þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 94-3021850 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(do not check if a smaller reporting company) |
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EX-31.1 |
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EX-31.2 |
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EX-32.1 |
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EX-32.2 |
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EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 906 | $ | 3,979 | ||||
Restricted cash |
63 | 128 | ||||||
Accounts receivable trade, net of allowances of $307
in 2011
and $446 in 2010 |
4,352 | 5,483 | ||||||
Retainage receivable |
848 | 731 | ||||||
Inventories, net |
3,295 | 2,543 | ||||||
Costs in excess of billings |
69 | 22 | ||||||
Prepaid and other current
assets |
642 | 632 | ||||||
Total current assets |
10,175 | 13,518 | ||||||
Property and equipment, net |
2,318 | 2,446 | ||||||
Goodwill |
672 | 672 | ||||||
Intangible assets, net |
1,352 | 1,677 | ||||||
Collateralized assets |
2,000 | 2,000 | ||||||
Other assets |
28 | 61 | ||||||
Total assets |
$ | 16,545 | $ | 20,374 | ||||
LIABILITIES |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 6,350 | $ | 7,167 | ||||
Accrued liabilities |
2,206 | 2,358 | ||||||
Deferred revenue |
1,343 | 1,214 | ||||||
Billings in excess of costs |
252 | 297 | ||||||
Current
portion of long-term borrowings |
562 | 481 | ||||||
Total current
liabilities |
10,713 | 11,517 | ||||||
Other deferred liabilities |
42 | 28 | ||||||
Acquisition-related contingent liabilities |
658 | 827 | ||||||
Long-term borrowings |
1,724 | 1,344 | ||||||
Total liabilities |
13,137 | 13,716 | ||||||
SHAREHOLDERS EQUITY |
||||||||
Preferred stock, par value $0.0001 per share: |
||||||||
Authorized: 2,000,000 shares in 2011 and 2010
Issued and outstanding: no shares in 2011 and 2010 |
| | ||||||
Common stock, par value $0.0001 per share: |
||||||||
Authorized: 60,000,000 shares in 2011 and 2010
Issued and outstanding: 24,845,000 at June 30, 2011 and
23,962,000 at December 31, 2010 |
1 | 1 | ||||||
Additional paid-in capital |
75,801 | 75,094 | ||||||
Accumulated other comprehensive income |
452 | 423 | ||||||
Accumulated deficit |
(72,846 | ) | (68,860 | ) | ||||
Total shareholders equity |
3,408 | 6,658 | ||||||
Total liabilities and shareholders equity |
$ | 16,545 | $ | 20,374 | ||||
3
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales |
$ | 8,193 | $ | 8,958 | $ | 13,653 | $ | 17,315 | ||||||||
Cost of sales |
6,645 | 7,390 | 10,946 | 14,352 | ||||||||||||
Gross profit |
1,548 | 1,568 | 2,707 | 2,963 | ||||||||||||
Operating expenses (income): |
||||||||||||||||
Research and development |
(131 | ) | (134 | ) | 134 | (79 | ) | |||||||||
Sales and marketing |
1,636 | 1,518 | 3,571 | 3,137 | ||||||||||||
General and administrative |
1,044 | 1,516 | 2,622 | 3,195 | ||||||||||||
Valuation of equity instruments |
| 329 | 56 | 1,750 | ||||||||||||
Restructuring charges |
| | | 26 | ||||||||||||
Total operating expenses |
2,549 | 3,229 | 6,383 | 8,029 | ||||||||||||
Loss from operations |
(1,001 | ) | (1,661 | ) | (3,676 | ) | (5,066 | ) | ||||||||
Other income (expense): |
||||||||||||||||
Other income (expense) |
22 | (1 | ) | 71 | (66 | ) | ||||||||||
Interest expense |
(190 | ) | (148 | ) | (372 | ) | (247 | ) | ||||||||
Loss before income taxes |
(1,169 | ) | (1,810 | ) | (3,977 | ) | (5,379 | ) | ||||||||
Provision for income taxes |
(4 | ) | (2 | ) | (9 | ) | (3 | ) | ||||||||
Net loss |
$ | (1,173 | ) | $ | (1,812 | ) | $ | (3,986 | ) | $ | (5,382 | ) | ||||
Net loss per share basic and diluted |
$ | (0.04 | ) | $ | (0.08 | ) | $ | (0.16 | ) | $ | (0.25 | ) | ||||
Shares used in computing net loss per share -
basic and diluted |
24,754 | 22,582 | 24,490 | 21,953 | ||||||||||||
4
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net loss |
$ | (1,173 | ) | $ | (1,812 | ) | $ | (3,986 | ) | $ | (5,382 | ) | ||||
Other comprehensive income (loss): |
||||||||||||||||
Foreign currency translation adjustments |
(18 | ) | (21 | ) | 29 | (98 | ) | |||||||||
Comprehensive loss |
$ | (1,191 | ) | $ | (1,833 | ) | $ | (3,957 | ) | $ | (5,480 | ) | ||||
5
Six months ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (3,986 | ) | $ | (5,382 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation |
333 | 405 | ||||||
Stock-based compensation |
309 | 431 | ||||||
Valuation of equity instruments |
56 | 1,750 | ||||||
Provision for doubtful accounts receivable |
23 | 13 | ||||||
Amortization of intangible assets |
325 | 537 | ||||||
Amortization of discounts on long-term borrowings |
245 | 93 | ||||||
Deferred revenue |
85 | 493 | ||||||
(Gain) / Loss on disposal of fixed assets |
(10 | ) | 3 | |||||
Changes in assets and liabilities: |
||||||||
Accounts receivable, inventories, and other assets |
133 | (2,788 | ) | |||||
Accounts payable and accrued liabilities |
(1,270 | ) | 4,193 | |||||
Total adjustments |
229 | 5,130 | ||||||
Net cash used in operating activities |
(3,757 | ) | (252 | ) | ||||
Cash flows from investing activities: |
||||||||
Acquisition of fixed assets |
(203 | ) | (54 | ) | ||||
Proceeds from the sale of fixed assets |
9 | | ||||||
Net cash used investing activities |
(194 | ) | (54 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from issuances of common stock, net |
450 | 234 | ||||||
Proceeds from other borrowings |
355 | 1,150 | ||||||
Payments on other borrowings |
(8 | ) | | |||||
Net cash provided by financing activities |
797 | 1,384 | ||||||
Effect of exchange rate changes on cash |
16 | (41 | ) | |||||
Net (decrease) increase in cash and cash equivalents |
(3,138 | ) | 1,037 | |||||
Cash and cash equivalents at beginning of period |
4,107 | 1,062 | ||||||
Cash and cash equivalents at end of period |
$ | 969 | $ | 2,099 | ||||
Classification of cash and cash equivalents: |
||||||||
Cash and cash equivalents |
$ | 906 | $ | 2,099 | ||||
Restricted cash held |
63 | | ||||||
Cash and cash equivalents at end of period |
$ | 969 | $ | 2,099 | ||||
6
| product-based sales providing military, general commercial and industrial lighting and pool lighting offerings, each of which markets and sells energy-efficient lighting systems; and |
| solutions-based sales providing turnkey, high-quality, energy-efficient lighting application alternatives primarily to the existing public-sector building market. |
7
| obtain financing from traditional and non-traditional investment capital organizations or individuals, |
| potential sale or divestiture of one or more operating units, and |
