e424b3
Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-167855
PROSPECTUS
ENERGY FOCUS, INC.
2,654,957 Shares of Common Stock
This prospectus relates to the sale of up to 2,654,957 shares of our common stock by the
selling shareholders identified in this prospectus. The prices at which the selling shareholders
may sell the shares will be determined by the prevailing market price for the shares or in
negotiated transactions. We will not receive any of the proceeds from the sale of these shares.
Our common stock is registered under Section 12(g) of the Securities Exchange Act of 1934 and
quoted on the NASDAQ Capital Market under the symbol EFOI. On July 14, 2010, the last reported
sale price for our common stock as reported on the Capital Market was
$1.25 per share. The shares
of common stock offered under this prospectus have been approved for listing on the NASDAQ Capital
Market.
Investing in our common stock involves certain risks. See Risk Factors beginning on page 4
for a discussion of these risks.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined that this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is July 15, 2010.
TABLE OF CONTENTS
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Prospectus Summary |
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Risk Factors |
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4 |
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Special Note Regarding Forward-Looking Statements |
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Use of Proceeds |
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Transactions and the Offering |
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Selling Shareholders |
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Plan of Distribution |
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Legal Matters |
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27 |
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Experts |
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27 |
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Where You Can Find More Information |
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Information Incorporated By Reference |
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PROSPECTUS SUMMARY
This prospectus provides you with a general description of the common stock being offered. You
should read this prospectus, including all documents incorporated herein by reference, together
with additional information described under the heading Where You Can Find More Information.
The registration statement that contains this prospectus, including the exhibits to the
registration statement, contains additional information about us and the securities being offered
under this prospectus. You should read the registration statement and the accompanying exhibits for
further information. The registration statement and exhibits can be read and are available to the
public over the Internet at the SECs website at http://www.sec.gov as described under the
heading Where You Can Find More Information.
Business
We are a Delaware corporation. Our principal executive offices are located at 32000 Aurora
Road, Solon, Ohio 44139. Our telephone number is 440.715.1300. The address of our website is
www.efoi.com. Information on our website is not part of this prospectus.
We design, develop, manufacture, and market energy-efficient lighting products, and we are a
leading provider of turnkey energy-efficient lighting solutions in the governmental and public
sector market, general commercial market, and the pool market. Our lighting technology offers
significant energy savings, heat dissipation and maintenance cost benefits over conventional
lighting for multiple applications.
During 2009 and early 2010, we completed the initial phase of our new business strategy to
provide turnkey solutions, which use, but are not limited to, our patented and proprietary
technology. Our solutions include light-emitting diode, ceramic metal halide, fiber optic,
high-intensity discharge, and other high energy-efficient lighting technologies. Typical savings
related to our 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 long-term strategy is to penetrate the $100 billion existing building lighting market by
providing turnkey lighting solutions. We will continue to focus on markets where the benefits of
our lighting solutions offerings, combined with our technology, are most compelling. These markets
include: schools, universities, hospitals, office buildings, parking garages, supermarkets,
museums, cold storage facilities, and manufacturing environments.
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Transactions and the Offering
Acquisition of SRC. On December 31, 2009, we acquired all of the member interests of Stones
River Companies, LLC, a Tennessee limited liability company (SRC), from TLC Investments, LLC, a
Tennessee limited liability company (TLC), for a combination of cash, debt, an earn-out, and
shares of our common stock. SRC is a lighting retrofit company and an energy systems and solutions
provider located in Nashville, Tennessee. Jami Hall and Robert E. Wilson of Nashville, Tennessee,
own TLC. Mr. Wilson has continued to lead SRC as its Vice President.
The consideration that we paid for SRC included a promissory note for $500,000 (the TLC
Note) and 1,000,000 shares of common stock (the TLC Shares). The principal amount of the
promissory note is due at maturity on June 30, 2013 along with accrued interest. TLC may convert
the entire principal amount of the note into 500,000 shares of common stock (the TLC Note Shares)
at any time during the period beginning on June 30, 2010 and ending on the maturity date.
We did not register the offering and issuance of those common shares and that convertible
promissory note under the Securities Act of 1933, as amended, in reliance upon the exemptions from
the registration requirements of the Act in Section 4(2) of the Act and Rule 506 of Regulation D.
We have agreed to register for resale by TLC the TLC Shares issued as part of the purchase price
and the TLC Note Shares.
Performance Bonding Support for SRC. In order to provide performance bonding for SRCs
projects, on December 30, 2009 we deposited cash collateral with our surety company for a period
not to exceed two years. To reduce the size of our cash collateral based deposit and increase our
liquidity, we have offered a small number of investors an opportunity to replace portions of our
deposit with funds of their own on the following terms: 12.5% interest per year payable by us;
reimbursement by us in the event that the surety company draws on their funds; security interest in
a portion of the shares of capital stock of Crescent Lighting, Ltd., our subsidiary located in
London, England; and a number of warrants to purchase shares of common stock equal to one share for
every $2.00 deposited. The warrants have a five-year term and an exercise price of $0.01 per
share. John M. Davenport, our President and a director, has deposited $250,000 and has received a
warrant for 125,000 shares (the Davenport Warrant). The Quercus Trust, Newport Beach,
California, our largest shareholder, has deposited $300,000 and has received a warrant for 150,000
shares (the Trust Warrant). David Gelbaum, who was a director at the time, and his spouse, are
co-trustees of the Trust. Our shareholders have approved our issuance of these warrants to Mr.
Davenport and to the Trust at our Annual Shareholders Meeting held on June 16, 2010.
We did not register the issuance of those warrants under the Securities Act of 1933, as
amended, in reliance upon the exemptions from the registration requirements of the Act in Section
4(2) of the Act and Rule 506 of Regulation D. We have agreed to register for resale by Mr.
Davenport and to by the Trust the 275,000 shares covered by their warrants.
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Woodstone Energy, LLC. On December 31, 2009, we issued to Woodstone Energy, LLC, a Tennessee
limited liability company located in Nashville, Tennessee, a warrant to purchase up to 600,000
shares of our common stock (the Woodstone Warrant) at an exercise price of $0.65 per share and
with a term ending on December 31, 2014. The Warrant becomes exercisable only if SRC receives from
Woodstone Energy firm contracts or purchase orders for at least $10,000,000 by June 30, 2013. The
Warrant vests 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 them reach an additional $5,000,000. No shares have yet vested. Ms. Hall and Mr. Wilson
each hold minority interests in Woodstone Energy and together they own the majority interest.
We did not register the offering and issuance of the Warrant under the Securities Act of 1933,
as amended, in reliance upon the exemptions from the registration requirements of the Act in
Section 4(2) of the Act and Rule 506 of Regulation D. We have agreed to register for resale by
Woodstone the 600,000 shares covered by its Warrant.
Mezzanine Financing. On March 30, 2010, we sold to EF Energy Partners LLC, an Ohio limited
liability company (EF Energy), a secured subordinated promissory note in the principal face
amount of $1,150,000. We are not associated with EF Energy other than through the note. We
secured the full amount of the note with a pledge of our United States accounts receivable and
selected capital equipment. The principal balance of the note, together with accrued interest, is
due and payable on March 30, 2013. As an additional incentive for EF Energy to purchase the note,
we issued to its eight investors five-year warrants (the Mezzanine Warrants) to purchase shares
of common stock at a rate of 0.2 warrants per dollar of financing, or 230,000 shares, with an
exercise price of $0.01 per share and an expiration date of March 30, 2015.
We did not register the offering and issuance of those Warrants under the Securities Act of
1933, as amended, in reliance upon the exemptions from the registration requirements of the Act in
Section 4(2) of the Act and Rule 506 of Regulation D. We have agreed to register for resale by the
EF Energy investors the 230,000 shares covered by their Warrants.
