Notes to Consolidated Financial Statements
(In millions, except share and per share data, or unless otherwise noted)
Revolution Lighting Technologies, Inc., together with its wholly-owned subsidiaries
(Revolution, we, us or our), is a leader in the designing, manufacturing, marketing, and selling of light-emitting diode (LED) lighting solutions focusing on the industrial, commercial and
government markets in the United States, Canada, and internationally. Through advanced LED technologies, we have created an innovative lighting company that offers a comprehensive advanced product platform of high-quality interior and exterior LED
lamps and fixtures, including signage and control systems. We are uniquely positioned to act as an expert partner, offering full-service lighting solutions through our operating divisions, including Energy Source, Value Lighting,
Tri-State
LED,
E-Lighting,
All-Around
Lighting and TNT Energy, to transform lighting into a source of superior energy savings, quality
light and well-being.
We generate revenue by selling lighting products for use in the commercial, industrial and government markets, which include
vertical markets such as military, municipal, commercial office, industrial, warehouse, education, hospitality, retail, healthcare, multi-family and signage-media-accent 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.
Our 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, we 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 (see Note 3).
Basis of presentation
The consolidated financial statements included in this Form
10-K
have been prepared in conformity with accounting
principles generally accepted in the United States of America (U.S. GAAP). Our consolidated financial statements include the accounts of Revolution Lighting Technologies, Inc. and its wholly owned subsidiaries. All intercompany balances
and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the manner and presentation in the current period.
Use of estimates
The preparation of financial
statements in conformity with U.S. GAAP 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, purchase price allocation of acquired businesses, impairment of goodwill, income taxes, and
contingencies. Actual results could differ from those estimates.
Stock Split
On March 10, 2016, we filed a certificate of amendment to our Amended and Restated Certificate of Incorporation, as amended, to effect a
1-for-10
reverse stock split, 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 and the par value of our common stock remained unchanged following the Split. All references to number of shares and per share data in the consolidated financial statements and applicable
disclosures have been adjusted to reflect the reverse stock split, unless otherwise noted. See Note 13.
Liquidity and Capital Resources
Our liquidity as of December 31, 2016 and 2015 was $1.9 million and $2.8 million, respectively, which consisted of cash and cash
equivalents of $0.9 million and $0.2 million, respectively, and additional borrowing capacity under the Revolving Credit Facility of $1.0 million and $2.6 million, respectively. On January 26, 2017, we amended the Revolving
Credit Facility which enabled us to borrow up to $50.0 million on a revolving basis, based upon specified percentages of eligible receivables and inventory, which matures on January 26, 2020 (the amended Revolving Credit
Facility). The amended Revolving Credit Facility had the effect of increasing our borrowing capacity by approximately $13.0 million. See Note 10.
Historically, our significant shareholder, RVL 1 LLC (RVL), and its affiliates have been a significant source of financing, and they continue to
support our operations.
36
In May 2016, we 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, we raised an additional $1.0 million in a private placement of our common stock to one of our
distributors. See Note 13.
At December 31, 2016 and 2015, we had working capital of $51.3 million and $25.9 million, respectively. We
believe we have adequate resources to meet our cash requirements for the foreseeable future.
2.
|
Significant Accounting Policies
|
Business Acquisitions
Business acquisitions are accounted for using the acquisition method of accounting, which requires recording assets acquired and liabilities assumed at fair
value of the acquisition date. Under the acquisition method of accounting, each tangible and separately identifiable intangible asset acquired and liability assumed is recorded based on their preliminary estimated fair values on the acquisition
date. Acquisition related costs are expensed as incurred, and are included in Acquisition, severance and transition costs on the Consolidated Statements of Operations. See Note 3.
Fair Value Measurement
We measure fair value on a
recurring basis utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible, and consider counterparty credit risk in our assessment of fair value. The fair value
hierarchy is as follows:
Level 1 Quoted prices in active markets for identical assets and liabilities;
Level 2 Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and
liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data; and,
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets and liabilities
Cash and cash equivalents, trade and unbilled contract receivables, inventories, other current assets, accounts payable, and
accrued and other liabilities are classified as Level 1 as their carrying values approximate fair value since they are short term in nature and they are receivable or payable on demand.
Based on the borrowing rates currently available for bank loans with similar terms and average maturities, the fair value of notes payable are equal to the
carrying value. As such, notes payable are classified as Level 1. See Notes 10 and 18.
We determine the fair value of certain purchase price
obligations on a recurring basis. See Note 11.
The estimated fair value of assets and liabilities acquired in business combinations as well as reporting
units and long-lived assets used in the related asset impairment tests utilize inputs classified as Level 3 in the fair value hierarchy.
Cash
and Cash Equivalents
We consider all investments with an original maturity of three months or less to be cash equivalents. We maintain cash and
cash equivalents in bank accounts that may exceed federally insured limits. The financial institutions where our cash and cash equivalents are held are highly rated. We have not experienced any losses in such accounts, and believe we are not exposed
to significant credit risk.
Accounts Receivable
Accounts receivable are customer obligations due under normal trade terms. We perform periodic credit evaluations of our customers financial condition.
We record an allowance for doubtful accounts based upon factors surrounding the credit risk of certain customers, and specifically identified amounts that we believe 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 our actual collection experience changes, revisions to our allowance may be required. After all attempts to collect a receivable have failed, the receivable is
written off against the allowance. See Note 4.
Inventories
Inventories are stated at the lower of cost
(first-in,
first-out)
or market.
Quarterly, we review our inventory for both excessive and obsolete inventory (inventory that is no longer marketable for its intended use). In either case, we record any write-downs based on assumptions about alternative uses, market conditions and
other factors. See Note 5.
37
Property and Equipment
Property and equipment, net is stated at cost (or fair value, if acquired as part of a business combination) less accumulated depreciation, and is depreciated
over its estimated useful life using the straight-line method as follows:
|
|
|
Machinery and equipment
|
|
3-7
years
|
Furniture and fixtures
|
|
5-7
years
|
Computers and software
|
|
3-7
years
|
Motor vehicles
|
|
5 years
|
Leasehold improvement
|
|
Lesser of lease term or estimated useful life
|
Maintenance and repairs are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation are
removed from the respective account, and any resulting gain or loss is recognized in the Consolidated Statements of Operations. See Note 6.
