e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
OR
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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 0-24230
ENERGY FOCUS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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94-3021850 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
32000 Aurora Rd., Solon, OH
(Address of principal executive offices)
44139
(Zip Code)
(Registrants telephone number, including area code): (440) 715-1300
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
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 during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
o 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 definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of outstanding shares of the registrants Common Stock, $0.0001 par value, as of April
30, 2010 was 22,930,366.
ITEM 1. FINANCIAL STATEMENTS
ENERGY FOCUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share and per share data)
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March 31, |
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December 31, |
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2010 |
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2009 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
1,810 |
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$ |
1,062 |
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Accounts receivable trade, net |
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5,351 |
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2,922 |
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Inventories, net |
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3,298 |
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3,770 |
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Prepaid and other current assets |
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573 |
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509 |
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Total current assets |
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11,032 |
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8,263 |
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Fixed assets, net |
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2,894 |
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3,091 |
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Goodwill, net |
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672 |
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672 |
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Intangible assets, net |
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2,482 |
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2,750 |
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Collateralized assets |
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2,500 |
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2,500 |
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Other assets |
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81 |
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102 |
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Total assets |
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$ |
19,661 |
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$ |
17,378 |
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LIABILITIES |
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Current liabilities: |
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Accounts payable |
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$ |
4,070 |
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$ |
1,677 |
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Accrued liabilities |
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2,426 |
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1,854 |
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Deferred revenue |
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591 |
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295 |
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Total current liabilities |
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7,087 |
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3,826 |
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Other deferred liabilities |
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130 |
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149 |
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Acquisition-related contingent liabilities |
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1,062 |
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1,183 |
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Long-term borrowings |
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1,655 |
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715 |
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Total liabilities |
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9,934 |
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5,873 |
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SHAREHOLDERS EQUITY |
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Preferred stock, par value $0.0001 per share: |
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Authorized: 2,000,000 shares in 2010 and 2009
Issued and outstanding: no shares in |
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Common stock, par value $0.0001 per share: |
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Authorized: 30,000,000 shares in 2010 and 2009
Issued and outstanding: 21,370,000 in 2010 and 21,250,000 in 2009 |
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1 |
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1 |
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Additional paid-in capital |
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73,242 |
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71,373 |
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Accumulated other comprehensive income |
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397 |
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474 |
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Accumulated deficit |
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(63,913 |
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(60,343 |
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Total shareholders equity |
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9,727 |
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11,505 |
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Total liabilities and shareholders equity |
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$ |
19,661 |
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$ |
17,378 |
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The accompanying notes are an integral part of these financial statements.
3
ENERGY FOCUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share amounts)
(unaudited)
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Three months ended |
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March 31, |
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2010 |
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2009 |
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Net sales |
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$ |
8,357 |
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$ |
2,523 |
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Cost of sales |
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6,962 |
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2,295 |
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Gross profit |
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1,395 |
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228 |
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Operating expenses: |
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Research and development |
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55 |
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156 |
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Sales and marketing |
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1,619 |
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1,546 |
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General and administrative |
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1,679 |
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1,264 |
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Revaluation of equity instruments |
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1,421 |
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Restructuring expense |
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26 |
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Total operating expenses |
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4,800 |
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2,966 |
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Loss from operations |
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(3,405 |
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(2,738 |
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Other (expense) income: |
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Other (expense) income |
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(65 |
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19 |
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Interest expense |
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(99 |
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(20 |
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Loss from continuing operations before income taxes |
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(3,569 |
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(2,739 |
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Provision for income taxes |
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(1 |
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Net loss from continuing operations |
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$ |
(3,570 |
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$ |
(2,739 |
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Discontinued operations: |
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Loss before income taxes of discontinued operations |
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(302 |
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Provision for income taxes |
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Loss from discontinued operations |
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(302 |
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Net loss |
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$ |
(3,570 |
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$ |
(3,041 |
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Net loss per share basic and diluted |
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$ |
(0.17 |
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$ |
(0.21 |
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Shares used in computing net loss per share
basic and diluted |
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21,270 |
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14,835 |
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The accompanying notes are an integral part of these financial statements.
4
ENERGY FOCUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(amounts in thousands)
(unaudited)
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Three months ended |
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March 31, |
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2010 |
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2009 |
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Net loss |
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$ |
(3,570 |
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$ |
(3,041 |
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Other comprehensive loss |
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Foreign currency translation adjustments |
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(77 |
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(44 |
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Comprehensive loss |
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$ |
(3,647 |
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$ |
(3,085 |
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The accompanying notes are an integral part of these financial statements.
5
ENERGY FOCUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
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Three months ended |
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March 31, |
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2010 |
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2009 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(3,570 |
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$ |
(3,041 |
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Less: loss from discontinued operations |
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(302 |
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Net loss from continuing operations |
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(3,570 |
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(2,739 |
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Adjustments to reconcile net loss from continuing operations to net cash used in operating
activities: |
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Depreciation |
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208 |
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262 |
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Stock-based compensation |
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147 |
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196 |
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Revaluation of equity instruments |
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1,421 |
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Provision for doubtful accounts receivable |
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7 |
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(11 |
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Amortization of intangible assets |
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268 |
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Amortization of discounts on long-term borrowings |
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36 |
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Deferred revenue |
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296 |
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(118 |
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Changes in assets and liabilities: |
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Accounts receivable, inventories, and other assets |
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(2,118 |
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651 |
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Accounts payable and accrued liabilities |
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2,867 |
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(2,282 |
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Total adjustments |
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3,132 |
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(1,302 |
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Net cash used in continuing operations |
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(438 |
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(4,041 |
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Net cash provided by discontinued operations |
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444 |
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Net cash used in operating activities |
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(438 |
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(3,597 |
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Cash flows from investing activities: |
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Acquisition of fixed assets |
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(16 |
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(81 |
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Net cash used in continuing investing activities |
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(16 |
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(81 |
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Net cash used in discontinued investing activities |
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(2 |
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Net cash used in investing activities |
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(16 |
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(83 |
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Cash flows from financing activities: |
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Cash proceeds from issuances of common stock, net |
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55 |
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Discounts on notes payable |
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246 |
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Borrowings on long-term borrowings |
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904 |
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Net cash provided by continuing financing activities |
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1,205 |
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0 |
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Net cash used in discontinued financing activities |
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(132 |
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Net cash provided by (used in) financing activities |
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1,205 |
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(132 |
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Effect of exchange rate changes on cash |
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(3 |
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44 |
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Net increase (decrease) in cash and cash equivalents |
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748 |
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(3,768 |
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Cash and cash equivalents at beginning of period |
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1,062 |
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10,568 |
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Cash and cash equivalents at end of period |
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$ |
1,810 |
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$ |
6,800 |
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The accompanying notes are an integral part of these financial statements.
6
ENERGY FOCUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)
NOTE 1. NATURE OF OPERATIONS
Energy Focus, Inc. and its subsidiaries (the company) engage in the design, development,
manufacturing, marketing, and installation of energy-efficient lighting systems where the company
serves two segments:
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solutions-based sales providing turnkey, high-quality, energy-efficient lighting
application alternatives; and |
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product-based sales featuring pool lighting and general commercial lighting, each of
which markets and sells energy-efficient lighting systems. |
The company continues to evolve its business strategy to include providing its customers with
turnkey, comprehensive energy-efficient lighting solutions, which use, but are not limited to, its
patented and proprietary technology. The companys solutions include light-emitting diode (LED),
ceramic metal halide (CMH), fiber optic (EFO), high-intensity discharge (HID), and other
highly energy-efficient lighting technologies. Typical savings of the companys current technology
approximates 80% in electricity costs, while providing full-spectrum light closely simulating
daylight colors. The companys strategy also incorporates continued investment into the research
of new and emerging energy sources including, but not limited to, solar energy.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the company, which are summarized below, are consistent with
generally accepted accounting principles and reflect practices appropriate to the business in which
it operates.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
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 and the reported amounts of revenues and expenses during the reporting period.
Estimates include, but are not limited to, the establishment of reserves for accounts receivable,
sales returns, inventory obsolescence, and warranty claims; the useful lives for property,
equipment, and intangible assets; and stock-based compensation. In addition, estimates and
assumptions associated with the determination of fair value of financial instruments and evaluation
of goodwill and long-lived assets for impairment requires considerable judgment. Actual results
could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified within the Consolidated Financial Statements
(financial statements) to be consistent with the current year presentation.