Acquisition of Unison. On February 1, 2000, we acquired selected assets of Unison Fiber
Optics Systems, LLC, a joint venture between Advanced Lighting Technologies, Inc. (ADLT) and Rohm
& Haas Company, for consideration that included the issuance to ADLT of warrants to purchase up to
1,000,000 shares of our common stock at $0.01 per share. On September 28, 2004, ADLT transferred
to John M. Davenport, currently our President and a director, warrants for 50,000 of those shares.
Mr. Davenport later engaged in a cashless exercise of those warrants and acquired 49,957 shares
(the Davenport Shares). Before joining us in November 1999 as Vice President and Chief
Technology Officer, Mr. Davenport served as President of Unison in 1998 and 1999. We have agreed
to register the Davenport Shares.
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Securities Offered
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Common stock outstanding prior to this offering |
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22,930,366 |
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Common stock to be offered by the selling shareholders |
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2,654,957 shares consisting of: |
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1,049,957 TLC and Davenport Shares; and |
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1,605,000
shares issuable under the TLC Note and the Davenport, Trust, Woodstone, and Mezzanine Warrants |
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Common stock
outstanding after this offering |
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24,535,366 shares |
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Use of Proceeds |
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We will receive no proceeds from the |
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sale of shares of common stock in |
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this offering. If we sell 1,105,000 |
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shares of our common stock upon the |
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full exercise of the Davenport, |
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Trust, Woodstone, and Mezzanine |
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Warrants, however, we will receive |
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at least $395,050 in proceeds from |
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those sales. We will use any |
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proceeds that we receive from sales |
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upon exercises of those Warrants to |
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fund our working capital needs and |
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our new business strategy. See Use |
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of Proceeds. |
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NASDAQ Capital Market symbol |
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EFOI |
RISK FACTORS
You should carefully consider the risks described below before purchasing our common stock.
Our most significant risks and uncertainties are described below. They are not the only risks that
we face, however. If any of the following risks actually occur, our business, financial condition,
or results or operations could be materially, adversely affected, the price of our common stock
could decline, and you may lose all or part of your investment therein. You should acquire shares
of our common stock only if you can afford to lose your entire investment.
Risks Associated with Our Business.
We have a history of operating losses and may incur losses in the future.
We have experienced net losses of $11,015,000 and $14,448,000 for the years ended December 31,
2009 and 2008, respectively. As of
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December 31, 2009, we had an accumulated deficit of $60,343,000.
Although, with the acquisition of SRC management believes that we have 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 us
to attain profitability and further 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 reaching profitability, there is
a risk that our business may not be as successful as we envision or that we will never be
profitable.
Our independent public accounting firm has added an explanatory paragraph to their audit
opinion issued in connection with the financial statements in our 2009 Annual Report on Form 10-K
raising substantial doubt as to our ability to continue as a going concern. This opinion stems
from our historically poor operating performance, the on-going global economic crisis, and our
historical inability to generate sufficient cash flow to meet obligations and sustain operations
without obtaining additional external financing. Although we are optimistic about obtaining the
funding necessary for us to continue as a going concern, by generating sufficient cash flow
internally and/or by obtaining additional external financing, there can be no assurances that this
objective will be successful. Our financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
We
will require additional financing to sustain our operations currently and in the near future, and also may require it for the foreseeable future. Without it, we may not be able to continue
operations.
As indicated in the previous risk factor, we have a history of operating losses and a large
accumulated deficit. We currently do not have sufficient internal financial resources to fund our
operations. We therefore may need additional funds from external sources to continue our
operations.
We are 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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we may not receive additional government stimulus and/or grant money in spite of 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
rates, 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 further 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. |
On March 17, 2010, we entered into a Purchase Agreement (the Purchase Agreement) with
Lincoln Park Capital Fund, LLC (LPC), Chicago, Illinois. Under the Agreement, on May 31, 2010 we
sold and issued to LPC, and LPC purchased from us, 360,500 shares of our common stock, together
with warrants (Warrants) to purchase 350,000 shares at an exercise price of $1.20 per share, for
a total consideration of $375,000. The Warrants have a term of five (5) years, are not exercisable
until December 1, 2010, and expire on December 1, 2015.
Under the Purchase Agreement, LPC has also agreed to purchase up to an additional 3,650,000
shares of our common stock at our option over approximately 25 months. We have the right to direct
LPC to purchase up to 20,000 shares as often as every five (5) business days. We can suspend
purchases or accelerate the number of shares to be purchased at any time. No sales of shares may
occur below $1.00 per share. The purchase prices of the shares will be based on the market prices
of our shares at the time of sale, as computed under the Agreement without any fixed discount. We
may at any time in our sole discretion terminate the Agreement without fee, penalty, or cost upon
five (5) business dates notice.
The extent to which we rely on LPC as a source of funding will depend on a number of factors,
including the prevailing market price of our common stock and the extent to which we are able to
secure working capital from other external sources, such as through the sale of our products. If
obtaining sufficient funding from LPC were to prove unavailable or prohibitively dilutive and if we
are unable to sell enough of our products, we will need to secure another source of funding in
order to satisfy our working capital needs. Even if we sell all 3,650,000 shares to LPC, we may
still need additional capital to fully implement our business, operating and development plans.
Should the financing we require to sustain our working capital needs be unavailable or
prohibitively expensive when we require it, the consequences could be a material adverse effect on
our business, operating results, financial condition and prospects.
Downturns in general economic conditions and construction trends could continue to materially and
adversely affect our business.
Downturns in general economic and market conditions, both nationally and internationally,
could have a material adverse effect on our
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business. In most areas, sales of new and existing homes have slowed and there has been a continued downturn in the housing
market, as well as adverse changes in employment levels, job growth, consumer confidence and
interest rates, in addition to an oversupply of commercial and residential buildings for sale. In
our legacy businesses, sales of our lighting products depend significantly upon the level of new
building construction, which are affected by housing market trends, interest rates and the weather.
Sales of our pool and spa lighting products depend substantially upon the level of new pool
construction, which is also affected by housing market and construction trends. In addition, due to
the seasonality of construction, sales of swimming pool and lighting products, and thus our revenue
and income, have tended to be significantly lower in the first quarter of each year. Our future
results of operations may experience substantial fluctuations from period to period as a
consequence of these factors, and such conditions and other factors affecting capital spending may
affect the timing of orders. An economic downturn coupled with a decline in our net sales could
adversely affect our ability to meet our working capital requirements, support our capital
requirements and growth objectives, or could otherwise adversely affect our business financial
condition, and results of operations. As a result, any general or market-specific economic
downturns, particularly those affecting new building construction and renovation, or that cause
end-users to reduce or delay their purchases of lighting products, services, or retrofit
activities, would have a material adverse effect on our business, cash flows, financial condition,
and results of operations.
We have significant international sales and are subject to risks associated with operating in
international markets.
For the years ending December 31, 2009 and 2008, net sales of our products outside of the
United States represented approximately 36.5% and 35.6%, respectively, of our total net sales from
continuing operations. We generally provide technical expertise and limited marketing support,
while our independent international distributors generally provide sales staff, local marketing,
and product services. We believe our international distributors are better able to service
international markets due to their understanding of local market conditions and best business
practices. International business operations are subject to inherent risks, including, among
others:
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unexpected changes in regulatory requirements, tariffs and other trade barriers or
restrictions, |
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longer accounts receivable payment cycles and the difficulty of enforcing contracts and
collecting receivables through certain foreign legal systems, |
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difficulties in managing and staffing international operations, |
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potentially adverse tax consequences, |
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the burdens of compliance with a wide variety of foreign laws, |
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import and export license requirements and restrictions of the United States and each
other country in which we operate, |
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exposure to different legal standards and reduced protection for intellectual property
rights in some countries, |
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currency fluctuations and restrictions, |
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political, social and economic instability, including war and the threat of war, acts
of terrorism, pandemics, boycotts, curtailment of trade or other business restrictions, |
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periodic foreign economic downturns, and |
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sales variability as a result of transacting our foreign sales in United States
dollars. |
If we are unable to respond effectively as new lighting technologies and market trends emerge, our
competitive position and our ability to generate revenue and profits may be harmed.