Intangible Assets
Intangible assets, net is
stated at cost or fair value, if acquired as part of a business combination, less accumulated amortization, and is amortized over its estimated useful life using the straight-line method as follows:
|
|
|
Patents and trade names
|
|
12-17
years
|
Customer relationships
|
|
10-15
years
|
Customer contracts and backlogs
|
|
1-3
years
|
Technology
|
|
10 years
|
Favorable leases
|
|
10 years
|
Non-compete
agreements
|
|
6 years
|
Product certification and licensing costs
|
|
3 years
|
We evaluate the recoverability of the carrying value of long-lived assets whenever events or changes in circumstances indicate
that the carrying value 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. We assess
whether the projected undiscounted cash flows of our long-lived assets are sufficient to recover the carrying amount of the asset group being assessed. If the undiscounted projected cash flows are less than the carrying value of the assets, we
calculate an impairment by discounting the projected cash flows using our weighted-average cost of capital. The amount of the impairment of long-lived assets is written off against earnings in the period in which the impairment is determined. See
Note 8.
Goodwill
Goodwill is not amortized,
but is subject to annual impairment testing unless circumstances dictate more frequent assessments. We perform an annual impairment assessment for goodwill during the fourth quarter of each year or more frequently whenever changes in circumstances
indicate that the fair value of the asset may be less than the carrying amount. We have one reporting unit for goodwill impairment testing purposes. Goodwill impairment testing is a
two-step
process. Step one
compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by calculating our market capitalization at the impairment test day. If the fair value of the reporting unit is greater than its
carrying amount, there is no impairment. If the reporting units carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill
by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting
units assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized
in an amount equal to the excess. See Note 7.
As of October 1, 2016, we performed step one of the impairment testing, which indicated the fair value
of our reporting unit exceeded the net carrying amount of the net assets of its reporting unit. Accordingly, step two was not required.
Purchase
Price Obligations
In connection with certain prior acquisitions, we are obligated to issue contingent consideration. We determine the fair value
of certain purchase price obligations 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. On a quarterly basis, we reassess our current estimates of performance relative to the stated targets and adjust the liability to fair value. Any such adjustments are included in Acquisition, severance
and transition costs in the Consolidated Statements of Operations. See Note 11.
38
Contingencies
In accordance with Accounting Standards Codification (ASC) 450,
Contingencies
(ASC 450), we recognize a loss and record an
undiscounted liability when litigation has commenced or a claim or assessment has been asserted or, based on available information, commencement of litigation or assertion of a claim or assessment is probable, and the associated costs can be
reasonably estimated.
Revenue Recognition
We
recognize revenue from our product sales 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 at the applicable location. 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.
We recognize 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. Revenues
in excess of amounts billed, which management believes will generally be billed within the next twelve months, are recorded in Unbilled contracts receivable on the Consolidated Balance Sheets.
Sales Tax Revenue
We record sales tax revenue on
a gross basis (included in both Revenues and Cost of sales in the Consolidated Statements of Operations). For the years ended December 31, 2016, 2015 and 2014, revenues from sales taxes were $5.2 million,
$4.5 million and $2.7, respectively.
Shipping and Handling
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, which consist of salaries, contractor fees, building cost, utilities, administrative expenses and allocations of corporate costs, are charged to expense as incurred.
Advertising Expense
Advertising costs, included
in Other selling, general and administrative on the Consolidated Statements of Operations are expensed when the advertising first takes place. We promote our product lines through print media and trade shows, including trade publications
and promotional brochures. Advertising expense were $0.2 million, $0.3 million and $0.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.
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 either be taxable or deductible when the assets and liabilities are recovered or
settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
We applied the
provisions of ASC 740,
Income Taxes
(ASC 740), and have not recognized a liability pursuant to that standard. In addition, a reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided
since there are no unrecognized benefits since the date of adoption. If there were an unrecognized tax benefit, we would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
We evaluate the adequacy of the valuation allowance quarterly and, if our assessment of whether it is more likely than not that the related tax benefits will
be realized changes, the valuation allowance will be increased or reduced with a corresponding benefit or charge included in income. See Note 14.
39
Loss per Share
Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding for the period.
Diluted loss 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 and the
conversion of outstanding convertible securities. 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. See Note 15.
On December 1, 2014, we exchanged all outstanding series of preferred stock, including accrued but unpaid dividends thereon, to an aggregate of
36,300,171 shares of common stock (the Preferred Stock Exchange). The Preferred Stock Exchange was accounted for under ASC
260-10-S99-2,
Earnings per Share
, which states that in such an extinguishment of preferred stock, the
difference between (1) the fair value of the consideration transferred to the holders of the preferred stock and (2) the carrying amount of the preferred stock in the consolidated balance sheet, should be reflected in a manner similar to a
dividend on preferred stock and subtracted from net income to arrive at income attributable to common shareholders in the calculation of earnings per share. For the year ended December 31, 2014, net loss was reduced by $5.3 million to
arrive at net loss attributable to common stockholders.
Stock-Based Compensation
Restricted Stock and Restricted Stock Unit Awards (Equity)
The fair value of equity instruments is measured based on the share price on the grant
date, and is recognized using the straight-line method over the vesting period. These awards contain service conditions. If the conditions are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed.
See Note 16.
Restricted Stock Awards (Liability)
- From time to time, we enter into arrangements with
non-employee
service providers pursuant to which we issues restricted stock vesting over specified periods for time-based services. These arrangements are accounted for under the provisions of ASC 505
Equity-Based Payments to
Non-Employees
(ASC 505). In accordance with ASC 505, the restricted stock is valued at the quoted price at the date of vesting. Liability awards are
re-measured
to fair value based on quoted market prices at the end of each reporting period. See Note 16.
Option
Awards
The Black-Scholes option pricing model is utilized to measure the fair value of options on the grant date. We estimate the volatility of our common stock at the date of grant based on its historical volatility. We determine 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 conditions are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed. We base 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. See Note 16.
Recent accounting pronouncements
In April 2015,
the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU)
2015-03,
Simplifying the Presentation of Debt Issuance Costs
, which
requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB issued ASU
2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with
Line-of-Credit
Arrangements,
that allows an entity to defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the
line-of-credit
arrangement. We adopted these standards during the first quarter of 2016. Such adoption did not have a material effect on our consolidated financial
statements.
