Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ILED > SEC Filings for ILED > Form 10-Q on 8-Aug-2014All Recent SEC Filings

Show all filings for EVOLUCIA INC.

Form 10-Q for EVOLUCIA INC.


8-Aug-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following information should be read in conjunction with the consolidated financial statements and the notes thereto contained elsewhere in this report. Statements made in this Item 2, "Management's Discussion and Analysis or Plan of Operation," and elsewhere in this 10-Q that do not consist of historical facts, are "forward-looking statements." Statements accompanied or qualified by, or containing words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements, and as such, are not a guarantee of future performance. The statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products, as well as other factors, many or all of which may be beyond the Company's control. Consequently, investors should not place undue reliance upon forward-looking statements as predictive of future results. The Company disclaims any obligation to update the forward-looking statements in this report.

You should read the following information in conjunction with our financial statements and related notes contained elsewhere in this report. You should consider the risks and difficulties frequently encountered by early-stage companies, particularly those engaged in new and rapidly evolving markets and technologies. Our limited operating history provides only a limited historical basis to assess the impact that critical accounting policies may have on our business and our financial performance.

We encourage you to review our periodic reports filed with the SEC and included in the SEC's Edgar database, including the annual report on Form 10-K filed for the year ended December 31, 2013.

Evolucia, Inc. ("Evolucia", the "Company", "we", "our, "us") is in the business of designing, manufacturing, marketing and distributing light emitting diode (LED) lighting fixtures. Evolucia also maintains a portfolio of various LED lighting patents. Our business focuses primarily on the design and development of our patented Aimed LED Lighting™ technology that demonstrates that less overall light is needed if the light is correctly focused on the target area.

We have identified an immediate opportunity, particularly in the outdoor lighting market, to supply high quality energy-efficient lighting solutions through our patented technology. We have developed several LED lighting products, primarily for the outdoor lighting industry, that utilize our Aimed Optics™ technology that we sell directly to customers and through a network of manufacturer's representatives in the U.S. and other countries. In addition, the Company has other lighting products that do not utilize the Aimed Optics™ technology that complement the Company's portfolio and provide lighting solutions for other areas, such as parking garages. We continue to develop and refine our products to serve the market and are actively pursuing alliances and strategies that will allow us to drive down the production cost of our products.

We also continue developing and reengineering our patents. We have identified the need to continue to reduce costs to be able to offer a competitive product to our customers. This requires an ongoing review of our patents and an analysis with respect to improvements regarding the technology and costs associated with the product.

The Company and its subsidiaries and affiliates have applied for and obtained a number of patents in various technologies, particularly LED lighting and solar technologies.

On May 1, 2014, we engaged DLA Piper LLP to represent the Company in connection with its Intellectual Property. The purpose of the engagement is to evaluate our patents, provide advice on portfolio development, identify potential litigation and licensing targets and protect the Company's Intellectual Property. A successful outcome would create an ongoing source of additional revenue stream through potential long term licensing agreements.


The Company had cash of $16,120 as of December 31, 2013 and $69,102 as of June 30, 2014. The Company may incur operating losses for the foreseeable future and there can be no guarantee that we will be successful securing funding. In the event we are unable to fund our operations by positive operating cash flows or additional funding, we will be forced to reduce our expenses and may have to cease operations. During the period ended June 30, 2014, the Company's Chief Executive Officer, who was also the Chief Financial Officer, resigned. In addition, the company is restructuring its organization for greater efficiencies, and is aggressively pursuing sale opportunities, which continue to present themselves to the company. The company is working with distributors and end users in order to maximize potential sales. As a result of the Company scaling back current operations, substantially all of the Company's employees were terminated. The Company will continue to rely on its relationship with its partner, Leader Electronics, Inc., and optimize its strong industry relationship as it continues to concentrate on its legacy Aimed Optics™ products. It will also continue to supports its development, reengineering, and building its current patent portfolio, which includes the continuing effort to reduce costs in an effort to become a more affordable option in the industry.

