Notes to Condensed Consolidated Financial Statements (Unaudited)
1.
|
Summary of Significant Accounting Policies:
|
Basis of presentation
The accompanying
(a) condensed consolidated balance sheet as of December 31, 2015, which has been derived from audited financial statements, and (b) the unaudited interim condensed consolidated financial statements of Revolution Lighting Technologies, Inc. and its
wholly-owned subsidiaries (the Company, we, our, us), have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information.
Accordingly, they do not necessarily repeat disclosures that would substantially duplicate disclosures included in the annual audited consolidated financial statements included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2015 and details of accounts that have not changed significantly in amount or composition.
These unaudited condensed consolidated financial
statements should be read in conjunction with the Companys audited consolidated financial statements and footnotes and other information included in the Companys Annual Report on Form 10-K for the year ended December 31, 2015 filed with
the Securities and Exchange Commission (SEC). In the opinion of management, these interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the Companys
financial position, results of operations, and cash flows as of and for the dates and periods presented. The results of operations for the three-month and six-month periods ended June 30, 2016 are not necessarily indicative of the results that may
be expected for the full year ending on December 31, 2016 or for any other future period.
Business
We design, manufacture, market and
sell commercial grade light-emitting diode (LED) fixtures for outdoor and indoor applications, LED-based signage, channel-letter and contour lighting products, replacement lamps and high-performance, commercial grade smart grid control
systems and provide turnkey comprehensive energy saving projects (principally LED fixtures and lamps). We sell these products under the Revolution Lighting brand name. Our products incorporate many proprietary and innovative features. Our product
offerings and patented designs provide opportunities for significant savings in energy and maintenance costs without compromising the environment. We generate revenue by selling lighting products for use in the commercial and industrial, and
government markets, which include vertical markets such as government, military, municipal, hospitality, institutional, educational, healthcare and signage markets. We market and distribute our products globally through networks of distributors,
independent sales agencies and representatives, electrical supply companies, as well as internal marketing and sales forces.
The Companys
operations consist of one reportable segment for financial reporting purposes: Lighting Products and Solutions (principally LED fixtures and lamps).
During the second quarter of 2016, the Company purchased all the equity interests of TNT Energy, LLC (TNT), a turnkey provider of LED
lighting-based energy savings projects within the commercial, industrial, hospitality, retail, educational and municipal sectors. TNTs headquarters are located in Raynham, Massachusetts.
In the third quarter of 2015, the Company completed its acquisition of Energy Source, LLC (Energy Source), a provider of turnkey comprehensive
energy savings projects (principally LED fixtures and lamps) within the commercial, industrial, hospitality, retail, education and municipal sectors. Energy Source is headquartered in Providence, Rhode Island.
Stock Split
On March 10, 2016, the company filed a certificate of amendment to its Amended and Restated Certificate of Incorporation, as
amended, to effect a 1-for-10 reverse stock split, that became effective for trading purposes on March 11, 2016. The number of authorized shares of the Common Stock and the par value of the Common Stock remained unchanged following the Split. All
share amounts in these financial statements, as applicable, have been restated to give effect to the 1-for-10 reverse stock split (see Note 6).
Liquidity
At June 30, 2016, the Company had cash of $5.2 million and working capital of $35.9 million, compared to cash of $0.2 million and
working capital of $25.9 million at December 31, 2015. For the six months ended June 30, 2016 and 2015, the Company used cash for operations of $0.9 million and $13.9 million, respectively.
In May 2016, the Company raised $15.2 million from the issuance of common stock, net of expenses. The proceeds were used to fund the cash portion of the TNT
acquisition, pay debt under our credit facility, and for general corporate purposes.
In June 2016, the Company raised an additional $1.0 million in a
private placement of its common stock to one of its distributors.