To be successful, we will need to keep pace with rapid changes in light-emitting diode (LED)
and fiber optics lighting technology, changing customer requirements, new product introductions by
competitors and evolving industry standards, any of which could render our existing products
obsolete if we fail to respond in a timely manner. Development of new products incorporating
advanced technology is a complex process subject to numerous uncertainties. We have previously
experienced, and could in the future, experience delays in introduction of new products. If
effective new sources of light other than LED and fiber optics are discovered, our current products
and technologies could become less competitive or obsolete. If others develop innovative
proprietary lighting technology that is superior to ours, or if we fail to accurately anticipate
technology and market trends, respond on a timely basis with our own development of new products
and enhancements to existing products, and achieve broad market acceptance of these products and
enhancements, our competitive position may be harmed and we may not achieve sufficient growth in
our net sales to attain or sustain profitability.
If we are not able to compete effectively against companies with greater resources, our prospects
for future success will be jeopardized.
The lighting industry is highly competitive. In the high performance lighting markets in
which we sell our advanced lighting systems, our products compete with lighting products utilizing
traditional lighting technology provided by many vendors. Additionally, in the advanced lighting
markets in which we have primarily competed to date, competition has largely been fragmented among
a number of small manufacturers. However, some of our competitors, particularly those that offer
traditional lighting products, are larger companies with greater resources to devote to research
and development, manufacturing and marketing.
Moreover, in the general lighting market, we expect to encounter competition from an even
greater number of companies. Our competitors are expected to include the large, established
companies in the general lighting industry, such as General Electric, Osram Sylvania and Royal
Philips Electronics. Each of these competitors has undertaken initiatives to develop LED
technology. These companies have global marketing capabilities and substantially greater resources
to devote to research and development and other aspects of the development, manufacture and
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marketing of LED lighting products than we possess. We may also face competition from traditional lighting fixture companies, such as
Acuity Brands Lighting, Cooper Lighting, Hubbell Lighting, Lithonia Lighting, and Royal Philips
Electronics. The relatively low barriers to entry into the lighting industry and the limited
proprietary nature of many lighting products also permit new competitors to enter the industry
easily.
In each of our markets, we also anticipate the possibility that LED manufacturers, including
those that currently supply us with LEDs, may seek to compete with us. Our competitors lighting
technologies and products may be more readily accepted by customers than our products.
Additionally, to the extent that competition in our markets intensifies, we may be required to
reduce our prices in order to remain competitive. If we do not compete effectively, or if we
reduce our prices without making commensurate reductions in our costs, our net sales and
profitability, and our future prospects for success, may be harmed.
We have made strategic acquisitions in the past and intend to do so in the future, which may
adversely affect our operating results, financial condition, and existing business.
We seek to grow through strategic acquisitions in order to transition our company into a
nationwide, turnkey, energy-efficient lighting systems solutions company. On December 31, 2009, we
acquired Stones River Companies, LLC (SRC), and we anticipate making additional acquisitions in
the future. The success of our acquisition strategy will depend on, among other things:
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the availability of suitable candidates, |
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competition from other companies for the purchase of available candidates, |
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our ability to value those candidates accurately and negotiate favorable terms for
those acquisitions, |
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the availability of funds to finance acquisitions, |
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the ability to establish new informational, operational and financial systems to meet
the needs of our business, |
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the ability to achieve anticipated synergies, including with respect to complementary
products or services, and |
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the availability of management resources to oversee the integration and operation of
the acquired businesses. |
If we are not successful in integrating acquired businesses and completing acquisitions in the
future, we may be required to reevaluate our acquisition strategy. We also may incur substantial
expenses and devote significant management time and resources to completing these acquisitions.
Furthermore, acquired businesses may fail to meet our performance expectations. If we do not
achieve the anticipated benefits of an acquisition as rapidly as expected, or at all, investors or
analysts may not perceive the same benefits of the acquisition as we do. If these risks
materialize, our performance and stock price could be materially affected.
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Our inability to successfully integrate businesses we acquire could have adverse consequences on
our business.
Acquisitions may result in greater administrative burdens and operating costs and, to the
extent financed with debt, additional interest costs. We cannot assure you that we will be able to
manage or integrate acquired companies or businesses successfully. The process of integrating
acquired businesses, including the recent acquisition of SRC, may be disruptive to our business and
may cause an interruption of or a loss of momentum in, our business as a result of the following
factors, among others:
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loss of key employees or customers, |
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possible inconsistencies in standards, controls, procedures and policies among the
combined companies and the need to implement company-wide financial, accounting,
information and other systems, |
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failure to maintain the quality of services that the companies have historically
provided, |
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coordinating sales, distribution, and marketing functions, |
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the need to coordinate geographically diverse organizations, and |
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the diversion of managements attention from our day-to-day business as a result of the
need to deal with any disruptions and difficulties and the need to add management
resources to do so. |
These disruptions and difficulties, if they occur, may cause us to fail to realize the cost
savings, revenue enhancements and other benefits that we may expect from such acquisitions and may
cause material adverse short- and long-term effects on our operating results and financial
condition.
If we are unable to obtain and adequately protect our intellectual property rights, our ability to
commercialize our products could be substantially limited.
We consider our technology and processes proprietary. If we are not able to adequately
protect or enforce the proprietary aspects of our technology, competitors may utilize our
proprietary technology and our business, financial condition and results of operations could be
adversely affected. We protect our technology through a combination of patent, copyright,
trademark and trade secret laws, employee and third-party nondisclosure agreements and similar
means. Despite our efforts, other parties may attempt to disclose, obtain or use our technologies.
Our competitors may also be able to independently develop products that are substantially
equivalent or superior to our products or slightly modify our patents. In addition, the laws of
some foreign countries do not protect our proprietary rights as fully as do the laws of the United
States. As a result, we may not be able to protect our proprietary rights adequately in the United
States or abroad.
As of December 31, 2009 and March 31, 2010, our intellectual property portfolio consisted of
68 and 69, respectively, issued United States
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and foreign patents, various pending United States
patent applications, and various pending Patent Cooperation Treaty patent applications filed with the World Intellectual Property Organization that serves as
the basis of national patent filings in countries of interest. A total of fifteen applications are
pending. Because our patent position involves complex legal, scientific, and factual questions,
the issuance, scope, validity and enforceability of our patents cannot be predicted with certainty.
Our issued patents may be invalidated or their enforceability challenged, and they may not provide
us with competitive advantages against others with similar products and technology. Furthermore,
others may independently develop similar products or technology or duplicate or design around any
technologies that we have developed.
We may receive notices that claim we have infringed upon the intellectual property of others.
Even if these claims are not valid, they could subject us to significant costs. We have engaged in
litigation and litigation may be necessary in the future to enforce our intellectual property
rights or to determine the validity and scope of the proprietary rights of others. Litigation may
also be necessary to defend against claims of infringement or invalidity by others. An adverse
outcome in litigation or any similar proceedings could subject us to significant liabilities to
third parties, require us to license disputed rights from others or require us to cease marketing
or using certain products or technologies. We may not be able to obtain any licenses on acceptable
terms, if at all. We also may have to indemnify certain customers if it is determined that we have
infringed upon or misappropriated another partys intellectual property.
Any of these results could adversely affect our business, financial condition and results of
operations. In addition, the cost of addressing any intellectual property litigation claim, both
in legal fees and expenses, and the diversion of management resources, regardless of whether the
claim is valid, could be significant and could materially harm our business, financial condition
and results of operations.
If critical components that we currently purchase from a small number of third-party suppliers
become unavailable or third-party manufacturers otherwise experience delays, we may incur delays in
shipment, which would damage our business.