Basis of Presentation
The financial statements include the accounts of the company and its subsidiaries, Stones River
Companies, LLC (SRC) in Nashville, Tennessee, and Crescent Lighting Limited (CLL) located in
the United Kingdom. LBM Lichtleit-Fasertechnik (LBM) located in Berching, Germany, was sold in
December, 2009 and is included in these financial statements as discontinued operations. All
significant inter-company balances and transactions have been eliminated.
Interim Financial Statements (unaudited)
Although unaudited, the interim financial statements in this report reflect all adjustments,
consisting only of all normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of financial position, results of operations, and cash flows for the
interim periods covered and of the financial condition of the company at the interim balance sheet
date. The results of operations for the interim periods presented are not necessarily indicative
of the results expected for the entire year.
Year-end Balance Sheet
The year-end balance sheet information was derived from audited financial statements but does not
include all disclosures required by generally accepted accounting principles. These financial
statements should be read in conjunction with the companys audited financial statements and notes
thereto for the year ended December 31, 2009, which are contained in the companys 2009 Annual
Report on Form 10-K.
7
ENERGY FOCUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
(Unaudited)
Foreign Currency Translation
The companys international subsidiary uses its local currency as its functional currency. Assets
and liabilities are translated at exchange rates in effect at the balance sheet date and income and
expense accounts at average exchange rates during the year. Resulting translation adjustments are
recorded directly to accumulated comprehensive income within the statement of shareholders equity.
Foreign currency transaction gains and losses are included as a component of interest income and
other. Gains and losses from foreign currency translation are included as a separate component of
comprehensive income (expense) within the consolidated statement of comprehensive income (loss).
Liquidity
The company has incurred losses attributable to operational performance which has led to negative
cash flows. Although management believes that it has addressed many of the legacy issues that have
historically burdened the companys financial performance, the company still faces challenges in
order to reach profitability. In order for the company to attain profitability and growth, it will
need to successfully address these challenges, including the continuation of cost reductions
throughout its organization, execution of its marketing and sales plans for its new turnkey
energy-efficient lighting solutions business, continued evaluation and divestiture of non-core
business product lines, and continued improvements in its supply chain performance.
Although the company is optimistic about obtaining the funding necessary for it to continue as a
going concern, there can be no assurances that this objective will be successful. The company is
currently aggressively pursuing the following external funding sources:
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obtain financing and/or grants available through federal, state, and/or local
governmental agencies, |
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obtain financing from various financial institutions, |
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obtain financing from non-traditional investment capital organizations, |
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potential sale or divestiture of one or more operating units, and |
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obtain funding from the sale of our common stock or other equity instruments. |
Obtaining financing through the above-mentioned mechanisms contains risks, including:
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government stimulus and/or grant money is not allocated to us despite our focus on the
design, development, and manufacturing of energy efficient lighting systems, |
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loans or other debt instruments may have terms and/or conditions, such as interest rate,
restrictive covenants, and control or revocation provisions, which are not acceptable to
management or our Board of Directors, |
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the current global economic crisis combined with our current financial condition may
prevent us from being able to obtain any debt financing, |
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financing may not be available for parties interested in pursuing the acquisition of one
or more of our operating units, and |
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additional equity financing may not be available to us in the current economic
environment and could lead to further dilution of shareholder value for current
shareholders of record. |
Collateralized Assets
The company maintains $2,500,000 of cash securitization related to the companys $10,000,000 surety
bonding program associated with the acquisition of SRC on December 31, 2009. This cash is secured
for a period of not less than 24 months, unless the company is able to provide sufficient
alternative means of securitization satisfactory to the surety carrier.
Earnings (Loss) per Share
Basic loss per share is computed by dividing net loss available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted loss per share is
computed giving effect to all dilutive potential common shares that were outstanding during the
period. Dilutive potential common shares consist of incremental shares upon exercise of stock
options and warrants, unless the effect would be anti-dilutive.
8
ENERGY FOCUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)
A reconciliation of the numerator and denominator of basic and diluted loss per share is provided
as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Numerator basis and diluted loss per share |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(3,570 |
) |
|
$ |
(3,041 |
) |
|
|
|
|
|
|
|
|
|
Denominator basis and diluted loss per share |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
21,270 |
|
|
|
14,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share |
|
$ |
(0.17 |
) |
|
$ |
(0.21 |
) |
|
|
|
|
|
|
|
At March 31, 2010, options and warrants to purchase 7,963,000 shares of common stock were
outstanding, but were not included in the calculation of diluted net loss per share because their
inclusion would have been anti-dilutive. Options and warrants to purchase 5,665,000 shares of
common stock were outstanding at March 31, 2009, but were not included in the calculation of
diluted net loss per share because their inclusion would have been anti-dilutive.
Stock-Based Compensation
The companys stock-based compensation plan is described in detail in its Annual Report on Form
10-K for the year ended December 31, 2009.
For the quarter ended March 31, 2010, the company recorded compensation expense of $147,000
compared to $196,000 for the quarter ended March 31, 2009. Total unearned compensation of
$1,444,000 remains at March 31, 2010 compared to $1,279,000 at March 31, 2009. These costs will be
charged to expense, amortized on a straight line basis, in future periods through the first quarter
of 2014. The remaining weighted average life of the outstanding options is approximately 1.9
years.
The fair value of each stock option is estimated on the date of grant using the Black-Scholes
option pricing model. Estimates utilized in the calculation include the expected life of option,
risk-free interest rate, and expected volatility, and are further comparatively detailed below.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Fair value of options issued |
|
$ |
0.70 |
|
|
$ |
0.50 |
|
Exercise price |
|
$ |
1.02 |
|
|
$ |
0.84 |
|
Expected life of option |
|
|
4.0 years |
|
|
|
4.0 years |
|
Risk-free interest rate |
|
|
1.86 |
% |
|
|
1.53 |
% |
Expected volatility |
|
|
97.40 |
% |
|
|
82.40 |
% |
Dividend yield |
|
|
0 |
% |
|
|
0 |
% |
The company granted 1,010,000 stock options during the quarter ended March 31, 2010, and 360,000
during the quarter ended March 31, 2009. The options granted during the quarter ended March 31,
2010 are contingent upon the approval of the increase to the maximum aggregate number of stock
options awarded under the 2008 Incentive Stock Plan from 1,000,000 shares to 3,000,000 shares by
shareholders at the 2010 Annual Meeting of Shareholders (Annual Meeting) to be held on June 16,
2010.
9
ENERGY FOCUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)
On December 31, 2009, the companys five senior executive officers, along with two other key
executives of the company, agreed to accept voluntary cash salary reductions through June 30, 2010.
Each officer and key executive voluntarily accepted a ten percent (10%) salary reduction for
this six month period, except for one officer who voluntarily accepted a forty percent (40%)
decrease for this six month period. The number of restricted shares of common stock issued to each
officer and executive was equal to the dollar value of the individuals salary reduction divided by
the closing price per share of the companys common stock on December 30, 2009. The total number
of restricted shares of common stock issued to these officers and executives was 209,000. The
company reserves the right to extend these salary reductions beyond that date. The company
recorded compensation expense of $58,000 for the quarter ended March 31, 2010 related to these
voluntary salary reductions.
Product Warranties
The company warrants finished goods against defects in material and workmanship under normal use
and service for periods of one to three years for illuminators and fiber. Settlement costs
consist of actual amounts expensed for warranty services which are largely a result of third-party
service calls, and the costs of replacement products. A liability for the estimated future costs
under product warranties is maintained for products outstanding under warranty and is included in
accrued expenses in the Condensed Consolidated Balance Sheet. The warranty activity for the
respective years is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Balance at the beginning of the period |
|
$ |
211 |
|
|
$ |
308 |
|
Accruals for warranties issued |
|
|
(5 |
) |
|
|
24 |
|
Settlements made during the period (in cash or in kind) |
|
|
(20 |
) |
|
|
(27 |
) |
|
|
|
|
|
|
|
Balance at the end of the period |
|
$ |
186 |
|
|
$ |
305 |
|
|
|
|
|
|
|
|
NOTE 3. ACQUISITION
On December 31, 2009, the company acquired 100% of the members interest of SRC, a Tennessee
limited liability company, from TLC Investments, LLC (TLC), a Tennessee limited liability
company, for a combination of cash, convertible debt, a contingent based earn-out, and shares of
the companys common stock. SRC is a lighting retro fit company and an energy systems and
solutions provider located in Nashville, Tennessee. SRC provides the company with the reputation
and strong brand recognition within in the existing public sector buildings market based upon its
20 years of experience serving these markets. Given the significant existing contract backlog,
pipeline of potential future contracts, proven delivery performance and strong existing
relationships with its customer base that SRC brings to the company; it will be able to readily
penetrate these markets with its unique and proven technology while simultaneously benefiting from
the other natural synergies that exist between our two businesses. This acquisition is the
foundation by which the company will emerge into a national turn-key energy solutions provider.