The Company has a loan and security agreement with Bank of America to borrow up to $27
million on a revolving basis, based upon specified percentages of eligible receivables and inventory (the Revolving Credit Facility) which matures in August 2017. Our Chairman, Chief Executive Officer and President has guaranteed $7
million of the borrowings under the Revolving Credit Facility; this guarantee enables us to borrow $7 million in addition to the amount available from receivables and inventory and may be terminated at any time. As of June 30, 2016, the balance
outstanding on the Revolving Credit Facility was $22.6 million. As of June 30, 2016, the Company had total liquidity of $9.6 million, consisting of additional borrowing capacity on the Revolving Credit Facility of $4.4 million and cash on hand of
$5.2 million.
7
We were in compliance with our covenants and obligations under the revolving credit facility as of July 29, 2016.
Historically, the Companys significant shareholder, RVL 1 LLC (RVL), and its affiliates have been a significant source of financing,
and they continue to support our operations.
The Company believes it has adequate resources to meet its cash requirements in the foreseeable future.
Principles of consolidation
The condensed consolidated financial statements include the accounts of Revolution Lighting Technologies, Inc.
and its wholly owned subsidiaries. Significant inter-company accounts and transactions have been eliminated.
Use of estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the
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. The most significant estimates relate to valuation of receivables and inventories,
warranty obligations, purchase price allocation of acquired businesses, impairment of long-lived assets and goodwill, valuation of financial instruments, income taxes, and contingencies. Actual results could differ from those estimates.
Revenue recognition
We recognize revenue for our products upon shipment or delivery to customers in accordance with the respective
contractual arrangements, provided no significant obligations remain and collection is probable. For sales that include customer acceptance terms, revenue is recorded after customer acceptance. It is our policy that all sales are final. Requests for
returns are reviewed on a case by case basis. As revenue is recorded, we accrue an estimated amount for product returns as a reduction of revenue.
The
Company recognizes revenue from fixed-price and modified fixed-price contracts for turnkey energy conservation projects using the percentage-of-completion method of accounting. The percentage-of-completion is computed by dividing the actual incurred
cost to date by the most recent estimated total cost to complete the project. The computed percentage is applied to the expected revenue for the project to calculate the contract revenue to be recognized in the current period. This method is used
because management considers total cost to be the best available measure of progress on these contracts. Contract costs include all direct material and labor costs and indirect costs related to contract performance. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are determined. The current asset unbilled contract receivables represents revenues in excess of amounts billed, which management believes will generally be billed
within the next twelve months.
The Company records sales tax revenue on a gross basis (included in revenues and costs). For the six months ended June 30,
2016 and 2015, revenues from sales taxes were $2.2 million and $1.8 million, respectively.
Warranties and product liability
The
Companys LED products typically carry a warranty that ranges from one to ten years and includes replacement of defective parts. A warranty reserve is recorded for the estimated costs associated with warranty expense related to recorded sales,
which is included within accrued liabilities. Changes in the Companys warranty liability for the six months ended June 30, 2016 are as follows:
|
|
|
|
|
(in thousands)
|
|
2016
|
|
Warranty liability, January 1
|
|
$
|
423
|
|
Provisions for current year sales
|
|
|
48
|
|
Current period claims
|
|
|
(67
|
)
|
|
|
|
|
|
Warranty liability, June 30
|
|
$
|
404
|
|
|
|
|
|
|
Fair value measurements
The Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) 820 Fair Value Measurements and Disclosures (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1
Quoted prices in active markets for identical assets or liabilities.
Level 2Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable.
8
Level 3
Unobservable inputs that are supported by little or no market activity, therefore requiring
an entity to develop its own assumptions about the assumptions that market participants would use in pricing.
Fair value estimates discussed herein are
based upon certain market assumptions and pertinent information available to management as of the balance sheet dates. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable
assets or liabilities. The respective carrying value of certain Level 1 balance sheet financial instruments approximates its fair value. These financial instruments include cash and cash equivalents, trade receivables, related party payables,
accounts payable, accrued liabilities and short-term borrowings. Fair values were estimated to approximate carrying values for these financial instruments since they are short term in nature and they are receivable or payable on demand.
Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities (Level 2 inputs), the fair value of
borrowings under our Revolving Credit Facility are equal to the carrying value (see Note 5).
The Company determines the fair value of acquisition
liabilities on a recurring basis based on a probability-weighted discounted cash flow analysis and Monte Carlo simulation. The fair value remeasurement is based on significant inputs not observable in the market and thus represents a Level 3
measurement as defined in the fair value hierarchy. In each period, the Company reassesses its current estimates of performance relative to the stated targets and adjusts the liability to fair value. Any such adjustments are included as a
component of selling, general and administrative expense in the Consolidated Statement of Operations. Changes in the fair value of acquisition liabilities during the six months ended June 30, 2016 were as follows:
|
|
|
|
|
(in thousands)
|
|
2016
|
|
Fair value, January 1
|
|
$
|
8,453
|
|
Fair value of acquisition liabilities paid during the period
|
|
|
(6,917
|
)
|
Fair value of consideration issued
|
|
|
4,132
|
|
Change in fair value
|
|
|
832
|
|
|
|
|
|
|
Fair value, June 30
|
|
|
6,500
|
|
|
|
|
|
|
The following table presents quantitative information about Level 3 fair value measurements as of June 30, 2016:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Fair Value at
June 30, 2016
|
|
|
Valuation Technique
|
|
Unobservable Inputs
|
Earnout liabilities
|
|
$
|
5,595
|
|
|
Income approach
|
|
Discount rate19.5%
|
|
|
|
|
Stock distribution price floor
|
|
|
905
|
|
|
Monte Carlo
|
|
Volatility60%
|
|
|
|
|
|
|
simulation
|
|
Risk free rate1.2%
|
|
|
|
|
|
|
|
|
Dividend yield0%
|
|
|
|
|
|
|
|
|
|
Fair value, June 30, 2016
|
|
$
|
6,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
Temporary cash investments with an original maturity of three months or less are
considered to be cash equivalents.
Accounts receivable
Accounts receivable are customer obligations due under normal trade terms. The
Company performs periodic credit evaluations of its customers financial condition. The Company records an allowance for doubtful accounts based upon factors surrounding the credit risk of certain customers and specifically identified amounts
that it believes to be uncollectible. Recovery of bad debt amounts previously written off is recorded as a reduction of bad debt expense in the period the payment is collected. If the Companys actual collection experience changes, revisions to
its allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The following summarizes the changes in the allowance for doubtful accounts for the six months ended June 30,
2016:
|
|
|
|
|
(in thousands)
|
|
2016
|
|
Allowance for doubtful accounts, January 1
|
|
$
|
1,005
|
|
Additions
|
|
|
482
|
|
Write-offs
|
|
|
(425
|
)
|
|
|
|
|
|
Allowance for doubtful accounts, June 30
|
|
$
|
1,062
|
|
|
|
|
|
|
9
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market. A
reserve is recorded for any inventory deemed excessive or obsolete.
Property and equipment
Property and equipment is stated at cost or
the estimated fair value if acquired as part of a business combination. Depreciation is computed by the straight-line method and is charged to operations over the estimated useful lives of the assets. Maintenance and repairs are charged to expense
as incurred. The carrying amount and accumulated depreciation of assets sold or retired are removed from the accounts in the year of disposal and any resulting gain or loss is included in results of operations. The estimated useful lives of property
and equipment are as follows:
|
|
|
|
|
Estimated useful lives
|
Machinery and equipment
|
|
3-7 years
|
Furniture and fixtures
|
|
5-7 years
|
Computers and software
|
|
3-7 years
|
Motor vehicles
|
|
5 years
|
Leasehold improvements
|
|
Lesser of lease term or estimated useful life
|
Intangible assets and goodwill
Identifiable intangible assets are amortized on a straight-line basis over
their estimated useful lives (between 1 and 17.5 years).
