative liability to equity. The recorded changes in fair value of the derivative are principally related to the increases in the market value of the Company's common stock.

Revenues from acquired companies were $6.5 million and $11.5 million for the three six months ended June 30, 2013 and were more than three times the revenues generated in the corresponding pre acquisition periods in the prior year

The results for the three and six months ended June 30, 2013 reflected the revenue impact of the fulfillment of several large orders. The Company expects orders of similar size to be fulfilled in the future. The timing of revenues recognized from such orders, if any, could have a material impact on the results of operations of future periods.


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Three Months Ended June 30, 2013

Revenue



                                     Three Months Ended June 30,
                                        2013               2012
                   LED lamps       $     6,505,097      $   169,724
                   Lumificient             852,210          883,581

                   Total revenue   $     7,357,307      $ 1,053,305

Total revenue for the three months ended June 30, 2013 increased 598%, or approximately $6,300,000, to approximately $7,400,000 as compared to approximately $1,100,000 for the three months ended June 30, 2012. Sales of Lumificient products of approximately $852,000 were comparable to the second quarter of 2012. Revenues from LED lamps primarily represent sales of Seesmart and LIT, which were acquired in December 2012 and March 2013, respectively. These revenues more than tripled compared to the corresponding pre acquisition period in 2012. Sales to a group of related entities represented 58% of our revenue for the three months ended June 30, 2013.

Gross Profit



                                       Three Months Ended June 30,
                                          2013               2012
               Revenue               $    7,357,307      $  1,053,305
               Cost of sales              3,772,374         1,707,123

               Gross profit (loss)   $    3,584,933      ($   653,818 )

               Gross margin %                    49 %             (62 %)

Gross profit for the three months ended June 30, 2013 was approximately $3,600,000, or 49% of revenue, as compared to gross loss of approximately $654,000, or a negative 62% of revenue, for the comparable period of 2012. Gross margin increased from a negative 62% in the second quarter of 2012 to 49% in the second quarter of 2013, which reflects increased sales to commercial and industrial customers. In addition, during the second quarter of 2012, sales of Array products generated negative gross margins as we began liquidating surplus and discontinued inventory. During the second quarter of 2013, the Company's acquisitions accounted for gross profit of approximately $3,288,000.

Operating Expenses



                                                   Three Months Ended June 30,
                                                      2013               2012
     Selling, general and administrative:
     Severance and transition costs              $       172,712      $        -
     Acquisition and other related expenses              520,246               -
     Amortization and stock based compensation         1,536,281           89,863
     Other selling, general and administrative         2,352,032        1,378,083
     Research and development                            320,408          125,824
     Impairment charge                                        -         3,397,212

     Total operating expenses                    $     4,901,679        4,990,982

Selling, general and administrative (SG&A) expenses were approximately $4,581,000 for the quarter ended June 30, 2013 as compared to approximately $1,468,000 for the same period in 2012, an increase of approximately $3,113,000, or 212%. The second quarter of 2013 includes severance, transition and acquisition expense of approximately $693,000 relating to the transition of our corporate office to Stamford, Connecticut. Also, we experienced an increase in operating costs as we


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incurred expense for both our North Carolina and Connecticut offices during the quarter. We incurred non-cash amortization and stock based compensation expense of approximately $1,536,000 for the three months ended June 30, 2013, an increase of approximately $1,446,000 from the same period in 2012. This increase is primarily related to amortization of intangibles acquired in the acquisitions of Seesmart and LIT. Other SGA increased approximately $974,000, or 71%, primarily as a result of the acquisitions of Seesmart and LIT.

Primarily, as a result of the acquisition of Seesmart, research and development costs increased approximately $194,600, or 155%, to approximately $320,000 during the three months ended June 30, 2013, compared to the same period in 2012.

In the second quarter of 2012, we recorded an impairment charge for our Array segment of approximately $3,378,000 and an impairment charge for our corporate trademarks of approximately $19,000. These charges include approximately $1,989,000 for goodwill impairment, approximately $1,015,000 for impairment of other intangible assets and approximately $393,000 for impairment of property and equipment.