The company acquired approximately $4,700,000 in assets, including accounts receivable, fixed
assets, and other intangible assets. $672,000 of the purchase price was recorded on the companys
Consolidated Balance Sheet as goodwill. Purchase price consideration was paid in the form of
$1,500,000 of cash, 1,000,000 shares of Energy Focus Class A common stock, and a $500,000 note
convertible into 500,000 shares of the companys Class A common stock. The transaction also
includes performance-related contingent consideration including a 2.5%, payout on the annual
revenues of the acquired business over the next 42 months, and a $500,000 fee if the market price
of the companys common stock is not equal to or greater than $2.00 per share for at least twenty
trading days between June 30, 2010 and June 30, 2013.
The acquisition has been accounted for as a stock purchase and, accordingly, has been included in
the accompanying Consolidated Financial Statements of the company as of December 31, 2009. Due to
the absence of activity between the purchase date, December 31, 2009, and the date of our
Consolidated Financial Statements, there were no results of operations to be reported. In
addition, comparative pro forma information has not been presented as SRC was not a comparable
stand-alone entity prior to the acquisition.
10
ENERGY FOCUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)
The purchase price was allocated based on the fair value of the assets acquired leading to the
purchase price allocation as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
Life |
|
|
|
|
Assets acquired: |
|
(in years) |
|
|
Amount |
|
Accounts receivable |
|
|
|
|
|
$ |
1,258 |
|
Fixed asset |
|
|
|
|
|
|
20 |
|
Goodwill |
|
|
n/a |
|
|
|
672 |
|
Intangible assets: |
|
|
|
|
|
|
|
|
Tradename |
|
|
10 |
|
|
|
500 |
|
Client relationships |
|
|
5 |
|
|
|
2,250 |
|
|
|
|
|
|
|
|
|
Total purchase price |
|
|
|
|
|
$ |
4,700 |
|
|
|
|
|
|
|
|
|
The purchase price in excess of the fair value of the tangible assets acquired has been allocated
to intangible assets and goodwill. The company engaged an independent third-party expert to assist
in the allocation of the purchase price to the various specific separately identifiable intangible
assets. The methods utilized by this third-party are based upon generally accepted accounting
valuation conventions used in acquisition-related valuations and include peer volatility analysis,
discounted cash flow analysis, annuity stream valuation and earnings based valuation techniques.
These conventions were reviewed and approved by management as well as the companys current
independent public accounting firm.
These intangible assets have estimated useful lives as set forth in the table above and
amortization expense for the following fiscal years for the acquired intangible assets is estimated
to be as follow (in thousands):
|
|
|
|
|
Year ending March 31, |
|
Amount |
|
2011 |
|
$ |
967 |
|
2012 |
|
|
592 |
|
2013 |
|
|
378 |
|
2014 |
|
|
216 |
|
2015 and thereafter |
|
|
329 |
|
|
|
|
|
Total amortization expense |
|
$ |
2,482 |
|
|
|
|
|
Of the intangible assets acquired, $672,000 was assigned to goodwill. None of the goodwill is
expected to be deductible for tax purposes.
NOTE 4. DISCONTINUED OPERATIONS
As part of the companys strategy of evaluating the viability of its non-core businesses and its
aggressive pursuit of capital funding, the company determined that its German subsidiary was not
directly aligned with its objective to become a leading provider of turnkey, comprehensive
energy-efficient lighting systems. Therefore, in the third quarter of 2009, the company committed
to a plan to divest its German subsidiary, LBM.
In December 2009, the company completed the sale of its ownership rights in LBM for $225,000
comprised of cash and a promissory note. Furthermore, the company will receive an earn out equal
to ten percent (10%) of post-acquisition, pre-amortization, pre-tax profit for a period of 24
months commencing January, 2010. Excluding this earn out, the company recorded a loss on disposal
of subsidiary of $664,000. As part of this transaction, the purchaser assumed all rights to both
tangible and intangible assets as well as all of the liabilities of LBM.
11
ENERGY FOCUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)
The following table summarizes the components included with net loss from discontinued operations
within the companys Condensed Consolidated Statement of Operations for the period indicated
(amounts in thousands):
|
|
|
|
|
|
|
Three |
|
|
|
Months |
|
|
|
Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
Net sales |
|
$ |
265 |
|
Total expenses |
|
|
567 |
|
|
|
|
|
Loss from operations of discontinued operations |
|
|
(302 |
) |
Provision for income tax |
|
|
|
|
|
|
|
|
Net loss from discontinued operations |
|
$ |
(302 |
) |
|
|
|
|
NOTE 5. INVENTORIES
Inventories are stated at the lower of standard cost (which approximates actual cost determined
using the first-in, first-out cost method) or market and consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Raw materials |
|
$ |
2,862 |
|
|
$ |
2,785 |
|
Inventory reserve |
|
|
(974 |
) |
|
|
(1,010 |
) |
Finished goods |
|
|
1,410 |
|
|
|
1,995 |
|
|
|
|
|
|
|
|
Inventories |
|
$ |
3,298 |
|
|
$ |
3,770 |
|
|
|
|
|
|
|
|
NOTE 6. FIXED ASSETS
Fixed assets are stated at cost and are depreciated using the straight-line method over the
estimated useful lives of the related assets and consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Equipment (useful life 3 - 15 years) |
|
$ |
7,702 |
|
|
$ |
7,856 |
|
Tooling (useful life 2 - 5 years) |
|
|
2,303 |
|
|
|
2,305 |
|
Furniture and fixtures (useful life 5 years) |
|
|
167 |
|
|
|
168 |
|
Computer software (useful life 3 years) |
|
|
474 |
|
|
|
476 |
|
Leasehold improvements (the shorter of useful life or lease life) |
|
|
887 |
|
|
|
911 |
|
|
|
|
|
|
|
|
Fixed assets at cost |
|
|
11,533 |
|
|
|
11,716 |
|
Less: accumulated depreciation |
|
|
(8,639 |
) |
|
|
(8,625 |
) |
|
|
|
|
|
|
|
Fixed assets, net |
|
$ |
2,894 |
|
|
$ |
3,091 |
|
|
|
|
|
|
|
|
12
ENERGY FOCUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)
NOTE 7. LONG-TERM BORROWINGS
Effective October 15, 2008, the company entered into a one year credit agreement with Silicon
Valley Bank (SVB) incorporating a $4,000,000 revolving line of credit which replaced all existing
facilities including the United States term loans. This new line of credit included a $1,500,000
sub-limit for cash management products, letters of credit and foreign currency exchange. Under
this agreement, all domestic existing term loans and revolving credit lines were repaid and funded
by this new borrowing arrangement. Borrowings under this agreement were collateralized by the
companys assets, including intellectual property, and bore interest at the SVB Prime Rate plus 1%.
The company was required to maintain 85% of its cash and cash equivalents in operating and
investment accounts with SVB and was also required to comply with certain covenant requirements,
including a tangible net worth covenant. The amount of borrowings available to the company was the
lesser of $4,000,000 or the sum of up to 75% of eligible accounts receivable, as defined by the
agreement, and 50% of our cash balance in deposit at SVB, capped at $1,500,000.
At December 31, 2008, the company was not in compliance with the tangible net worth covenant
requirement and such condition continued throughout 2009. As such, the company entered into a
series of loan modification and forbearance agreements (agreements) with effective dates ranging
from January 31, 2009 through November 17, 2009. In conjunction with these agreements, the terms
of its credit facility were revised culminating in a reduction to its revolving line of credit to
$1,300,000 with a maturity date of October 15, 2009 and a change in the rates of interest charged
throughout 2009 in the range of SVB Prime Rate plus 1.5% to 3.00%. Under this revised credit
facility, the company was required to maintain all of its cash and cash equivalents in operating
and investment accounts with SVB and SVBs affiliates, and was also required to continue compliance
with certain covenant requirements, including the tangible net worth covenant. During the third
quarter of 2009, SVB informed the company that it did not intend to renew the companys revolving
line of credit when it was set to expire on October 15, 2009. Ultimately, the company was able to
extend the maturity date of this credit facility to December 31, 2009 at which time it liquidated
the outstanding balance of $253,000 on the line of credit. The company has not replaced this
credit facility but is actively pursuing other potential financial resources to replace and/or
compensate for the loss of the line of credit.