Goodwill is not amortized, but is subject to annual impairment testing unless circumstances
dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may
be less than the carrying amount. Goodwill impairment testing is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans and future market conditions, among others. There
can be no assurance that the Companys estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform
impairment tests prior to annual impairment tests scheduled in the fourth quarter.
Long-lived assets
The Company evaluates the
recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are
largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value.
Accrued rent
The Company accounts for certain operating leases containing predetermined fixed increases of the base rental rate during the
lease term as rental expense on a straight-line basis over the lease term. The Company has reported the difference between the amounts charged to operations and amounts payable under the leases as a liability in the accompanying consolidated balance
sheets.
Shipping and handling costs
Shipping and handling costs related to the acquisition of goods from vendors are included in cost
of sales.
Research and development
Research and development costs to develop new products are charged to expense as incurred.
Advertising
Advertising costs, included in selling, general and administrative expenses, are expensed when the advertising first takes
place. The Company promotes its product lines primarily through print media and trade shows, including trade publications, and promotional brochures. Advertising expenses were not material during the three and six months ended June 30, 2016 and
2015.
Income taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of
taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and
liabilities represent the future tax consequences of those differences, which will be either taxable or deductible when the assets and liabilities are recovered or settled. Valuation allowances are established when necessary to reduce net deferred
tax assets to the amount expected to be realized, and the Company has provided a full valuation allowance related to net deferred tax assets and income tax benefits resulting from losses incurred and accumulated on operations (NOLs).
10
Stock-based compensation
The Company recognizes the cost of employee or director services
received in exchange for an award of equity instruments in the financial statements, which is measured based on the grant date fair value of the award. Stock-based compensation expense is recognized over the period during which an employee is
required to provide service in exchange for the award (typically, the vesting period).
The Company values restricted stock awards to employees at the
quoted market price on the grant date. The Company estimates the fair value of option awards issued under its stock option plans on the date of grant using a Black-Scholes option-pricing model. The Company estimates the volatility of its common
stock at the date of grant based on the historical volatility of its common stock. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules and
post-vesting forfeitures. For shares that vest contingent upon achievement of certain performance criteria, an estimate of the probability of achievement is applied in the estimate of fair value. If the goals are not met, no compensation cost is
recognized and any previously recognized compensation cost is reversed. The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the
expected life of the award. The Company has never paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. The Company from time to time enters into arrangements with non-employee
service providers pursuant to which it issues restricted stock vesting over specified periods for time-based services. These arrangements are accounted for under the provisions of FASB ASC 505-50 Equity-Based Payments to Non-Employees.
Pursuant to this standard, the restricted stock is valued at the quoted price at the date of vesting. Prior to vesting, compensation is recorded on a cumulative basis based on the quoted market price at the end of the reporting period.
Loss per share
Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common
shares outstanding for the period. Diluted earnings per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares consist of incremental shares issuable upon the exercise of stock options and
vesting of restricted shares. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation.
In connection with prior acquisitions, the Company unconditionally agreed to issue additional shares of its common stock during 2015, 2016 and 2017. In this
connection, 80,001 and 505,933 potentially dilutive shares have been included in the computation of basic and diluted earnings per share for the three and six months ended June 30, 2016 and 2015. Also in connection with prior acquisitions, the
Company is contingently obligated to pay up to $2.5 million and $6.5 million as of June 30, 2016 and 2015, or at its option, an equivalent amount of common shares based upon their then-current market value, if certain performance criteria have been
met. These shares have been excluded from the computation of diluted earnings per share for the three months and six months ended June 30, 2016 and 2015 because the effect would be antidilutive.
Contingencies
In the ordinary course of business, the Company may become a party to various legal proceedings generally involving
contractual matters, infringement actions, product liability claims and other matters. The Company evaluates such matters in accordance with the criteria set forth in Accounting Standards Codification 450. Based upon such evaluation, at June 30,
2016, the Company is not a party to any pending legal proceedings that it believes to be material. The Company may be required to make payments under a certain channel distribution agreement if certain revenue targets are achieved. The maximum
amount of such payments is $1.5 million and has been accrued for as of June 30, 2016.