In July 2015, the FASB issued ASU
2015-11,
Simplifying the Measurement of
Inventory
, which require an entity to measure inventory at the lower of cost and net realizable value. The standard is effective for fiscal years beginning after December 15, 2016. The adoption of this standard is not expected to have
a material effect on our financial statements.
In September 2015, the FASB issued ASU
2015-16,
Simplifying the Accounting for Measurement-Period Adjustments
, which eliminates the requirement to restate prior period financial statements for measurement adjustments. The new guidance requires that the cumulative impact of a
measurement period adjustment be recognized in the reporting period in which the adjustment is identified. We adopted this standard during the first quarter of 2016. Such adoption did not have a material effect on our consolidated financial
statements.
In February 2016, the FASB issued ASU
2016-02,
Leases
, which 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. We have not determined the effect that this accounting pronouncement will have on our financial statements.
40
In May 2014, the FASB issued ASU
2014-09,
Revenue from Contracts
with Customers
, with amendments issued during 2016. This standard is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The provisions of the ASUs are
effective with either a full retrospective approach or a modified retrospective approach for periods beginning after December 15, 2017. For revenue recognized from our product sales upon shipment or delivery to customers, we do not believe that
the adoption of this standard will have an impact on our consolidated financial statements. For revenue recognized using the
percentage-of-completion
method of
accounting, we believe that the adoption of this standard will have an impact on our consolidated financial statements; however we believe the impact will not be material. We are currently updating our processes and controls necessary for
implementing this standard, including the increased disclosure requirements, and expect to adopt the new guidance beginning in 2018 using the modified retrospective approach.
In March 2016, the FASB issued ASU
2016-09,
Compensation Stock Compensation
, which is
intended to simplify the accounting for share-based payment awards, including accounting for the income tax consequences, the classification of awards as either equity or liabilities and the classification on the statement of cash flows. The
standard is effective for fiscal years beginning after December 15, 2016. The adoption of this standard is not expected to have a material effect on our consolidated financial statements.
In August 2016, the FASB issued ASU
2016-15,
Statement of Cash Flows: Classification of Certain Cash Receipts
and Cash Payments,
which provides guidance on eight specific cash flow issues. The provisions of this standard are effective for periods beginning after December 15, 2017. The adoption of this standard is not expected to have a
material effect on our consolidated financial statements.
In January 2017, the FASB issued ASU
2017-01,
Business Combinations: Clarifying the Definition of a Business
, which assists entities with evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The provisions of this standard are
effective for periods beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU
2017-04,
Simplifying the Test for Goodwill Impairment
, which
simplifies the subsequent measure of goodwill by eliminating the second step from the goodwill impairment test. The provisions of this standard are effective for periods beginning after December 15, 2019. The adoption of this standard is not
expected to have a material impact on our consolidated financial statements.
3.
|
Acquisitions of Businesses and Other Intangibles
|
TNT Energy, LLC
On May 6, 2016, we completed the 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 is located in Raynham, Massachusetts. The acquisition of TNT is expected to expand our footprint within key lighting retrofit markets in the United States. We believe this
is a direct complementary fit with our 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. We acquired TNT for its management team, its client base and operational and business development synergies.
We accounted for the acquisition of TNT under ASC 805,
Business Combinations
(ASC 805), which requires recording assets and liabilities at
fair value. Under the acquisition method of accounting, each tangible and separately identifiable intangible asset acquired and liabilities assumed were recorded based on their estimated fair values on the date of the acquisition.
|
|
|
|
|
Consideration:
|
|
|
|
|
Cash paid (1)
|
|
$
|
8.6
|
|
Promissory note
|
|
|
2.0
|
|
Contingent consideration (2)
|
|
|
4.1
|
|
|
|
|
|
|
Net Assets
|
|
$
|
14.7
|
|
|
|
|
|
|
Fair Value of Assets Acquired and Liabilities Assumed:
|
|
|
|
|
Working capital, net
|
|
$
|
1.0
|
|
Goodwill (3)
|
|
|
7.8
|
|
Intangible assets (4)
|
|
|
5.9
|
|
|
|
|
|
|
Net Assets
|
|
$
|
14.7
|
|
|
|
|
|
|
(1)
|
Includes the prepayment of a working capital adjustment of $0.6 million. The cash payment was funded through the common stock offering (see Note 13).
|
(2)
|
Contingent consideration is based on expected revenue and adjusted EBITDA, and was capped at $5.0 million based on the original agreement.
|
(3)
|
Since our initial valuation on the date of the acquisition, we recorded a $1.6 million increase to goodwill related to adjustments in working capital. Goodwill is expected to be deductible for income tax purposes.
|
(4)
|
The acquired intangible assets are being amortized consistent with the period the underlying cash flows are generated (see Note 8).
|
41
Energy Source
On August 5, 2015, we completed the 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. We acquired Energy Source for its management team, its client base and operational and business development synergies.
|
|
|
|
|
Consideration:
|
|
|
|
|
Cash paid (1)
|
|
$
|
10.0
|
|
Common stock issued
|
|
|
9.7
|
|
Promissory notes (2)
|
|
|
10.0
|
|
Contingent consideration (3)
|
|
|
1.8
|
|
|
|
|
|
|
Total Consideration
|
|
$
|
31.5
|
|
|
|
|
|
|
Fair Value of Assets Acquired and Liabilities Assumed:
|
|
|
|
|
Working capital, net
|
|
$
|
1.4
|
|
Goodwill (4)
|
|
|
21.3
|
|
Intangible assets (5)
|
|
|
8.8
|
|
|
|
|
|
|
Net Assets
|
|
$
|
31.5
|
|
|
|
|
|
|
(1)
|
The cash payment funded through the issuance of common stock to a third-party investor for $10.0 million.
|
(2)
|
The promissory notes are supported by an irrevocable letter of credit from RVL (see Note 18).
|
(3)
|
Contingent consideration is based on projected EBITDA during 2015, 2016 and 2017, and was capped at 10% of EBITDA based on the original agreement.
|
(4)
|
Goodwill is expected to be deductible for income tax purposes.
|
(5)
|
The acquired intangible assets are being amortized consistent with the period the underlying cash flows are generated.
|
E-Lighting
On February 5, 2015, we acquired the assets of DPI Management, Inc. d/b/a E Lighting for consideration of $0.1 million cash paid at closing,
$0.2 million cash paid on September 1, 2015, $0.2 million cash paid on March 1, 2016, and 17,544 shares of common stock valued at $0.1 million issued on September 1, 2016. The aggregate purchase price was assigned to
inventories.