| obtain funding from the sale of common stock or other equity or debt instruments. |
| loans or other debt instruments may have terms and/or conditions, such as interest rate, restrictive covenants, and control or revocation provisions, which are not acceptable to management or the Board of Directors, |
| the current economic environment combined with the Companys capital constraints may prevent the Company from being able to obtain any debt financing, | ||
| financing may not be available for parties interested in pursuing the acquisition of one or more operating units of the Company, and |
| additional equity financing may not be available in the current economic environment and could lead to further dilution of shareholder value for current shareholders of record. |
8
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Basic and diluted loss per share: |
||||||||||||||||
Net loss |
$ | (1,173 | ) | $ | (1,812 | ) | $ | (3,986 | ) | $ | (5,382 | ) | ||||
Basic and diluted loss per share: |
||||||||||||||||
Weighted average shares outstanding |
24,754 | 22,582 | 24,490 | 21,953 | ||||||||||||
Basic and diluted net loss per share |
$ | (0.04 | ) | $ | (0.08 | ) | $ | (0.16 | ) | $ | (0.25 | ) | ||||
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Stock option expense |
$ | 73 | $ | 174 | $ | 96 | $ | 321 | ||||||||
Executive & Director stock-based compensation |
53 | 55 | 107 | 110 | ||||||||||||
Employee incentive stock-based compensation |
| | 106 | | ||||||||||||
Total stock-based compensation |
$ | 126 | $ | 229 | $ | 309 | $ | 431 | ||||||||
9
Six months ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Fair value of options issued |
$ | 0.59 | $ | 0.70 | ||||
Exercise price |
$ | 1.07 | $ | 1.02 | ||||
Expected life of option |
6.1 years | 4.0 years | ||||||
Risk-free interest rate |
2.40 | % | 1.86 | % | ||||
Expected volatility |
56.72 | % | 97.40 | % | ||||
Dividend yield |
0 | % | 0 | % |
10
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Balance at the beginning of the period |
$ | 116 | $ | 186 | $ | 126 | $ | 211 | ||||||||
Accruals for warranties issued |
15 | (33 | ) | 22 | (38 | ) | ||||||||||
Settlements made during the period (in cash or in kind) |
(31 | ) | (8 | ) | (48 | ) | (28 | ) | ||||||||
Balance at the end of the period |
$ | 100 | $ | 145 | $ | 100 | $ | 145 | ||||||||
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Raw materials |
$ | 2,400 | $ | 2,164 | ||||
Inventory reserve |
(1,026 | ) | (972 | ) | ||||
Finished goods |
1,921 | 1,351 | ||||||
Inventories |
$ | 3,295 | $ | 2,543 | ||||
11
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Equipment (useful life 3 - 15 years) |
$ | 5,917 | $ | 6,328 | ||||
Tooling (useful life 2 - 5 years) |
2,441 | 2,507 | ||||||
Furniture and fixtures (useful life 5 years) |
143 | 161 | ||||||
Computer software (useful life 3 years) |
375 | 373 | ||||||
Leasehold improvements (the shorter of useful life or lease life) |
625 | 909 | ||||||
Construction in progress |
76 | 14 | ||||||
Property and equipment at cost |
9,577 | 10,292 | ||||||
Less: accumulated depreciation |
(7,259 | ) | (7,846 | ) | ||||
Property and equipment, net |
$ | 2,318 | $ | 2,446 | ||||
Amortization | June 30, | December 31, | ||||||||||
Life (in years) | 2011 | 2010 | ||||||||||
Goodwill |
n/a | $ | 672 | $ | 672 | |||||||
Definite-lived intangible assets: |
||||||||||||
Tradenames |
10 | 425 | 450 | |||||||||
Customer relationships |
5 | 927 | 1,227 | |||||||||
Total definite-lived intangible assets |
1,352 | 1,677 | ||||||||||
Total intangible assets, net |
$ | 2,024 | $ | 2,349 | ||||||||
Year ending December 31, | Amount | |||
2012 |
$ | 420 | ||
2013 |
253 | |||
2014 |
105 | |||
2015 |
50 | |||
2016 and thereafter |
200 | |||
Total amortization expense |
$ | 1,028 | ||
12
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Costs incurred on uncompleted contracts |
$ | 14,530 | $ | 9,912 | ||||
Estimated earnings |
4,423 | 3,138 | ||||||
Total revenues |
18,953 | 13,050 | ||||||
Less: billings to date |
19,136 | 13,325 | ||||||
Total |
$ | (183 | ) | $ | (275 | ) | ||
Balance sheet classification: |
||||||||
Costs in excess of billings on uncompleted contracts |
$ | 69 | $ | 22 | ||||
Billings in excess of costs on uncompleted contracts |
(252 | ) | (297 | ) | ||||
Total |
$ | (183 | ) | $ | (275 | ) | ||
13
Long-Term | ||||
Year ending December 31, | Borrowings | |||
2011 |
$ | 573 | ||
2012 |
49 | |||
2013 |
1,704 | |||
2014 |
59 | |||
2015 |
65 | |||
2016 and thereafter |
168 | |||
Gross long-term borrowings |
2,618 | |||
Less: discounts on long-term borrowings |
(332 | ) | ||
Total commitment, net |
2,286 | |||
Less: portion classified as current |
(562 | ) | ||
Long-term borrowings, net |
$ | 1,724 | ||
14
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Solutions: |
||||||||||||||||
Net sales |
$ | 3,344 | $ | 4,935 | $ | 5,946 | $ | 10,215 | ||||||||
Cost of goods sold |
2,947 | 4,051 | 5,000 | 8,338 | ||||||||||||
Gross profit |
397 | 884 | 946 | 1,877 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
372 | 354 | 721 | 623 | ||||||||||||
General and administrative |
238 | 345 | 475 | 683 | ||||||||||||
Total operating expenses |
610 | 699 | 1,196 | 1,306 | ||||||||||||
Segment (loss) income |
$ | (213 | ) | $ | 185 | $ | (250 | ) | $ | 571 | ||||||
Products: |
||||||||||||||||
Net sales |
$ | 4,849 | $ | 4,023 | $ | 7,707 | $ | 7,100 | ||||||||
Cost of goods sold |
3,698 | 3,339 | 5,946 | 6,014 | ||||||||||||
Gross profit |
1,151 | 684 | 1,761 | 1,086 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
(131 | ) | (134 | ) | 134 | (79 | ) | |||||||||
Sales and marketing |
1,213 | 1,115 | 2,732 | 2,410 | ||||||||||||
General and administrative |
66 | 35 | 172 | 104 | ||||||||||||
Restructuring expense |
| | | 26 | ||||||||||||
Total operating expenses |
1,148 | 1,016 | 3,038 | 2,461 | ||||||||||||
Segment income (loss) |
$ | 3 | $ | (332 | ) | $ | (1,277 | ) | $ | (1,375 | ) | |||||
Reconciliation of segment income (loss) to net loss: |
||||||||||||||||
Segment income (loss): |
||||||||||||||||
Solutions |
$ | (213 | ) | $ | 185 | $ | (250 | ) | $ | 571 | ||||||
Products |
3 | (332 | ) | (1,277 | ) | (1,375 | ) | |||||||||
Total segment loss |
(210 | ) | (147 | ) | (1,527 | ) | (804 | ) | ||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
51 | 49 | 118 | 104 | ||||||||||||
General and administrative |
740 | 1,136 | 1,975 | 2,408 | ||||||||||||
Revaluation of equity instruments |
| 329 | 56 | 1,750 | ||||||||||||
Total operating expenses |
791 | 1,514 | 2,149 | 4,262 | ||||||||||||
Other (expense) income |