We depend on others to manufacture a significant portion of the component parts incorporated
into our products. We purchase our component parts from third-party manufacturers that serve the
advanced lighting systems market and believe that alternative sources of supply are readily
available for most component parts. However, consolidation in the lighting industry could result
in one or more current suppliers being acquired by a competitor, rendering us unable to continue
purchasing necessary amounts of key components at competitive prices.
In an effort to reduce manufacturing costs, we have outsourced the production of certain parts
and components as well as finished goods in our product lines to a number of overseas suppliers.
We expect to outsource all of the production for selected products. While we believe alternative
sources for the production of these products are available, we have selected these particular
manufacturers based on their ability to
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consistently produce these products per our specifications
ensuring the best quality product at the most cost effective price. We depend on our suppliers to satisfy performance and quality
specifications and to dedicate sufficient production capacity within scheduled delivery times.
Although we maintain contracts with selected suppliers, we may be vulnerable to unanticipated price
increases and product shortages. Accordingly, the loss of all or one of these suppliers or delays
in obtaining shipments could have a material adverse effect on our operations until such time as an
alternative supplier could be found. We may be subject to various import duties applicable to
materials manufactured in foreign countries and, in addition, may be affected by various other
import and export restrictions, as well as other considerations or developments impacting upon
international trade, including economic or political instability, shipping delays, and product
quotas. These international trade factors will, under certain circumstances, have an impact both
on the cost of components, which will, in turn, have an impact on the cost to us of the
manufactured product, and the wholesale and retail prices of its products.
If the companies to which we outsource the manufacture of our products fail to meet our
requirements for quality, quantity and timeliness, our revenue and reputation in the marketplace
could be harmed.
We outsource a significant portion of the manufacture and assembly of our products and we
expect to outsource all of the production of many of our products. We currently depend on a small
number of contract manufacturers to manufacture our products at plants in various locations
throughout the world, primarily in the United States, Mexico, China, and Taiwan. These
manufacturers supply most of the necessary raw materials and provide all necessary facilities and
labor to manufacture our products. We currently do not have long-term contracts with some of these
manufacturers. If these companies were to terminate their arrangements with us without adequate
notice, or fail to provide the required capacity and quality on a timely basis, we would be unable
to manufacture and ship our lighting products until replacement manufacturing services could be
obtained. To qualify a new contract manufacturer, familiarize it with our products, quality
standards and other requirements, and commence volume production is a costly and time-consuming
process. If it became necessary to do so, we may not be able to establish alternative
manufacturing relationships on acceptable terms.
Our reliance on contract manufacturers involves certain additional risks, including the
following:
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lack of direct control over production capacity and delivery schedules, |
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lack of direct control over quality assurance, manufacturing yields and production
costs, |
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risk of loss of inventory while in transit from China, Mexico, India, Japan, and
Taiwan, and |
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risks associated with international commerce, particularly with China, Mexico, India,
Japan, and Taiwan, including unexpected changes in legal and regulatory requirements,
changes in tariffs and trade policies, risks associated with the protection of
intellectual property and political and economic instability. |
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Any interruption in our ability to manufacture and distribute products could result in delays
in shipment, lost sales, reductions in revenue and damage to our reputation in the market, all of
which would adversely affect our business.
We depend on independent distributors and sales representatives for a substantial portion of our
net sales, and the failure to manage successfully our relationships with these third parties, or
the termination of these relationships, could cause our net sales to decline and harm our business.
We rely significantly on indirect sales channels to market and sell our products. Most of our
products are sold through third-party independent distributors and sales representatives. In
addition, these parties provide technical sales support to end-users. Our current agreements
within these sales channels are non-exclusive with regard to lighting products in general, but
exclusive with respect to LED lighting and fiber optic products. We anticipate that any such
agreements we enter into in the future will be on similar terms. Furthermore, our agreements are
generally short-term, and can be cancelled by these sales channels without significant financial
consequence. We cannot control how these sales channels perform and cannot be certain that we or
end-users will be satisfied by their performance. If these distributors and sales representatives
significantly change their terms with us, or change their historical pattern of ordering products
from us, there could be a significant impact on our net sales and profits.
Our products could contain defects or they may be installed or operated incorrectly, which could
reduce sales of those products or result in claims against us.
Despite product testing, defects have been found and may be found in our existing or future
products. This could result in, among other things, a delay in the recognition or loss of net
sales, loss of market share or failure to achieve market acceptance. These defects could cause us
to incur significant warranty, support and repair costs, divert the attention of our engineering
personnel from our product development efforts and harm our relationship with our customers. The
occurrence of these problems could result in the delay or loss of market acceptance of our lighting
products and would likely harm our business. Some of our products use line voltages (such as 120 or
240 AC), or are designed for installation in environments such as swimming pools and spas, which
involve enhanced risk of electrical shock, injury or death in the event of a short circuit or other
malfunction. Defects, integration issues or other performance problems in our lighting products
could result in personal injury or financial or other damages to end-users or could damage market
acceptance of our products. Our customers and end-users could also seek damages from us for their
losses. A product liability claim brought against us, even if unsuccessful, would likely be time
consuming and costly to defend.
If we are unable to attract or retain qualified personnel, our business and product development
efforts could be harmed.
To a large extent, our future success will depend on the continued contributions of certain
employees, such as our current Chief Executive
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Officer, Chief Financial Officer, Chief Operating Officer, President, and Chief Technical Officer. These and other key
employees would be difficult to replace. Our future success will also depend on our ability to
attract and retain qualified technical, sales, marketing and management personnel, for whom
competition is very intense. The loss of, or failure to attract, hire, and retain, any such
persons could delay product development cycles, disrupt our operations, or otherwise harm our
business or results of operations. We have been successful in hiring experienced energy solutions
salespeople from leading firms in the industry but if these individuals are not successful in
achieving our expectations, and then planned sales may not occur and the anticipated net sales may
not be realized.
A significant portion of our business is dependent upon the existence of government funding, which
may not be available in the future and could result in a significant reduction in sales and could
cause significant harm to our business.
Over the last three years, approximately 40.7% of our research and development efforts have
been supported directly by government funding. In 2009, approximately 70.5% of our research and
development funding came from government sources and was contracted for short periods, usually one
to two years. Further, a significant portion of net sales generated by SRC are derived from state
government funding and supported by federal government funding. If government funding is reduced
or eliminated, there is no guarantee that we would be able to continue to fund our activities in
these areas at their current levels, if at all. If we are unable to maintain our access to
government funding in these areas, there could be a significant impact on our net sales and
profits.
We believe that certification and compliance issues are critical to adoption of our lighting
systems, and failure to obtain such certification or compliance would harm our business.
We are required to comply with certain legal requirements governing the materials in our
products. Although we are not aware of any efforts to amend any existing legal requirements or
implement new legal requirements in a manner with which we cannot comply, our net sales might be
adversely affected if such an amendment or implementation were to occur.
Moreover, although not legally required to do so, we strive to obtain certification for
substantially all our products. In the United States, we seek, and to date have obtained,
certification on substantially all of our products from Underwriters Laboratories or Intertek.
Where appropriate in jurisdictions outside the United States and Europe, we seek to obtain other
similar national or regional certifications for our products. Although we believe that our broad
knowledge and experience with electrical codes and safety standards have facilitated certification
approvals, we cannot ensure that we will be able to obtain any such certifications for our new
products or that, if certification standards are amended, that we will be able to maintain such
certifications for our existing products. Moreover, although we are not aware of any effort to
amend any existing certification standard or implement a new certification standard in a manner
that would render us unable to maintain
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certification for our existing products or obtain
ratification for new products, our net sales might be adversely affected if such an amendment or implementation were to
occur.