Recent accounting pronouncements
In
February 2016, the FASB issued ASU 2016-02, Leases, that requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases. The standard is effective for fiscal years and interim periods within
those fiscal years beginning after December 15, 2018. The Company has not determined the effect that this accounting pronouncement will have on its financial statements.
In March, April and May 2016, respectively, the FASB issued ASU 2016-08, ASU 2016-10, ASU 2016-11 and ASU 2016-12, all of which relate to, Revenue from
Contracts with Customers, which are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The provisions of the ASUs are effective for periods beginning after
December 15, 2017. The adoption of these ASUs are not expected to have a material effect on the Companys consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, CompensationStock Compensation, which is intended to simplify the accounting for share-based
payment awards. The standard is effective for fiscal years beginning after December 15, 2016. The Company has not determined the effect that this accounting pronouncement will have on its financial statements.
11
2.
|
Acquisitions of Businesses and Other Intangibles:
|
TNT Energy, LLC
In May 2016, the
Company completed its acquisition of TNT, a turnkey provider of LED lighting-based energy savings projects within the commercial, industrial, hospitality, retail, education and municipal sectors. TNTs headquarters are located in Raynham,
Massachusetts. The acquisition of TNT is expected to expand the Companys footprint within key lighting retrofit markets in the United States. The Company believes this is a direct complimentary fit with the Companys division, Energy
Source, based in Providence, RI. In addition to its broad existing customer base, TNT is a contract vendor for the Small C&I Business Programs of northeast utility companies, with a defined territory of approximately 120 municipalities
throughout Massachusetts. The purchase consideration aggregated $14.7 million consisting of $8.6 million in cash (including the payment of a preliminary working capital adjustment of $0.6), the issuance of $2 million in promissory notes and
contingent consideration based on defined earnings targets, preliminarily valued at $4.1 million. The cash payment was funded through the common stock offering (see Note 6). The company acquired TNT for its management team, its client base and
operational and business development synergies. Final valuations and allocations are subject to additional analyses and may differ from amounts reflected above.
The following amounts represent the determination of the fair value of identifiable assets acquired and liabilities assumed in the TNT acquisition:
|
|
|
|
|
(in thousands)
|
|
|
|
Working capital, net
|
|
$
|
2,576
|
|
Goodwill
|
|
|
6,256
|
|
Intangible assets
|
|
|
5,921
|
|
|
|
|
|
|
Purchase price
|
|
$
|
14,753
|
|
|
|
|
|
|
Energy Source
On August 5, 2015, the Company completed its acquisition of Energy Source, a provider
of turnkey comprehensive energy savings projects (principally LED fixtures and lamps) within the commercial, industrial, hospitality, retail, education and municipal sectors. The purchase consideration aggregated $31.5 million, which consisted of
$10 million in cash, $9.7 million in common stock, $10 million in promissory notes due at the one year anniversary of the acquisition and contingent consideration initially valued at $1.8 million based on projected EBITDA during 2015, 2016 and 2017.
The cash portion of the acquisition was funded through the issuance of 869,565 shares of common stock to a third party investor for $10 million. The promissory notes are supported by an irrevocable letter of credit from RVL. The Company acquired
Energy Source for its management team, its client base and operational and business development synergies.
The following amounts represent the
determination of the fair value of identifiable assets acquired and liabilities assumed in the Energy Source acquisition:
|
|
|
|
|
(in thousands)
|
|
|
|
Working capital, net
|
|
$
|
1,458
|
|
Goodwill
|
|
|
21,276
|
|
Intangible assets
|
|
|
8,768
|
|
|
|
|
|
|
Purchase price
|
|
$
|
31,502
|
|
|
|
|
|
|
The acquired intangible assets related to the aforementioned acquisitions are being amortized consistent with the period the
underlying cash flows are generated. Goodwill is expected to be deductible for income tax purposes.