(168 | ) | (149 | ) | (301 | ) | (313 | ) | ||||||||
Loss before income taxes |
(1,169 | ) | (1,810 | ) | (3,977 | ) | (5,379 | ) | ||||||||
Provision for income taxes |
(4 | ) | (2 | ) | (9 | ) | (3 | ) | ||||||||
Net loss |
$ | (1,173 | ) | $ | (1,812 | ) | $ | (3,986 | ) | $ | (5,382 | ) | ||||
15
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Products segment net sales: |
||||||||||||||||
Pool and commercial products |
$ | 3,674 | $ | 3,228 | $ | 6,022 | $ | 5,734 | ||||||||
Government products/R&D services |
1,175 | 795 | 1,685 | 1,366 | ||||||||||||
Total products segment net sales |
4,849 | 4,023 | 7,707 | 7,100 | ||||||||||||
Products segment cost of sales: |
||||||||||||||||
Pool and commercial products |
2,564 | 2,161 | 4,364 | 3,698 | ||||||||||||
Government products/R&D services |
1,134 | 790 | 1,582 | 1,361 | ||||||||||||
Unallocated manufacturing overhead |
| 388 | | 955 | ||||||||||||
Total products segment cost of sales |
3,698 | 3,339 | 5,946 | 6,014 | ||||||||||||
Products segment gross profit: |
||||||||||||||||
Pool and commercial products |
1,110 | 1,067 | 1,658 | 2,036 | ||||||||||||
Government products/R&D services |
41 | 5 | 103 | 5 | ||||||||||||
Unallocated manufacturing overhead |
| (388 | ) | | (955 | ) | ||||||||||
Total products segment gross profit |
$ | 1,151 | $ | 684 | $ | 1,761 | $ | 1,086 | ||||||||
1) | costs associated with the operation and shut down of the Solon manufacturing facility which has been relocated to the Mexico facility and | ||
2) | specific expenses which are not attributable to a specific business unit but rather are calculated on the total products business segment. Expenses include Solon manufacturing facility rent, Solon manufacturing depreciation, inventory reserves and accruals and Solon manufacturing support payroll and severance. |
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
United States |
$ | 6,960 | $ | 8,263 | $ | 11,513 | $ | 15,547 | ||||||||
International |
1,233 | 695 | 2,140 | 1,768 | ||||||||||||
Net sales |
$ | 8,193 | $ | 8,958 | $ | 13,653 | $ | 17,315 | ||||||||
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
United States |
$ | 4,254 | $ | 4,676 | ||||
International |
88 | 119 | ||||||
Long-lived assets, net |
$ | 4,342 | $ | 4,795 | ||||
16
17
18
19
| product-based sales providing military, general commercial and industrial lighting and pool lighting offerings, each of which markets and sells energy-efficient lighting systems; and |
| solutions-based sales providing turnkey, high-quality, energy-efficient lighting application alternatives primarily to the existing public-sector building market. |
20
21
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
Net Research & Development Spending | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Revenues |
$ | 1,175 | $ | 794 | $ | 1,685 | $ | 1,366 | ||||||||
Expenses: |
||||||||||||||||
Gross research and development expenses |
(214 | ) | (62 | ) | (805 | ) | (402 | ) | ||||||||
Credits from government contracts |
345 | 196 | 671 | 481 | ||||||||||||
Net research and development income / (expense) |
$ | 131 | $ | 134 | $ | (134 | ) | $ | 79 | |||||||
22
23
| obtain financing from traditional and non-traditional investment capital organizations or individuals, |
| potential sale or divestiture of one or more operating units, and |
| obtain funding from the sale of common stock or other equity or debt instruments. |
24
| loans or other debt instruments may have terms and/or conditions, such as interest rate, restrictive covenants, and control or revocation provisions, which are not acceptable to management or the Board of Directors, |
| the current economic environment combined with our capital constraints may prevent us from being able to obtain any debt financing, |
| financing may not be available for parties interested in pursuing the acquisition of one or more of our operating units, and |
| additional equity financing may not be available in the current economic environment and could lead to further dilution of shareholder value for current shareholders of record. |
25
26
27
Exhibit | ||
Number | Description | |
31.1
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
28
ENERGY FOCUS, INC. |
||||
Date: August 15, 2011 | By: | /s/ Joseph G. Kaveski | ||
Joseph G. Kaveski | ||||
Chief Executive Officer | ||||
By: | /s/ Mark J. Plush | |||
Mark J. Plush | ||||
Chief Financial Officer |
29
Exhibit | ||
Number | Description | |
31.1
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
30
1. | I have reviewed this quarterly report on Form 10-Q of Energy Focus, Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls over financial reporting. |
/s/ Joseph G. Kaveski | ||||
Joseph G. Kaveski | ||||
Chief Executive Officer |
31
1. | I have reviewed this quarterly report on Form 10-Q of Energy Focus, Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls over financial reporting. |
/s/ Mark J. Plush | ||||
Mark J. Plush | ||||
Chief Financial Officer |
32
(i) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and | |
(ii) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Joseph G. Kaveski | ||||
Joseph G. Kaveski | ||||
August 15, 2011 | ||||
33
(i) | The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, and | |
(ii) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Mark J. Plush | ||||
Mark J. Plush | ||||
August 15, 2011 | ||||
34
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data |
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Current assets: | Â | Â |
Allowance for doubtful accounts receivable current | $ 307 | $ 446 |
SHAREHOLDERS' EQUITY | Â | Â |
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 2,000,000 | 2,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 60,000,000 | 60,000,000 |
Common stock, issued | 24,845,000 | 23,962,000 |
Common stock, shares outstanding | 24,845,000 | 23,962,000 |
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
In Thousands, except Per Share data |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Condensed Consolidated Statements of Operations [Abstract] | Â | Â | Â | Â |
Net sales | $ 8,193 | $ 8,958 | $ 13,653 | $ 17,315 |
Cost of sales | 6,645 | 7,390 | 10,946 | 14,352 |
Gross profit | 1,548 | 1,568 | 2,707 | 2,963 |
Operating expenses (income): | Â | Â | Â | Â |
Research and development | (131) | (134) | 134 | (79) |
Sales and marketing | 1,636 | 1,518 | 3,571 | 3,137 |
General and administrative | 1,044 | 1,516 | 2,622 | 3,195 |
Valuation of equity instruments | Â | 329 | 56 | 1,750 |
Restructuring charges | Â | Â | Â | 26 |
Total operating expenses | 2,549 | 3,229 | 6,383 | 8,029 |