Pro forma information
If the
TNT and Energy Source acquisitions referred to above had been completed as of January 1, 2015, revenue, operating income and net income (loss) would have been $178.0 million, $2.7 million and $0.2 million, respectively, for the
year ended December 31, 2016, and $163.4 million, $0.2 million and $(1.7) million, respectively, for the year ended December 31, 2015. This information is unaudited, 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 results for the
years ended December 31, 2016 and 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.
The revenue and net income of
TNT included in our actual results of operations from May 6, 2016 through December 31, 2016 totaled $17.5 million and $1.6 million, respectively. The revenue and net income of 2015 acquisitions included in our actual results of
operations from their respective acquisition dates through December 31, 2015 totaled $16.3 million and $2.9 million, respectively.
42
4.
|
Accounts Receivable, Net of Allowance for Doubtful Accounts
|
Accounts receivable, net of allowance for
doubtful accounts, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Trade receivables
|
|
$
|
54.7
|
|
|
$
|
42.1
|
|
|
$
|
23.9
|
|
Allowance for doubtful accounts
|
|
|
(1.4
|
)
|
|
|
(1.0
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
$
|
53.3
|
|
|
$
|
41.1
|
|
|
$
|
23.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-offs and other adjustments, which are recorded in Other selling, general and administrative in the
Consolidated Statements of Operations, were $1.5 million, $1.3 million and $0.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Inventories, which are primarily purchased from third parties, consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Raw materials
|
|
$
|
2.4
|
|
|
$
|
3.8
|
|
Finished goods
|
|
|
26.1
|
|
|
|
20.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
28.5
|
|
|
|
24.1
|
|
Less: Provision for obsolescence
|
|
|
(1.8
|
)
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
26.7
|
|
|
$
|
22.1
|
|
|
|
|
|
|
|
|
|
|
Activity related to inventory reserves was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Inventory reserve, January 1
|
|
$
|
2.0
|
|
|
$
|
1.7
|
|
|
$
|
1.7
|
|
Additions
|
|
|
0.1
|
|
|
|
1.1
|
|
|
|
0.2
|
|
Write-offs
|
|
|
(0.3
|
)
|
|
|
(0.8
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserve, December 31
|
|
$
|
1.8
|
|
|
$
|
2.0
|
|
|
$
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Property and Equipment
|
Property and equipment, net of accumulated depreciation, consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Total property and equipment
|
|
$
|
3.2
|
|
|
$
|
2.7
|
|
Less accumulated depreciation
|
|
|
(1.7
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
1.5
|
|
|
$
|
1.2
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense related to property and equipment, which was recorded in Amortization and depreciation in the
Consolidated Statements of Operations, was $0.4 million, $0.5 million and $0.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.
43
Changes in the carrying amount of goodwill were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Goodwill, January 1
|
|
$
|
64.3
|
|
|
$
|
43.0
|
|
Acquisitions (1)
|
|
|
7.8
|
|
|
|
21.3
|
|
|
|
|
|
|
|
|
|
|
Goodwill, December 31
|
|
$
|
72.1
|
|
|
$
|
64.3
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects the effects of the TNT acquisition during 2016 ($7.8 million) and the Energy Source acquisition during 2015 ($21.3 million). See Note 3.
|
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Gross
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
|
Gross
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Customer relationships and product supply agreements
|
|
$
|
35.0
|
|
|
$
|
(7.9
|
)
|
|
$
|
27.1
|
|
|
$
|
28.9
|
|
|
$
|
(4.5
|
)
|
|
$
|
24.4
|
|
Trademarks/Trade Names
|
|
|
17.6
|
|
|
|
(3.4
|
)
|
|
|
14.2
|
|
|
|
15.0
|
|
|
|
(2.9
|
)
|
|
|
12.1
|
|
Technology
|
|
|
2.0
|
|
|
|
(0.6
|
)
|
|
|
1.4
|
|
|
|
2.0
|
|
|
|
(0.3
|
)
|
|
|
1.7
|
|
Non-compete
agreement
|
|
|
1.4
|
|
|
|
(0.7
|
)
|
|
|
0.7
|
|
|
|
1.1
|
|
|
|
(0.4
|
)
|
|
|
0.7
|
|
Customer contracts and backlog
|
|
|
3.3
|
|
|
|
(3.1
|
)
|
|
|
0.2
|
|
|
|
4.8
|
|
|
|
(4.5
|
)
|
|
|
0.3
|
|
Other
|
|
|
0.6
|
|
|
|
(0.4
|
)
|
|
|
0.2
|
|
|
|
0.7
|
|
|
|
(0.3
|
)
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
59.9
|
|
|
$
|
(16.1
|
)
|
|
$
|
43.8
|
|
|
$
|
52.5
|
|
|
$
|
(12.9
|
)
|
|
$
|
39.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the TNT acquisition, we recorded $2.9 million of customer relationships and product supply agreements,
$2.5 million of trademarks/tradenames, $0.3 million of
non-compete
agreements and $0.2 million of customer contracts and backlog. Additionally, during 2016, we entered into channel distribution
agreement totaling $3.5 million (included in customer relationships and product supply agreements), which were offset by the
write-off
of certain intangible assets from previous acquisitions.
Amortization expense related to intangible assets, which was recorded in Amortization and depreciation on the Consolidated Statements of
Operations, was $5.2 million, $4.0 million and $5.2 million for the years ended December 31, 2016, 2015 and 2014, respectively. Estimated future amortization expense related to intangible assets is $5.5 million for 2017,
$5.3 million for 2018, $4.5 million for 2019, $3.9 million for 2020, $3.7 million for 2021, and $20.9 million thereafter
9.
|
Accrued and Other Current Liabilities
|
Accrued and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Compensation, benefits and commissions
|
|
$
|
4.4
|
|
|
$
|
3.5
|
|
Accruals and other current liabilities
|
|
|
6.1
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
Accrued and other current liabilities
|
|
$
|
10.5
|
|
|
$
|
8.7
|
|
|
|
|
|
|
|
|
|
|
44
Revolving Credit Facility
At December 31, 2016, we had a loan and security agreement with Bank of America to borrow up to $27.0 million on a revolving basis, based upon
specified percentages of eligible receivables and inventory, which matured in October 2017. Our Chairman, Chief Executive Officer and President guaranteed $7.0 million of the borrowings under the Revolving Credit Facility. This guarantee
enabled us to borrow $7.0 million in addition to the amount available from receivables and inventory, and could be terminated at any time (see Note 18). At December 31, 2016 and 2015, the balance outstanding on the Revolving Credit
Facility was $26.0 million and $22.0 million, respectively.