On May 27, 2009, the company entered into an unsecured Promissory Note (Note) with The Quercus
Trust (The Trust) in the amount of $70,000. Under the terms of this Note, we are obligated to
pay The Trust the principal sum of the Note and interest accruing at a yearly rate of 1.00% in one
lump sum payment on or before June 1, 2109. The company received these funds on June 9, 2009.
On December 29, 2009 and in conjunction with the acquisition of SRC, the company entered into
Letter of Credit Agreements (LOCs) with John Davenport, President of the company, and with The
Trust, for $250,000 and $300,000, respectively. These LOCs have a term of 24 months and bear
interest at a rate of 12.5% on the face amount. The LOCs are collateralized by a percentage of
the capital stock of Crescent Lighting Ltd. (CLL) which in turn is based on CLLs net worth as of
November 30, 2009 and is subordinated to the senior indebtedness of the company and CLL. In
addition, subject to approval by shareholders at the next annual meeting, the company will issue
five-year, detachable penny warrants ($.01 per share) to purchase the companys common stock at a
rate of 0.5 warrants per dollar of the face amount of the LOC.
In conjunction with the acquisition of SRC on December 31, 2009, the company entered into an
agreement with the seller, TLC Investments, LLC (TLC), whereby a Convertible Promissory Note
(Convertible Note) was issued for the principal amount of $500,000. This Convertible Note bears
interest at the Wall Street Journal Prime Rate plus two percent (2%), which along with the
principal, is due and payable on June 30, 2013 (maturity date). Additionally, TLC has the right
to convert the principal of the Convertible Note, in whole, into 500,000 shares of the companys
common stock at any time during the period commencing on June 30, 2010 and through the maturity
date. Additionally, as a provision to the Convertible Note, if the reported closing price of a
share of the companys common stock shall not be equal to or greater than $2.00 for at least twenty
(20) trading days between June 30, 2010 and June 30, 2013, the company shall pay TLC an additional
fee of $500,000 on the maturity date.
13
ENERGY FOCUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)
On March 30, 2010, the company entered into an agreement with EF Energy Partners LLC, an Ohio
limited liability company (EF Energy), under which it sold to EF Energy a Secured Subordinated
Promissory Note (Subordinated Note) for the principal amount of $1,150,000. The company secured
the full amount of this financing with a pledge of its United States gross accounts receivable and
selected capital equipment. This Subordinated Note bears interest at a rate of 12.5%, which is
payable quarterly, in arrears, commencing September 30, 2010. The entire outstanding principal
balance of this Subordinated Note, together with all accrued interest thereon, is due and payable
on March 30, 2013. Additionally, the company issued to the eight investors in EF Energy five-year,
detachable penny warrants to purchase shares of the companys common stock at a rate of 0.2
warrants per dollar of financing, or 230,000 warrants, with an expiration date of March 30, 2015.
The company and EF Energy are not related.
Through the companys United Kingdom subsidiary, the company maintains a British pounds
sterling-denominated bank overdraft facility with Lloyds Bank Plc, in the amount of $379,000, based
on the exchange rate at March 31, 2010. There were no borrowings against this facility as of March
31, 2010 or December 31, 2009. The facility is renewed annually on January 1. The interest rate
on the facility was 2.75% at March 31, 2010 and December 31, 2009.
Future maturities of remaining borrowings are (in thousands):
|
|
|
|
|
|
|
Long-Term |
|
Year ending March 31, |
|
Borrowings |
|
2011 |
|
$ |
|
|
2012 |
|
|
550 |
|
2013 |
|
|
1,650 |
|
2014 |
|
|
|
|
2015 and thereafter |
|
|
70 |
|
|
|
|
|
Gross long-term borrowings |
|
|
2,270 |
|
Less: discounts on long-term borrowings |
|
|
(615 |
) |
|
|
|
|
Total commitment, net |
|
$ |
1,655 |
|
|
|
|
|
NOTE 8. COMPREHENSIVE OPERATIONS
Comprehensive income (loss) is defined as net income (loss) plus sales, expenses, gains, and losses
that, under generally accepted accounting principles, are included in comprehensive income (loss)
but excluded from net income (loss). A separate statement of comprehensive loss has been presented
with this report.
NOTE 9. SEGMENTS AND GEOGRAPHIC INFORMATION
The company has two reportable segments: product-based sales featuring pool lighting and general
commercial lighting, each of which markets and sells lighting systems, and solutions-based sales
providing turnkey, high-quality, energy-efficient lighting application alternatives. The companys
products are sold through a combination of direct sales employees, independent sales
representatives, and various distributors in different geographic markets throughout the
world. The companys solutions-based sales are designed to enhance total value by positively
impacting customers profitability, the environment, and the communities it serves. These
solutions are sold through our direct sales employees as well as our SRC subsidiary, and include
not only the companys proprietary energy-efficient lighting solutions, but also sourced lighting
systems, energy audits, and service agreements.
14
ENERGY FOCUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)
The following summarizes the companys reportable segment data for periods indicated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Solutions |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
5,280 |
|
|
$ |
|
|
Cost of goods sold |
|
|
4,287 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
993 |
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
269 |
|
|
|
|
|
General and administrative |
|
|
338 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
607 |
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) |
|
$ |
386 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products: |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
3,077 |
|
|
$ |
2,523 |
|
Cost of goods sold |
|
|
2,675 |
|
|
|
2,295 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
402 |
|
|
|
228 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
|
55 |
|
|
|
156 |
|
Sales and marketing |
|
|
1,295 |
|
|
|
1,495 |
|
General and administrative |
|
|
69 |
|
|
|
69 |
|
Restructuring expense |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,445 |
|
|
|
1,720 |
|
|
|
|
|
|
|
|
Segment loss |
|
$ |
(1,043 |
) |
|
$ |
(1,492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment income (loss) to net loss: |
|
|
|
|
|
|
|
|
Segment income (loss) |
|
|
|
|
|
|
|
|
Solutions |
|
$ |
386 |
|
|
$ |
|
|
Products |
|
|
(1,043 |
) |
|
|
(1,492 |
) |
|
|
|
|
|
|
|
Total segment loss |
|
|
(657 |
) |
|
|
(1,492 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
55 |
|
|
|
51 |
|
General and administrative |
|
|
1,272 |
|
|
|
1,195 |
|
Revaluation of equity instruments |
|
|
1,421 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
2,748 |
|
|
|
1,246 |
|
Other expense |
|
|
(164 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
Net loss from continuing operations before income taxes |
|
|
(3,569 |
) |
|
|
(2,739 |
) |
Provision for income taxes |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
|
|
(3,570 |
) |
|
|
(2,739 |
) |
Loss from discontinued operations |
|
|
|
|
|
|
(302 |
) |
|
|
|
|
|
|
|
Net loss |
|
$ |
(3,570 |
) |
|
$ |
(3,041 |
) |
|
|
|
|
|
|
|
15
ENERGY FOCUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)
A geographic summary of net sales from continuing operations is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
United States Domestic |
|
$ |
7,284 |
|
|
$ |
1,587 |
|
Other Countries |
|
|
1,073 |
|
|
|
936 |
|
|
|
|
|
|
|
|
Net sales from continuing operations |
|
$ |
8,357 |
|
|
$ |
2,523 |
|
|
|
|
|
|
|
|
A geographic summary of long-lived assets, which consists of fixed assets, goodwill, and intangible
assets, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
United States Domestic |
|
$ |
5,869 |
|
|
$ |
6,306 |
|
Other Countries |
|
|
179 |
|
|
|
207 |
|
|
|
|
|
|
|
|
Long-lived assets, net |
|
$ |
6,048 |
|
|
$ |
6,513 |
|
|
|
|
|
|
|
|
NOTE 10. INCOME TAXES
At March 31, 2010, the company has recorded a full valuation allowance against its deferred tax
asset in the United States, due to uncertainties related to the companys ability to utilize its
deferred tax assets, primarily consisting of certain net operating losses carried forward. The
valuation allowance is based upon the companys estimates of taxable income by jurisdiction and
the period over which its deferred tax assets will be recoverable.