Loss from operations | (1,001) | (1,661) | (3,676) | (5,066) |
Other income (expense): | Â | Â | Â | Â |
Other income (expense) | 22 | (1) | 71 | (66) |
Interest expense | (190) | (148) | (372) | (247) |
Loss before income taxes | (1,169) | (1,810) | (3,977) | (5,379) |
Provision for income taxes | (4) | (2) | (9) | (3) |
Net loss | $ (1,173) | $ (1,812) | $ (3,986) | $ (5,382) |
Net loss per share - basic and diluted | $ (0.04) | $ (0.08) | $ (0.16) | $ (0.25) |
Shares used in computing net loss per share - basic and diluted | 24,754 | 22,582 | 24,490 | 21,953 |
Document and Entity Information (USD $)
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Jul. 29, 2011
|
|
Document and Entity Information [Abstract] | Â | Â |
Entity Registrant Name | ENERGY FOCUS, INC/DE | Â |
Entity Central Index Key | 0000924168 | Â |
Document Type | 10-Q | Â |
Document Period End Date | Jun. 30, 2011 | |
Amendment Flag | false | Â |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Well-known Seasoned Issuer | No | Â |
Entity Voluntary Filers | No | Â |
Entity Current Reporting Status | Yes | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Public Float | $ 19,918,936 | Â |
Entity Common Stock, Shares Outstanding | Â | 24,845,222 |
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Contracts in Progress
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Jun. 30, 2011
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Contracts in Progress [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CONTRACTS IN PROGRESS |
NOTE 6. CONTRACTS IN PROGRESS
Costs and estimated earnings on contracts in progress as of the periods indicated are summarized in
the following table (in thousands):
|
Commitment and Contingencies
|
6 Months Ended |
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Jun. 30, 2011
|
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Commitment and Contingencies [Abstract] | Â |
COMMITMENT AND CONTINGENCIES |
NOTE 11. COMMITMENTS AND CONTINGENCIES
In July 2011, the Company and its landlord for the Solon, Ohio office, located at 32000 Aurora
Road, signed an amended and restated sublease agreement that will resolve past due amounts under
the lease agreement, which expired April 30, 2011, as well as the terms by which the Company and
its landlord will enter into an extension of the previous lease. The terms includes a reduction of
the gross rent to $25,000 for the period September 1, 2010 to April 30, 2011 (the “period”), an
extension of the lease until April 30, 2014 with a Company option to extend thereafter and a
reduction in both the square footage of the premises and the gross rent per square foot to be paid
from May 1, 2011 to April 30, 2014. In conjunction with the signing of the lease agreement and to
satisfy past due amounts, the Company delivered an unsecured Promissory Note to the landlord. For
details relating to this promissory note, please see Note 7, Long Term Borrowings.
In connection with the acquisition of SRC, the Company maintains a performance-related contingent
obligation related to a 2.5% payout based upon the annual revenues of the acquired business over 42
months commencing January 1, 2010, and a $500,000 fee if the market price of the Company’s common
stock is not equal to or greater than $2.00 per share for at least twenty trading days between June
30, 2010 and June 30, 2013. The Company accrued for this potential fee at the time of the
agreement. For the three and six months ended June 30, 2011, the Company has paid $60,000 and
$170,000, respectively, relating to this 2.5% payout. For the three and six months ended June 30,
2010, the Company has paid $131,000 and $257,000, respectively.
|
Summary of Significant Accounting Policies
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Summary of Significant Accounting Policies [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company, which are summarized below, are consistent with
generally accepted accounting principles and reflect practices appropriate to the business in which
it operates.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period.
Estimates include, but are not limited to, the establishment of reserves for accounts receivable,
sales returns, inventory obsolescence, and warranty claims; the useful lives for property,
equipment, and intangible assets; revenues recognized on a percentage-of-completion basis; and
stock-based compensation. In addition, estimates and assumptions associated with the determination
of fair value of financial instruments and evaluation of goodwill and long-lived assets for
impairment requires considerable judgment. Actual results could differ from those estimates and
such differences could be material.
Reclassifications
Certain prior year amounts have been reclassified within the Condensed Consolidated Financial
Statements (“financial statements”), and related notes thereto, to be consistent with the current
year presentation.
Basis of Presentation
The financial statements include the accounts of the Company and its subsidiaries, Stones River
Companies, LLC (“SRC”) in Nashville, Tennessee, and Crescent Lighting Limited (“CLL”) located in
the United Kingdom. All significant inter-company balances and transactions have been eliminated.
Interim Financial Statements (unaudited)
Although unaudited, the interim financial statements in this report reflect all adjustments,
consisting only of all normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of financial position, results of operations, and cash flows for the
interim periods covered and of the financial condition of the Company at the interim balance sheet
date. The results of operations for the interim periods presented are not necessarily indicative
of the results expected for the entire year.
The accompanying interim financial statements have been prepared assuming the Company will continue
to operate as a going concern, which contemplates the realization of assets and the settlement of
liabilities in the normal course of business. The interim financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from uncertainty related to
the Company’s ability to continue as a going concern.
Year-end Balance Sheet
The year-end balance sheet information was derived from audited financial statements but does not
include all disclosures required by generally accepted accounting principles. These financial
statements should be read in conjunction with the Company’s audited financial statements and notes
thereto for the year ended December 31, 2010, which are contained in the Company’s 2010 Annual
Report on Form 10-K.