Borrowings under the Revolving Credit Facility bore interest at a LIBOR rate or a
defined base rate, each plus an applicable margin, depending on the nature of the loan. We were also obligated to pay various fees monthly. At December 31, 2016 and 2015, the weighted average interest rate was 3.95% and 3.65%, respectively. We
recorded interest expense of $0.9 million, $0.7 million and $0.2 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Under the Revolving Credit Facility, outstanding loans became payable on demand to the extent that such loans exceed the defined Borrowing Base. All
obligations under Revolving Credit Facility were secured by the assets of Revolution, and are guaranteed by Revolution. The Revolving Credit Facility contained covenants that limit our ability 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.
On January 26, 2017, we entered into an amended loan and security agreement with Bank of America to borrow up to $50.0 million on a revolving basis,
based upon specified percentages of eligible receivables and inventory, which matures on January 26, 2020 (the amended Revolving Credit Facility). Under the amended Revolving Credit Facility, the maximum applicable margin for LIBOR
rate loans decreased to 2.75% from 3.0%, and the maximum applicable margin for base rate loans decreased to 1.75% from 2.0%. Our Chairman, Chief Executive Officer and President has guaranteed $7.0 million of the borrowings under the amended
Revolving Credit Facility. See Note 18.
Notes Payable
Notes payable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Energy Source acquisition notes
|
|
$
|
10.0
|
|
|
$
|
10.0
|
|
Value Lighting acquisition note
|
|
|
2.4
|
|
|
|
2.8
|
|
TNT acquisition notes
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
$
|
14.4
|
|
|
$
|
12.8
|
|
Less: Notes payablecurrent
|
|
|
(2.4
|
)
|
|
|
(10.4
|
)
|
|
|
|
|
|
|
|
|
|
Notes payablenoncurrent
|
|
$
|
12.0
|
|
|
$
|
2.4
|
|
|
|
|
|
|
|
|
|
|
Energy Source Acquisition Notes
In connection with the acquisition of Energy Source in August 2015, we issued $10.0 million in promissory notes bearing interest at 5% per annum due
July 20, 2016, which are supported by an irrevocable letter of credit from RVL (see Note 18). In July 2016, the maturity date was extended to January 20, 2017, with an interest rate of 7%. We recorded accrued interest of $0.3 million
and $0.2 million at December 31, 2016 and 2015, respectively. We recorded interest expense of $0.6 million and $0.2 million for the years ended December 31, 2016, and 2015, respectively. On January 26, 2017, we repaid
the Energy Source acquisition notes, including interest of $0.4 million, using proceeds from the amended Revolving Credit Facility, and the related guarantee provided by RVL was terminated.
Value Lighting Acquisition Note
In conjunction
with the acquisition of Value Lighting, we refinanced $3.7 million of Value Lightings trade accounts payable by issuing a note payable to the creditor. The note is payable in monthly installments through October 2019 and a lump sum
payment of $1.4 million due on November 22, 2018, which may be settled, at our option, in either cash or an equivalent amount of common shares based upon their then-current market value.
45
TNT Acquisition Notes
In connection with the acquisition of TNT in May 2016, we issued $2.0 million in promissory notes bearing interest at 5% per annum, of which
$1.0 million was due on April 21, 2017 and $1.0 million was due on November 6, 2017 (see Note 3). Our Chairman, Chief Executive Officer, and President provided irrevocable letters of credit to support $1.0 million of the TNT
acquisition notes. See Note 18. We recorded accrued interest of less than $0.1 million at December 31, 2016. We recorded interest expense of less than $0.1 million for the years ended December 31, 2016. In February 2017, the
maturity date was extended to November 6, 2017 for all of the TNT promissory notes. Additionally, in February 2017, our Chairman, Chief Executive Officer, and President provided irrevocable letters of credit to support the additional
$1.0 million of the TNT acquisition notes. See Note 18.
Debt Maturities
At December 31, 2016, the schedule maturities of our borrowings were as follows:
|
|
|
|
|
|
|
Total
|
|
|
|
Notes Payable
|
|
2017
|
|
$
|
2.4
|
|
2018
|
|
|
1.7
|
|
2019
|
|
|
0.4
|
|
2020
|
|
|
36.0
|
|
|
|
|
|
|
Total borrowings
|
|
$
|
40.5
|
|
|
|
|
|
|
11.
|
Purchase Price Obligations
|
Changes in the fair value of purchase price obligations were as follows:
|
|
|
|
|
Fair value, January 1, 2016 (1)
|
|
$
|
8.8
|
|
Fair value of acquisition liabilities paid (2)
|
|
|
(7.6
|
)
|
Fair value of consideration issued
|
|
|
4.1
|
|
Change in fair value (3)
|
|
|
(2.3
|
)
|
|
|
|
|
|
Fair value, December 31, 2016 (4)
|
|
$
|
3.0
|
|
|
|
|
|
|
(1)
|
Includes $1.8 million to be paid in cash, $6.5 million to be settled in common stock and $0.5 million that may be settled, at our option, in either cash or an equivalent amount of common stock based upon
their then-current market value, if certain performance criteria had been met.
|
(2)
|
Includes $1.0 million settled in cash and $6.6 million settled in common stock.
|
(3)
|
Change in fair value includes a $2.5 million reduction due to a change in assumptions utilized in the calculation of purchase price obligations and not meeting applicable thresholds.
|
(4)
|
Includes $0.9 million to be paid in cash, $0.6 million to be settled in common stock and $1.5 million that may be settled, at our option, in either cash or an equivalent amount of common stock based upon
their then-current market value, if certain performance criteria had been met.
|
The following table presents quantitative information about
Level 3 fair value measurements as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Unobservable Inputs
|
Earnout liabilities
|
|
$
|
2.4
|
|
|
Income approach
|
|
Discount rate 19.5%
|
Stock distribution price floor
|
|
|
0.6
|
|
|
Monte Carlo simulation
|
|
Volatility 60%
|
|
|
|
|
|
|
|
|
Risk free rate 1.2%
|
|
|
|
|
|
|
|
|
Dividend yield 0%
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
$
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Commitments and Contingencies
|
Leases
We lease office, warehouse and
manufacturing facilities throughout the United States. Generally, the lease agreements require us to pay the operating expenses of the properties, in some cases including property taxes. The majority of our leases include renewal options at existing
or current market rates. Rent expense related to operating leases was $2.3 million, $2.0 million and $1.0 million during the years ended December 31, 2016, 2015 and 2014, respectively.