We must comply with regulatory requirements regarding internal control over financial reporting,
corporate governance and public disclosure, which will cause us to incur significant costs and our
failure to comply with these requirements could cause our stock price to decline.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we annually evaluate and report on
our systems of internal controls. These rules and regulations have increased our legal and
compliance costs and made certain activities more time-consuming and costly. In the future, there
may be material weaknesses in our internal controls that would be required to be reported in future
Annual Reports on Form 10-K and/or Quarterly Reports on Form 10-Q. A negative reaction by the
equity markets to the reporting of a material weakness could cause our stock price to decline. In
addition, if we acquire a company with weak internal controls, it will take time to improve the
internal controls of the acquired company to a satisfactory level of operating effectiveness. Any
failure to improve an acquired companys financial systems could result in delays or inaccuracies
in reporting financial information.
We may be subject to legal claims against us or claims by us which could have a significant impact
on our resulting financial performance.
At any given time, we may be subject to litigation, the disposition of which may have an
adverse affect upon our business, financial condition, or results of operation.
Risks Associated with an Investment in our Common Stock.
The market price of our common stock may be adversely affected by market volatility.
The market price of our common stock has been and is expected to continue to be highly
volatile. A number of factors may have significant impact on the market price of our stock,
including announcements of technological innovations by us or other companies, regulatory matters,
new or existing products or procedures, concerns about our financial position, operating results,
litigation, government regulation, developments or disputes relating to agreements, patents or
proprietary rights. In addition, potential dilutive effects of future sales of shares of common
stock by shareholders and by the Company, including by LPC, and subsequent sales of common stock by
the holders of warrants and options, could have an adverse effect on the market price of our
shares.
The sale or our common stock to LPC may cause dilution and the sale of the shares of common stock
acquired by LPC could cause the price of our common stock to decline.
In connection with entering into the LPC Purchase Agreement, we authorized the sale to LPC of
up to 4,350,000 shares of our common
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stock and the issuance to LPC of an additional 240,000 shares.
The number of shares ultimately offered for sale by LPC is dependent upon the number of shares purchased or acquired by LPC under the Agreement. The purchase
price for the common stock to be sold and/or issued to LPC pursuant to the Agreement will fluctuate
based on the price of our common stock.
On May 31, 2010 we sold and issued 360,500 shares of our common stock to LPC, and on June 1,
2010 we issued to LPC a Warrant to purchase 350,000 shares at an exercise price of $1.20 per share,
for a total consideration of $375,000. Earlier, when we entered into the Purchase Agreement we
issued to LPC 120,000 shares. It is anticipated that we will sell or issue to LPC up to 3,759,500
more shares in addition to the Warrant shares over a period of up to 25 months from the date of
this prospectus. The Warrant for 350,000 shares issued to LPC has an exercise term of five years,
becomes exercisable on December 1, 2010, and expires on December 1, 2015. Depending upon market
liquidity at the time, a sale of shares to LPC at any given time could cause the trading price of
our common stock to decline. We can elect to direct purchases in our sole discretion but no sales
may occur if the price of our common stock is below $1.00. Therefore, LPC may ultimately purchase
or receive all, some, or none of the 3,759,500 shares of common stock not yet issued under the
Agreement with LPC in addition to the Warrant Shares. After it has acquired such shares, it may
sell all, some, or none of those shares. Therefore, sales to LPC by us under the Agreement may
result in substantial dilution to the interests of other holders of our common stock.
The sale of a substantial number of shares of our common stock under the LPC Agreement, or
anticipation of such sales, could make it more difficult for us to sell equity or equity-related
securities in the future at a time and at a price that we might otherwise wish to effect sales.
However, we have the right to suspend and therefore control the timing and amount of any sales of
our shares to LPC and the Agreement may be terminated by us at any time at our discretion without
any cost to us.
We have not been in compliance with the continued listing requirements of The NASDAQ Stock Market.
Prior to the opening of trading on July 14, 2010, the listing of our shares of common stock
for trading transferred from the NASDAQ Global Market to the NASDAQ Capital Market.
From time to time during the fourth quarter of 2009 and early in the first quarter of 2010, we
did not meet the Global Market continued listing requirements that call for the maintenance of a
minimum bid price of our common stock of $1.00 per share and minimum shareholder equity of
$10,000,000. We received formal notices of non-compliance from the Global Market. Although we
regained compliance with the continued listing requirements on those occasions, there was a
continuing risk that we could again become non-compliant with the requirements.
In this regard, our shareholders equity as of the end of the first quarter fell below the
minimum shareholder equity requirement of the Global
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Market. On May 18, 2010, we received a
notification from the Global Market that we had fallen out of compliance and that we had until July 2, 2010 to submit a plan to regain compliance or to submit an
application to transfer the listing of our shares of common stock from the NASDAQ Global Market to
the NASDAQ Capital Market where the minimum shareholder equity listing requirement is $2,500,000.
On July 2, 2010 we submitted an application to transfer to the Capital Market. On July 9, 2010 the
NASDAQ Stock Market informed us that it had approved our transfer application and that the transfer
to the Capital Market would be effective at the opening of business on July 14, 2010.
The Capital Market, like the Global Market, has a continued listing requirement that calls for
the maintenance of a minimum bid price of our common stock of $1.00 per share. 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.
We could issue additional common stock apart from the LPC transaction, which might dilute the book
value of our common stock.
Our Board of Directors has the authority, without action or vote of our shareholders, to issue
all or a part of our authorized but unissued shares. Such stock issuances could be made at a price
that reflects a discount or a premium from the then-current trading price of our common stock. In
addition, in order to raise capital or acquire businesses in the future, including future lighting
retrofit businesses, we may need to issue securities or promissory notes that are convertible or
exchangeable for shares of our common stock. These issuances would dilute shareholders percentage
ownership interest, which would have the effect of reducing influence on matters on which our
shareholders vote, and might dilute the book value of our common stock. Shareholders may incur
additional dilution if holders of stock options, whether currently outstanding or subsequently
granted, exercise those options, or if warrant holders exercise warrants purchasing shares of our
common stock.
We may need to request our shareholders to authorize additional shares of common stock in
connection with subsequent equity finance or acquisition transactions.
Our shareholders increased our authorized shares of common stock from 30,000,000 to 60,000,000
at our Annual Shareholders Meeting held on June 16, 2010. Of the 60,000,000 authorized shares of
common stock, approximately 22,930,366 shares are issued and outstanding as of June 29, 2010. An
additional 8,269,196 shares have been reserved for issuance upon exercise of stock options and
warrants outstanding and under our Purchase Agreement with LPC. Although the number of authorized
but unissued common shares is sufficient for our near-term needs, in the long term if we require
additional shares of common stock in connection with a subsequent equity financing or acquisition
transaction, we may be required to call another meeting of our shareholders to authorize additional
shares before undertaking or as a condition to completing an offering or transaction, or forgo the
offering or transaction. We cannot be assured that our shareholders would authorize an increase in
the number of shares of our common stock.
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Shares eligible for future sale may adversely affect the market for our common stock.
As of December 31, 2009, we had a significant number of convertible or derivative securities
outstanding, including: (i) 1,721,000 shares of common stock issuable upon exercise of outstanding
stock options at a weighted average exercise price of $3.63 per share, and (ii) 4,438,000 shares of
common stock issuable upon exercise of our outstanding warrants at a weighted average exercise
price of $1.76 per share. If or when these securities are exercised into shares of our common
stock, the number of our shares of common stock outstanding will increase. Increases in our
outstanding shares, and any sales of shares, could have an adverse affect on the trading activity
and market price of our common stock.
In addition, from time to time, certain of our shareholders may be eligible to sell all, or a
portion of, their shares of common stock by means of ordinary brokerage transactions in the open
market pursuant to Rule 144, promulgated under the Securities Act of 1933, or under effective
resale prospectuses. Any substantial sale of our common stock pursuant to Rule 144 or any resale
prospectus may have an adverse affect on the market price of our securities.
As a thinly-traded stock, large sales can place negative pressure on our common stock price.