Pro forma information
. The following
unaudited supplemental pro forma information assumes the TNT and Energy Source acquisitions referred to above had been completed as of January 1, 2015 and is not indicative of the results of operations that would have been achieved had the
transactions been consummated on such date or of results that might be achieved in the future. The pro forma effect of the E-Lighting acquisition was not significant.
12
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Pro Forma
Six Months Ended
June 30, 2016
|
|
|
Pro Forma
Year Ended
December 31, 2015
|
|
Revenues
|
|
$
|
78,585
|
|
|
$
|
163,351
|
|
Operating (loss) income
|
|
$
|
(2,099
|
)
|
|
$
|
182
|
|
Net loss
|
|
$
|
(3,315
|
)
|
|
$
|
(1,727
|
)
|
The pro forma results for the six months ended June 30, 2016 and the year ended December 31, 2015, include the amortization of
customer backlog, and acquisition, severance and transition costs totaling $3.3 million and $2.6 million, respectively. The preponderance of these charges are non-recurring and will not have a continuing impact on the future results of operations.
Inventories, which are primarily purchased from third parties, consist of
the following:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Raw materials
|
|
$
|
3,662
|
|
|
$
|
3,789
|
|
Finished goods
|
|
|
23,456
|
|
|
|
20,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,118
|
|
|
|
24,081
|
|
Less: provision for obsolescence
|
|
|
(1,941
|
)
|
|
|
(1,946
|
)
|
|
|
|
|
|
|
|
|
|
Net inventories
|
|
$
|
25,177
|
|
|
$
|
22,135
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2016, the Company had the following intangible assets
subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Customer contracts and backlog
|
|
$
|
5,026
|
|
|
$
|
4,704
|
|
|
$
|
322
|
|
Customer relationships and product supply agreements
|
|
|
34,098
|
|
|
|
6,497
|
|
|
|
27,601
|
|
Favorable lease
|
|
|
334
|
|
|
|
179
|
|
|
|
155
|
|
Non-compete agreement
|
|
|
1,386
|
|
|
|
517
|
|
|
|
869
|
|
Patents
|
|
|
268
|
|
|
|
189
|
|
|
|
79
|
|
Product certification
|
|
|
10
|
|
|
|
3
|
|
|
|
7
|
|
Technology
|
|
|
1,953
|
|
|
|
486
|
|
|
|
1,467
|
|
Trademarks / Trade Names
|
|
|
17,526
|
|
|
|
2,623
|
|
|
|
14,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60,601
|
|
|
$
|
15,198
|
|
|
$
|
45,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has a loan and security agreement with Bank of America to borrow up to $27
million on a revolving basis, based upon specified percentages of eligible receivables and inventory (the Revolving Credit Facility) which matures in August 2017. Our Chairman, Chief Executive Officer and President has guaranteed $7
million of the borrowings under the Revolving Credit Facility; this guarantee enables us to borrow $7 million in addition to the amount available from receivables and inventory and may be terminated at any time. As of June 30, 2016, the balance
outstanding on the Revolving Credit Facility was $22.6 million. As of June 30, 2016, the Company had total liquidity of $9.6 million, consisting of additional borrowing capacity on the Revolving Credit Facility of $4.4 million and cash on hand of
$5.2 million.
13
Borrowings under the arrangement bear interest at a LIBOR rate or a defined base rate, each plus an applicable
margin, depending on the nature of the loan. The Company is also obligated to pay various fees monthly. Outstanding loans become payable on demand to the extent that such loans exceed the Borrowing Base, and all outstanding amounts must be repaid on
August 20, 2017. All obligations under the Revolving Credit Facility are secured by the assets of the Company and its subsidiaries and are guaranteed by the Company and its subsidiaries. Borrowings outstanding as of June 30, 2016 amount to
$22.6 million and are included in non-current liabilities in the accompanying Condensed Consolidated Balance Sheet.