46
The future minimum payment obligations as of December 31, 2016 for operating leases are as follows:
|
|
|
|
|
|
|
Minimum
Lease Payments
|
|
2017
|
|
$
|
2.3
|
|
2018
|
|
|
2.1
|
|
2019
|
|
|
1.9
|
|
2020
|
|
|
1.7
|
|
2021
|
|
|
1.0
|
|
Thereafter
|
|
|
1.4
|
|
|
|
|
|
|
Total future payment obligations
|
|
$
|
10.4
|
|
|
|
|
|
|
Other Matters
In the ordinary course of business, we may become a party to various legal
proceedings generally involving contractual matters, infringement actions, product liability claims and other matters. Based upon such evaluation, at December 31, 2016, we are not party to any pending legal or administrative proceedings that
may have a material adverse effect, either individually or in the aggregate, on our business, financial condition or results of operations. We 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 $1.0 million, which has been accrued as of December 31, 2016.
Common Stock
On March 10, 2016, we filed a certificate of amendment to our Amended and Restated Certificate of Incorporation, as amended, to effect the Split, that
became effective for trading purposes on March 11, 2016. The number of authorized shares and the par value of our common stock remained unchanged following the Split. 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 Certificate of
Incorporation to increase the authorized shares of common stock from 20,000,000 to 35,000,000.
The changes in issued and outstanding common stock during
the years ended December 31, 2016, 2015 and 2014 were as follows:
|
|
|
|
|
|
|
Shares
|
|
Balance at January 1, 2014
|
|
|
8,209,521
|
|
Shares issued for stock-based compensation
|
|
|
71,800
|
|
Shares issued for contingent consideration and acquisition
|
|
|
260,100
|
|
Shares issued in public offering (1)
|
|
|
800,000
|
|
Conversion of preferred stock to common stock (2)
|
|
|
3,630,017
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
12,971,438
|
|
Shares issued for stock-based compensation
|
|
|
142,556
|
|
Shares issued in private placement offering (3)
|
|
|
869,600
|
|
Shares issued for contingent consideration and acquisition
|
|
|
1,980,909
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
15,964,503
|
|
Shares issued for stock-based compensation
|
|
|
310,959
|
|
Shares issued for contingent consideration and acquisition
|
|
|
1,254,137
|
|
Shares issued in public offering (4)
|
|
|
3,191,250
|
|
Shares issued in private placement offering (5)
|
|
|
172,413
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
20,893,262
|
|
|
|
|
|
|
(1)
|
Underwritten public offering of our common stock at an offering price of $12.50 per share. Net proceeds of the offering were $8.6 million, which were used for general corporate purposes.
|
(2)
|
Exchange of all outstanding preferred stock, including accrued but unpaid dividends.
|
(3)
|
Shares sold in a private placement to one of our distributors. Net proceeds were used for general corporate purposes.
|
(4)
|
Underwritten public offering of our common stock at an offering price of $5.25 per share. Net proceeds of the offering were $15.2 million, which were used to fund the cash portion of the TNT acquisition (see Note
3), pay down bank debt, and for general corporate purposes.
|
(5)
|
Shares sold for $1.0 million in a private placement to one of our distributors. Net proceeds were used for general corporate purposes.
|
47
At December 31, 2016, 8,670,386 shares, or 42% of our outstanding shares, were owned by RVL and its
affiliates.
Preferred Stock
We are authorized to
issue up to 5,000,000 shares of preferred stock. On December 1, 2014, all outstanding shares of preferred stock were converted into common stock (the Preferred Stock Exchange). As such, there were no shares of preferred stock
outstanding at both December 31, 2016 and 2015.
As of December 31, 2016, we had approximately $61.0 million of net operating
loss carry forwards and amortization related to intangible assets related to acquisitions that can be used to offset our income for federal and state tax purposes, which expire between 2020 and 2036. Utilization of net operating loss carryforwards
is dependent on generating future taxable income of the appropriate type and in the appropriate jurisdiction. In addition, as a result of transactions consummated during 2012 and 2013, including the issuance of common and preferred stock and the
acquisitions of Seesmart and Relume, substantially all of our net operating loss carryforwards since December 31, 2013 are subject to limitations imposed by Section 382 of the Internal Revenue Code. During 2013, we performed an evaluation
of the Section 382 limitations on the use of net operating loss carryforwards and adjusted them accordingly. We have recognized a full valuation allowance related to our remaining net deferred tax assets, including the remaining net operating
loss carryforwards.
Components of deferred tax assets (liabilities) are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Accounts receivable
|
|
$
|
0.5
|
|
|
$
|
0.4
|
|
Inventories
|
|
|
1.0
|
|
|
|
1.3
|
|
Stock options
|
|
|
2.2
|
|
|
|
1.4
|
|
Accrued liabilities
|
|
|
2.3
|
|
|
|
0.8
|
|
Net operating loss carryforwards
|
|
|
9.8
|
|
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
15.8
|
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
Intangible assets
|
|
|
(9.0
|
)
|
|
|
(9.8
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(9.2
|
)
|
|
|
(9.9
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(6.6
|
)
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with ASC 740, valuation allowances are provided against deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
For the year ended December 31, 2016, we
recorded a provision for income taxes of less than $0.1 million related to AMT taxes as the deferred tax benefits of the net losses were offset by a corresponding increase in the deferred tax valuation allowance.