Our common stock, despite certain increases of trading volume from time to time, experiences
periods when it could be considered thinly-traded. Financing or acquisition transactions
resulting in a large number of newly issued shares that become immediately tradable, or other
events that cause current shareholders to sell shares, could place negative pressure on the trading
price of our stock. In addition, the lack of a robust secondary market may require a shareholder
who desires to sell a large number of shares to sell those shares in increments over time in order
to mitigate any adverse impact of the sales on the market price of our common stock.
Our executive officers, directors, and affiliates maintain the ability to substantially influence
all matters submitted to shareholders for approval.
As March 31, 2010, our executive officers, directors, and affiliates owned shares representing
approximately 32.17% or our outstanding common stock. Our current executive officers, directors,
and affiliates therefore have and will continue to have substantial influence over the outcome of
corporate actions requiring shareholder approval, including the election of directors, a merger,
consolidation, or sale of all or substantially all of our assets, or any other significant
corporate transactions, as well as over our management and affairs. This concentration of
ownership may delay or prevent a change of control of us at a premium price if these shareholders
oppose it, even if it would benefit our other shareholders.
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Provisions in our charter documents and our Rights Agreement may prevent or frustrate attempts by
our shareholders to change our management and hinder efforts to acquire a controlling interest in
us.
Provisions of our corporate charter and bylaws, and of our Rights Agreement dated as of
October 25, 2006 with Mellon Shareowner Services, as amended, may discourage, delay, or prevent a
merger, acquisition, or other change in control that shareholders may consider favorable, including
transactions in which you might otherwise receive premium for your shares. These provisions may
also prevent or frustrate attempts by our shareholders to replace or remove our management. These
provisions include:
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limitation on the removal of directors; |
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advanced notice requirements for shareholder proposals and nominations; |
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the inability of shareholders to act by written consent or to call a special meeting; |
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the ability of our board of directors to designate the terms of and issue new series
of preferred stock without shareholder approval; and |
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the poison pill contained in our Rights Agreement. |
Because the risk factors referred to above, as well as other risks not mentioned above, could
cause actual results or outcomes to differ materially from those expressed in any forward-looking
statements made by us, you should not place undue reliance on any such forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which it is made. We undertake
no obligation to update any forward-looking statement to reflect events or circumstances after the
date on which such statement is made or reflect the occurrence of unanticipated events. New factors
emerge from time to time, and it is not possible for us to predict which ones will arise. In
addition, we cannot assess the impact of each factor on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Such forward-looking statements include statements regarding, among other things, (a) our
projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our future financing plans, and (e) our anticipated needs for working capital.
Forward-looking statements, which involve assumptions and describe our future plans, strategies,
and expectations, are generally identifiable by use of the words may, will, should, expect,
anticipate, estimate,
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believe, intend, or project or the negative of these words or other variations on these words or comparable terminology. This information may involve known and
unknown risks, uncertainties, and other factors that may cause our actual results, performance, or
achievements to be materially different from the future results, performance, or achievements
expressed or implied by any forward-looking statements. These statements may be found under
Managements Discussion and Analysis of Financial Condition and Results of Operations and
Business in our 2009 Annual Report on Form 10-K, as well as in this prospectus generally. Actual
events or results may differ materially from those discussed in forward-looking statements as a
result of various factors, including, without limitation, the risks outlined under Risk Factors
and matters described in this prospectus generally. In light of these risks and uncertainties,
there can be no assurance that the forward-looking statements contained in this prospectus will in
fact occur. In addition to the information expressly required to be included in this prospectus,
we provide such further material information, if any, as may be necessary to make the required
statements, in light of the circumstances under which they are made, not misleading.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and sold from time
to time by the selling shareholders. We will receive no proceeds from the sale of shares of common
stock in this offering. However, we may receive proceeds of up to $395,050 from the sale of up to
1,105,000 shares upon the exercise of the Davenport, Trust, Woodstone, and Mezzanine Warrants. We
will use any proceeds that we receive from the exercise of those Warrants for our working capital
needs and our new business strategy.
TRANSACTIONS AND THE OFFERING
Acquisition of SRC. On December 31, 2009, we acquired all of the member interests of Stones
River Companies, LLC, a Tennessee limited liability company (SRC), from TLC Investments, LLC, a
Tennessee limited liability company (TLC), for a combination of cash, debt, an earn-out, and
shares of our common stock. SRC is a lighting retrofit company and an energy systems and solutions
provider located in Nashville, Tennessee. Jami Hall and Robert E. Wilson of Nashville, Tennessee,
own TLC. Mr. Wilson has continued to lead SRC as its Vice President.
The consideration that we paid for SRC included a promissory note for $500,000 (the TLC
Note) and 1,000,000 shares of common stock (the TLC Shares). The principal amount of the
promissory note is due at maturity on June 30, 2013 along with accrued interest. TLC may convert
the entire principal amount of the note into 500,000 shares of common stock (the TLC Note Shares)
at any time during the period beginning on June 30, 2010 and ending on the maturity date.
We did not register the offering and issuance of those common shares and that convertible
promissory note under the Securities Act of 1933,
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as amended, in reliance upon the exemptions from
the registration requirements of the Act in Section 4(2) of the Act and Rule 506 of Regulation D. We have agreed to register for resale by TLC the TLC Shares
issued as part of the purchase price and the TLC Note Shares.
Performance Bonding Support for SRC. In order to provide performance bonding for SRCs
projects, on December 30, 2009 we deposited cash collateral with our surety company for a period
not to exceed two years. To reduce the size of our cash collateral based deposit and increase its
liquidity, we have offered a small number of investors an opportunity to replace portions of our
deposit with funds of their own on the following terms: 12.5% interest per year payable by us;
reimbursement by us in the event that the surety company draws on their funds; security interest in
a portion of the shares of capital stock of Crescent Lighting, Ltd., our subsidiary located in
London, England; and a number of warrants to purchase shares of common stock equal to one share for
every $2.00 deposited. The warrants have a five-year term and an exercise price of $0.01 per
share. John M. Davenport, our President and a director, has deposited $250,000 and has received a
warrant for 125,000 shares (the Davenport Warrant). The Quercus Trust, Newport Beach,
California, our largest shareholder, has deposited $300,000 and has received a warrant for 150,000
shares (the Trust Warrant). David Gelbaum, who was a director at the time, and his spouse, are
co-trustees of the Trust. Our shareholders have approved our issuance of these warrants to Mr.
Davenport and The Trust at our Annual Shareholders Meeting held on June 16, 2010.
We did not register the issuance of those warrants under the Securities Act of 1933, as
amended, in reliance upon the exemptions from the registration requirements of the Act in Section
4(2) of the Act and Rule 506 of Regulation D. We have agreed to register for resale by Mr.
Davenport and to The Trust the 375,000 shares covered by their warrants.
Woodstone Energy, LLC. On December 31, 2009, we issued to Woodstone Energy, LLC, a Tennessee
limited liability company located in Nashville, Tennessee, a warrant to purchase up to 600,000
shares of our common stock (the Woodstone Warrant) at an exercise price of $0.65 per share and
with a term ending on December 31, 2014. The Warrant becomes exercisable only if SRC receives from
Woodstone Energy firm contracts or purchase orders for at least $10,000,000 by June 30, 2013. The
Warrant vests 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 them reach an additional $5,000,000. No shares have yet vested. Ms. Hall and Mr. Wilson
each hold a minority interests in Woodstone Energy and together they own the majority interest.
We did not register the offering and issuance of the Warrant under the Securities Act of 1933,
as amended, in reliance upon the exemptions from the registration requirements of the Act in
Section 4(2) of the Act and Rule 506 of Regulation D. We have agreed to register for resale by
Woodstone the 600,000 shares covered by its Warrant.