Recent Accounting Pronouncements
In April 2011, the Financial Accounting Standards Board (“FASB”) issued revisions to the accounting
guidance related to troubled debt restructuring. This new guidance is effective for the first
interim or annual period beginning on or after June 15, 2011 and should be applied retrospectively
to the beginning of the annual period of adoption. The adoption of this new guidance did not have
a material effect on the Company’s consolidated results of operations, cash flows or financial
position.
Foreign Currency Translation
The Company’s international subsidiary uses its local currency as its functional currency. Assets
and liabilities are translated at exchange rates in effect at the balance sheet date and income and
expense accounts are translated at average exchange rates during the year. Resulting translation
adjustments are recorded directly to “Accumulated other comprehensive income” within shareholders’
equity. Foreign currency transaction gains and losses are included as a component of “Other income
(expense)”. Gains and losses from foreign currency translation are included as a separate
component of “Other comprehensive loss” within the Condensed Consolidated Statement of
Comprehensive Income (Loss).
Liquidity
Historically, the Company has incurred losses attributable to operational performance which have
negatively impacted cash flows. Although management continues to address many of the legacy issues
that have historically burdened the Company’s financial performance, the Company still faces
challenges in order to reach profitability. In order for the Company to attain profitability and
growth, the Company will need to successfully address these challenges, including the continuation
of cost reductions throughout the organization, execution of its marketing and sales plans for the
Company’s turnkey energy-efficient lighting solutions business, the development of new technologies
into sustainable product lines and continued improvements in supply chain performance.
The Company is optimistic about obtaining the funding necessary to meet on-going tactical and
strategic capital requirements. However, there can be no assurances that this objective will be
successful. As such, the Company will continue to review and pursue selected external funding
sources, if necessary, to execute these objectives including the following:
Obtaining financing through the above-mentioned mechanisms contains risks, including:
Retainage Receivable
The Company’s solutions-based sales are normally subject to a holdback of a percentage of the sale
as retainage. This holdback is recorded on the Company’s Condensed Consolidated Balance Sheet as
“Retainage receivable”. Retainage is a portion of the total bid price of a project that is held
back by the customer until the project is complete and functioning satisfactorily according to the
contract terms. Retainage percentages typically range from 5% to 10% and are collected anywhere
from three to eighteen months from the inception of the project.
Collateralized Assets
The Company maintains $2,000,000 of cash collateral related to the Company’s $10,000,000 surety
bonding program associated with SRC. This cash is pledged to the surety carrier through December
2011, unless the Company is able to provide sufficient alternative means of collateralization
satisfactory to the surety carrier.
Earnings (Loss) per Share
Basic loss per share is computed by dividing net loss available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted loss per share is
computed giving effect to all dilutive potential common shares that were outstanding during the
period. Dilutive potential common shares consist of incremental shares upon exercise of stock
options and warrants, unless the effect would be anti-dilutive.
A reconciliation of basic and diluted loss per share is provided as follows (in thousands, except
per share amounts):
At June 30, 2011 and 2010, options and warrants to purchase 5,254,000 and 6,403,000 shares of
common stock, respectively, were outstanding, but were not included in the calculation of diluted
net loss per share because their inclusion would have been anti-dilutive.
Stock-Based Compensation
The Company’s stock-based compensation plan is described in detail in its Annual Report on Form
10-K for the year ended December 31, 2010. The following table summarizes the Company’s
stock-based compensation (in thousands):
Total unearned compensation of $446,000 related to stock options remains at June 30, 2011 compared
to $1,270,000 at June 30, 2010. These costs will be charged to expense, amortized on a straight
line basis, in future periods through the first quarter of 2015. The weighted average period over
which this unearned compensation is expected to be recognized is approximately 1.3 years.
The fair value of each stock option is estimated on the date of grant using the Black-Scholes
option pricing model. Estimates utilized in the calculation include the expected life of option,
risk-free interest rate, and expected volatility, and are further comparatively detailed as
follows:
At the 2010 Annual Meeting of Shareholders (“Annual Meeting”) held on June 16, 2010, the
shareholders approved an increase in the total number of shares of common stock that may be awarded
under the 2008 Incentive Stock Plan from 1,000,000 shares to 3,000,000 shares. Under this plan,
the Company granted 615,000 stock options through the six months ended June 30, 2011 and 960,000
during the six months ended June 30, 2010. Of the 960,000 stock options granted in 2010, 900,000
were performance-based stock options exercisable by the grantees if, and only if, the Company
achieved required revenue and cash-flow generation targets as reported in the Company’s 2010 Form
10-K. The Company’s performance in 2010 did not meet most of these established performance goals
and, consequently, 850,000 of these performance-based stock options were cancelled on April 1,
2011.
In the third quarter of 2010, the Board of Directors approved a program offering the independent
Directors of the Company the option of accepting restricted shares of the Company’s common stock in
lieu of quarterly cash compensation. Directors who chose to participate and accept restricted
shares in lieu of cash compensation would receive the equivalent of two dollars ($2.00) of Company
common stock for every one dollar ($1.00) of their normal cash compensation. Directors that chose
to accept this program agreed to receive restricted shares as compensation for four consecutive
quarters, covering the period of July 2010 until June 2011 with the aforementioned common stock
vesting over an equivalent 12 month period. The price of the common stock shares was based on the
closing price of the Company’s common stock on September 20, 2010. On September 1, 2010, four of
the five Directors agreed to participate in this program and, subsequently, the participants were
issued 123,000 shares of restricted common stock. Director stock compensation expense under this
program related to these restricted shares amounted to $53,000 and $107,000 for the three and six
months ended June 30, 2011.
On May 29, 2009, the Company’s five senior executive officers agreed to accept voluntary salary
reductions for the remainder of the 2009 calendar year in exchange for the issuance of restricted
shares of common stock as authorized under the Company’s 2008 Incentive Stock Plan. Two other key
executives of the Company also accepted salary reductions for the balance of the year in exchange
for restricted shares. Each officer and key executive voluntarily accepted a ten percent (10%)
salary reduction for the remainder of 2009, except for one officer who voluntarily accepted a forty
percent (40%) decrease for the remainder of 2009. The number of restricted shares of common stock
issued to each officer and executive was equal to the dollar value of the individual’s salary
reduction divided by the closing price per share of the Company’s common stock on May 29, 2009.
The total number of restricted shares of common stock issued to these officers and executives was
209,000. The Company reserved the right to extend these salary reductions into the 2010 calendar
year and beyond. Additionally, on May 29, 2009, two members of the Company’s Board of Directors
voluntarily relinquished their directors’ fee for the balance of 2009 in exchange for restricted
shares of common stock on the same terms as the shares granted to the officers. The number of
restricted shares of common stock issued to each director was equal to the dollar value of the
individual’s relinquished director’s fee divided by the closing price per share of the Company’s
common stock on May 29, 2009. The total number of restricted shares of common stock issued to
these directors was 19,000.