NOTE 11. COMMITMENTS AND CONTINGENCIES
In connection with the acquisition of SRC, the company maintains a performance-related contingent
obligation related to the 2.5% payout based upon the annual revenues of the acquired business over
the 42 months commencing January 1, 2010, and a $500,000 fee if the market price of the companys
common stock is not equal to or greater than $2.00 per share for at least twenty trading days
between June 30, 2010 and June 30, 2013. Payments related to the performance-related contingent
obligation totaling $126,000 were made during the three months ended March 31, 2010.
NOTE 12. RELATED PARTY TRANSACTIONS
On February 3, 2006, the company had entered into a consulting agreement with David Ruckert, a
member of its Board of Directors. This agreement was terminated on June 30, 2007. No payments were
made during the three months ended March 31, 2010 or March 31, 2009. Additionally, Mr. Ruckert was
granted options to purchase 32,000 shares of the companys common stock. Stock compensation
expense incurred under ASC 718 related to these options was $7,000 for the quarter ended March 31,
2010 and $7,000 for the quarter ended March 31, 2009.
On May 27, 2009, the company entered into a Promissory Note (Note) with The Trust in the amount
of $70,000. Please refer to Note 7, Long-Term Borrowings, for discussion of the terms of the Note.
16
ENERGY FOCUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)
In November 2009, the company received an additional $3,344,000 in equity financing, net of
expenses by selling 4,813,000 shares of common stock in a registered offering. The investment was
made by numerous current Energy Focus shareholders, including two then current members of the
companys Board of Directors. The investment was made under the companys registration statement
for a $3,500,000 common stock subscription rights offering. Under the terms of the rights
offering, the company distributed, at no charge to its shareholders, transferable rights to
purchase up to $3.5 million of the companys common stock at the established subscription price per
share of $0.75, which was set by the companys Board of Directors. At the time the offering began,
the company distributed to each shareholder one transferable right for each share of common stock
owned by the shareholder. Each right entitled the holder to purchase one share of the companys
common stock, par value $0.0001 per share, subject to a maximum of 4,600,000 shares to be issued in
the offering. Shareholders were entitled to subscribe for shares not subscribed for by other
shareholders. Among the investors were Philip E. Wolfson, a member of the companys Board of
Directors at the time of the transaction, and who invested approximately $8,000 in the aggregate.
Also among the investors was The Trust, whose trustees include David Gelbaum.
In the companys subscription rights offering discussed above, an investor inadvertently purchased
1,000,000 shares of our common stock at $0.75 per share. The company agreed to facilitate the sale
of these shares to another shareholder or investor or to purchase them directly. A purchase of
those shares by the company would have severely depleted its cash-on-hand and working capital.
After contacting selected shareholders and investors, the company introduced the investor to The
Trust, the companys largest shareholder. The company was informed on December 30, 2009, by the
investor and The Trust that The Trust had agreed to purchase those shares at $0.80 per share. At
that time, the closing market price of a share of the companys common stock was approximately
$0.65 per share. To facilitate the purchase of the 1,000,000 shares by The Trust, on December 30,
2009, the company agreed with The Trust to reduce the exercise price of the 1,560,062 warrants
issued to The Trust in March 2008 to $0.01 per share upon the completion of the purchase of all
1,000,000 shares in 2010. The purchase of the 1,000,000 shares by The Trust was completed on
February 20, 2010. The company incurred a non-cash charge of $1,421,000 for the quarter ended
March 31, 2010 related to the revaluation of the warrants to purchase shares of the companys
common stock acquired by The Quercus Trust in the companys March 2008 equity financing. On April
28, 2010, The Trust exercised the 2008 warrants. The company has asked its shareholders to approve
the reduction in the exercise price at its Annual Meeting.
On December 29, 2009, and in conjunction with the acquisition of SRC, the company entered into
Letter of Credit Agreements (LOCs) with John Davenport, President of the company, and with The
Trust, for $250,000 and $300,000, respectively. Please refer to Note 7, Long-Term Borrowings, for
discussion of the terms of these LOCs.
Rob Wilson, the companys Vice President of SRC, is a minority owner in TLC Investments, LLC
(TLC), a Tennessee limited liability company, as well as in Woodstone Energy, LLC (Woodstone),
a Tennessee limited liability company, both of which are located in Nashville, Tennessee.
In conjunction with the acquisition of SRC on December 31, 2009, the company entered into an
agreement with TLC whereby a Convertible Promissory Note (Convertible Note) was issued for the
principal amount of $500,000. This Convertible Note bears interest at a rate of the Wall Street
Journal Prime Rate plus two percent (2%), which along with the principal, is due and payable on
June 30, 2013. Additionally, TLC has the right to convert the principal of the Convertible Note,
in whole, into 500,000 shares of the companys common stock at any time during the period
commencing on June 30, 2010 and ending the maturity date. Additionally, as a provision to the
Convertible Note, if the reported closing price of a share of the companys common stock shall not
be equal to or greater than $2.00 for at least twenty (20) trading days between June 30, 2010 and
June 30, 2013, the company shall pay TLC an additional fee of $500,000 on the maturity date.
On December 31, 2009, the company issued to Woodstone warrants to purchase up to 600,000 shares of
the companys common stock at an exercise price of $0.65 per share, and with a term ending on
December 31, 2014. The warrants become exercisable only if SRC receives from Woodstone firm
contracts or purchase orders for at least $10,000,000 by June 30, 2013. The warrants vest in two
tranches: 400,000 shares when contracts or purchase orders between SRC and Woodstone reach
$10,000,000 and an additional 200,000 shares when contracts or purchase orders between SRC and
Woodstone reach an additional $5,000,000. The warrants include registration rights for the shares
of common stock to be issued upon exercise of the warrants.
17
ENERGY FOCUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(Unaudited)
NOTE 13. LEGAL MATTERS
On January 20, 2010 a competitor and former supplier filed a complaint against the company in the
Court of Chancery of the State of
Delaware, alleging that the company has misused proprietary trade secrets, breached a contract, and
engaged in deceptive trade practices relating to one of its lighting products. The complaint seeks
injunctive relief and damages. The company has answered the complaint and filed a counterclaim for
breach of contract. The company strongly denies any impropriety, believes that the complaint is
without merit, and intends to vigorously defend itself. In the opinion of management, this lawsuit
should not have an adverse effect on the companys financial condition, cash flows, or results of
operations
The company is not currently engaged in any other litigation and does not anticipate becoming
involved in any in the foreseeable future.
18
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with the Condensed Consolidated Financial Statements (financial
statements) and related notes included elsewhere in this report and the section entitled
Managements Discussion and Analysis of Financial Condition and Results of Operations in our
Annual Report on Form 10-K for the year ended December 31, 2009.
When used in this discussion, the words expects, anticipates, estimates, plan, and similar
expressions are intended to identify forward-looking statements. These statements, which include
statements as to our expected sales and gross profit margins, expected operating expenses and
capital expenditure levels, our sales and marketing expenses, our general and administrative
expenses, expected expenses related to compliance with the Sarbanes-Oxley Act of 2002, the
adequacy of capital resources and necessity to raise additional funds, our critical accounting
policies, expected restructuring costs related to our consolidation in Solon, Ohio, expected
benefits from our consolidation and statements regarding pending litigation are subject to risks
and uncertainties that could cause actual results to differ materially from those projected. These
risks and uncertainties include, but are not limited to, those risks discussed below, as well as
our ability to manage expenses, our ability to reduce manufacturing overhead and general and
administrative expenses as a percentage of sales, our ability to collect on doubtful accounts
receivable, our ability to increase cash balances in future quarters, the cost of enforcing or
defending intellectual property, unforeseen adverse competitive, economic or other factors that may
impact our cash position, risks associated with raising additional funds, and risks associated with
our pending litigation. These forward-looking statements speak only as of the date hereof. We
expressly disclaim any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statements contained herein to reflect any change in our expectations with
regard thereto or any change in events, conditions or circumstances on which any such statement is
based.