Corporate Information

Evolucia was formed in 2007 through a reverse merger whereby the Company acquired Sun Energy Solar, Inc., our accounting predecessor, which developed energy-efficient technologies in solar energy and infrared. The Company has exited the solar and infrared businesses. The Company's solar subsidiary, Sunovia Solar, Inc. has not had operations since June 2010 and is not anticipated to have operations in the foreseeable future.

LED Lighting

LED lights are the most energy-efficient lighting source on the market today. Our LED lighting products are currently focused on (i) the roadway / walkway lighting market ("cobra head," "shoebox", "dusk-to-dawn") (ii) the area lighting market (utility lights, wall packs, canopy lights and parking garage lights) and
(iii), commercial indoor market ("high-bay", "volumetric troffer", and "lensed troffer" products). A report issued in January 2011 by Navigant Consulting, Inc. prepared for the Building Technologies Program of the Office of Energy Efficiency and Renewable Energy (EERE) of the Department of Energy estimates that there are 56.2 million roadway lights in the United States, including 26.5 million street lights and 26.1 million highway lights. The same report estimates approximately 36.4 million parking garage lights and 15.8 million parking lot light fixtures installed in the United States. It is estimated that fewer than 5% of the parking light totals and fewer than 1% of the roadway and highway lights utilized LED technology. We believe traditional lighting companies have been somewhat slow to develop LED technologies; however, the large lighting companies have acquired the technology either through acquisition or OEM and licensing arrangements with smaller LED lighting companies. There are currently over 200 competitors in the outdoor LED lighting market. Our Aimed Optics™ technology potentially provides a competitive advantage in this market, as it uses less energy to put more light on the ground, although high product costs have hampered sales of the cobra head and shoebox products in certain markets.

The Company completed the basic design for most of its products in 2009. Improvements in LED performance and the competitive pressures in the lighting industry have driven the need to update product designs and performance to remain competitive and viable. Also, in order for LED lighting to be fully competitive with traditional lighting, the cost of the fixture, is more expensive than comparable legacy lighting fixtures, which must remain viable as well. This will require reductions in final costs through component reductions and increasing manufacturing efficiencies. We anticipate these cost reductions in the product designs to continue and the timeframe to develop new products will be shortened as competition grows.

The three most significant challenges facing the Company in the LED lighting market are (a) developing a recognizable brand name, (b) expanding our distribution network, and (c) lowering the cost of manufacturing and the expense of selling our products thru traditional channels. Each of these issues is an ongoing concern for the Company. In addition, as LED lighting markets continue to expand, the distribution proficiencies of the lighting market are likely to drive consolidation in product lines and expansion as fixture companies compete for new business across various product lines.


Results of Operations for the Quarter ended June 30, 2014

For the three months ended June 30, 2014, the Company had a net loss of ($854,034), as compared to a net loss ($3,290,416) for the three months ended June 30, 2013, or a decrease of $2,436,382. The significant factors contributing to this increase are discussed in more detail below.

Revenues

Revenues for the three months ended June 30, 2014 were $180,076, as compared to $406,776 for the three-month period ending June 30, 2013, which represented a decrease of $226,700 or approximately 55.7%. The decrease was the result of decrease in customers.

Gross Profit

The Company had a gross profit of $67,272, and a gross profit margin of 37.4% for the three months ended June 30, 2014, as compared to a gross loss of ($20,574), and a gross loss margin of (5.1%) for the three months ended June 30, 2013. The gross margin increased as a result of a changing product mix and increase in product costs.

Expenses

Total operating expenses decreased to $741,966 for the three-month period ending June 30, 2014 from $2,049,084 for the three-month period ending June 30, 2013, a decrease of $1,307,118 or 63.8%. The major components are discussed below.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for 2014 and 2013 were equal to total operating expenses, as the Company had no research and development expense in that period. The major components of Selling, General and Administrative Expenses are discussed below.