On December 31, 2009, the Company’s five executive officers, along with two other key executives of
the Company, agreed to extend these salary reductions through June 30, 2010. On July 9, 2010, the
Company’s Chief Executive Officer, with the approval of the Board of Directors, decided to continue
the cash salary reductions through December 31, 2010. Each executive officer and key executive
voluntarily accepted a 10% salary reduction for 2010, except for one executive officer who
voluntarily accepted a 40% decrease for 2010. The number of restricted shares of Common Stock
issued to each executive officer and key executive was equal to the dollar value of the
individual’s salary reduction divided by the closing price per share of the Company’s Common Stock
on December 30, 2009 and January 3, 2011, respectively. The total number of restricted shares of
Common Stock issued to these officers and executives in 2010 was 284,000. The Company recorded
compensation expense related to these restricted shares of $55,000 and $110,000 for the three and
six months ended June 30, 2010, respectively.
Product Warranties
The Company warrants finished goods against defects in material and workmanship under normal use
and service for periods of one to three years for products and labor. Settlement costs consist of
actual amounts expensed for warranty services which are largely a result of third-party service
calls, and the costs of replacement products. A liability for the estimated future costs under
product warranties is maintained for products outstanding under warranty and is included in
“Accrued liabilities” in the Condensed Consolidated Balance Sheet. The warranty activity for the
respective years is as follows (in thousands):
|
Comprehensive Income (Loss)
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Comprehensive Income (Loss) [Abstract] | Â |
COMPREHENSIVE INCOME (LOSS) |
NOTE 8. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is defined as net income (loss) plus sales, expenses, gains, and losses
that, under generally accepted accounting principles, are included in comprehensive income (loss)
but excluded from net income (loss). A separate statement of comprehensive loss has been presented
with this report.
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Legal Matters
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6 Months Ended |
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Jun. 30, 2011
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Legal Matters [Abstract] | Â |
LEGAL MATTERS |
NOTE 13. LEGAL MATTERS
On January 29, 2010, a competitor and former supplier filed a complaint against the Company in the
Court of Chancery of the State of Delaware, alleging that the Company had misused proprietary trade
secrets, breached a contract, and engaged in deceptive trade practices relating to one of the
Company’s lighting products. The complaint sought injunctive relief and damages. The Company
answered the complaint and filed a counterclaim for breach of contract. The parties settled and
dismissed the case in the second quarter of 2011. In the opinion of management, neither the
defense of the lawsuit nor the implementation of the settlement has had or will have an adverse
effect on the Company’s financial condition, cash flows, or results of operations.
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Segments and Geographic Information
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Jun. 30, 2011
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Segments and Geographic Information [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENTS AND GEOGRAPHIC INFORMATION |
NOTE 9. SEGMENTS AND GEOGRAPHIC INFORMATION
The Company has two reportable segments: product-based sales featuring pool lighting and general
commercial lighting, each of which markets and sells lighting systems, and solutions-based sales
providing turnkey, high-quality, energy-efficient lighting application alternatives. The Company’s
products are sold through a combination of direct sales employees, independent sales
representatives, and various distributors in different geographic markets throughout the world.
The Company’s solutions-based sales are designed to enhance total value by positively impacting
customers’ profitability, the environment, and the communities it serves. These solutions are sold
through our direct sales employees as well as our SRC subsidiary, and include not only the
Company’s proprietary energy-efficient lighting solutions, but also sourced lighting systems,
energy audits, and service agreements.
The following summarizes the Company’s reportable segment data for periods indicated (in
thousands):
The following table provides additional business unit gross profitability detail for the Company’s
products-based business segment for the periods indicated (in thousands):
Unallocated manufacturing overhead is defined as follows:
A geographic summary of net sales is as follows (in thousands):
A geographic summary of long-lived assets, which consists of fixed assets, goodwill, and
intangible assets, is as follows (in thousands):
|
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Long Term Borrowings
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Long Term Borrowings [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LONG TERM BORROWINGS |
NOTE 7. LONG-TERM BORROWINGS
On May 27, 2009, the Company entered into an unsecured promissory note (the “Note”) with The
Quercus Trust (“Quercus”) in the amount of $70,000. Under the terms of this Note, the Company is
obligated to pay The Trust the principal sum of the Note and interest accruing at a yearly rate of
1.00% in one lump sum payment on or before June 1, 2109. The Company received these funds on June
9, 2009.
On December 29, 2009 and in conjunction with the acquisition of SRC, the Company entered into
Letter of Credit Agreements (“LOC’s”) with John Davenport, President of the Company, and with
Quercus, for $250,000 and $300,000, respectively. These LOC’s have terms of 24 months and bear
interest at a rate of 12.5% on the face amount. The LOC’s are collateralized by 15% and 18%,
respectively, of the capital stock of Crescent Lighting Ltd., which in turn is based on CLL’s net
worth as of November 30, 2009 and are subordinated to the senior indebtedness of the Company and
CLL. As an incentive to enter into the LOC’s, the Company issued five-year, detached warrants to
purchase 125,000 and 150,000 shares, respectively, of common stock at an exercise price of $0.01
per share. The Company’s shareholders approved the warrants at the Annual Meeting on June 16,
2010.
In conjunction with the acquisition of SRC on December 31, 2009, the Company entered into an
agreement with TLC Investments, LLC (“TLC”), whereby a Convertible Promissory Note (“Convertible
Note”) was issued for the principal amount of $500,000. This Convertible Note bears interest at
the Wall Street Journal Prime Rate plus two percent (2%), which along with the principal, is due
and payable on June 30, 2013 (“maturity date”). This Convertible Note is secured by a
first-lien-position security interest in all assets of SRC. Additionally, TLC has the right to
convert the principal of the Convertible Note, in whole, but not in part, into 500,000 shares of
our common stock at any time during the period commencing on June 30, 2010 and through the maturity
date. Additionally, as a provision to the Convertible Note, if the reported closing price of a
share of common stock of the Company is not equal to or greater than $2.00 for at least twenty (20)
trading days between June 30, 2010 and June 30, 2013, we shall pay TLC an additional fee of
$500,000 on the maturity date. The Company accrued for this potential fee at the time of the
agreement.
On March 30, 2010, the Company entered into an agreement with EF Energy Partners LLC (“EF Energy”),
an Ohio limited liability company, under which it sold to EF Energy a Secured Subordinated
Promissory Note (“Subordinated Note”) for the principal amount of $1,150,000. The Company secured
the full amount of this financing with a pledge of its United States gross accounts receivable and
selected capital equipment. This Subordinated Note bears interest at a rate of 12.5%, which is
payable quarterly, in arrears, commencing September 30, 2010. The entire outstanding principal
balance of this Subordinated Note, together with all accrued interest thereon, is due and payable
on March 30, 2013. Additionally, the Company issued to the eight investors in EF Energy five-year,
detached penny warrants ($.01 per share) to purchase shares of its common stock at a rate of 0.2
warrants per dollar of financing, or 230,000 warrants, with an expiration date of March 30, 2015.