Overview
Energy Focus, Inc. and its subsidiaries (the company) engage in the design, development,
manufacturing, marketing, and installation of energy-efficient lighting systems where we serve two
segments:
|
|
|
solutions-based sales providing turnkey, high-quality, energy-efficient lighting
application alternatives; and |
|
|
|
|
product-based sales featuring pool lighting and general commercial lighting, each of
which markets and sells energy-efficient lighting systems. |
We continue to evolve our business strategy to include providing its customers with turnkey,
comprehensive energy-efficient lighting solutions, which use, but are not limited to, its patented
and proprietary technology. Our solutions include light-emitting diode (LED), ceramic metal
halide (CMH), fiber optic (EFO), high-intensity discharge (HID), and other highly
energy-efficient lighting technologies. Typical savings related to our current technology
approximates 80% in electricity costs, while providing full-spectrum light closely simulating
daylight colors. Our strategy also incorporates continued investment into the research of new and
emerging energy sources including, but not limited to, solar energy.
Our development of solar technology is continuing through our leadership role in the United States
governments Very High Efficiency Solar Cell (VHESC) Consortium sponsored by the Defense Advanced
Research Projects Agency (DARPA). The goal of the VHESC project is to develop a 40% or greater
efficient solar cell for United States military applications, which would also be available to the
public for commercial application.
Results of Operations
Cash Utilization
Cash utilization was $402,000 for the quarter ended March 31, 2010, excluding $1,150,000 of cash
received from the selling of a Secured Subordinated Promissory Note for the principal amount of
$1,150,000. Cash utilization for the quarter ended March 31, 2009 was $3,768,000.
Net Sales and Gross Profit
Solutions-based net sales from continuing operations were $5,280,000 for the quarter ended March
31, 2010 resulting from our Stones River Companies, LLC (SRC) subsidiary, which was acquired on
December 31, 2009.
Product-based net sales from continuing operations were $3,077,000 for the quarter ended March 31,
2010; an increase of $554,000 compared to the quarter ended March 31, 2009. The increase resulted
from a $497,000 increase in government related product-based net sales, as well as by a $135,000
increase in product-based net sales by our United Kingdom subsidiary.
19
Gross profit was $1,395,000 for the quarter ended March 31, 2010; an increase of $1,167,000
compared to the quarter ended March 31, 2009. The gross profit margin as a percentage of sales
increased to 16.7% for the first quarter of 2010 as compared to 9.1% for the first quarter of 2009.
Global economic conditions within all of our legacy markets, and particularly within the housing
and new construction markets, deteriorated at a pace faster than our cost reduction initiatives
could offset. Through September 2009, we maintained two manufacturing and assembly facilities for
our North American operations which resulted in overall lower gross profitability on a net sales
per dollar basis. In a continuing effort to reduce the fixed overhead of the company, and in
conjunction with the strategic transition into a turnkey energy-efficient lighting services
solutions company, we relocated 100% of the North American manufacturing and assembly operation
into our lower cost Mexican contract manufacturing facility. Furthermore, we eliminated our Solon,
Ohio distribution services operation during the quarter ended March 31, 2010. Lastly, we continue
to negotiate with our Solon facility landlord to develop a mutually beneficial early termination of
our lease agreement in that facility.
Research and development
Net research and development expenses decreased 65.0% to $55,000 for the quarter ended March 31,
2010 as compared to $156,000 for the quarter ended March 31, 2009. Our gross research and
development expenses are reduced on a proportional performance basis under DARPA Small Business
Innovation Research (SBIR) development contracts. In 2007, SBIR contracts were signed totaling
$1,500,000 to be reimbursed over a two-year recovery period. During 2009, additional SBIR
contracts were signed totaling $1,707,000 to be reimbursed through July 2010. At March 31, 2010,
$1,222,000 remained as unrecognized reductions of gross research and development expenses. The
gross research and development spending along with credits from government contracts is shown in
the table:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Gross research and development expenses |
|
$ |
316 |
|
|
$ |
330 |
|
Deduct: incurred and accrued credits from government contracts |
|
|
(261 |
) |
|
|
(174 |
) |
|
|
|
|
|
|
|
Net research and development expenses |
|
$ |
55 |
|
|
$ |
156 |
|
|
|
|
|
|
|
|
Sales and marketing
Sales and marketing expenses increased 4.7% to $1,619,000 for the quarter ended March 31, 2010 as
compared to $1,546,000 for the quarter ended March 31, 2009. The increase is primarily due to
sales and marketing expenses related to SRC of $269,000. Excluding the SRC related expenses, sales
and marketing expenses decreased 12.7% to $1,350,000, primarily due to decreased salaries and
benefits, as well as managements continuing efforts to reduce costs.
General and administrative
General and administrative expenses increased $415,000 to $1,679,000 for the quarter ended March
31, 2010 as compared to $1,264,000 quarter ended March 31, 2009. The increase is primarily due to
general and administrative expenses related to SRC of $338,000. Included in the general and
administrative expenses related to SRC is a non-cash charge of $268,000 for the amortization of
SRCs intangible assets. Excluding the SRC related expenses, general and administrative expenses
increased 6.1% to $1,341,000, primarily due to increased professional service fees.
Revaluation of equity instruments
We recognized a non-cash charge of $1,421,000 related to the revaluation of warrants to purchase
shares of our common stock acquired by The Quercus Trust in our March 2008 equity financing.
Please refer to Note 12 of our Condensed Consolidated Financial Statements (financial statements)
for discussion of this transaction.
Restructuring Expenses
We recognized restructuring expenses of $26,000 for the quarter ended March 31, 2010 associated
with relocating our manufacturing equipment and operations. We incurred no restructuring expense
during the first quarter of 2009.
20
Other Income and Expenses
We had interest income of $2,000 and interest expense of $101,000 for the quarter ended March 31,
2010. Interest income consists of interest earned on deposits. Interest expense is for interest
on our long-term borrowings, as well as for the contingent consideration and market price fee
included in the acquisition of SRC. Please refer to Note 3 of our financial statements for
discussion of this contingent consideration and market price fee. We had interest income of $4,000
and interest expense of $24,000 for the quarter ended March 31, 2009.
Discontinued Operations
As part of our strategy of evaluating the viability of our non-core businesses and our aggressive
pursuit of capital funding, we determined that our German subsidiary was not directly aligned with
our objective to become a leading provider of turnkey, comprehensive energy-efficient lighting
solutions. Therefore, in the third quarter of 2009, we committed to a plan to sell our German
subsidiary, LBM Lichtleit-Fasertechnik (LBM).
In December 2009, we completed the sale of our ownership in LBM for $225,000 comprised of cash and
a promissory note. Furthermore, we will receive an earn out equal to ten percent (10%) of
post-acquisition, pre-amortization, pre-tax profit for a period of 24 months commencing January
2010. As part of this transaction, the purchaser assumed all rights to both tangible and
intangible assets as well as all of the liabilities of LBM.
Net sales from discontinued operations were $265,000 for the quarter ended March 31, 2009. Net
loss from discontinued operations was $302,000 for the quarter ended March 31, 2009.
We have reported the business described above as discontinued operations for all periods presented.
Please refer to Note 4 of our financial statements for discussion concerning discontinued
operations.
Net loss
We recorded a net loss of $3,570,000 for the quarter ended March 31, 2010, a 17.4% increase from
the net loss of $3,041,000 for the quarter ended March 31, 2009.
Liquidity and Capital Resources
Cash and Cash Equivalents
At March 31, 2010, our cash and cash equivalents were $1,810,000 as compared to $1,062,000 at
December 31, 2009, a net cash increase of $748,000 for the quarter ended March 31, 2010. This
compares to a net cash decrease of $3,768,000 for quarter ended March 31, 2009.
Cash (Used in) Provided by Operating Activities
Net cash used in operating activities of continuing operations primarily consists of net loss
adjusted by non-cash items, including depreciation, amortization, and stock-based compensation, as
well as the effect of changes in working capital. Cash decreased during the quarter ended March
31, 2010, by a net loss of $3,570,000, compared to a net loss of $3,041,000 for the quarter ended
March 31, 2009. After adjustments, net cash used in operating activities of continuing operations
was $438,000 for the quarter ended March 31, 2010 compared to a net cash usage of $4,041,000 for
the quarter ended March 31, 2009.
Net cash provided by operating activities of discontinued operations primarily consists of net loss
adjusted by non-cash items, including depreciation, as well as the effect of changes in working
capital. Cash decreased during the quarter ended March 31, 2009, by a net loss of $302,000 for the
quarter ended March 31, 2009. After adjustments, net cash provided by operating activities of
discontinued operations was $444,000 for the quarter ended March 31, 2009.