The Loan Agreement contains covenants
which limit the ability of the Company to incur other debt, allow a lien on any property, pay dividends, restrict any wholly owned subsidiary from paying dividends, make investments, dispose of property, make loans or advances or enter into
transactions with affiliates, among other things. As of July 29, 2016, we were in compliance with our covenants.
In July 2016, the maturity date of
the $10 million promissory notes that were issued in August 2015 in connection with the Energy Source acquisition, was extended to January 2017, with an interest rate of 7%.
From time to time the Company enters into financing arrangements with RVL and its affiliates (see Note 10).
Maturities of long-term borrowings for each of the next five years are as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
|
2016
|
|
|
180
|
|
2017
|
|
|
37,501
|
|
2018
|
|
|
2,066
|
|
2019
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
39,747
|
|
|
|
|
|
|
6.
|
Common Stock Transactions:
|
As of June 30, 2016, the Company had approximately 20.8 million
shares of its common stock outstanding, of which approximately 8.7 million shares, or 42%, were constructively owned by RVL and its affiliates.
During
the second quarter of 2016, the Company completed an underwritten public offering of 3.19 million shares of its common stock at an offering price of $5.25 per share. Net proceeds of the offering approximated $15.2 million, which was used to fund the
cash portion of the TNT acquisition, to pay down bank debt and for general corporate purposes.
During the quarter end June 30, 2016, the Company sold
0.17 million shares of its Common Stock for $1.0 million in a private placement to one of its distributors. The net proceeds were used for general corporate purposes.
On March 10, 2016, the Company filed a certificate of amendment to its Amended and Restated Certificate of Incorporation, as amended, to effect a reverse
stock split of its Common Stock at a ratio of 1-for-10, as approved by the holder of a majority of the Common Stock and the Board (the Split), that became effective for trading purposes on March 11, 2016. The number of authorized shares
of the Common Stock and the par value of the Common Stock remained unchanged following the Split. Outstanding equity awards and the shares available for future grants under the Companys 2013 Stock Incentive Plan have been proportionately
reduced to give effect to the Split. Additionally, all share amounts in these financial statements have been restated to give effect to the Split, as applicable.
At the annual shareholder meeting held on May 12, 2016, the shareholders voted to amend the Companys Certificate of Incorporation to decrease the
authorized shares of common stock from 200 million to 35 million.
In connection with the Energy Source acquisition (see Note 2), the Company issued 0.88
million of its common shares, valued at $9.7 million, to the sellers of Energy Source, and 0.87 million shares for $9.5 million, net of expenses, to third party investors to fund the cash portion of the purchase price.
At June 30, 2016, the Company has reserved common stock for issuance in relation to the following:
|
|
|
|
|
Employee stock options and restricted stock
|
|
|
464,299
|
|
Shares to be issued for acquisitions
|
|
|
80,001
|
|
|
|
|
|
|
Total reserved shares
|
|
|
544,300
|
|
|
|
|
|
|
14
The Company is authorized to issue up to 5 million shares of preferred stock. There
were no shares of preferred stock outstanding as of June 30, 2016 and December 31, 2015.
8.
|
Stock-Based Compensation:
|
The Companys Board of Directors has determined that no further awards
will be made pursuant to its 2003 stock option plan (the 2003 Plan). As of June 30, 2016, options for 28,983 shares of common stock were vested and exercisable and have been reserved for issuance under the 2003 Plan.
Under the Companys 2013 Stock Incentive Plan, as amended (the 2013 Plan), an aggregate of 1,100,000 shares (which includes an additional
500,000 shares approved by the shareholders on May 12, 2016) of the Companys common stock may be issued to officers, employees, non-employee directors and consultants of the Company and its affiliates.
Awards under the 2013 Plan may be in the form of stock options, which may constitute incentive stock options, or non-qualified stock options, restricted
shares, restricted stock units, performance awards, stock bonus awards, share appreciation rights and other stock-based awards. Stock options will be issued at an exercise price not less than 100% of the market value at the date of grant and expire
no later than ten years after the date of grant. Stock awards typically vest over three years but vesting periods for non-employees may be longer or based on the achievement of performance goals.