The Company and EF Energy Partners are not related.
In conjunction with the signing of the lease agreement for the Solon, Ohio office building and to
satisfy past due amounts, the Company delivered an unsecured Promissory Note to its landlord in the
amount of $676,000 which bears interest at a rate of 10% annually commencing May 1, 2011 and has a
maturity date of April 30, 2014. In addition, the Company made a payment of approximately $121,000
on May 9, 2011, not subject to interest, and made gross rent payments of $200,000, during the
period September 1, 2010 to April 30, 2011, which reduced the balance of the note at inception to
$355,000.
Through its United Kingdom subsidiary, the Company maintains a British pounds sterling-denominated
bank overdraft facility with Lloyds Bank Plc, in the amount of
£100.000, which was approximately $160,000 based on the exchange rate
at June 30, 2011. There were no borrowings against this facility as of June 30, 2011 or December
31, 2010. This facility is renewed annually on January 1. The interest rate for this facility in
2011 is a variable interest rate equal to the Bank of England’s Bank Rate, which was 0.50% at June
30, 2011, plus 3.10%. The interest rate on the facility at December 31, 2010 was 2.75%.
Future maturities of remaining borrowings are (in thousands):
|
Inventories
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Inventories [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES |
NOTE 3. INVENTORIES
Inventories are stated at the lower of standard cost (which approximates actual cost determined
using the first-in, first-out cost method) or market and consist of the following (in thousands):
|
Property and Equipment
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Jun. 30, 2011
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Property and Equipment [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT |
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the straight-line method over the
estimated useful lives of the related assets and consist of the following (in thousands):
|
Related Party Transactions
|
6 Months Ended |
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Jun. 30, 2011
|
|
Related Party Transactions [Abstract] | Â |
RELATED PARTY TRANSACTIONS |
NOTE 12. RELATED PARTY TRANSACTIONS
In November, 2009, the Company received an additional $3,344,000 in equity financing, net of
expenses by selling 4,813,000 shares of common stock in a registered offering. The investment was
made by numerous current Energy Focus shareholders, including two then current members of the
Company’s Board of Directors. The investment was made under the Company’s registration statement
for a $3,500,000 common stock subscription rights offering. Under the terms of the rights
offering, the Company distributed, at no charge to its shareholders, transferable rights to
purchase up to $3.5 million of the Company’s common stock at the established subscription price per
share of $0.75, which was set by the Company’s Board of Directors. At the time the offering began,
the Company distributed to each shareholder one transferable right for each share of common stock
owned by the shareholder. Each right entitled the holder to purchase one share of the Company’s
common stock, par value $0.0001 per share, subject to a maximum of 4,600,000 shares to be issued in
the offering. Shareholders were entitled to subscribe for shares not subscribed for by other
shareholders. Among the investors were Philip E. Wolfson, a member of the Company’s Board of
Directors at the time of the transaction, and who invested approximately $8,000 in the aggregate.
Also among the investors was Quercus, whose trustees include David Gelbaum, who was a member of the
Company’s Board of Directors at the time of the offering.
In the Company’s subscription rights offering discussed above, an investor inadvertently purchased
1,000,000 shares of our common stock at $0.75 per share. The Company agreed to facilitate the sale
of these shares to another shareholder or investor or to purchase them directly. A purchase of
those shares by the Company would have severely depleted its cash-on-hand and working capital.
After contacting selected shareholders and investors, the Company introduced the investor to
Quercus, one of the Company’s large shareholders. The Company was informed on December 30, 2009,
by the investor and Quercus that Quercus had agreed to purchase those shares at $0.80 per share.
At that time, the closing market price of a share of the Company’s common stock was approximately
$0.65 per share. To facilitate the purchase of the 1,000,000 shares by Quercus, on December 30,
2009, the Company’s Board of Directors agreed with Quercus to reduce the exercise price of
1,560,062 warrants issued to Quercus, in the March 2008 private placement, to $0.01 per share upon
the completion of the purchase of all 1,000,000 shares in 2010. The purchase of the 1,000,000
shares by Quercus was completed on February 20, 2010. The Company incurred a non-cash charge of
$1,421,000 for the quarter ended June 30, 2010 related to the valuation of the warrants to purchase
shares of the Company’s common stock acquired by Quercus in the Company’s March 2008 equity
financing. On April 28, 2010, Quercus exercised the 2008 warrants. The Company’s shareholders
approved the reduction in exercise price of the above mentioned warrants at its Annual Meeting on
June 16, 2010.
On December 29, 2009, and in conjunction with the acquisition of SRC, the Company entered into
Letter of Credit Agreements (“LOC’s”) with John Davenport, President of the Company, and with
Quercus, for $250,000 and $300,000, respectively. Please refer to Note 7, Long-Term Borrowings,
for discussion of the terms of these LOC’s.
The Vice President of SRC is a minority owner in TLC as well as in Woodstone Energy, LLC
(“Woodstone”), a Tennessee limited liability company, both of which are located in Nashville,
Tennessee.
SRC renders lighting design and lighting solution services to these related parties within the
scope of their ordinary business activities. Conversely, these related parties, operating as
electrical subcontractors, provide installation support services to SRC as part of their normal
business. For the three months ended June 30, 2011 and 2010, related party sales totaled $474,000
and $1,410,000, respectively. Related party sales for the six months ended June 30, 2011, and 2010
totaled $828,000 and $3,943,000, respectively. Of these sales, the Company had $674,000 of
receivables, including retainage, at June 30, 2011. Subcontractor installation support services
provided by related parties for the three and six months ended June 30, 2011 was $2,477,000 and
$4,061,000, respectively. For the three and six months ended June 30, 2010, subcontractor
installation support services was $3,620,000 and $7,580,000, respectively. Of the support services
provided, $2,205,000 was payable at June 30, 2011.
With the acquisition of SRC, the Company entered into an agreement with the seller, TLC, whereby,
SRC would be guaranteed a profit percentage of 25% on certain projects which were begun prior to
the acquisition or were out for bid at the time the acquisition occurred on December 31, 2009.
During 2010, a significant portion of our projects were subject to this guarantee. During 2011,
SRC continues to utilize TLC as an electrical subcontractor on certain projects which were not
begun or were not out for bid at the time of the acquisition and, therefore, would not be subject
to the guaranteed 25% gross profit percentage on these projects.