Cash Used in Investing Activities
Net cash used in investing activities of continuing operations was $16,000 for the quarter ended
March 31, 2010, a decrease of 80.2% compared to a net cash usage of $81,000 for the quarter ended
March 31, 2009. During both periods, cash was used for the acquisition of fixed assets.
Net cash used in investing activities of discontinued operations was $2,000 for the quarter ended
March 31, 2009 for the acquisition of fixed assets.
21
Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities of continuing operations was $1,205,000 for the quarter
ended March 31, 2010. Cash provided was primarily due to the selling of a Secured Subordinated
Promissory Note for the principal amount of $1,150,000. Please refer to Note 7 of our Condensed
Consolidated Financial Statements (financial statements) for discussion of this transaction. For
the quarter ended March 31, 2009, financing activities neither provided nor used cash.
Net cash used in financing activities of discontinued operations was $132,000 for the quarter ended
March 31, 2009. This cash usage was due to payment on line of credit and long-term borrowings.
Long-Term Borrowings
Effective October 15, 2008, we entered into a one year credit agreement with Silicon Valley Bank
(SVB) incorporating a $4,000,000 revolving line of credit which replaced all existing facilities
including the United States term loans. This new line of credit included a $1,500,000 sub-limit
for cash management products, letters of credit and foreign currency exchange. Under this
agreement, all domestic existing term loans and revolving credit lines were repaid and funded by
this new borrowing arrangement. Borrowings under this agreement were collateralized by our assets,
including intellectual property, and bore interest at the SVB Prime Rate plus 1%. We were required
to maintain 85% of our cash and cash equivalents in operating and investment accounts with SVB and
were also required to comply with certain covenant requirements, including a tangible net worth
covenant. The amount of borrowings available to the company was the lesser of $4,000,000 or the
sum of up to 75% of eligible accounts receivable, as defined by the agreement, and 50% of our cash
balance in deposit at SVB, capped at $1,500,000.
At December 31, 2008, we were not in compliance with the tangible net worth covenant requirement
and such condition continued throughout 2009. As such, we entered into a series of loan
modification and forbearance agreements (agreements) with effective dates ranging from January
31, 2009 through November 17, 2009. In conjunction with these agreements, the terms of our credit
facility were revised culminating in a reduction to our revolving line of credit to $1,300,000 with
a maturity date of October 15, 2009 and a change in the rates of interest charged throughout 2009
in the range of SVB Prime Rate plus 1.5% to 3.00%. Under this revised credit facility, we were
required to maintain all of our cash and cash equivalents in operating and investment accounts with
SVB and its affiliates and were also required to continue compliance with certain covenant
requirements, including the tangible net worth covenant. During the third quarter of 2009, SVB
informed the company that it did not intend to renew our revolving line of credit when it was set
to expire on October 15, 2009. Ultimately, we were able to extend the maturity date of this credit
facility to December 31, 2009 at which time we liquidated the outstanding balance of $253,000 on
the line of credit. We have yet not replaced this credit facility but we are actively pursuing
other potential financial resources to replace and/or compensate for the loss of the line of
credit.
On May 27, 2009, we entered into an unsecured Promissory Note (Note) with The Quercus Trust (The
Trust) in the amount of $70,000. Under the terms of this Note, we are obligated to pay The Trust
the principal sum of the Note and interest accruing at a yearly rate of 1.00% in one lump sum
payment on or before June 1, 2109. We received these funds on June 9, 2009.
On December 29, 2009 and in conjunction with the acquisition of SRC, we entered into Letter of
Credit Agreements (LOCs) with John Davenport, President of our company, and with The Trust, for
$250,000 and $300,000, respectively. These LOCs have terms of 24 months and bear interest at a
rate of 12.5% on the face amount. The LOCs are collateralized by a percentage of the capital
stock of Crescent Lighting Ltd. (CLL) which in turn is based on CLLs net worth as of November
30, 2009 and is subordinated to the senior indebtedness of the company and CLL. In addition,
subject to approval by shareholders at the next annual meeting, we will issue five-year, detachable
penny warrants ($.01 per share) to purchase common stock at a rate of 0.5 warrants per dollar of
the face amount of the LOC.
In conjunction with the acquisition of SRC on December 31, 2009, we entered into an agreement with
TLC Investments, LLC (TLC), whereby a convertible promissory note (Convertible Note) was issued
for the principal amount of $500,000. This Convertible Note bears interest at the Wall Street
Journal Prime Rate plus two percent (2%), which along with the principal, is due and payable on
June 30, 2013 (maturity date). Additionally, TLC has the right to convert the principal of the
Convertible Note, in whole, into 500,000 shares of our common stock at any time during the period
commencing on June 30, 2010 and through the maturity date. Additionally, as a provision to the
Convertible Note, if the reported closing price of a share of common stock of the company shall not
be equal to or greater than $2.00 for at least twenty (20) trading days between June 30, 2010 and
June 30, 2013, we shall pay TLC an additional fee of $500,000 on the maturity date.
22
On March 30, 2010, we entered into an agreement with EF Energy Partners LLC, an Ohio limited
liability company (EF Energy), under which it sold to EF Energy a Secured Subordinated
Promissory Note (Subordinated Note) for the principal amount of $1,150,000. We secured the full
amount of this financing with a pledge of our United States gross accounts receivable and selected
capital equipment. This Subordinated Note bears interest at a rate of 12.5%, which is payable
quarterly, in arrears, commencing September 30, 2010. The entire outstanding principal balance of
this Subordinated Note, together with all accrued interest thereon, is due and payable on March 30,
2013. Additionally, we issued to the eight investors in EF Energy five-year, detachable penny
warrants to purchase shares of our common stock at a rate of 0.2 warrants per dollar of financing,
or 230,000 warrants, with an expiration date of March 30, 2015. We are not related to EF Energy.
Through our United Kingdom subsidiary, we maintain a British pounds sterling-denominated bank
overdraft facility with Lloyds Bank Plc, in the amount of $379,000, based on the exchange rate at
March 31, 2010. There were no borrowings against this facility as of March 31, 2010 or December
31, 2009. This facility is renewed annually on January 1. The interest rate on the facility was
2.75% at March 31, 2010, and December 31, 2009.
Liquidity
We have incurred losses attributable to operational performance which has led to negative cash
flows. Although management believes that it has addressed many of the legacy issues that have
historically burdened our financial performance, we still face challenges in order to reach
profitability. In order for our company to attain profitability and growth, we will need to
successfully address these challenges, including the continuation of cost reductions throughout our
organization, execution of our marketing and sales plans for our new turnkey energy-efficient
lighting solutions business, continued evaluation and divestiture of non-core business product
lines, and continued improvements in our supply chain performance.
Although we are optimistic about obtaining the funding necessary for our company to continue as a
going concern, there can be no assurances that this objective will be successful. We are currently
aggressively pursuing the following external funding sources:
|
|
|
obtain financing and/or grants available through federal, state, and/or local
governmental agencies, |
|
|
|
|
obtain financing from various financial institutions, |
|
|
|
|
obtain financing from non-traditional investment capital organizations, |
|
|
|
|
potential sale or divestiture of one or more operating units, and |
|
|
|
|
obtain funding from the sale of our common stock or other equity instruments. |
Obtaining financing through the above-mentioned mechanisms contains risks, including:
|
|
|
government stimulus and/or grant money is not allocated to us despite our focus on the
design, development, and manufacturing of energy efficient lighting systems, |
|
|
|
|
loans or other debt instruments may have terms and/or conditions, such as interest rate,
restrictive covenants, and control or revocation provisions, which are not acceptable to
management or our Board of Directors, |
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the current global economic crisis combined with our current financial condition may
prevent us from being able to obtain any debt financing, |
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financing may not be available for parties interested in pursuing the acquisition of one
or more of our operating units, and |
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additional equity financing may not be available to us in the current economic
environment and could lead to further dilution of shareholder value for current
shareholders of record. |
Critical Accounting Policies
The preparation of our financial statements requires that we make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingencies, and the
reported amounts of net sales and expenses in the financial statements. Material differences may
result in the amount and timing of net sales and expenses if different judgments or different
estimates were utilized. Critical accounting policies, judgments, and estimates which we believe
have the most significant impact on our financial statements include allowances for doubtful
accounts, returns, warranties, valuation of inventories, and stock-based compensation. For the
detailed discussion of the application of policies critical to our business operations, see our
Annual Report on Form 10-K for the year ended December 31, 2009.