Product Development

Product development costs were $4,325 for the three months ended June 30, 2014, compared to $54,317, for the three months ending June 30, 2013, a decrease of $49,992 or 92.0%. Product development expenses in 2014 represented continuing the refining of existing designs and development of aimed optics, the next generation cobra head and shoebox products.

Management expects to continue to support the development, reengineering, and building its current patent portfolio. As management expected product development costs will continue to decrease until the Company formalizes the product development plan as a result of the restructuring. Management expects this to be completed by the end of the second quarter or beginning of the third quarter.

Compensation & Benefits

Compensation & Benefits expenses were $109,978 for the three months ended June 30, 2014, compared to $948,058 for the three months ended June 30, 2013, a decrease of $838,080 or approximately 88.4%. The decrease is related to a decrease in non-cash expenses associated with stock options awarded to Board members and employees and a decrease related to reduction in cash compensation and benefits due to less employees.

Marketing & Sales

Marketing & Sales expenses totaled $23,255 for the three months ended June 30, 2014, as compared to $339,454 for the three months ended June 30, 2013, representing an decrease of $316,199 or 93.2%. The decrease reflects the company's efforts to continue to support the brand of the company and position it more effectively in the marketplace. Included in this category are tradeshow expenses and related travel, lodging, meals and entertainment expenses to market the product both domestically in the United States and Internationally.


With the relationships developed, as management expected, marketing and sales expenses continue to reduce after the first quarter of 2014. Due to the restructuring of the company and continued focus on developing and supporting the Company's patents, management expects to minimize expenses related to tradeshows and related travel expenses. Management continues to support the branding of its products, Company and marketing of its patents to the marketplace.

General and Administrative

General and administrative expenses are the expenses of operating the business on a daily basis that are not related directly to cost of goods and include legal and professional fees, consultants and occupancy and office expenses. For the three months ended June 30, 2014 the Company incurred aggregate expense of $604,408 in this area, compared to $707,255 for the three months ended June 30, 2013, a decrease of $102,847 or 14.5%. The majority of this decrease is related to decreases in the use of consultants, including stock based compensation paid to consultants, occupancy and office and legal and professional fees. These decreases are offset by $237,138 in increases in occupancy expenses related to a judgment in favor of a previous landlord, BKOP1, LLC.

Research and Development

The Company did not incur any research and development expenses in the three months ended June 30, 2014 nor the three months ended June 30, 2013.

Other Income and Expenses

Other income and expense reflects interest expense (net of interest income) as discussed below:

Total interest expense for the three months ended June 30, 2014 was $396,934 compared to $938,435 for the three months ended June 30, 2013, a decrease of $541,501 or 57.7%. $110,394 of interest expense for the three months ended June 30, 2014 is attributable to the accretion of the discount related to the convertible notes which did not occur during the three months ended June 30, 2013. $729,473 of the expense for the three months ended June 30, 2013 is attributable to warrants which did not occur for the three months ended June 30, 2014. The remaining amount is related to an increase in total company borrowings.

We account for our outstanding Common Stock warrants that were issued in connection with our debentures at fair value. For the three months ended June 30, 2014, the change in the fair value of derivative instruments resulted in a gain of $217,594 compared to a charge of $263,794 for the three months ended June 30, 2013. The fluctuations primarily relate to changes in the price of our common stock during the periods.

Results of Operations for the Six Months ended June 30, 2014

For the six months ended June 30, 2014, the Company had a net loss of ($2,558,717), as compared to a net loss ($5,418,365) for the six months ended June 30, 2013, or a decrease of $2,859,648. The significant factors contributing to this decrease are discussed in more detail below.

Revenues

Revenues for the six months ended June 30, 2014 were $1,142,979, as compared to $863,597 for the six month period ending June 30, 2013, which represented an increase of $279,382 or approximately 32.4%. The increase was the result of sales to three significant customers.