In conjunction with the acquisition of SRC on December 31, 2009, the Company entered into an
agreement with TLC whereby a Convertible Promissory Note (“Convertible Note”) was issued for the
principal amount of $500,000. This Convertible Note bears interest at a rate of the Wall Street
Journal Prime Rate plus two percent (2%), which along with the principal, is due and payable on
June 30, 2013. This Convertible Note is secured by a first-lien-position security interest in all
assets of SRC. Additionally, TLC has the right to convert the principal of the Convertible Note,
in whole, into 500,000 shares of the Company’s common stock at any time during the period
commencing on June 30, 2010 and ending on the maturity date. Additionally, as a provision to the
Convertible Note, if the reported closing price of a share of the Company’s common stock shall not
be equal to or greater than $2.00 for at least twenty (20) trading days between June 30, 2010 and
June 30, 2013, the Company shall pay TLC an additional fee of $500,000 on the maturity date.
On December 31, 2009, the Company issued to Woodstone warrants to purchase up to 600,000 shares of
the Company’s common stock at an exercise price of $0.65 per share, and with a term ending on
December 31, 2014. The warrants become exercisable only if SRC receives from Woodstone firm
contracts or purchase orders for at least $10,000,000 by June 30, 2013. The warrants vest in two
tranches: 400,000 shares when contracts or purchase orders between SRC and Woodstone reach
$10,000,000 and an additional 200,000 shares when contracts or purchase orders between SRC and
Woodstone reach an additional $5,000,000. As of June 30, 2011, no warrants related to this
issuance have vested.
The Company, in the agreement for the acquisition of SRC, provided for payment of a management fee
to TLC for overhead expenses in support of up to $20,000,000 in project billings for 2010 on those
projects which TLC provided installation support services. The management fee totaled $1,232,000,
payable in equal monthly installments, and began January 31, 2010 and ended on December 31, 2010.
Furthermore, an additional 8% management fee is payable for project billings above $20,000,000 in
fiscal year 2010 and for fiscal years after December 31, 2010, where TLC provides installation
support services on projects that were pending at the date of acquisition of SRC. For the fiscal
year ending December 31, 2010, the Company did not exceed the $20,000,000 threshold and incurred
only the $1,232,000 of management fees as stipulated in the agreement. For the three months ended
June 30, 2011 and 2010, the Company incurred $167,000 and $308,000, respectively, of expense
relating to this management fee. For the six months ended June 30, 2011 and 2010, the Company
incurred $269,000 and $616,000, respectively, of expense relating to this management fee.
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Goodwill and Intangible Assets
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Jun. 30, 2011
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Goodwill and Intangible Assets [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND INTANGIBLE ASSETS |
NOTE 5. GOODWILL AND INTANGIBLE ASSETS
The following table summarizes information related to net carrying value of intangible assets (in
thousands):
Amortization expense for intangible assets subject to amortization was $163,000 for the three
months ended June 30, 2011, as compared to $269,000 for the three months ended June 30, 2010.
Amortization expense for the six months ended June 30, 2011 and 2010 was $325,000 and $537,000,
respectively. The Company amortizes Tradenames on a straight-line basis over the estimated useful
lives of the intangible assets. Customer relationships are amortized over their expected useful
lives on an accelerated method that approximates the cash flows associated with those
relationships. Based on the carrying value of amortized intangible assets the Company estimates
amortization expense for future years to be as follows (in thousands):
As of June 30, 2011, the Company had $672,000 of goodwill recorded on its financial statements
related to the acquisition of SRC.
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Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $)
In Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
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Jun. 30, 2010
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Jun. 30, 2011
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Jun. 30, 2010
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Condensed Consolidated Statements of Comprehensive Income (Loss) [Abstract] | Â | Â | Â | Â |
Net loss | $ (1,173) | $ (1,812) | $ (3,986) | $ (5,382) |
Other comprehensive income (loss): | Â | Â | Â | Â |
Foreign currency translation adjustments | (18) | (21) | 29 | (98) |
Comprehensive loss | $ (1,191) | $ (1,833) | $ (3,957) | $ (5,480) |
Nature of operations
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6 Months Ended | ||||||||
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Jun. 30, 2011
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Nature of operations [Abstract] | Â | ||||||||
NATURE OF OPERATIONS |
NOTE 1. NATURE OF OPERATIONS
Energy Focus, Inc. and its subsidiaries (the “Company”) engage in the design, development,
manufacturing, marketing, and installation of energy-efficient lighting systems and solutions where
the Company serves two segments:
The Company continues to evolve its business strategy to include providing its customers with
turnkey, comprehensive energy-efficient lighting solutions, which use, but are not limited to, its
patented and proprietary technology. Company product-based solutions include light-emitting diode
(“LED”), fiber optic, high-intensity discharge (“HID”), fluorescent tube and other highly
energy-efficient lighting technologies. Typical savings related to the current technology of the
Company approximates 80% in electricity costs, while providing full-spectrum light closely
simulating daylight colors. The Company’s strategy also incorporates continued investment into the
research of new and emerging energy sources including, but not limited to, LED and solar energy
applications.
The Company’s development of solar technology continues through its role in the United States
Government’s Very High Efficiency Solar Cell (“VHESC”) Consortium sponsored by the Defense Advanced
Research Projects Agency (“DARPA”). The goal of the VHESC project is to develop a 40% or greater
efficient solar cell for United States military applications, which would also ultimately become
available to the public for commercial application.
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Income Taxes
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6 Months Ended |
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Jun. 30, 2011
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Income Taxes [Abstract] | Â |
INCOME TAXES |
NOTE 10. INCOME TAXES
At June 30, 2011, the Company has recorded a full valuation allowance against its deferred tax
asset in the United States, due to uncertainties related to the Company’s ability to utilize its
deferred tax assets, primarily consisting of certain net operating losses carried forward. The
valuation allowance is based upon the Company’s estimates of taxable income by jurisdiction and
the period over which its deferred tax assets will be recoverable.
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Subsequent Events
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6 Months Ended |
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Jun. 30, 2011
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Subsequent Events [Abstract] | Â |
SUBSEQUENT EVENTS |
NOTE 14. SUBSEQUENT EVENTS
On August
11, 2011 the Company entered into a Letter of Credit Agreement
(“LOC”) with Mark Plush, Chief Financial Officer of the
Company, for $250,000. This LOC has term of 24 months and bears interest at a rate of 12.5% on the face amount. The LOC is
collateralized by the assignment of proceeds of the cash collateral on deposit with the insurance company related to the company’s
surety bonding program. This LOC is subordinated to the senior indebtedness of the Company. As an incentive to enter into the LOC,
the Company issued five-year, detached warrants to purchase 125,000 shares of common stock at an exercise price of $0.01 per share.
The Company did not register the offering and issuance of the warrant, or of the underlying shares of common stock, under the
Securities Act of 1933, as amended, in reliance upon the exemption from registration under the Act in Section 4(2) of the Act. The
purchaser of the warrants qualifies as an accredited investor under
the the U.S. Securities and Exchange Commission’s Regulation D.
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