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Recent Accounting Pronouncements
In January, 2010, the FASB issued Accounting Standards Update (ASU) 2010-02, Consolidation (Topic
810) Accounting and Reporting for Decreases in Ownership of a Subsidiary A Scope Clarification.
ASU 2010-02 clarifies the scope of the decrease in ownership provisions of Subtopic 810 and
expands disclosure requirements about deconsolidation of a subsidiary or de-recognition of a group
of assets. ASU 2010-02 is effective beginning in the first interim of annual reporting period
ending on or after December 15, 2009. The adoption of ASU 2010-02-02 did not have an impact on our
consolidated financial statements.
In October, 2009, the FASB issued ASU 2009-013, Revenue Recognition (Topic 605)
Multiple-Deliverable Revenue Arrangements. ASU 2009-13 revises certain accounting for revenue
arrangements with multiple deliverables. In particular, when vendor specific objective evidence or
third-party evidence for deliverables in an arrangement cannot be determined, ASU 2009-13 allows
use of a best estimate of the selling price to allocate the arrangement consideration among them.
ASU 2009-13 is effective for the first quarter of 2011, with early adoption permitted. We do not
expect that the adoption of ASU 2009-13 will have a material impact on our consolidated financial
statements.
In August, 2009, the FASB issued ASU 2009-05, an amendment to Accounting Standards Codification
(ASC) 820-10, Fair Value Measurements and Disclosures Overall for measuring liabilities at fair
value. ASU 2009-05 provides clarification that in certain circumstances in which a quoted price in
an active market for the identical liability is not available, a reporting entity is required to
measure fair value using certain other valuation techniques. The guidance provided in this ASU is
effective for the first reporting period beginning after issuance. This ASU had no impact on our
consolidated financial statements.
In June, 2009, the FASB issued ASU 2009-01, Generally Accepted Accounting Principles (Topic 105)
which amends the FASB ASC for the issuance of FASB Statement No. 168 The FASB Accounting Standards
Codification on the Hierarchy of Generally Accepted Accounting Principles. This statement
establishes the FASB Accounting Standards Codification as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP. This statement is effective for financial statements
issued for interim and annual periods ending after September 15, 2009.
In December, 2007, the FASB issued ASC Topic 805, Business Combinations. The pronouncement requires
the acquiring entity in a business combination to recognize only the assets acquired and
liabilities assumed in a transaction (e.g., acquisition costs must be expensed when incurred),
establishes the fair value at the date of acquisition as the initial measurement for all assets
acquired and liabilities assumed, and requires expanded disclosures. ASC 805 is in effect for
fiscal years beginning after December 15, 2008 (January 1, 2009, for our company). The adoption of
ASC 805 did not have a material impact on our consolidated financial statements.
In December, 2007, the FASB issued ASC Topic 810, Non-controlling Interests in Consolidated
Financial Statements, an Amendment of ARB No. 51. The pronouncement requires all entities to
report non-controlling (minority) interests in subsidiaries as a component of shareholders equity.
ASC 810 is in effect for fiscal years beginning after December 15, 2008 (January 1, 2009, for our
company). The adoption of ASC 810 did not have a material impact on our consolidated financial
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2010, we had British pounds sterling-denominated cash valued at $1,000 held in the
United Kingdom, based on the exchange rate at March 31, 2010. The balances for cash held in the
United Kingdom are subject to exchange rate risk. We have a policy of maintaining cash balances
in local currency unless an amount of cash is occasionally transferred in order to repay
inter-company debts.
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ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
We maintain disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934 (the Exchange Act), that are designed to ensure that
information required to be disclosed by us in reports that we file or submit under the Exchange
Act is recorded, processed, summarized, and reported within the time periods specified in
Securities and Exchange Commission rules and forms and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. In designing and
evaluating our disclosure controls and procedures, management recognized that disclosure controls
and procedures, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the disclosure controls and procedures are met. Our
disclosure controls and procedures have been designed to meet, and management believes that they
meet, reasonable assurance standards. Additionally, in designing disclosure controls and
procedures, our management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible disclosure controls and procedures. Any design of
disclosure controls and procedures also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form
10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that, subject to the
limitations noted above, our disclosure controls and procedures were effective to ensure that
material information relating to us, including our consolidated subsidiaries, is made known to
them by others within those entities, particularly during the period in which this Quarterly
Report on Form 10-Q was being prepared.
(b) Changes in internal control over financial reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) identified in connection with the evaluation during our last fiscal
quarter that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 29, 2010, a competitor and former supplier filed a complaint against our company in the
Court of Chancery of the State of Delaware, alleging that the company has misused proprietary trade
secrets, breached a contract, and engaged in deceptive trade practices relating to one of our
lighting products. The complaint seeks injunctive relief and damages. We have answered the
complaint and filed a counterclaim for breach of contract. We strongly deny any impropriety,
believe that the complaint is without merit, and intend to vigorously defend ourselves. In the
opinion of management, this lawsuit should not have an adverse effect on our financial condition,
cash flows, or results of operations.
We are not currently engaged in any other litigation and do not anticipate becoming involved in any
in the foreseeable future.
ITEM 1A. RISK FACTORS
Other than the below risk factor, there are no significant changes in risk factors from our Annual
Report on Form 10-K for the year ended December 31, 2009.
We have not been in compliance with the continued listing requirements of the NASDAQ Global Market.
From time to time during the fourth quarter of 2009 and early in the first quarter of 2010, we have
not met the NASDAQ Global Market (NASDAQ) continued listing requirements that call for the
maintenance of a minimum bid price of our common stock of $1.00 per share and minimum shareholders
equity of $10,000,000. We received formal notices of non-compliance from NASDAQ. Although we
regained compliance with NASDAQ continued listing requirements on those occasions, there is a
continuing risk that we could again become non-compliant with the listing requirements. In this
regard, our shareholders equity as of the end of the first quarter has fallen below the minimum
shareholder equity requirement. We are preparing a remedial plan to regain compliance. If the
minimum bid price of our common stock should fall below $1.00 for an extended period of time in the
future, we will be required to take remedial action on it as well. If we are unable to maintain
the minimum listing price of our common stock, or regain and maintain minimum shareholders equity,
and if our common stock becomes subject to being delisted from trading on the NASDAQ Global Market,
we could transfer trading in our common stock to the NASDAQ Capital Market or other exchange which
could potentially result in a loss of trading liquidity.
ITEM 5. OTHER INFORMATION
On May 12, 2010, we notified the NASDAQ by telephone that the companys shareholder equity as shown
in its Condensed Consolidated Balance Sheet as of March 31, 2010 was $9,727,000, which is less than
the minimum $10,000,000 required by NASDAQ Rule 5450(b)(1)(A) (the Rule). We are preparing a
plan to regain compliance with the Rule that will be submitted to the NASDAQ Listing Department
(Listing Department). While we have not yet received a notification of deficiency from the
Listing Department, we expect to receive one within the next few days and anticipate that the
notification letter will permit us 45 days to submit a compliance plan and, if the plan is
acceptable, an additional 135 days to regain compliance with the Rule.
ITEM 6. EXHIBITS
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Exhibit |
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Number |
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Description |
10.1
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Form of Management Continuity Agreement for Executive Officers. |
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31.1
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Rule 13a-14(a) Certification of Chief Executive Officer. |
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31.2
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Rule 13a-14(a) Certification of Chief Financial Officer. |
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32.1
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Statement of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2003 (18 U.S.C. §1350). |
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32.2
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Statement of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2003 (18 U.S.C. §1350). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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ENERGY FOCUS, INC.
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Date: May 13, 2010 |
By: |
/s/ Joseph G. Kaveski
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Joseph G. Kaveski |
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Chief Executive Officer |
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By: |
/s/ Nicholas G. Berchtold
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Nicholas G. Berchtold |
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Chief Financial Officer
(Principal Financial and Accounting Officer) |
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EXHIBIT INDEX
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Exhibit |
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Number |
|
Description |
10.1
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Form of Management Continuity Agreement for Executive Officers. |
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31.1
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Rule 13a-14(a) Certification of Chief Executive Officer. |
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31.2
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Rule 13a-14(a) Certification of Chief Financial Officer. |
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32.1
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Statement of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2003 (18 U.S.C. §1350). |
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32.2
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Statement of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2003 (18 U.S.C. §1350). |
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