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Mezzanine Financing. On March 30, 2010, we sold to EF Energy Partners LLC, an Ohio limited
liability company (EF Energy), a secured subordinated promissory note in the principal face
amount of $1,150,000. We are not associated with EF Energy other than through the note. We
secured the full amount of the note with a pledge of our United States accounts receivable and
selected capital equipment. The principal balance of the note, together with accrued interest, is
due and payable on March 30, 2013. As an additional incentive for EF Energy to purchase the note,
we issued to its eight investors five-year warrants (the Mezzanine Warrants) to purchase shares
of common stock at a rate of 0.2 warrants per dollar of financing, or 230,000 shares, with an
exercise price of $0.01 per share and an expiration date of March 30, 2015. The investors include
The Barrett Family Trust, DKE Webb LLC, R. Thomas Green, Jr., JKZ Properties, LTD, Marc Martter,
Alexander S. Taylor Family Trust, James M. Wiles, and Larry Wright.
We did not register the offering and issuance of those Warrants under the Securities Act of
1933, as amended, in reliance upon the exemptions from the registration requirements of the Act in
Section 4(2) of the Act and Rule 506 of Regulation D. We have agreed to register for resale by the
EF Energy investors the 230,000 shares covered by their Warrants.
Acquisition of Unison. On February 1, 2000, we acquired selected assets of Unison Fiber
Optics Systems, LLC, a joint venture between Advanced Lighting Technologies, Inc. (ADLT) and Rohm
& Hass Company, for consideration that included the issuance to ADLT of warrants to purchase up to
1,000,000 shares of our common stock at $0.01 per share. On September 28, 2004, ADLT transferred
to John M. Davenport, currently our President and a director, warrants for 50,000 of those shares.
Mr. Davenport later engaged in a cashless exercise of those warrants and acquired 49,957 shares
(the Davenport Shares). Before joining us in November 1999 as Vice President and Chief
Technology Officer, Mr. Davenport served as President of Unison in 1998 and 1999. We have agreed
to register the Davenport Shares.
THE SELLING SHAREHOLDERS
We have registered the above outstanding TLC and Davenport Shares and the shares issuable
under the above TLC Note and under the above Trust, Woodstone, Mezzanine, and Davenport Warrants to
permit the selling shareholders to resell them in the manner contemplated under the Plan of
Distribution below. We have not registered for resale any warrants themselves. When we refer to
selling shareholders in this prospectus, we mean the persons listed in the table below, and the
pledgees, donees, transferees, successors, and others who later come to hold any of the selling
shareholders interests in shares of our common stock other than through a public sale.
The shares offered by this prospectus may be offered from time to time by the selling
shareholders. They may sell some, all or none of their shares. We do not know how long the
selling shareholders will hold the shares before selling them. We currently have no agreements,
arrangements or understandings with the selling shareholders regarding the sale of any of the
shares.
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The following table sets forth the name and address of each selling shareholder, the number of
shares owned by each selling shareholder before this offering, the number of outstanding shares and
shares underlying a convertible promissory note and warrants that may be offered under this
prospectus, and the number of shares of our common stock owned by the selling shareholders after
this offering is completed. The number of shares in the column Number of Shares Being Offered
represents all of the shares that a selling shareholder may offer under this prospectus. The
number of shares in the column Shares Owned after the Offering assumes the sale of all of the
shares offered by the selling shareholder under this prospectus.
The ownership of shares reported in the table below is based upon information provided by each
selling shareholder and SEC Form 4s, SEC Schedules 13D and 13G, and other public documents filed
with the Securities and Exchange Commission. Unless otherwise noted, none of the share amounts set
forth below represents more than 1% of our outstanding common stock as of June 29, 2010. The
percentages of shares owned before the offering are based on 22,930,366 shares of our common stock
outstanding as of June 29, 2010. The percentage of shares owned after the offering are based on
24,535,366 shares, which number is equal to the sum of (i) the number of shares outstanding before
the offering and (ii) the 1,605,000 shares issuable under the TLC Note and the Davenport, Trust,
Woodstone, and Mezzanine Warrants.
None of the selling shareholders has, or within the past three years has had, any position,
office or other material relationship with us, except that John M. Davenport is our President and a
director, Robert E. Wilson, who is an owner of TLC and Woodstone, heads SRC, and the Trust is an
affiliate and our largest shareholder. David Gelbaum, who is a co-trustee of the Trust served as a
director from February 2009 through February 2010.
Based on the information provided to us by the selling shareholders, none of them is, or is
affiliated with, a broker-dealer. Each of the selling shareholders has represented to us that he,
she, or it had no agreements or understanding, directly or indirectly, with any person to
distribute the securities.
The selling shareholders may have sold or transferred, in transactions exempt from the
registration requirements of the Securities Act, some or all of their shares since the date on
which the information in the table is presented. Information about the selling shareholders may
change over time.
23
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Shares Owned |
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Shares Owned |
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Before Offering (1) |
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Shares Being Offered |
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after Offering (1)(2) |
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Warrant/ |
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Name and Address |
|
Number |
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Percent |
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Shares |
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Note Shares |
|
Number |
|
Percent |
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TLC Shares and Note: |
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TLC Investments, LLC
1244 Gallatin Pike South
Madison, Tennessee 37115 |
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1,500,000 |
(3) |
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6.54 |
% |
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1,000,000 |
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500,000 |
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Trust Warrant: |
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The Quercus Trust
2309 Santiago Drive
Newport Beach, CA 92660 |
|
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6,364,205 |
(4) |
|
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27.75 |
% |
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150,000 |
|
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6,364,055 |
|
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25.94 |
% |
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Woodstone Warrant: |
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Woodstone Energy, LLC
1244 Gallatin Pike South
Madison, Tennessee 37115 |
|
|
0 |
(3) |
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600,000 |
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|
Mezzanine Warrants(5): |
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The Barrett Family Trust |
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10,000 |
|
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* |
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10,000 |
|
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DKE Webb LLC |
|
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40,000 |
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* |
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40,000 |
|
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|
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R. Thomas Green, Jr. |
|
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10,000 |
|
|
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* |
|
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|
|
|
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10,000 |
|
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|
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JKZ Properties, LTD |
|
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100,000 |
|
|
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* |
|
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100,000 |
|
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Marc Martter |
|
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10,000 |
|
|
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* |
|
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10,000 |
|
|
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|
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Alexander S. Taylor Family Trust |
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10,000 |
|
|
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* |
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10,000 |
|
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|
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James M. Wiles |
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40,000 |
|
|
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* |
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40,000 |
|
|
|
|
|
|
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Larry Wright |
|
|
10,000 |
|
|
|
* |
|
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10,000 |
|
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|
Davenport Shares and Warrant: |
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John M. Davenport
32000 Aurora Road
Solon, Ohio 44139 |
|
|
667,849 |
|
|
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2.91 |
% |
|
|
49,957 |
|
|
|
125,000 |
|
|
|
492,892 |
|
|
|
2.01 |
% |
|
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|
Selling Shareholder Total |
|
|
8,762,054 |
|
|
|
38.21 |
% |
|
|
1,049,957 |
|
|
|
1,605,000 |
|
|
|
6,856,947 |
|
|
|
27.95 |
% |
|
|
|
* |
|
Represents less than 1% |
|
(1) |
|
Lists all shares beneficially owned, including shares covered by options and warrants. |
|
(2) |
|
Assumes the sale of all of the shares offered by this prospectus. |
|
(3) |
|
Does not include 150,000 shares that Robert E. Wilson holds under a stock option. Mr. Wilson
leads SRC as its Vice President. Mr. Wilson holds ownership interests in TLC and Woodstone.
TLC and Woodstone disclaim beneficial ownership of the shares owned by each other and of Mr.