48
The following is a reconciliation of tax computed at the statutory federal rate to the income tax expense in the
statements of operations for the years ended December 31, 2016, 2015, and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Tax benefit at statutory federal rate
|
|
$
|
(0.3
|
)
|
|
|
(34.0
|
)
|
|
$
|
(0.8
|
)
|
|
|
(34.0
|
)
|
|
$
|
(4.0
|
)
|
|
|
(34.0
|
)
|
Change in valuation allowance
|
|
|
1.5
|
|
|
|
178.8
|
|
|
|
0.4
|
|
|
|
16.2
|
|
|
|
5.0
|
|
|
|
42.5
|
|
Non-deductible
expenses
|
|
|
0.5
|
|
|
|
57.0
|
|
|
|
1.1
|
|
|
|
45.0
|
|
|
|
0.2
|
|
|
|
1.4
|
|
Adjustment to net operating loss carryforwards
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
(21.1
|
)
|
|
|
(0.1
|
)
|
|
|
(1.0
|
)
|
Tax benefit of acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.6
|
)
|
|
|
(55.8
|
)
|
Other adjustments
|
|
|
(1.7
|
)
|
|
|
(201.8
|
)
|
|
|
(0.2
|
)
|
|
|
(6.1
|
)
|
|
|
(1.1
|
)
|
|
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
(6.6
|
)
|
|
|
(55.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The computation of basic and diluted net loss per share for the periods indicated is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.5
|
)
|
|
$
|
(2.4
|
)
|
|
$
|
(12.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares (in thousands) basic and diluted
|
|
|
19,034
|
|
|
|
14,930
|
|
|
|
9,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.03
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(1.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016, 2015 and 2014, we were contingently obligated to pay $3.0 million, $8.8 million and
$12.4 million, respectively, related to prior acquisitions.
Included in the computation of basic net loss per share for the years ended
December 31, 2016, 2015 and 2014 were 53,335, 292,967 and 803,583 potentially dilutive shares, respectively, representing $0.6 million, $6.5 million and $11.7 million, respectively, of the total contingent obligation related to
shares we unconditionally agreed to issue.
Additionally, we were contingently obligated to pay $0.8 million, $0.5 million and
$0.7 million, which may be settled, at our option, in either cash or an equivalent amount of common shares based upon their then-current market value, if certain performance criteria had been met. The equivalent amount of common shares have
been excluded from the computation of diluted net loss per share for the years ended December 31, 2016, 2015 and 2015, as they were antidilutive.
At
December 31, 2016, 2015 and 2014, 27,828, 31,483 and 41,438 outstanding options, respectively, with an average exercise price of $44.76, $43.64 and $42.90, respectively, were not recognized in the diluted earnings per share calculation as they
were antidilutive.
16.
|
Stock-Based Compensation
|
The 2003 Plan
On September 18, 2003, we adopted a stock option plan (the 2003 Plan) that provided for the grant of incentive stock options and nonqualified
stock options. The option price of incentive stock options were required to be at least 100% of market value at the date of the grant. Incentive stock options had a maximum term of 10 years. Options granted typically vested ratably over a three-year
period or were based on achievement of performance criteria. We granted selected executives and other key employees share option awards, whose vesting was contingent upon meeting various departmental and company-wide performance goals including
meeting sales targets and net profit targets. In March 2009, we amended the 2003 Plan to extend the post-service termination exercise period of
non-statutory
stock options granted to directors for their
service as directors from three months after the directors termination date to the tenth anniversary of the date of grant. The 2003 Plan does not contain any provisions which would trigger automatic vesting upon a change in control. The Board
has determined that no further awards will be made pursuant to the 2003 Plan.
49
The following table presents a summary of activity for the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Contractual Life
|
|
Outstanding, January 1, 2016
|
|
|
31,483
|
|
|
$
|
43.64
|
|
|
|
3.77
|
|
Expired
|
|
|
(3,655
|
)
|
|
|
44.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and expected to vest, December 31, 2016
|
|
|
27,828
|
|
|
$
|
44.76
|
|
|
|
3.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2016
|
|
|
27,162
|
|
|
$
|
45.12
|
|
|
|
2.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2016 and 2015, no options were issued. During the year ended December 31, 2014,
we granted 5,250 options at a weighted average grant date fair value of $30.20. We issue new shares upon the exercise of options. Options outstanding at December 31, 2016 had no intrinsic value. At December 31, 2016, unrecognized
compensation expense related to options, adjusted for estimated forfeitures was less than $0.1 million, which is expected to be recognized over a weighted-average period of one year.
The 2013 Plan
Under our 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 our common stock may be issued to officers, employees,
non-employee
directors and consultants of Revolution 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.
Restricted Shares
During the year ended December 31, 2016, we granted restricted shares to Aston Capital, LLC (Aston) (see Note 18) and eligible directors who
serve on the Board of Directors, which vest ratably over a three-year period. These awards are classified as liability awards, and are remeasured to fair value at each reporting date and upon vesting.
The following table presents a summary of activity for the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Grant Date
Fair Value (1)
|
|
Outstanding, January 1, 2016
|
|
|
134,633
|
|
|
$
|
19.36
|
|
Granted
|
|
|
327,508
|
|
|
|
6.25
|
|
Vested
|
|
|
(79,454
|
)
|
|
|
15.78
|
|
Forfeited
|
|
|
(22,382
|
)
|
|
|
18.91
|
|
|
|
|
|
|
|
|
|
|
Outstanding and expected to vest, December 31, 2016
|
|
|
360,305
|
|
|
$
|
7.32
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016, there was $1.8 million of unrecognized compensation expense related to nonvested restricted
shares, which is expected to be recognized over a weighted-average period of 2.8 years. During the years ended December 31, 2016, 2015 and 2014, we granted 327,508, 110,350 and 84,800 shares, respectively, at a weighted average grant date fair
value of $6.25, $13.30 and $30.00, respectively. The total fair value of restricted shares that vested during the years ended December 31, 2016, 2015 and 2014 was $1.3 million, $1.5 million and $1.5 million, respectively.
Restricted Share Units
During the year ended
December 31, 2016, we granted restricted share units to employees which vest ratably over a three-year period. These awards are classified as equity awards, and are accounted for using the fair value established at the grant date.