Non-operating Income (Expense)



                                                   Three Months Ended June 30,
                                                       2013               2012
   Change in fair value of embedded derivative   $     (3,821,270 )     $      -
   Other income (expense)                                   3,457         (83,644 )

   Total non-operating expense, net              $     (3,817,813 )     $ (83,644 )

The change in fair value of the embedded derivative relates to the conversion feature on the Series E preferred stock. We have modified 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. Therefore, we do not expect such charges in the future.

Income Taxes

No income tax benefit was recorded for the six months ended June 30, 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 June 30, 2013 and 2012 was approximately $5,135,000 and $5,728,000, respectively. Net loss attributable to common stockholders for the three months ended June 30, 2013 was approximately $5,457,000 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 $0.07 and $0.35 for the three months ended June 30, 2013 and 2012, respectively.

Six Months Ended June 30, 2013

Revenue



                                      Six Months Ended June 30,
                                         2013             2012
                    LED lamps       $   11,966,366     $   459,870
                    Lumificient          1,702,343       1,741,682

                    Total revenue   $   13,668,709     $ 2,201,552

Total revenue for the six months ended June 30, 2013 increased 521%, or approximately $11,500,000, to approximately $13,700,000 as compared to approximately $2,200,000 for the six months ended June 30, 2012. Sales of Lumificient products of approximately $1,700,000 were comparable to the first six months of 2012. Revenues from LED lamps primarily represent sales of Seesmart and LIT, which were acquired in December 2012 and March 2013, respectively. These revenues more than tripled compared to the corresponding pre acquisition period in 2012. Sales to a group of related entities represented 60% of our revenue for the six months ended June 30, 2013.


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Gross Profit



                                        Six Months Ended June 30,
                                          2013              2012
                Revenue               $ 13,668,709      $  2,201,552
                Cost of sales            7,422,562         2,894,836

                Gross profit (loss)   $  6,246,147      ($   693,284 )

                Gross margin %                  46 %             (31 %)

Gross profit for the six months ended June 30, 2013 was approximately $6,246,000, or 46% of revenue, as compared to gross loss of approximately $693,000, or a negative 31% of revenue, for the comparable period of 2012. Gross margin increased from a negative 31% in the first six months of 2012 to 46% in the first six months of 2013, which reflects increased sales to commercial and industrial customers. In addition, during the six months of 2012, sales of Array products generated negative gross margins as we began liquidating surplus and discontinued inventory. During the first six months of 2013, the Company's acquisitions accounted for gross profit of approximately $5,663,000.

Operating Expenses



                                                    Six Months Ended June 30,
                                                       2013             2012
      Selling, general and administrative:
      Severance and transition costs              $      978,011     $        -
      Acquisition and other related expenses           1,574,853              -
      Amortization and stock based compensation        2,678,450         189,040
      Other selling, general and administrative        4,443,515       2,766,626
      Research and development                           779,845         322,996
      Impairment charge                                       -        3,397,212

      Total operating expenses                    $   10,454,674     $ 6,675,874

Selling, general and administrative (SG&A) expenses were approximately $9,675,000 for the six months ended June 30, 2013 as compared to approximately $2,956,000 for the same period in 2012, an increase of approximately $6,719,000, or 228%. The first six months of 2013 includes severance expense of approximately $530,000 relating to the transition of our corporate office to Stamford, Connecticut. Also, we experienced an increase in operating costs of approximately $391,000 as we incurred expense for both our North Carolina and Connecticut offices during the six months. In addition, we incurred approximately $1,575,000 of expenses relating to our acquisitions of Seesmart and LIT. We incurred non-cash amortization and stock based compensation expenses of approximately $2,678,000 for the six months ended June 30, 2013, an increase of approximately $2,490,000 from the same period in 2012. This increase is primarily related to amortization of intangibles acquired in the acquisitions of Seesmart and LIT. Other SGA increased approximately $1,677,000, or 61%, 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 $457,000, or 141%, to approximately $780,000 during the six months ended June 30, 2013, compared to the same period in 2012.