As of June 30, 2016, 2,000 options, 581,069 restricted shares, net of forfeitures, and 83,115 shares for incentive compensation have been awarded under the
2013 Plan. A total of 435,316 common shares are reserved for future issuance under the 2013 Plan.
During the three and six months ended June 30,
2016, no options were issued, exercised, or forfeited and no options vested or expired. The total future compensation cost related to non-vested stock options is estimated to be nominal as of June 30, 2016. Options outstanding at June 30,
2016 had no intrinsic value.
Stock-based compensation expense recognized in the accompanying statements of operations for the three months ended June 30,
2016 and 2015 was $0.6 million and $0.6 million, respectively. Stock-based compensation expense recognized in the accompanying statements of operations for the six months ended June 30, 2016 and 2015 was $1.0 million and $1.2 million, respectively.
We did not record any current or deferred U.S. federal income tax provision or benefit
for the three and six month periods ended June 30, 2016 and 2015 because we have experienced operating losses since inception. The Company has recognized a full valuation allowance related to its net deferred tax assets, including substantial
net operating loss carryforwards.
As of June 30, 2016, the Company had approximately $65 million of net operating loss carryforwards and amortizable
expenses related to acquisitions that can be used to offset the Companys income for federal and state tax purposes.
10.
|
10. Related Party Transactions:
|
Financings
In April 2015, our Chairman,
Chief Executive Officer, and President guaranteed $5 million of borrowings under our Revolving Credit Facility, increasing our Borrowing Base by that amount. In April 2016, our Chairman, Chief Executive Officer, and President guaranteed $2 million
of borrowings under our Revolving Credit Facility, increasing our Borrowing Base by that amount (see Note 5).
Aston advanced $2.6 million for
general corporate purposes in four separate transactions during May and June 2014. As of July 31, 2014, the Audit Committee ratified these advances, and approved a new promissory note in respect of such amount, which bears interest and matures
on January 1, 2018 and can be prepaid at the option of the Company (the July Note).
The Company has accrued interest on the July Note of $0.5
million and $0.3 million at June 30, 2016 and December 31, 2015, respectively and recorded interest expense of $0.1 million and $0.1 million for the three and six months ended June 30, 2016, respectively.
Management Agreement
On April 9, 2013, the Company ratified a management services agreement with Aston (the Management
Agreement) to memorialize certain management services that Aston has been providing to the Company since RVL acquired majority control of the Companys voting securities in September 2012. Pursuant to the Management Agreement, Aston
provides consulting
15
services in connection with financing matters, budgeting, strategic planning and business development, including, without limitation, assisting the Company in (i) analyzing the operations
and historical performance of target companies; (ii) analyzing and evaluating the transactions with such target companies; (iii) conducting financial, business and operational due diligence, and (iv) evaluating related structuring and
other matters. In addition, two of the Aston members hold executive positions in the Company and receive no compensation. In consideration of the services provided by Aston under the Management Agreement and the two members who serve as executives
with no compensation, the Company issued 50,000 shares of restricted common stock to Aston to vest in three equal annual increments, with the first such vesting date being September 25, 2013. On April 21, 2014, the Company granted an
additional 30,000 shares of restricted stock to Aston which vest in three annual installments with the vesting dates being September 25, 2014, 2015 and 2016. Aston did not receive an award of restricted stock in 2015. On May 12, 2016, the
Company granted an additional 250,000 shares of restricted stock to Aston, which vest in three annual installments on May 12, 2017, 2018, and 2019. The Audit Committee of the Board will consider from time to time (at a minimum at such times when the
Compensation Committee of the Board evaluates director compensation) whether additional compensation to Aston is appropriate given the nature of the services provided.
Corporate Headquarters
The Companys corporate headquarters utilizes space in Stamford, Connecticut which is also occupied by
affiliates of the Companys Chairman and Chief Executive Officer. The Company pays Aston approximately $30,000 monthly, representing its proportionate share of the space under the underlying lease.