50
The following table presents a summary of activity for the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
Number of
Units
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Outstanding, January 1, 2016
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
138,350
|
|
|
|
6.98
|
|
Vested
|
|
|
(5,833
|
)
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
|
Outstanding and expected to vest, December 31, 2016
|
|
|
132,517
|
|
|
$
|
6.84
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016, there was $0.9 million of unrecognized compensation expense related to nonvested restricted
share units, which is expected to be recognized over a weighted-average period of 2.0 years. The total fair value of restricted shares that vested during the year ended December 31, 2016 was less than $0.1 million.
17.
|
Defined Contribution Benefit Plan
|
We have established a profit sharing plan that permits participants
to make contributions by salary reduction pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended, and we match these contributions up to a predefined threshold. During the years ended December 31, 2016, 2015 and 2014,
compensation expense associated with our matching contribution was $0.3 million, $0.2 million and $0.1 million, respectively.
18.
|
Related Party Transactions
|
Chairman, Chief Executive Officer and President
In April 2015, our Chairman, Chief Executive Officer, and President guaranteed $5.0 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 an additional $2.0 million of borrowings under our Revolving Credit Facility, increasing our borrowing base by that amount. On
January 26, 2017, we entered into an amended Revolving Credit Facility. Our Chairman, Chief Executive Officer, and President guaranteed $7.0 million of borrowings under our amended Revolving Credit Facility, increasing our borrowing base
by that amount. See Note 10.
In May 2016, our Chairman, Chief Executive Officer, and President provided irrevocable letters of credit to support
$1 million of the TNT acquisition. In February 2017, our Chairman, Chief Executive Officer, and President provided irrevocable letters of credit to support the additional $1.0 million of the TNT acquisition notes (see Note 10).
RVL
In August 2015, RVL provided an irrevocable
letter of credit to support the $10 million Energy Source acquisition notes. See Note 10. On January 26, 2017, we repaid the Energy Source acquisition notes using proceeds from the amended Revolving Credit Facility, and the related
guarantee provided by RVL was terminated.
Aston Capital
On April 1, 2016, we entered into a $2.6 million amended and restated promissory note with Aston, which bears interest at 9% annually and matures on
April 1, 2019, which can be prepaid at our option. At December 31, 2016 and 2015, we had accrued interest of $0.2 million and $0.4 million, respectively. For the years ended December 31, 2016, 2015 and 2014, we recorded
interest expense of $0.2 million, $0.2 million and $0.8 million, respectively, related to financing agreements with Aston.
On
January 5, 2017, we ratified a management services agreement with Aston (the Management Agreement) to memorialize certain management services that Aston has been providing to us since RVL acquired majority control of our voting
securities in September 2012. Pursuant to the Management Agreement, Aston provides consulting services in connection with financing matters, budgeting, strategic planning and business development, including, without limitation, assisting us 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 Revolution, and receive no compensation. Aston did not receive an award of restricted stock in 2015. On May 12, 2016,
we granted 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.
On November 30, 2016, Aston provided a $1.5 million bridge advance, which bore interest annually at 9%, until the amended Revolving Credit Facility
was finalized. Such amounts were repaid to Aston on January 26, 2017 using proceeds from the amended Revolving Credit Facility.
51
Our corporate headquarters utilizes space in Stamford, Connecticut, which is also occupied by affiliates of our
Chairman and Chief Executive Officer. During each of the years ended December 31, 2016, 2015 and 2014, we paid Aston $0.3 million, representing our proportionate share of the space under the underlying lease.
19.
|
Segment, Geographic and Concentration Information
|
Our operations consist of one reportable segment for
financial reporting purposes, Lighting Products and Solutions (principally LED fixtures and lamps), for which financial information is available and which is utilized on a regular basis by our Chief Executive Officer, who is our chief operating
decision maker (CODM), to assess performance.
Revenue by geographic location, based on location of customers, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
United States
|
|
$
|
172.0
|
|
|
$
|
129.3
|
|
|
$
|
74.8
|
|
Canada
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
1.8
|
|
Other
|
|
|
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
172.1
|
|
|
$
|
129.7
|
|
|
$
|
76.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net long-lived assets by geographic location were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
117.4
|
|
|
$
|
105.0
|
|
Other
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
$
|
117.4
|
|
|
$
|
105.1
|
|
|
|
|
|
|
|
|
|
|
A portion of our LEDs and LED lighting products and systems are manufactured by select contract manufacturers. While we
believe alternative manufacturers for the production of these products are available, we have selected these particular manufacturers based on their ability to consistently produce these products per our specifications ensuring the best quality
product at the most cost effective price. We depend on these manufacturers to satisfy performance and quality specifications and to dedicate sufficient production capacity for finished products within scheduled delivery times. Accordingly, the loss
of one or more of these manufacturers or delays in obtaining shipments could have a material adverse effect on our operations until such time as an alternative manufacturer could be found.
20.
|
Quarterly Results of Operations (Unaudited):
|
The following represents our unaudited quarterly results
for the years ended December 31, 2016 and 2015. These quarterly results were prepared in conformity with GAAP and reflect all adjustments that are, in the opinion of management, fair and necessary for a fair statement of results, and were of a
normal recurring nature. The 2016 and 2015 acquisitions are included in the quarterly consolidated results of operations from their respectively acquisition dates.
Unaudited quarterly results for 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
Second
Quarter
|
|
|
Third Quarter
|
|
|
Fourth
Quarter
|
|
Revenues
|
|
$
|
27.6
|
|
|
$
|
43.1
|
|
|
$
|
50.2
|
|
|
$
|
51.2
|
|
Gross profit
|
|
|
9.1
|
|
|
|
13.3
|
|
|
|
15.9
|
|
|
|
17.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2.6
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
1.6
|
|
|
$
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per common share
|
|
$
|
(0.16
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited quarterly results for 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
Second
Quarter
|
|
|
Third Quarter
|
|
|
Fourth
Quarter
|
|
Revenues
|
|
$
|
20.3
|
|
|
$
|
27.3
|
|
|
$
|
37.7
|
|
|
$
|
44.4
|
|
Gross profit
|
|
|
7.2
|
|
|
|
9.0
|
|
|
|
12.2
|
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2.0
|
)
|
|
$
|
(1.5
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per common share
|
|
$
|
(0.15
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
The sum of the quarterly per share amounts may not equal the annual per share amounts due to relative changes in
the weighted average number of shares used to calculated net income (loss) per share.