Gross Profit

The Company had a gross profit of $264,569, and a gross profit margin of 23.1% for the six months ended June 30, 2014, as compared to a gross profit of $142,362, and a gross profit margin of 16.5% for the six months ended June 30, 2013. The gross margin increased as a result of a changing product mix and increase in product costs.


Expenses

Total operating expenses decreased to $3,170,950 for the six month period ending June 30, 2014 from $3,475,606 for the six month period ending June 30, 2013, a decrease of $304,656 or 8.8%. The major components are discussed below.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for 2014 and 2013 were equal to total operating expenses, as the Company had no research and development expense in that period. The major components of Selling, General and Administrative Expenses are discussed below.

Product Development

Product development costs were $58,124 for the six months ended June 30, 2014, compared to $68,847, for the six months ending June 30, 2013, a decrease of $10,723 or 15.6%. Product development expenses in 2014 represented continuing the refining of existing designs and development of aimed optics, the next generation cobra head and shoebox products.

Management expects to continue to support the development, reengineering, and building its current patent portfolio. Management expects product development costs to continue to decrease until the Company formalizes the product development plan as a result of the restructuring. Management expects this to be completed by the beginning of the third quarter.

Compensation & Benefits

Compensation & Benefits expenses were $944,161 for the six months ended June 30, 2014, compared to $1,855,809 for the six months ended June 30, 2013, a decrease of $911,648 or approximately 49.1%. The decrease is related to an increase in non-cash expenses associated with stock options awarded to Board members and employees and a decrease related to reduction in cash compensation and benefits due to less employees.

Marketing & Sales

Marketing & Sales expenses totaled $299,306 for the six months ended June 30, 2014, as compared to $491,575 for the six months ended June 30, 2013, representing a decrease of $192,269 or 39.1%. The decrease reflects the company's efforts to continue to support the brand of the company and position it more effectively in the marketplace. Included in this category are tradeshow expenses and related travel, lodging, meals and entertainment expenses to market the product both domestically in the United States and Internationally.


With the relationships developed, as management expected, marketing and sales expenses continue to reduce through the second quarter of 2014. Due to the restructuring of the company and continued focus on developing and supporting the Company's patents, management expects to minimize expenses related to tradeshows and related travel expenses. Management continues to support the branding of its products, Company and marketing of its patents to the marketplace.

General and Administrative

General and administrative expenses are the expenses of operating the business on a daily basis that are not related directly to cost of goods and include legal and professional fees, consultants and occupancy and office expenses. For the six months ended June 30, 2014 the Company incurred aggregate expense of $1,869,359 in this area, compared to $1,059,375 for the six months ended June 30, 2013, an increase of $809,984 or 76.5%. $237,138 of the increase in occupancy expense relates to a judgment in favor of a previous landlord, BKOP1,
LLC. The majority of this increase is related to increases in use of consultants, including stock based compensation paid to consultants, occupancy and office and legal and professional fees.

Research and Development

The Company did not incur any research and development expenses in the six months ended June 30, 2014 nor the six months ended June 30, 2013.

Other Income and Expenses

Other income and expense reflects interest expense (net of interest income) and change in fair value of derivative liabilities as discussed below:

Total interest expense for the six months ended June 30, 2014 was $(140,096) compared to $1,802,798 for the six months ended June 30, 2013, a decrease of $1,942,894 or (107.8)%. $202,630 of this decrease is attributable to the accretion of the discount related to the convertible notes which did not occur during the six months ended June 30, 2013. A significant amount of the decrease is attributable to expense for the six months ended June 30, 2014 associated with warrants in the amount of $1,433,473 which did not occur for the six months ended June 30, 2014. The remaining amount is related to an increase in total company borrowings.

We account for our outstanding Common Stock warrants that were issued in connection with our debentures at fair value. For the six months ended June 30, 2014, the liability related to these instruments fluctuated, resulting in a gain of $487,760 compared to a charge of $263,794 for the six months ended June 30, 2013. The fluctuations primarily relate to changes in the price of our common stock during the periods.