Wilsons option shares. |
|
(4) |
|
Does not include 25,000 shares that David Gelbaum owns beneficially as a result of his
service as a director from February 2009 through February 2010. Mr. Gelbaum is a co-trustee
of the Trust. The Trust disclaims beneficial ownership of his shares. |
|
(5) |
|
The address for each of the Mezzanine investors is 2171 Mogadore Road, Kent, Ohio 44240. |
24
PLAN OF DISTRIBUTION
The selling shareholders, which term includes donees, pledgees, transferees or other
successors-in-interest selling shares of common stock or interests in shares of common stock
received after the date of this prospectus from a selling shareholder as a gift, pledge,
partnership a limited liability company distribution or other transfer, may, from time to time,
sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in
shares of common stock on any stock exchange, market or trading facility on which the shares are
traded or in private transactions. These dispositions may be at fixed prices, at prevailing market
prices at the time of sale, at prices related to the prevailing market price, at varying prices
determined at the time of sale, or at negotiated prices.
The selling shareholders may use any one or more of the following methods when disposing of
shares or interests therein:
|
|
|
ordinary brokerage transactions and transactions in which the broker- dealer
solicits purchasers; |
|
|
|
|
block trades in which the broker-dealer will attempt to sell the shares as agent,
but may position and resell a portion of the block as principal to facilitate the
transaction; |
|
|
|
|
purchases by a broker-dealer as principal and resale by the broker-dealer for its
account; |
|
|
|
|
an exchange distribution in accordance with the rules of the applicable exchange; |
|
|
|
|
privately negotiated transactions; |
|
|
|
|
short sales effected after the date the registration statement of which this
prospectus is a part is declared effective by the SEC; |
|
|
|
|
through the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise; |
|
|
|
|
broker-dealers may agree with the selling shareholders to sell a specified number
of such shares at a stipulated price per share; and |
|
|
|
|
a combination of any such methods of sale. |
The selling shareholders may, from time to time, pledge or grant a security interest in some
or all of the shares of common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the shares of
25
common stock,
from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the
Securities Act of 1933 amending the list of selling shareholders to include the pledgee, transferee
or other successors-in-interest as selling shareholders under this prospectus. The selling
shareholders also may transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors-in-interest will be the selling beneficial owners for
purposes of this prospectus.
In connection with the sale of our common stock or interests therein, the selling shareholders
may enter into hedging transactions with broker-dealers or other financial institutions, which may
in turn engage in short sales of the common stock in the course of hedging the positions they
assume. The selling shareholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common stock to broker-dealers
that in turn may sell these securities. The selling shareholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the creation of one or
more derivative securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).
The aggregate proceeds to the selling shareholders from the sale of the common stock offered
by them will be the purchase price of the common stock less discounts or commissions, if any. Each
of the selling shareholders reserves the right to accept and, together with their agents from time
to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly
or through agents. We will not receive any of the proceeds from this offering. Upon any exercise
of the warrants by payment of cash, however, we will receive the exercise price of the warrants.
The selling shareholders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act, provided that they meet the
criteria and conform to the requirements of that rule.
The selling shareholders and any underwriters, broker-dealers or agents that participate in
the sale of the common stock or interests therein may be underwriters within the meaning of
Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn
on any resale of the shares may be underwriting discounts and commissions under the Securities Act.
Selling shareholders who are underwriters within the meaning of Section 2(11) of the Securities
Act will be subject to the prospectus delivery requirements of the Securities Act.
To the extent required, the shares of our common stock to be sold, the names of the selling
shareholders, the respective purchase prices and public offering prices, the names of any agents,
dealer or underwriter, any applicable commissions or discounts with respect to a particular offer
will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.
26
In order to comply with the securities laws of some states, if applicable, the common stock
may be sold in these jurisdictions only through registered or licensed brokers or dealers.
We have advised the selling shareholders that the anti-manipulation rules of Regulation M
under the Exchange Act may apply to sales of shares in the market and to the activities of the
selling shareholders and their affiliates. In addition, to the extent applicable we will make
copies of this prospectus (as it may be supplemented or amended from time to time) available to the
selling shareholders for the purpose of satisfying the prospectus delivery requirements of the
Securities Act. The selling shareholders may agree to indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We have agreed to indemnify the selling shareholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the registration of the
shares offered by this prospectus. The selling shareholders may agree to indemnify any agent,
dealer, or broker-dealer that participates in transactions involving sales of the shares if
liabilities are imposed on that person by the Securities Act. In the opinion of the SEC,
indemnification is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
We will bear all expenses of the registration of the shares of common stock covered by this
prospectus.
Once sold under the shelf registration statement of which this prospectus is a part, the
shares of common stock will be freely tradable in the hands of persons other than our affiliates.
LEGAL MATTERS
The validity of the common stock offered in this prospectus has been passed upon for us by
Cowden & Humphrey Co. LPA, 4600 Euclid Avenue, Suite 400, Cleveland, Ohio 44103-3748.
EXPERTS
The financial statements, as of and for the years ended December 31, 2009 incorporated by
reference in this prospectus and Registration Statement have been audited by Plante & Moran, PLLC,
an independent registered public accounting firm, as stated in their report incorporated herein by
reference, and are incorporated in reliance upon such report and upon the authority of such firm as
experts in accounting and auditing.
The financial statements and schedule as of December 31, 2008 and for the years ended December
31, 2008 and 2007, before the effects of the retrospective adjustments for the discontinued
operations discussed in Note 4 and the retrospective adjustments for the change in the
27
composition
of reportable segments discussed in Note 13 (not separately incorporated by reference in this prospectus and elsewhere in the registration
statement), have been audited by Grant Thornton LLP, independent registered public accountants, as
indicated in their report with respect thereto and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-3 that we filed with the SEC.
This prospectus does not contain all of the information included in the registration statement. For
further information about us and our securities, you should refer to the registration statement and
the exhibits filed with the registration statement.
We are subject to the information requirements of the Securities Exchange Act of 1934 and file
annual, quarterly and current reports, proxy statements and other information with the SEC. You can
read our SEC filings, including the registration statement, over the internet at the SECs website
at www.sec.gov or through our website at www.efoi.com. Information contained on our
website is not considered to be a part of, nor incorporated by reference in, this prospectus. You
may also read and copy any document we file with the SEC at its Public Reference Room at 100 F
Street, NE, Washington, D.C. 20549.
You may also obtain copies of the documents at prescribed rates by writing to the Public
Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the Public Reference Room.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference the information that we file with it, which
means that we can disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be an important part of this prospectus.
Later information that we file with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any future filing we make
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 prior
to the termination of the offering. The documents that we incorporate by reference are:
(a) |
|
Our annual report on Form 10-K for our fiscal year ended December 31,
2009, SEC File No. 000-24230. |
|
(b) |
|
Our quarterly report on Form 10-Q for our fiscal quarter ended March
31, 2010, SEC File No. 000-24230. |
|
(c) |
|
Our current reports on Form 8-K, SEC File No. 000-24230, filed with
the SEC on January 5, 2010, January 7, 2010, January 28, 2012, March
3, 2010, March 19, 2010, April 7, 2010, and June 22, 2010. |
28
(d) |
|
Our definitive proxy statement on Schedule 14A for our annual meeting
of shareholders, SEC File No. 000-24230, filed with the SEC on April
30, 2010. |
|
(e) |
|
A description of our Common Stock, Preferred Stock, and Series A
Participating Preferred Stock Purchase Rights contained in our current
report on Form 8-K, SEC File No. 000-24230, and any amendment or
report filed for the purpose of updating that description filed
subsequent to the date of this prospectus and prior to the termination
of this offering. |
You may request a copy of these filings, at no cost, by writing or telephoning us at the
following address: Energy Focus, Inc., 32000 Aurora Road, Solon, Ohio 44139; telephone number
440.715.1300.
You should rely only on the information incorporated by reference or provided in this
prospectus or any supplement. We have not authorized anyone else to provide you with different
information. We will not make offers to sell these shares in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any supplement is
accurate as of any date other that the date on the front of those documents.
29
ENERGY FOCUS, INC.
2,654,957 Shares of Common Stock
PROSPECTUS
July 15, 2010