Shine

REVIEW SUMMARY
Business. Sunovia Energy Technologies
Industry. Energy, lighting
Key. Company shifted its focus from solar to LED lights.

The solar business has gone dark for one ambitious Gulf Coast company, despite four years of valiant efforts and more than $70 million in losses.

But while solar at Sarasota-based Sunovia Energy Technologies flamed out, the company isn't dead yet. Its new plan, still grand, is to build a national company in the outdoor light emitting diodes industry (LEDs).

“We don't want to be a boutique mom-and-pop LED lighting company,” says Sunovia CEO Art Buckland, hired last summer to lead a turnaround. “We have to move forward.”

The best way forward, says Buckland, is through state or federal government grants. The 12-employee firm seeks between $6.8 million and $9.3 million. It says the money will go toward an automated factory in Sarasota that will mass-produce the company's patent-pending cobra head LED lights. Buckland and other company executives envision a local factory with 200 employees someday.

The centerpiece product of the facility would be Sunovia's Aimed Optics LED fixtures. The lights reduce energy and last three times longer than traditional lights, Sunovia executives say. The fixtures also shine light on a precise location, such as one part of a sidewalk or a corner of a parking garage. Finally, Sunovia's LED lighting systems can be retrofitted for existing cobra heads, another cost saver for clients, the firm says.

The city of Sarasota bought 445 Sunovia LED cobra head systems earlier this year for about $450,000. The Sunovia lights will replace old streetlights and landscape lights on several busy roads in the city, including the Ringling Bridge Causeway and streets on St. Armands Circle.

City, county and municipal governments nationwide are Sunovia's target client base. It's a wide aim: The company estimates there are more than 10 million cobra heads in the United States, and the worldwide market for fixtures is at least $10 billion.

Still, the potential customer base presents a clear challenge because most government entities are in cutback mode. And even though the Sunovia sales pitch revolves around long-term savings, Buckland acknowledges it's hard for officials to make the switch in the recession. “The problem with LEDs,” says Buckland, “is they simply cost too much.”

That's why Sunovia will go after government funds to build the factory. In Florida, Sunovia seeks money from the Florida Opportunity Fund, a state-run program that invests in venture capital funds or directly in businesses.

On a federal basis, meanwhile, Sunovia has applied for the EB-5 Visa program. That program offers foreign nationals an opportunity to obtain a green card, and potential U.S. citizenship, if they invest at least $1 million in an American-based project that creates at least 10 jobs. Buckland has also spoken with several elected officials about funding.

The stakes are high. Buckland says he can cut the price of the firm's flagship cobra head LED lights by 90% if the firm can build the facility. That price drop, Buckland projects, will turn the product from novelty to necessity.

“If we don't do it, we join the living dead,” says Buckland, citing the venture capital term for a business that consistently receives funds, does enough to survive to the next round, but provides no profits in return. “The shareholders will be unhappy.”

Big losses
Shareholders already have had reasons to be unhappy, or at least anxious.

The solar gamble, executives now say, was the right risk at the wrong time. The idea was to build a diverse set of solar-power products that meet what the industry calls “grid parity,” which is when solar energy and conventional grid power have the same costs.

But Sunovia co-founder Craig Hall says solar, at least for a sustainable business, “requires incentives and government support on the front side.” That support spiked three years ago, but has since rapidly declined. Plus, Chinese firms are now in the industry, which adds another competitive challenge.

“It was a high-risk, high-return investment,” says Hall, who cofounded Sunovia with a venture capital partner, Carl Smith, in 2006 and remains an adviser. “If it would have worked it would have been a grand slam for all the investors.”

Instead, Sunovia's shares have languished in the range of a penny to 5 cents a share over the last year. The firm's revenues have improved of late, rising 429% on a quarterly basis from 2010 to the most recent quarter. But those figures, from $95,208 in revenues in the three months that ended July 31, 2010, to $503,689 in the three months that ended June 30, pale in comparison to the losses.

Sunovia has significantly cut its loss rate, though it's still heavy in the negative. For example, the firm had a net loss of $1 million for the three months that ended June 30, compared to a net loss of $9.17 million for same fiscal quarter in 2010.

The quarterly losses add up to some heavy annual losses. The firm lost $34.84 million in fiscal 2008; $14.47 million in fiscal 2009; and $20.52 million in fiscal 2010, according to Securities and Exchange Commission filings. It dropped another $3.9 million in the first five months of its current fiscal year, which brought the total net loss since the summer of 2007 to $73.7 million.

Other options
The bloodletting led Sunovia to issue a going concern statement in its most recent SEC earnings report, filed Aug. 15. Sunovia “does not have sufficient operating funds to continue to conduct its business without a significant capital infusion or a significant curtailment of operations in the next fiscal quarter,” the filing states.

The report also states the company raised $1 million from nine shareholders in the quarter. But it will need at least $3 million to cover budgeted fixed costs for the next 12 months.

Buckland, who joined Sunovia a few months before it quit solar, previously held executive positions with a variety of energy and technology companies. He ran several firms, both solar and traditional power. He also ran a semiconductor business.

Buckland considers the past losses a worthwhile gamble. “We invested in a risky deal (with solar) and it didn't work. That happens in venture capital,” Buckland says. “Startups are a messy business. They are not pretty.”

However, Buckland says he's aware Sunovia could soon run out of time — and money. He hopes Sunovia doesn't become a futuristic light bulb company with a cool innovation that doesn't translate to gazelle-like growth.

Buckland also says he not only wants Sunovia to succeed, but to succeed in Florida, and in Sarasota. Nonetheless, while there hasn't been any formal offers, Buckland says government entities in Alabama, Louisiana and Michigan have expressed interest in luring Sunovia to relocate with an incentive package. “We hope we don't have to move,” says Buckland.

'Superior resources'
Sunovia has received subsidies before. In April 2010, Sarasota County officials approved $50,000 in incentives for the company to move out of Manatee County. Sunovia took the money and moved into its current home, an 18,000-square-foot facility off of Fruitville Road near Interstate 75.

The county also committed to give Sunovia another $50,000 if the firm hired 68 people. But those projected jobs were when Sunovia was heavy into solar, so the company never made the hires and never collected the money. In fact, Sunovia has cut some jobs to pare expenses since April 2010.

Sunovia has made several other changes since it exited the solar business. For one, it disbanded its starry solar advisory board. The panel included former U.S. Energy Secretary Spencer Abraham and former U.S. Undersecretary of Commerce Ken Juster. Buckland says Abraham and Juster remain active Sunovia shareholders.

Moreover, at least three executives have left the company this year. Smith, the onetime chairman and CEO, is gone. Gone too are Chief Financial Officer Matthew Veal and Chief Technology Officer Bob Fugerer.

Another aspect of the company that's gone is a lawsuit with Illinois-based EPIR Technologies. That firm was once Sunovia's partner in solar ventures. But legal disputes ensued when the solar business collapsed. The companies settled the case in May.

The recent past, though, isn't what Sunovia executives worry about. They instead worry whether they can get enough capital to move forward on their bold plans. And they worry if their underdog status will make them too tiny to ever make it big.

“We are a small player in a world dominated by a few giant companies,” says Hall, who cites behemoths like GE, Philips and Sylvania. “Our competitors have vastly superior resources.”