Liquidity and Capital Resources

The Company's cash flow from operations is insufficient to meet its current obligations. In fiscal year 2013, the Company relied upon additional investment through sales of common stock, lines of credit, and debentures in order to fund its operations.

Cash Flows and Working Capital

To date, we have financed our operations primarily through the sale of equity and debt. As of June 30, 2014, we had $69,102 in cash and cash equivalents. We had receivables, net of allowances, of $584,664 and inventory, net of reserves, of $368,052. Our current liabilities as of that date were $5,571,029.

Our business cycle is working capital intensive. The sales cycle can be several months or longer and sales are not invoiced until the product has been built and shipped, requiring all cost of goods, and in some cases sales commissions, to be incurred prior to payment on an order. Also, because we build our products based upon a specific order, it can take up to 90 days to fulfill an order, followed by a period of time in which to collect our receivables. As discussed in "Lines of Credit" in Note I to the Financial Statements, we have two lines of credit with a total borrowing capacity of $2.75 million, $2 million of which was provided in cash to the Company and can be used for working capital purposes while the other $750,000 facility is available upon request for specific customer purchase orders pursuant to certain conditions. As of June 30, 2014, the Company had drawn an aggregate of $2,757,952 and had no remaining available balance.


Management intends to continue to finance operations through debt and equity as well as to seek potential acquisitions that have positive cash flows; however, there can be no assurance of successful financing or acquisition activity in the future.

The Company may incur operating losses for the foreseeable future and there can be no guarantee that we will be successful securing funding. In the event we are unable to fund our operations by positive operating cash flows or additional funding, we will be forced to reduce our expenses and may have to cease operations. During the period ended March 31, 2014, the Company's Chief Executive Officer, who was also the Chief Financial Officer, resigned. In addition, the company is restructuring its organization for greater efficiencies, and is aggressively pursuing sale opportunities, which continue to present themselves to the company. The company is working with distributors and end users in order to maximize potential sales. As a result of the Company scaling back current operations, substantially all of the Company's employees were terminated. The Company will continue to rely on its relationship with its partner, Leader Electronics, Inc., and optimize its strong industry relationship as it continues to concentrate on its legacy Aimed Optics™ products. It will also continue to supports its development, reengineering, and building its current patent portfolio, which includes the continuing effort to reduce costs in an effort to become a more affordable option in the industry.

The Company uses contract manufacturers to produce its products and therefore does not have significant capital expenditures at this time.

For the Six Month Period Ended

                                 June 30,         June 30,
                                   2014             2013
Cash flows used in Operations   $ (743,791 )      (3,508,816)

Investing Activities            $  (77,585 )         (71,509)

Financing Activities            $  874,358          2,535,955

Cash at end of period           $   69,102            598,094

Operating Activities

Net cash used in operating activities for the six months ended June 30, 2014 totaled ($743,791) as compared to ($3,508,816) for the six months ended June 30, 2013. During the period ended June 30, 2014, the cash used in operating activities consisted principally of the net loss from operations, stock based compensation, change in fair value of debt instruments, increase in accounts receivable, increase in inventory, decrease in inventory reserve and increase in accounts payable and accrued liabilities.

Investing Activities

Net cash used in investing for the six months ended June 30, 2014 was ($77,585) as compared to ($71,509) for the six months ended June 30, 2013. The represents capital expenditures primarily associated with the purchase of computer equipment and software.

Financing Activities

Our net cash provided by financing activities for the six months ended June 30, 2014 was $874,358 as compared to $2,535,955 for the six months ended June 30, 2013, which primarily consisted of proceeds from private placements, notes payable and lines of credit.


Off-Balance Sheet Arrangements

We do not currently 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 stockholders.

Our company has not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated with us under which we have

o an obligation under a guarantee contract, although we do have obligations under certain sales arrangements including purchase obligations to vendors
o a retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets,
o any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument, or
o any obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by us and material to us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and . . .

  Add ILED to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ILED - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.