In the second quarter of 2012, we recorded an impairment charge for our Array segment of approximately $3,378,000 and an impairment charge for our corporate trademarks of approximately $19,000. These charges include approximately $1,989,000 for goodwill impairment, approximately $1,015,000 for impairment of other intangible assets and approximately $393,000 for impairment of property and equipment.


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Non-operating Income and Expense



                                                    Six Months Ended June 30,
                                                       2013              2012
    Change in fair value of embedded derivative   $   (6,990,353 )    $       -
    Gain on purchase of business                         742,750              -
    Other income (expense)                                 3,489        (130,472 )

    Total non-operating expense, net              $   (6,244,114 )    $ (130,472 )

In connection with the acquisition of the Elite business, we recognized a bargain purchase gain of approximately $743,000.

The change in fair value relates to the embedded conversion feature on the Series E preferred stock. We have modified 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. Therefore, we do not expect such charges in the future.

Income Taxes

No income tax benefit was recorded for the six months ended June 30, 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 six months ended June 30, 2013 and 2012 was approximately $10,453,000 and $7,499,000, respectively. Net loss attributable to common stockholders for the six months ended June 30, 2013 was approximately $13,223,000 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 $0.18 and $0.46 for the six months ended June 30, 2013 and 2012, respectively.

Liquidity and Capital Resources

At June 30, 2013, we had working capital of approximately $7,611,000, including cash and cash equivalents of approximately $5,347,000, an increase of approximately $10,789,000 compared to a 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 six months ended June 30, 2013, a portion of which was used to settle liabilities assumed and arising from the Seesmart acquisition, as well as increases related to the Company's growth.

Net cash used in operating activities increased approximately $3,315,000 to approximately $5,170,000 for the six months ended June 30, 2013, as compared to approximately $1,855,000 for the six months ended June 30, 2012. Substantially all the negative cash flows in the six months ended June 30, 2013 were generated in the first quarter of 2013. The Company reported negative cash flows of $160,432 in the second quarter of 2013 compared to $5,009,158 in the first quarter of 2013 and $798,000 in the second quarter of 2012.

Net loss adjusted for non-cash items for the six months ended June 30, 2013 decreased by approximately $1,294,000, as compared to the same period in 2012. Cash used for operating assets and liabilities was approximately $3,722,000 for the six months ended June 30, 2013 compared to cash generated from operating assets and liabilities of approximately $887,000 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 six months ended June 30, 2013 and 2012 was approximately $3,864,000 and $74,000, respectively. The increase in cash used in investing activities of approximately $3,790,000 is primarily the result of approximately $3,851,000 of cash used for acquisitions in the six months ended June 30, 2013. Cash used for the purchase of property and equipment, net of proceeds from the sale of property and equipment, decreased by approximately $6,000 for the six months ended June 30, 2013, as compared to the same period in 2012, and cash used for patents, trademarks and other intangible assets costs decreased by approximately $62,000 in six months ended June 30, 2013 compared to the same period in 2012.

Net cash provided by financing activities increased by approximately $9,947,000 for the six months ended June 30, 2013 as compared to the same period in 2012. This increase is the result of the issuance of equity securities during the six months ended June 30, 2013.

At June 30, 2013, the Company had cash on hand of $5,347,361. For the quarter ended June 30, 2013 the Company reported negative cash flows from operations of $160,432, compared to negative cash flows from operations of $5,009,158 reported in the first quarter of 2013 and negative cash flows from operations of $798,059 reported in the second quarter of 2012. The 2013 cash flows include cash paid for acquisition related costs and transition and severance costs. During 2012,


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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 $5,000,000 and common stock to unaffiliated investors for an additional $5,000,000 in cash and settled the 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 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 . . .

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